ANNEX II

REPORTING OF ADJUSTMENTS AND THE DERIVATION OF TRANSACTIONS IN THE CONTEXT OF IF, IC, PF AND FVC STATISTICS

PART 1

General description of the procedure for deriving transactions

1. Financial transactions are the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument, i.e. the sum of all financial transactions that occur during the relevant reference period. The framework for deriving transactions for IF, IC, PF and FVC assets and liabilities statistics is based on the European System of National and Regional Accounts published as Annex A to Regulation (EU) No 549/2013 of the European Parliament and Council ( 1 ) (hereinafter the ‘ESA 2010’). Deviations from this international standard are made in this Annex concerning both the data content and names of statistical concepts, where necessary. This Annex is interpreted in accordance with the ESA 2010, unless otherwise provided for in Regulation (EU) No 1073/2013 (ECB/2013/38), Regulation (EU) No 1075/2013 (ECB/2013/40), Regulation (EU) No 1374/2014 (ECB/2014/50), Regulation (EU) 2018/231 (ECB/2018/2) or this Guideline.

2. In the context of IF, IC and PF statistics, the ECB calculates transactions by taking, for each asset and liability item, the difference between outstanding amounts at end-period reporting dates and then removing the effect of developments that are not the result of transactions (‘adjustments’). These are grouped into the two categories ‘reclassification adjustments’ and ‘revaluation adjustments due to price and exchange rate changes ( 2 ) ’. National central banks (NCBs) report the two categories to the ECB so that these non-transaction effects can be removed in the calculation of transactions.

3. In the context of FVC statistics, transactions are reported directly by NCBs to the ECB instead of adjustments. The calculation of the transactions (either directly by reporting agents or by NCBs) must be consistent with the general approach to reclassifications adjustments and revaluation adjustments due to price and exchange rate changes set out in this Annex.

4. Transactions are generally calculated on a net basis, i.e. there is no requirement to identify gross financial transactions or turnover. One exception is the case of IF statistics where Regulation (EU) No 1073/2013 (ECB/2013/38) requires separate reporting of new issuance and redemptions of IF shares/units during the reference period.

5. Financial transactions are generally measured at the transaction value – the value at which assets are acquired/disposed of and/or liabilities are created, liquidated or exchanged – which may not necessarily be the same as the price listed in the market or the fair value of the asset at the time of the transaction. The transaction value does not include service charges, fees, commissions, or similar payments for services provided.

6. This Annex sets out the methodology for deriving transactions. Part 2 focuses on NCBs’ reporting requirements on adjustments. Part 3 looks at special adaptations made in the compilation of IF, IC, PF and FVC statistics.

PART 2

Reporting of adjustments

7. In the context of IF, IC and PF statistics NCBs must report ‘reclassification adjustments’ and ‘revaluation adjustments due to price and exchange rate changes’ to the ECB.

8. Section 1 describes the reporting of reclassification adjustments and provides examples of reclassification adjustments cases. Section 2 describes the reporting of revaluation adjustments due to price and exchange rate changes.

9. Adjustments are subject to the same double-entry accounting system as outstanding amounts. In all cases, adjustments have a counterpart which depends on the operation or the national accounting rules.

Section 1: Reclassifications adjustments

Section 1.1. General description

1. ‘Reclassification adjustments’ comprise any change in the balance sheet of the reference sector that arises as a result of changes in the composition and structure of the reporting population, changes in the classification of financial instruments and counterparties, changes in statistical definitions and the (partial) correction of reporting errors, all of which give rise to breaks in the series, and thus affect the comparability of two successive end-of-period outstanding amounts. Euro area enlargements may be viewed as a special case of reclassification.

2. NCBs report statistical information on reclassification adjustments, as specified in this Guideline, using statistical information directly reported by the reporting population, supervisory information, plausibility checks, ad hoc enquiries (e.g. related to outliers), national statistical requirements, information on joiners and leavers of the reporting population and any other source available to them. NCBs identify changes in outstanding amounts that are due to reclassifications and report the net amount. A net increase in outstanding amounts due to reclassifications is entered with a positive sign, a net decrease in outstanding amounts with a negative sign.

