Question
Do the calculations of the DRC for non-securitisations and SBM-CSR for non-securitisations have to be based on the individual ‘issuers’/‘obligors’, or could these calculations alternatively be based on the concept of a ‘group of issuers/obligors’ consisting of e.g. a conglomerate (and e.g. represented by an ‘ultimate parent’ corresponding to the ‘head of group’ or ‘parent company’)?
Background on the question
For the purpose of FRTB ASA calculation, the terms issuer and obligor express the same concept and are used interchangeably, both referring to the legal entity issuing the instrument or to the legal entity to which an instrument refers. As to the DRC for non-securitisations, CRR Article 325v(1) defines short and long exposures in reference to “[…] the default of an issuer or group of issuers […]”. This wording might seem to suggest that the ‘ultimate parent’ could also play a role in the DRC for non-securitisations. Yet, the CRR Articles specific to the DRC for non-securitisations (i.e. Articles 325w till 325y) solely mention the term ‘issuer’/‘obligor’. Consequently, the term ‘group of issuers’ within the definitions in the general Article 325v(1) does not seem to apply to the non-securitisation case. As to the SBM-CSR for non-securitisations, CRR Article 325m(1) states that “[t]he delta credit spread risk factors to be applied by institutions to non-securitisation instruments that are sensitive to credit spread shall be the issuer credit spread rates of those instruments [applying] one risk factor per issuer and maturity”. The calculation shall therefore be based on individual ‘issuers’/‘obligors’, and not on e.g. a ‘group of issuers/obligors’.
Answer
In accordance with the wording of Article 325m of Regulation (EU) No 575/2013 (CRR) and Articles 325w to 325x CRR, respectively, the calculation of the own funds requirements on the basis of the sensitivity based method and of the own funds requirements for default risk for non-securitisations under the alternative standardised approach is based on the individual ‘issuers’/‘obligors’, i.e. based on the legal entity issuing the instrument or the legal entity that the instrument refers to. The calculation of those own funds requirements for non-securitisations should not be based on an alternative concept such as a ‘group of issuers/obligors’.