EBA · 2022_6459 Rejected question

Embedded Derivatives under Art 24 (1) CRR versus Art 104 (3)

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
104, para. 3
Topic
Accounting and auditing
Submitted by
Individual
Submitted
2022-05-21
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Question

Can an institution be compliant with Art 24 (1) CRR, if embedded derivate and its host contract treated independently pursuant to Art 104 (3) Second Subparagraph of Proposal for amending CRR?

Background

The Proposal for amending CRR in 2021 proposes in Art 104 (3) that an embedded derivative shall be split from the host contract with the result that both instruments are classified to a trading or non-trading book independently for each other. However, accounting standards, such as IFRS 9, generally treat embedded option and host contract as a joint contract as in IFRS 9.4.3.3. To be compliant with Art 24 (1) CRR, an institution shall treat the embedded derivates and host contract as one contract, while the regulatory treatment requires a split.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2022_6459

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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