## d14-financial-conduits

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### Background and scope
- Multinational enterprises (MNEs) use Special Purpose Entities (SPEs), including Financial Conduits (FCs), to raise funds in financial centers and remit proceeds to parents or related enterprises.
- BIS and Coppola et al. (2020) show residency-based statistics can understate cross-border holdings tied to nationality:
  - Example: Coppola et al. (2020) estimate U.S. holdings of Brazilian corporate bonds in 2017 at USD 50 billion versus USD 8 billion in official statistics.
- Financial Conduits (FCs) are SPEs that “raise funds, often from unrelated enterprises, and remit those funds to their parents or to another related enterprise.” The key distinction from “intra group lending companies” is the presence of unrelated enterprises on the liability side.
- The Guidance Note (GN) focuses on two recording aspects for debt issued by FCs:
  - When debt securities issued by FCs should be recorded as Direct Investment (DI) and how to interpret those DI statistics.
  - Alternatives to better illustrate links between FC portfolio investment liabilities and DI assets.

### Key issues for discussion
- Two principal issues:
  1. Functional category of instruments issued by foreign affiliates, including FCs.
  2. Whether linking DI and portfolio investment activities of FCs can improve analytical usefulness of statistics.

### Functional-category considerations for instruments issued by FCs
- Asset-side characteristics:
  - FCs typically do not transact on open markets for assets; funds raised are remitted to parents or affiliates, usually via loans to parent or fellow enterprises, trade credits, or advances repaid in goods.
  - Some MNEs, notably in commodities, raise funds abroad and extend trade advances to parents with repayment by delivery of goods.
- Liability-side characteristics:
  - Debt securities issued by FCs on open markets are classified as Portfolio Investment (BPM6, paragraph 5.44).
  - Loans taken by FCs from unaffiliated banks are Other Investment on the liability side.
- Hybrid and sophisticated instruments:
  - Hybrid instruments (convertible bonds, contingent convertible bonds (CoCo’s), non-participating (preferred) shares) blur debt/equity boundaries and can be used in aggressive tax planning.
  - Distinction needed between negotiable instruments (securities) and non-negotiable affiliated holdings (loan-like).
- Classification order and implications:
  - Instrument type is determined first; the functional category follows (BPM6 Table 6.1).
  - Typical mapping for FCs (liabilities):
    - Equity → DI.
    - Debt (Loan) → DI (Intra-group lending).
    - Debt security → Portfolio Investment (when issued to market participants).
    - Debt security → DI (when held by affiliates).
  - Therefore, a debt security issued by a conduit should in most cases not be classified as DI.
  - Symmetry across countries on asset and liability classification is essential to avoid cross-country functional category asymmetries.
  - GN D.7 recommends collecting security-by-security debt statistics and a supplementary DI item for debt securities to help identify debt securities between affiliated parties.

### Contribution of conduits to Direct Investment (DI) — analytical challenges
- Simplified typical pattern:
  - FC (Country 2) raises funds from market investors (F3 = Debt securities) and passes funds via intercompany loans (F4 = Loans) to headquarters (Country 1) or affiliates (Country 3); affiliates may hold part of the FC-issued debt (classified DI).
  - Note: F5 = Equity.
- Shortcomings of current recording for analysis:
  - External exposure of MNE headquarters may be understated for capital market lenders because exposure is attributed to the FC country rather than the MNE headquarters country.
  - Intercompany lending from FCs is riskier than typical DI loans because FCs lack independent revenue; parent entities are likely responsible for repayment.
  - Exchange-rate risk to the home economy can be understated when FC-issued debt currency (e.g., US dollars) differs from the currency in which the MNE earns revenues.
  - Insertion of FCs in records correctly reflects amounts under current standards but may not characterize functional category or partner economy in the most economically meaningful way.
- Policy-relevant point:
  - BPM6 paragraph 6.26: “intercompany lending is identified separately from other debt for debt analysis because this lending has different implications for risk and vulnerability compared with debt between unrelated parties.”

### Outcomes and proposals considered
- Four options considered for addressing FC-related DI recording:
  1. Option 1 — Status quo (no changes to standards).
     - Recognizes empirical research (e.g., Coppola et al. (2020)) and BIS/national analyses (e.g., Bank of Russia) as sources to elucidate FC roles.
     - IMF SPE reporting template substantially addresses data gaps; no change to standards recommended by drafting team.
  2. Option 2 — Add an “of which” item to identify DI lending of FCs (e.g., in SPE reporting template).
     - Debt securities issued by SPEs on the liability side are a useful proxy for FC activity.
     - Additional asset-side identification of intercompany lending by FCs would be needed in the SPE template.
     - Feasibility depends on countries’ ability to spot FCs in their Statistical Business Register (SBR) and distinguish debt securities (“FC” type) from loans (“Intra group lending” type); feasibility studies required, especially for financial centers.
  3. Option 3 — Identify economy of entity that ultimately sponsored the FC (ultimate investor/UIE).
     - Would improve analytical understanding but rejected as too burdensome now; could be pursued via SPE template revision and implemented by hosting countries.
  4. Option 4 — Impute FC borrowing to the resident government sector of the economy ultimately responsible (analogous to government-sponsored FCs).
     - Rejected as excessively complex and inappropriate for corporations; treatment for government-sponsored FCs remains distinct.
- DITT (Drafting team) views:
  - Unanimous support for the decision tree (instrument-first → functional category).
  - Majority supported Option 1 (status quo).
  - Two members supported Option 2 (separate “of which FCs” DI/debt in SPE reporting) if feasible.
  - One member noted Option 1 does not preclude future consideration of identifying UIE (Option 3) under Balance of Payments Task Team work on nationality concepts.
  - One member queried whether SPEs owned by public corporations should follow GN D.5 recommendations for government-owned SPEs due to potential quasi-fiscal functions.

