EBA · 2023_6817 Final Q&A

Prudent Valuation: Reporting of AVAs in C 32.03

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
430
Topic
Supervisory reporting - COREP (incl. IP Losses)
Submitted by
Credit institution
Submitted
2023-06-02
Answered
2023-10-13
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

How should the AVAs of model risk be reported in the template C 32.03. Can the Fair Value Adjustments linked to Model Risk, Model Risk UCS y Model Risk I&FC AVAs be included into the C 32.03?

Background

Paragraph 182 of the ITS on Supervisory Reporting sets out that the template C 32.03 shall include the top 20 individual model risk AVAs in terms of AVA amount that contribute to the total category level model risk AVA computed in accordance with Article 11 of Delegated Regulation (EU) 2016/101. That information must be aligned with the one reported in column 0050 of template 32.02. The column 0050 of template 32.02 includes not only the Model Risks AVAs but also the Model Risk unearned credit spread (UCS) AVA and Model Risk investment and funding cost (I&FC) AVA. So that means that the fair value adjustments linked to these two AVAs have to be included into the C 32.03 as well. If all the Risk models AVAs (including also UCS and I&FC) shall be included, it is consistent to also include the fair value adjustments linked with that AVAs.

Answer

In accordance with the RTS on Prudent Valuation (EBA/RTS/2014/06/rev1) the elements of unearned credit spread AVAs (UCS) and investing and funding (IFC) costs AVAs relating to model risk are included in the model risk AVAs. Hence, for consistency the fair value adjustments related to model risk of UCS and IFC should be included in the fair value adjustments for model risk, also in template C32.03.

Original source: European Banking Authority, Q&A ID 2023_6817

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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