Commission Implementing Regulation (EU) No 680/2014Dangos y teitl llawn

[F1 10. DERIVATIVES AND HEDGE ACCOUNTING (10 AND 11) U.K.

120. For the purpose of templates 10 and 11, derivatives shall be considered either as hedging derivatives where they are used in a qualifying hedging relationship in accordance with IFRS or with the applicable national GAAP under BAD, or as held for trading in other cases. U.K.

121. The carrying amount and the notional amount of the derivatives held for trading, including economic hedges, as well as the derivatives held for hedge accounting shall be reported broken down by type of underlying risk, type of market and type of product in templates 10 and 11. Institutions shall report the derivatives held for hedge accounting also broken down by type of hedge. Information on non-derivative hedging instruments shall be reported separately and broken down by types of hedges. U.K.

122. Under the relevant national GAAP based on BAD, all derivatives shall be reported in these templates irrespective of whether they are or are not recognised on the balance sheet under the relevant national GAAP. U.K.

123. The breakdown of the carrying amount, fair value and notional amount of trading and hedging derivatives by accounting portfolios and types of hedges shall be implemented taking into consideration the accounting portfolios and types of hedges that are applicable in IFRS or national GAAP under BAD, whichever framework applies to the reporting entity. U.K.

124. Trading derivatives and hedging derivatives which, in accordance with national GAAP based on BAD, are measured at cost or LOCOM shall be identified separately. U.K.

125. Template 11 shall include hedging instruments and hedged items irrespective of the accounting standard used to recognise a qualifying hedge relationship, including where that qualifying hedge relationship concerns a net position. Where an institution has elected to keep applying IAS 39 for hedge accounting (IFRS 9.7.2.21), the references and names for the types of hedges and accounting portfolios shall be read as the relevant references and names in IAS 39.9: ‘ Financial assets measured at fair value through other comprehensive income ’ shall refer to ‘ Available for sale assets ’ , and ‘Assets at amortised cost shall gather ‘ Held to maturity ’ as well as ‘ Loans and receivables ’ . U.K.

126. Derivatives included in hybrid instruments, which have been separated from the host contract, shall be reported in templates 10 and 11 according to the nature of the derivative. The amount of the host contract is not included in those templates. However, where the hybrid instrument is measured at fair value through profit or loss, the contract shall be reported as a whole and the embedded derivatives shall not be reported in templates 10 and 11. U.K.

127. Commitments considered as derivatives (IFRS 9.2.3(b)) and credit derivatives that do not meet the definition of a financial guarantee in paragraph 114 of this Part of this Annex shall be reported in template 10 and template 11 following the same breakdowns as the other derivative instruments, but not be reported in template 9. U.K.

128. The carrying amount of non-derivative financial assets or non-derivative financial liabilities that are recognised as hedging instrument in application of IFRS or the relevant national GAAP under BAD shall be reported separately in template 11.3. U.K.

10.1. Classification of derivatives by type of risk U.K.

129. All derivatives shall be classified into one of the following risk categories: U.K.

(a)

interest rate: Interest rate derivatives shall be contracts related to an interest-bearing financial instrument the cash flows of which are determined by referencing interest rates or another interest rate contract such as an option on a futures contract to purchase a treasury bill. That category shall be restricted to those deals where all the legs are exposed to only one currency’s interest rate. It shall thus exclude contracts involving the exchange of one or more foreign currencies such as cross-currency swaps and currency options, and other contracts the predominant risk characteristic of which is foreign exchange risk, which are to be reported as foreign exchange contracts. The only exception is where cross-currency swaps are used as part of a portfolio hedge of interest rate risk, where they shall be reported in the dedicated rows for those types of hedges. Interest rate contracts shall include forward rate agreements, single-currency interest rate swaps, interest rate futures, interest rate options (including caps, floors, collars and corridors), interest rate swaps and interest rate warrants;

(b)

equity: Equity derivatives shall be contracts that have a return, or a portion of their return, linked to the price of a particular equity or to an index of equity prices;

