Commission Delegated Regulation (EU) 2023/662 of 20 January 2023 amending Delegated Regulation (EU) 2015/63 as regards the methodology for the calculation of liabilities arising from derivatives

Commission Delegated Regulation (EU) 2023/662 as regards the determination of the value of liabilities resulting from derivative contracts for purposes of determining the contributions of financial institutions to resolution financing arrangements of EU member states was published in the Official Journal (OJ) of the EU. Specifically, each year, financial institutions subject to the Capital Requirements Regulation (CRR) need to furnish statistics of their liabilities to local banking regulators in order to enable the regulators to determine the levies to be paid by institutions to resolution financing arrangements. These arrangements are used to fund resolutions of failing institutions, so as to avoid the bail-in of Central Banks or governments to prevent spending of public money.
The Delegated Regulation now specifies,
– how to derive the exposure value (market value) of derivatives which shall take into account any liability offsetting measures (margins, netting agreements);
– how the Mark-to-Market method is to be applied in the process of determining the exposure value depending upon the type of derivative contract (e.g. interest rate future, commodity future) and the remaining duration of the contract;
– how the Simplified Exposure Method is to be applied in the process of determining the exposure value of derivatives for those institutions meeting the criteria set out in Article 273a of the CRR (the size of the on- and off-balance-sheet derivative business does not exceed 10 % of an institution’s total assets or EUR 300 million in the past month; and
– how netting agreements are to be considered and the determination of the exposure value of derivative contracts with such netting agreements.
The Delegated Regulation also stipulates the due date by which financial institutions must be notified of their levies (May 31, 2023) at the latest and the due date for submitting the necessary information (e.g. financial statements) to the resolution authority (February 28, 2023) to determine the levy.