3. Estimates of reclassification adjustments may be made by NCBs, in particular when the statistical information is not readily available or of poor quality. The ECB is not expected to make ex post adjustments unless NCBs identify sharp changes due to reclassifications in the final statistical information which cannot be corrected in due time by the NCB. In this case, the ECB may make ex post adjustments in agreement with relevant NCB.

4. NCBs must at least send all reclassification adjustments above EUR 50 million. This threshold helps NCBs decide whether to compile adjustments. However, where relatively detailed information is collected regardless of the threshold, it may be counterproductive for NCBs to try to apply such a threshold. This flexibility is without prejudice to the requirement for consistency within the reported statistical information for the reference period, and between different reporting frequencies (i.e. between monthly and quarterly statistical information in the case of IF).

5. Within the limits of Articles 3(11), 6(6), 9(5), 12(5), 15(5) and 17(4), NCBs must correct reporting errors in the outstanding amounts data as soon as the errors are identified. Ideally, the corrections entirely remove the error from the data, especially where the error affects a single period or a limited time range. In these circumstances, there is no break in the series. However, where the error affects historical data and no correction of past data is made or is made only for a limited time range, there is a break in the series between the first period with the corrected figure and the last period containing the incorrect figure. In this case, NCBs must identify the size of the break and enter an adjustment under ‘reclassifications adjustments’. This also applies to changes of statistical definitions affecting reported data and breaks that may be due to the introduction, change or abandonment of grossing-up methods.

Section 1.2. Cases of reclassification adjustments

Changes in the composition of the reporting population

6. Changes in the composition of the reporting population may give rise to the transfer of business across economic sector boundaries. Such transfers do not represent transactions and are therefore treated as an adjustment in ‘reclassifications and other adjustments’.

7. An institution that joins the reporting sector may transfer business into the reporting population, whereas an institution leaving it may transfer business out of the sector. However, to the extent that the joining institution starts its business ex novo after having joined the reporting sector, this represents a financial transaction that is not removed from statistical information. Similarly, where a leaving institution decreases its activities prior to leaving the reporting sector, this is captured as a transaction in the statistical information.

8. The net effect of the joiners or leavers on the aggregated assets and liabilities of the reporting sector is calculated by aggregating the first assets and liabilities reported by new entrants and the last assets and liabilities reported by the leavers and, for each item, taking the difference between the two. This net figure is entered under reclassifications adjustments. In certain circumstances, there can be an effect on the counterparties’ reporting, which must also be included in the adjustments as a change in sector.

Changes in the structure of the reporting sector

9. Changes in the structure of the reporting sector arise in the context of intra-group reorganisations or mergers, acquisitions and divisions. These corporate restructuring operations typically lead to changes in the valuation of financial assets and liabilities; revaluation adjustments are entered to reflect these changes and thus allow transactions to be correctly derived. Moreover, the operations often give rise to the transfer of financial assets and liabilities from the balance sheet of one institutional unit to another (change in ownership). The boundary for treating transfers of assets as transactions is defined by the existence of two separate institutional units which act by mutual agreement. If, however, the transfers occur as a result of the creation or disappearance of an institutional unit, they must be treated as reclassifications adjustments. In particular, if a merger or acquisition leads to the disappearance of one or more institutional units, all cross-positions that existed between the merging institutions and that are netted at the time when the units cease to exist disappear from the system and reclassification adjustments must be reported accordingly. Corporate divisions are treated symmetrically.

Other cases of reclassifications adjustments

10. Changes in the sector classification or residence of customers give rise to a reclassification of assets/liabilities vis-à-vis these counterparties. Such changes in classification occur for a number of reasons, e.g. because a governmental entity changes economic sector after privatisation, or because mergers/divisions alter the principal activity of corporations. Similarly, the instrument classification of assets and liabilities can change, for instance when loans become negotiable and are accordingly regarded as debt securities for statistical purposes. As these reclassifications result in changes in the reported outstanding amounts but do not represent a transaction, an adjustment must be introduced to remove their impact from the statistics.