(c)

foreign exchange and gold: These derivatives shall include contracts involving the exchange of currencies in the forward market and the exposure to gold. They shall therefore cover outright forwards, foreign exchange swaps, currency swaps (including cross-currency interest rate swaps), currency futures, currency options, currency swaps and currency warrants. Foreign exchange derivatives shall include all deals involving exposure to more than one currency, whether in exchange rates or in interest rates, except where cross-currency swaps are used as part of a portfolio hedge of interest rate risk. Gold contracts shall include all deals involving exposure to that commodity;

(d)

credit: Credit derivatives shall be contracts in which the payout is linked primarily to some measure of the creditworthiness of a particular reference credit and that do not meet the definition of financial guarantees (IFRS 9.4.2.1 (c)). The contracts shall specify an exchange of payments in which at least one of the two legs is determined by the performance of the reference credit. Payouts can be triggered by a number of events, including a default, a rating downgrade or a stipulated change in the credit spread of the reference asset. Credit derivatives that meet the definition of a financial guarantee in paragraph 114 of this Part of this Annex shall be reported only in template 9;

(e)

commodity: These derivatives shall be contracts that have a return, or a portion of their return, linked to the price of, or to a price index of, a commodity such as a precious metal (other than gold), petroleum, lumber or agricultural products;

(f)

other: those derivatives shall be any other derivative contracts, which do not involve an exposure to foreign exchange, interest rate, equity, commodity or credit risk such as climatic derivatives or insurance derivatives.

130. Where a derivative is influenced by more than one type of underlying risk, the instrument shall be allocated to the most sensitive type of risk. For multi-exposure derivatives, in cases of uncertainty, the deals shall be allocated according to the following order of precedence: U.K.

(a)

commodities: All derivatives transactions involving a commodity or commodity index exposure, whether or not they involve a joint exposure in commodities and any other risk category which may include foreign exchange, interest rate or equity, shall be reported in this category;

(b)

equities: With the exception of contracts with a joint exposure to commodities and equities, which are to be reported as commodities, all derivatives transactions with a link to the performance of equities or equity indices shall be reported in the equity category. Equity deals with exposure to foreign exchange or interest rates shall be included in this category;

(c)

foreign exchange and gold: This category shall include all derivatives transactions (with the exception of those already reported in the commodity or equity categories) with exposure to more than one currency, be it pertaining to either interest-bearing financial instruments or exchange rates, except where cross-currency swaps are used as part of a portfolio hedge of interest rate risk.

10.2. Amounts to be reported for derivatives U.K.

131. Under IFRS, the ‘ carrying amount ’ for all derivatives (hedging or trading) shall be the fair value. Derivatives with a positive fair value (above zero) shall be ‘ financial assets ’ and derivatives with a negative fair value (below zero) shall be ‘ financial liabilities ’ . The ‘ carrying amount ’ shall be reported separately for derivatives with a positive fair value ( ‘ financial assets ’ ) and for those with a negative fair value ( ‘ financial liabilities ’ ). At the date of initial recognition, a derivative shall be classified as ‘ financial asset ’ or ‘ financial liability ’ according to its initial fair value. After initial recognition, as the fair value of a derivative increases or decreases, the terms of the exchange may become either favourable to the institution (and the derivative is classified as ‘ financial asset ’ ) or unfavourable (and the derivative is classified as ‘ financial liability ’ ). The carrying amount of hedging derivatives shall be their entire fair value, including, where applicable, the components of this fair value that are not designated as hedging instruments. U.K.

132. In addition to carrying amounts as defined in paragraph 27 of Part 1 of this Annex, fair values shall be reported by reporting institutions under national GAAP based on BAD for all derivative instruments, whether required to be booked on-balance sheet or off-balance sheet by the national GAAP based on BAD. U.K.

133. The ‘ Notional amount ’ shall be the gross nominal of all deals concluded and not yet settled at the reference date, regardless of whether those deals lead to derivative exposures being booked on-balance sheet. In particular, the following shall be taken into account to determine the notional amount: U.K.

