Q&A 2014_1203 — Template F 16.01 - Interest income and expenses by instrument and counterparty sector

Question · verbatim

Template F 16.01 requires that interest income and expense for hedging derivatives that hedge interest rate risk are recorded separately in row 250 column 010 and 020. These amounts are hedging the interest income or interest expense for other items recorded in the same column. For example, an interest rate swap can be used to hedge an AFS debt security. Whilst the AFS debt security in row 020 column 010 has a positive amount the interest on the swap can be negative in row 250 column 010. This negative amount should be presented in interest income so that total interest income is disclosed correctly. Similarly in column 020 if a swap is used to hedge interest rate risk on a deposit the interest would be negative. Again this needs to be reported in interest expense to ensure total interest expense is disclosed correctly.

EBA v3950_s and v3951_s signage validation requires positive amounts in row 250. Please can EBA advise on whether FINREP can permit negative amounts in row 250 for columns 010 and 020.

Background provided by the submitter · verbatim

Template F 16.01 requires that interest income and expense for hedging derivatives that hedge interest rate risk are recorded separately in row 250 column 010 and 020. These amounts are hedging the interest income or interest expense for other items recorded in the same column. For example, an interest rate swap can be used to hedge an AFS debt security. Whilst the AFS debt security in row 020 column 010 has a positive amount the interest on the swap can be negative in row 250 column 010. This negative amount should be presented in interest income so that total interest income is disclosed correctly. Similarly in column 020 if a swap is used to hedge interest rate risk on a deposit the interest would be negative. Again this needs to be reported in interest expense to ensure total interest expense is disclosed correctly.

EBA v3950_s and v3951_s signage validation requires positive amounts in row 250. Do FINREP reporting permit negative amounts in row 250 for columns 010 and 020.

Answer · verbatim

According to Part 2, paragraphs 187 to 192 of Annex V of the Regulation (EU) No 680/2014 (ITS on Supervisory Reporting), the aim of template F 16.01 of Annexes III and IV of the ITS on Supervisory Reporting is to provide a breakdown of interest income and expenses for assets and liabilities.

Interest income respectively interest expenses generated from hedge accounting derivatives used to hedge interest risk (hedge accounting derivatives) shall be presented in row 250 according to the contribution of the hedged instrument to profit or loss, i.e. in the column corresponding to the interest expenses / income of the hedged instrument, and therefore, with a negative sign. This ensures that the offsetting effect between the income / expenses from the hedged instrument and the expenses / income from the hedging instrument is recognized according to its economic effect in F 16.01.

The same applies to the reporting of hedge accounting derivatives hedging interest rate risk (hedge accounting derivatives) in template F 02.00 of Annexes III and IV of the ITS on Supervisory Reporting (rows 070 and 130 of F 02.00).

Validation rule v3951_s will be demoted to non-blocking as already done with v3950_s to allow for the treatment described above (both rules are aplicable up to V2.6).

Validation rules v3900_s and v5693_s have been demoted non-blocking also to allow for that treatment. In addition, validation rule v5693_s (applicable as of v2.7 of the reporting framework) will be amended in the future.

Please see Q&A

2014_1169

for the treatment of economic hedges.