Special case of investment funds statistics – changes in investment policy

11. Changes in the IF reporting sector due to changes in investment policy (e.g. equity fund changes to mixed fund) are recorded as a financial transaction and not as a reclassification. This follows from the fact that any change in investment policy has to be agreed by the investors prior to the change and is therefore seen as an active investment decision. An NCB may deviate from this default approach and report a reclassification adjustment only if it has ex ante information that the policy change was not due to a conscious decision made by the investors.

12. This treatment also applies to reporting agents moving from the Money Market Funds (MMF) reporting sector to the IF reporting sector and vice versa, following changes in investment policy.

Section 2: Revaluation adjustments due to price and exchange rate changes

Section 2.1. General description

13. ‘Revaluation adjustments due to price and exchange rate changes’ reported in the context of IF, IC and PF statistics include (i) adjustments for write-offs/write-downs of loans, (ii) revaluation adjustments due to changes in prices and (iii) revaluation adjustments due to exchange rate changes.

14. The adjustment for write-offs/write-downs refers to the impact of changes in the values of loans recorded on the balance sheet that are caused by the application of write-offs/write-downs of loans.

15. The adjustment of the price revaluation of assets and liabilities refers to fluctuations in the valuation of assets and liabilities that arise because of a change in the price at which assets and liabilities are recorded or traded. The adjustment includes the changes that occur over time in the value of end-period outstanding amounts because of changes in the reference value at which assets and liabilities are recorded, i.e. holding gains/losses. It may also contain valuation changes that arise from transactions in assets/liabilities, i.e. realised gains/losses, taking into account divergent national practices.

16. Movements in exchange rates against the euro that occur between end-period reporting dates give rise to changes in the value of foreign currency assets and liabilities when expressed in euro. As these changes represent holding gains/losses and are not financial transactions, the valuation effects need to be identified so that they can be excluded from transactions. Revaluation adjustments due to exchange rate changes may also contain valuation changes that arise from transactions in assets/liabilities, i.e. realised gains/losses, taking into account divergent national practices.

17. For the purpose of submitting statistical information to the ECB, NCBs must ensure that asset and liability positions denominated in foreign currencies are translated into euro at market exchange rates prevailing on the day to which the data relate. ECB reference exchange rates must be used ( 3 )

Section 2.2. Reporting of revaluation adjustments by NCBs

18. Regulation (EU) No 1073/2013 (ECB/2013/38), Regulation (EU) No 1374/2014 (ECB/2014/50) and Regulation (EU) 2018/231 (ECB/2018/2) allow flexibility in terms of the type of statistical information needed to calculate the revaluation adjustments of assets and liabilities and the form in which these data are collected and compiled. The decision on the method is left to NCBs.

19. It follows that in order to fulfil the IF, IC and PF requirements relating to “revaluation adjustments due to price and exchange rate changes” specified in Articles 3(4), 6(3) and 9(2) of this Guideline, NCBs may need to derive the adjustments from statistical information reported by the reporting population on a security-by-security or item-by-item basis or from statistical information reported directly on transactions. NCBs may also need to estimate the adjustments in respect of some of the breakdowns not reported by the reporting population because they are not considered as ‘minimum requirements’, i.e. in Table 3 of Part 3 of Annex I to Regulation (EU) No 1073/2013 (ECB/2013/38) and in Tables 3a and 3b of Part 3 of Annex I to Regulation (EU) No 1374/2014 (ECB/2014/50).

