Collateral haircuts for third-country equivalent PSE-RGLA’s

For the purposes of Article 197(2)(a) and (b) CRR, should the references to PSEs and RGLAs in Articles 115(2) and 116(4) CRR be interpreted as encompassing the third-country equivalent entities referred to in Articles 115(4) and 116(5) CRR, such that debt securities issued by those entities qualify for the treatment provided under Article 197(1)(b) CRR?

The Financial Collateral Comprehensive Method (FCCM) framework provides preferential treatment to collateral issued by central governments and central banks for the purposes of collateral eligibility and the determination of volatility adjustments.  Article 197(2) CRR extends this treatment to issuers with a sovereign-equivalent risk profile, including multilateral development banks, international organisations, public sector entities (PSEs) and regional governments and local authorities (RGLAs) that are assigned a 0% risk weight under the Standardised Approach.  With respect to collateral issued by PSEs and RGLAs, the institution considers that the references in Article 197(2)(a) and (b) CRR to Articles 115(2) and 116(4) CRR should be interpreted as encompassing the third-country equivalent entities referred to in Articles 115(4) and 116(5) CRR. The preferential treatment under Article 197(1)(b) CRR is linked to the sovereign-equivalent risk profile of the issuer. Articles 115(4) and 116(5) CRR require that the competent authority conclude that there is no difference in risk between exposures to the relevant entity and exposures to the central government, taking into account the entity's revenue-raising powers and institutional arrangements reducing the risk of default.  The institution would therefore welcome confirmation that the references in Article 197(2)(a) and (b) CRR to Articles 115(2) and 116(4) CRR should be read as encompassing the third-country equivalent entities referred to in Articles 115(4) and 116(5) CRR where those entities are assigned a 0% risk weight.