General principles
1. The valuations carried out for the purposes referred to in Article 24(2) of Regulation (EU) 2021/23 shall be based on fair, prudent and realistic assumptions and shall seek to ensure that losses under the appropriate scenario are fully recognised.
Where such valuation is available, it shall inform the assessment of the competent authority or of the resolution authority, as appropriate when determining that a CCP is ‘failing or likely to fail’ as referred to in Article 22(1), point (a), of Regulation (EU) 2021/23.
Based on existing supervisory guidance or other generally recognised sources setting out criteria for the fair and realistic measurement of different types of assets and liabilities, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, may challenge the rules, assumptions, data, methodologies and judgements on which the CCP based the valuations that it used for the fulfilment of its financial reporting obligations or for the calculation of its regulatory capital or of its capital requirements and disregard them for the purposes of their valuation.
2. The valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall determine the most appropriate valuation methodologies, which may rely on the CCP’s internal models and rules where the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, deems it appropriate taking into account the nature of the CCP’s risk management framework and the quality of data and information available.
3. The valuations shall be consistent with the applicable accounting and prudential framework.
Areas requiring particular attention in the valuation
The valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall particularly focus on areas subject to significant valuation uncertainty which have a significant impact on the overall valuation for the purpose of Article 24(2) of Regulation (EU 2021/23.
For the areas referred to in the first subparagraph, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall provide the results of the valuation in the form of best point estimates and, where appropriate, value ranges, as set out in Article 6(3). Those areas shall include:
(a)
contracts referred to in Article 29(1) of Regulation (EU) 2021/23;
(b)
loans, the expected cash flows of which depend on a counterparty’s ability, willingness or incentive to perform its obligations;
(c)
repossessed assets, the cash flows of which are affected by both the asset’s fair value at the time the CCP forecloses on the related security or lien, and the expected evolution of such value after foreclosure;
(d)
any other instruments measured at fair value where the determination of that fair value in accordance with accounting or prudential requirements applying to their marking to market or marking to model is no longer applicable or valid taking into account the circumstances;
(e)
goodwill and intangibles, where the impairment test may depend on subjective judgement, including as regards the reasonably attainable cash flow stream, discount rates, and the perimeter of cash-generating units;
(f)
legal disputes and regulatory actions, the expected cash flows of which may be subject to varying degrees of uncertainty relating to their amount or timing;
(g)
items including pension assets and liabilities and deferred tax items.
Factors affecting the valuation
1. The valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall take into account general factors that may affect the key assumptions on which the values of assets and liabilities in the areas referred to in Article 13 are based, including the following factors:
(a)
the economic and industry circumstances affecting the CCP, including default events, or non-default events and relevant market developments;
(b)
the CCP’s business model and changes in its strategy;
(c)
the CCP’s asset selection criteria;
(d)
circumstances and practices that are likely to lead to payment shocks;
(e)
circumstances affecting capital requirements;
(f)
the impact of the CCP’s financial structure on the capacity of the CCP to retain assets and contracts for the expected holding period and the CCP’s ability to generate predictable cash flows;
(g)
the CCP’s operating rules and loss allocation;
(h)
general or CCP-specific liquidity or funding concerns.
2. The valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall clearly separate any material unrealised gains identified in the valuation process, to the extent that those gains have not been recognised in the valuation and shall provide appropriate information in the valuation report of the exceptional circumstances that have led to those gains.
Source: EUR-Lex (Publications Office of the EU), © European Union, reuse permitted under Commission Decision 2011/833/EU.