Statistical information reported on a security-by-security/item-by-item basis

20. The following two options exist for deriving revaluation adjustments referred to in Articles 3(6), 6(4) and 9(3) for securities collected on a security-by-security basis: Option 1: reporting agents report to NCBs security-by-security statistical information that allows NCBs to derive revaluation adjustments due to price and exchange rate changes: — IFs report the s-b-s statistical information required by paragraphs 1, 2 and 4 of Table 2 of Part 3 of Annex I to Regulation (EU) No 1073/2013 (ECB/2013/38); — ICs report the s-b-s statistical information required by paragraphs 1, 2 and 4 of Tables 2.1 and 2.2. of Part 3 of Annex I to Regulation (EU) No 1374/2014 (ECB/2014/50); — PFs report the s-b-s statistical information required by paragraphs 1, 2 and 4 of Tables 2.1 and 2.2 of Part 3 of Annex I to Regulation (EU) 2018/231 (ECB/2018/2). This information permits NCBs to obtain accurate information on the ‘revaluation adjustments due to price and exchange rate changes’ to be submitted to the ECB. Guidance on how to derive approximations in accordance with Article 3(7), 6(4) and 9(3) of this Guideline is available in the ‘Manual on investment funds statistics’ published on the ECB’s website. Option 2: reporting agents report to NCBs transactions (i.e. the cumulated amounts of purchases and sales of securities which have occurred during the reference period) on a security-by-security basis as follows: — IFs report in accordance with paragraphs 1 and 3 of Table 2 of Part 3 of Annex I to Regulation (EU) No 1073/2013 (ECB/2013/38); — ICs report in accordance with paragraphs 1 and 3 of Tables 2.1 and 2.2. of Part 3 of Annex I to Regulation (EU) No 1374/2014 (ECB/2014/50); — PFs report in accordance with paragraphs 1 and 3 of Tables 2.1 and 2.2 of Part 3 of Annex I to Regulation (EU) 2018/231 (ECB/2018/2). NCBs calculate the revaluation adjustments by taking the difference between end-period outstanding amounts and removing the transactions and reclassification adjustments, if any, referred to in Section 1 of Part 2 to this Annex. NCBs submit the revaluation adjustments to the ECB in accordance with this Guideline.

21. NCBs may follow a similar approach for assets other than securities when they collect item-by-item statistical information.

Statistical information reported on an aggregated basis

22. For assets and liabilities collected on an aggregated basis, the following three options exist for deriving revaluation adjustments due to price and exchange rate changes: Option 1: reporting agents report aggregated revaluation adjustments (4) NCBs that choose this method aggregate the revaluation adjustments reported by the reporting agents for the submission of data to the ECB. Option 2: reporting agents report aggregated transactions. The reporting agents accumulate transactions during the reference period and transmit the value of purchases and sales to the NCB: NCBs that receive statistical information on transactions calculate the revaluation adjustments by taking the difference between end-period outstanding amounts and removing the transactions and reclassification adjustments, if any, referred to in Section 1 of Part 2 to this Annex. NCBs submit the revaluation adjustment to the ECB in accordance with this Guideline. Option 3: NCBs derive approximations based on data provided by reporting agents.

PART 3

Special rules and adaptations

23. Interest on deposits, loans and debt securities issued and held is recorded on an accrual basis and is recorded as a transaction until it is paid. The guidance on the instrument with which the accrued interest is recorded in the statistical information transmitted from NCBs to the ECB, however, differs for IF, IC, PF and FVC statistics.

24. In the case of IF statistics, accrued interest on deposits/loans is recorded under ‘remaining assets’ or ‘remaining liabilities’ as appropriate. Accrued interest on debt securities held is recorded with the instrument concerned. Debt securities issued are not recorded as a separate item and are included in remaining liabilities.

25. In the case of IC statistics, accrued interest is in all cases recorded with the instrument concerned.

26. In the case of PF statistics, accrued interest is in all cases, on a best estimate basis, recorded with the instrument concerned.

27. In the case of FVC statistics, accrued interest is in all cases recorded under ‘remaining assets’ or ‘remaining liabilities’, as appropriate.

GLOSSARY

Accepted reinsurance represents the amount of capital that the IC holds in order to meet future claims stemming from its life reinsurance obligations.

Bond funds are investment funds (IFs) primarily investing in debt securities. The criteria for classifying investment funds into bond funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect.

Branches are unincorporated entities, without independent legal status, wholly owned by their parent.

Central government means ‘central government’ (subsector S.1311) as defined in paragraph 2.114 of Annex A to Regulation (EU) No 549/2013.

Closed-end investment funds are IFs with a fixed number of issued shares whose shareholders have to buy or sell existing shares to enter or leave the fund.