(a)

for contracts with variable nominal or notional principal amounts, the basis for reporting shall be the nominal or notional principal amounts at the reference date;

(b)

the notional amount value to be reported for a derivative contract with a multiplier component shall be the contract effective notional amount or par value;

(c)

swaps: The notional amount of a swap shall be the underlying principal amount upon which the exchange of interest, foreign exchange or other income or expense is based;

(d)

equity and commodity-linked contracts: The notional amount to be reported for an equity or commodity contract shall be the quantity of the commodity or equity product contracted for purchase or sale multiplied by the contract price of a unit. The notional amount to be reported for commodity contracts with multiple exchanges of principal shall be the contractual amount multiplied by the number of remaining exchanges of principal in the contract;

(e)

credit derivatives: The contract amount to be reported for credit derivatives shall be the nominal value of the relevant reference credit;

(f)

digital options have a predefined payoff, which can be either a monetary amount or a number of contracts of an underlying. The notional amount for digital options shall be either the predefined monetary amount or the fair value of the underlying at the reference date.

134. The column ‘ Notional amount ’ of derivatives shall include, for each line item, the sum of the notional amounts of all contracts in which the institution is counterparty, irrespective of whether the derivatives are considered assets or liabilities on the face of the balance sheet or are not booked on-balance sheet. All notional amounts shall be reported, regardless of whether the fair value of derivatives is positive, negative or equal to zero. Netting among the notional amounts shall not be allowed. U.K.

135. The ‘ Notional amount ’ shall be reported by ‘ total ’ and by ‘ of which: sold ’ for the line items: ‘ OTC options ’ , ‘ Organised market options ’ , ‘ Credit ’ , ‘ Commodity ’ and ‘ Other ’ . The item ‘ of which sold ’ shall include the notional amounts (strike price) of the contracts in which the counterparties (option holders) of the institution (option writer) have the right to exercise the option, and for the items related to credit risk derivatives, the notional amounts of the contracts in which the institution (protection seller) has sold (gives) protection to its counterparties (protection buyers). U.K.

136. The allocation of a transaction as ‘ OTC ’ or ‘ Organized market ’ shall be based on the nature of the market where the transaction takes place and not on whether there is a mandatory clearing obligation for that transaction. An ‘ Organised market ’ is a regulated market in the meaning of point (92) of Article 4(1) CRR. Therefore, where a reporting entity enters into a derivative contract in an OTC market where central clearing is compulsory, it shall classify that derivative as ‘ OTC ’ and not as ‘ Organised market ’ . U.K.

10.3. Derivatives classified as ‘ economic hedges ’ U.K.

137. Derivatives that are held for hedging purposes but which do not meet the criteria to be effective hedging instruments in accordance with IFRS 9, with IAS 39 where IAS 39 is applied for hedge accounting purposes or with the accounting framework under national GAAP based on BAD, shall be reported in template 10 as ‘ economic hedges ’ . This shall apply also to all of the following cases: U.K.

(a)

derivatives hedging unquoted equity instruments for which cost may be an appropriate estimate of fair value;

(b)

credit derivatives measured at fair value through profit or loss used to manage the credit risk of all, or part of, a financial instrument that is designated as measured at fair value through profit or loss at, or subsequent to, initial recognition, or while it is unrecognised in accordance with IFRS 9.6.7.;

(c)

derivatives that are classified as ‘ held for trading ’ in accordance with Appendix A to IFRS 9 or classified as trading assets in accordance with the national GAAP based on BAD but are not part of the trading book as defined in point (86) of Article 4(1) CRR.

138. ‘ Economic hedges ’ shall not include derivatives for proprietary trading. U.K.

139. Derivatives that meet the definition of ‘ economic hedges ’ shall be reported separately in template 10 for each type of risk. U.K.

140. Credit derivatives used to manage the credit risk of all, or part of, a financial instrument that is designated as measured at fair value through profit or loss at, or subsequent to, initial recognition, or while it is unrecognised in accordance with IFRS 9.6.7, shall be reported in a dedicated row in template 10 within credit risk. Other economic hedges of credit risk for which the reporting entity does not apply IFRS 9.6.7 shall be reported separately. U.K.