Composite insurance corporations are insurance corporations that have been authorised to pursue both direct life and direct non-life insurance activities. In the case of insurance corporations subject to Directive 2009/138/EC of the European Parliament and of the Council (5) this covers insurance corporations covered by paragraphs 2 and 5 of Article 73 of Directive 2009/138/EC. Composite insurance corporations may in addition be authorised to pursue reinsurance activities (life and/or non-life reinsurance activities, depending on national law).

Equity funds are investment funds primarily investing in equity. The criteria for classifying investment funds into equity funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect.

Exchange traded funds (ETFs) means a ‘UCITS ETF’ as defined in paragraph 3 subparagraph 4 of Guideline (ESMA/2012/832) of the ESMA of 18 December 2012 on ETFs and other UCITS issues. ESMA defines a UCITS ETF as a UCITS at least one unit or share class of which is traded throughout the day on at least one regulated market or Multilateral Trading Facility with at least one market maker that takes action to ensure that the stock exchange value of its units or shares does not significantly vary from its net asset value and where applicable its Indicative Net Asset Value. For the purposes of this Guideline, non-UCITs that comply with the ESMA ETF definition should be included here.

Financial corporations engaged in lending (FCLs), classified as OFIs, are financial corporations principally specialised in asset financing for households and non-financial corporations. Corporations specialising in financial leasing, factoring, mortgage lending and consumer lending are included in this category. These financial corporations may operate under the legal form of a building society, municipal credit institution, etc.

Financial leases are contracts whereby the legal owner of a durable good (hereinafter the ‘lessor’) lends it to a third party (hereinafter the ‘lessee’) for most if not all of the economic lifetime of the good, in exchange for instalments covering the cost of the good plus an imputed interest charge. The lessee is in fact assumed to receive all of the benefits derivable from the use of the good and to incur the costs and risks associated with ownership.

Funds of funds are investment funds primarily investing in investment funds’ shares or units. The criteria for classifying investment funds into funds of funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect.

Hedge funds, for the purpose of this Guideline, mean any collective investment undertakings regardless of its legal structure under national laws, which apply relatively unconstrained investment strategies to achieve positive absolute returns, and whose managers, in addition to management fees, are remunerated in relation to the fund’s performance. For that purpose, hedge funds have few restrictions on the type of financial instruments in which they may invest and may therefore flexibly employ a wide variety of financial techniques, involving leverage, short-selling or any other techniques. This definition also covers funds that invest, in full or in part, in other hedge funds provided that they otherwise meet the definition. These criteria to identify hedge funds must be assessed against the public prospectus as well as fund rules, statutes or by-laws, subscription documents or investment contracts, marketing documents or any other statement with similar effect in respect of the fund.

Insurance-linked securitisations are securitisations where there is a transfer of insurance policies achieved either by the transfer of legal title or beneficial interest to an FVC, or there is a transfer of insurance risks from an insurance or reinsurance undertaking to an FVC which fully funds its exposure to such risks through the issuance of financing instruments, and the repayment rights of the investors in those financing instruments are subordinated to the reinsurance obligations of the FVC.

Life insurance corporations are insurance corporations that have been authorised to pursue direct life insurance activities, but have not been authorised to pursue direct non-life insurance activities. Life insurance corporations may in addition be authorised to pursue reinsurance activities (life and/or non-life reinsurance activities, depending on national law).

Mixed funds are investment funds investing in both equity and bonds with no prevailing policy in favour of one or the other instrument. The criteria for classifying investment funds into mixed funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect.

Non-life insurance corporations are insurance corporations that have been authorised to pursue direct non-life insurance activities, but have not been authorised to pursue direct life insurance activities. Non-life insurance corporations may also be authorised to pursue reinsurance activities (life and/or non-life reinsurance activities, depending on national law).

Open-end investment funds are investment funds whose units or shares are, at the request of the holders, repurchased or redeemed directly or indirectly out of the undertaking’s assets.

Other funds are investment funds other than bond funds, equity funds, mixed funds, real estate funds or hedge funds.

Private equity funds (PEFs) are unleveraged investment funds that predominantly invest in equity instruments and instruments that are economically similar to equity instruments issued by unlisted companies. A sub-category of PEFs are venture capital funds (VCFs), which invest in start-up companies. PEFs (including VCFs) are normally constituted as closed-end funds or as limited partnerships managed by a private equity company (PEC) or venture capital company (VCC) in the case of VCFs. While PEFs (including VCFs) are classified as investment funds in line with Article 1 of Regulation (EU) No 1073/2013 (ECB/2013/38), PECs and VCCs are classified as financial auxiliaries (ESA 2010 category S.126) if they solely manage the assets of PEFs and VCFs; and as other financial intermediaries (ESA 2010 category S.125) if they invest on their own account in private equity.

Real estate funds are IFs primarily investing in real estate. The criteria for classifying investment funds into real estate funds are derived from the public prospectus, fund rules, instruments of incorporation, established statutes or by-laws, subscription documents or investment contracts, marketing documents, or any other statement with similar effect.

Reconciliation reserves means reserves (such as retained earnings) as defined in Annex II of Commission Implementing Regulation (EU) 2015/2450 (6). It results mainly from differences between accounting valuation and valuation referred to in Article 75 of Directive 2009/138/EC.

Reinsurance corporations are insurance corporations that have been authorised to pursue reinsurance activities but have not been authorised to pursue any direct insurance activities. Reinsurance activities may include life reinsurance activity, non-life reinsurance activity or a combination of life and non-life reinsurance activities.

Security and derivative dealers (SDDs) classified as OFIs are financial corporations authorised to provide investment services to third parties by investing in financial instruments on their own account as their business and principally engaged in the following financial intermediation activities:

(a) trading on their own account and/or risk, as ‘securities and derivatives dealers’, in new or outstanding financial instruments through the acquisition and sale of those financial instruments for the exclusive purpose of benefiting from the margin between the acquisition and sale price. This also includes market-making activities;

(b) underwriting financial instruments and/or placing financial instruments on a firm commitment basis;

(c) assisting firms in issuing new financial instruments through the placement of new financial instruments involving either a firm underwriting commitment or standby commitment to issuers of new issues.

Specialised financial corporations (subdivision of subsector S.125) means ‘specialised financial corporation’ as defined in paragraph 2.93 of Annex A to Regulation (EU) No 549/2013;

Subsidiaries are separate incorporated entities in which another entity has a majority or full participation.

Synthetic securitisations are securitisations where there is a transfer of credit risk of an asset or pool of assets achieved by the use of credit derivatives, guarantees or any similar mechanism.

Traditional securitisations are securitisations where there is a transfer of credit risk of an asset or pool of assets achieved either by the transfer of legal title or beneficial interest of the assets being securitised or through sub-participation.

Undertakings for Collective Investments in Transferable Securities (UCITS) means investment funds that have been established in accordance with Directive 2009/65/EC of the European Parliament and of the Council (7).

(1) Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union (OJ L 174, 26.6.2013, p. 1).

(2) The category ‘revaluation adjustments due to price and exchange rate changes’ includes write-offs/write-downs on loans.

(3) See the ECB’s press release of 8 July 1998‘Setting-up of common market standards’, available on the ECB’s website at www.ecb.europa.eu

(4) In the case of IF statistics and in accordance with Annex III to Regulation (EU) No 1073/2013 (ECB/2013/38), NCBs either collect the data on revaluations due to price and exchange rate changes from IFs or, alternatively, they collect only the data on revaluations due to price changes and the necessary data which cover, at a minimum, a currency breakdown into British pounds, US dollars, Japanese yen and Swiss francs, in order to derive the revaluations due to exchange rate changes.

(5) Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).

(6) Commission Implementing Regulation (EU) 2015/2450 of 2 December 2015 laying down implementing technical standards with regard to the templates for the submission of information to the supervisory authorities according to Directive 2009/138/EC of the European Parliament and of the Council (OJ L 347 31.12.2015, p. 1)

(7) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).