10.4. Breakdown of derivatives by counterparty sector U.K.

141. The carrying amount and the total notional amount of derivatives held for trading, and also of derivatives held for hedge accounting, which are traded in the OTC market, shall be reported by counterparties using the following categories: U.K.

(a)

‘ credit institutions ’ ;

(b)

‘ other financial corporations ’ ;

(c)

‘ rest ’ comprising all other counterparties.

142. All OTC derivatives, irrespective of the type of risk to which they are related, shall be broken down by those counterparties. U.K.

10.5. Hedge accounting under national GAAP (11.2) U.K.

143. Where national GAAP under BAD require the allocation of hedging derivatives across categories of hedges, the hedging derivatives shall be separately reported for each of the applicable categories: ‘ fair-value hedges ’ , ‘ cash flow hedges ’ , ‘ cost-price hedges ’ , ‘ hedge in net investments in a foreign operation ’ , ‘ portfolio fair value hedges of interest rate risk ’ and ‘ portfolio cash flow hedges of interest rate risk ’ . U.K.

144. Where applicable in accordance with national GAAP based on BAD, ‘ Cost price hedges ’ shall refer to a hedging category in which the hedging derivative is generally measured at cost. U.K.

10.6. Amount to be reported for non-derivative hedging instruments (11.3 and 11.3.1) U.K.

145. For non-derivative hedging instruments, the amount to be reported shall be the carrying amount of those non-derivative hedging instruments according to the applicable measurement rules in IFRS or in GAAP based on BAD for the accounting portfolios to which they belong. No ‘ notional amount ’ shall be reported for non-derivative hedging instruments. U.K.

10.7. Hedged items in fair value hedges (11.4) U.K.

146. The carrying amount of hedged items in a fair value hedge recognised on the statement of financial position shall be broken down by accounting portfolio and type of hedged risk for hedged financial assets and hedged financial liabilities. Where a financial instrument is hedged for more than one risk, it shall be reported in the type of risk in which the hedging instrument shall be reported in accordance with paragraph 129. U.K.

147. ‘ Micro-hedges ’ shall be hedges other than portfolio hedge of interest rate risk in accordance with IAS 39.89 A. Micro-hedges shall include hedges of nil net positions as referred to in accordance with IFRS 9.6.6.6. U.K.

148. ‘ Hedge adjustments on micro-hedges ’ shall include all hedge adjustments for all the micro-hedges as defined in paragraph 147. U.K.

149. ‘ Hedge adjustments included in the carrying amount of assets/liabilities ’ shall be the accumulated amount of the gains and losses on the hedged items that have adjusted the carrying amount of those items and been recognised in profit or loss. Hedge adjustments for the hedged items that are equities measured at fair value through other comprehensive income shall be reported in template 1.3. Hedge adjustments for unrecognised firm commitments or a component thereof shall not be reported. U.K.

150. ‘ Remaining adjustments for discontinued micro-hedges including hedges of net positions ’ shall include those hedge adjustments which, following the discontinuation of the hedge relationship and the end of the adjustment of hedged items for hedging gains and losses, remain to be amortised to the profit or loss via a recalculated effective interest rate for hedged items measured at amortised cost, or to the amount that represents the previously recognised cumulative hedging gain or loss for hedged assets measured at fair value through other comprehensive income. U.K.

151. Where a group of financial assets or financial liabilities, including a group of financial assets or financial liabilities that constitute a net position, is eligible as a hedged item, financial assets and financial liabilities constituting that group shall be reported at their carrying amount on a gross basis, before netting between instruments within the group, in ‘ Assets or liabilities included in hedge of a net position (before netting) ’ . U.K.

152. ‘ Hedged items in portfolio hedge of interest rate risk ’ shall include financial assets and financial liabilities included in a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities. Those financial instruments shall be reported at their carrying amount on a gross basis, before netting between instruments within the portfolio.] U.K.

Textual Amendments

F1 Substituted by Commission Implementing Regulation (EU) 2020/429 of 14 February 2020 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council (Text with EEA relevance).