### Decision tree and consultation questions
- Paragraph 16 proposes a decision tree to derive the functional category of instruments issued by FCs; respondents were asked:
  - Q1: Agree with the decision tree summarized under paragraph 16?
  - Q2: Support which proposal(s)?
    - a) Status quo (with enhanced imputation for SPEs directly owned by government per GN D.5).
    - b) “Of which” for lending activities of FCs in SPEs template.
    - c) Information on the UIE (economy of MNE’s headquarter).
    - d) Imputations to reflect FC transactions and positions in entities that own/control the FC (rejected by drafting team).
  - Q3: Should status quo apply to SPEs owned/controlled by private and public corporations, or should SPEs of public corporations follow GN D.5?
- IMF SPE data collection:
  - In 2021, IMF will begin collecting data on resident SPEs for calendar year 2020 and earlier years if available.
  - Table 1 of the SPE reporting template requests DI, Portfolio Investment, Other Investment, and Financial Derivatives related to SPEs, distinguishing flows (Net Acquisition/Net Incurrence) and positions (Assets/Liabilities) for the current year 20XX and end of year 20XX.

### Residual approach and security-level identification challenges
- Residual approach preserved: PI liabilities vis-à-vis RoW = total liabilities (first source) net of resident holdings (second source), not the sum of contributors’ liabilities.
- Identifying UIE at security level requires issuer UIE linkage at ISIN or LEI level 2 to break down FC liabilities by UIE (country of MNE headquarters).
- Formal notation from the GN:
  - FC liabilities vis-à-vis RoW:
    - F C R O W = Σ ISINi − Σ Σ ISINih
      - ISINix = outstanding amount associated to ISINi; ISINih = amount of ISINi held by holder h.
  - FC liabilities vis-à-vis RoW ultimately held by country u:
    - F C R O W u = Σ ISINi(u) − Σ Σ ISINi(u)h
      - Restricting to securities i(u) “ultimately issued” by UIE u.
- Footnote references:
  - Footnote 20: Or a possible link between the SBR and the UIE as an external source.
  - Footnote 21: LEI Level 2 data theoretically reports both direct and ultimate parent’s LEI.

### Empirical example — Bank of Russia
- Bank of Russia analytical finding (Annex III summary):
  - Twenty percent of the corporate debt of the Russian Federation in the form of loans and deposits was initially raised through placements of Eurobonds and other debt securities by FCs abroad on behalf of Russian residents.
  - Bank of Russia developed an analytical table showing funds raised on behalf of Russian banks and other sectors by non-resident FCs; liabilities are broken down by major currencies for currency risk analysis.
  - The table is published quarterly and highlights correlation between intercompany lending and issuance of debt securities.

### Rejected alternatives and rationale
- Alternative: Reclassify intracompany debt of FCs from DI to Other Investment (as for selected affiliated financial corporations per BPM6, paragraph 6.28).
  - Rejected: Extending this exclusion to Captive Financial Institutions (CFIs) and FCs would blur institutional sector distinctions and mix FC loans with securitized loans; keeping FC debt in DI is important for identifying non-bank financing for financial stability.
- Alternative: Consolidate FC with entity that controls it.
  - Rejected: GZTT previously rejected consolidation of SPEs; cross-border consolidation conflicts with conceptual framework and practical data-exchange limitations.
- Alternative: Develop nationality-based supplemental statistics attributing borrowing to home country of parent.
  - Rejected for GN scope as beyond balance of payments framework and requiring group consolidation and elimination of intra-group double-counting; could be considered by BPTT under work on nationality concepts.

### Recommendations and next steps
- Maintain instrument-type-first decision tree to derive functional categories for FC-issued instruments (supported unanimously by DITT).
- Preserve status quo for standards (Option 1) while:
  - Implementing SPE reporting template collection starting in 2021 to close data gaps.
  - Considering feasibility studies for an “of which FCs” DI/debt item in the SPE template (Option 2) where SBRs permit identification of FCs.
  - Monitoring the potential for UIE identification (Option 3) for future work by Balance of Payments Task Team.
- Do not implement imputation of FC borrowing to corporate-owning economies (Option 4) due to complexity and impracticality for corporations.

*Source: Guidance Note (GN) on Financial Conduits and related annexes, IMF.*

### SECTION I: THE ISSUE

### SECTION I: THE ISSUE

### Background
- Multinational enterprises (MNEs) can finance activities through foreign affiliates, including Special Purpose Entities (SPEs) established in jurisdictions with specific objectives such as minimizing taxes or accessing sophisticated financial services.
- MNEs can issue bonds in financial centers and lend proceeds back to the head office or other parts of the MNE.
- BIS provided an early examination finding a correlation between intercompany lending components of external debt and International Debt Statistics on a nationality, rather than residency, basis for some large, emerging markets (Figure 1).
- Coppola et al. (2020) developed a methodology linking holders of bonds issued in financial centers to the home country of the MNE and estimated, using that method, much higher holdings by developed countries of emerging-market bonds than residency-based statistics show (for example, U.S. holdings of Brazilian corporate bonds in 2017 estimated at USD 50 billion versus USD 8 billion in official statistics).
- Financial Conduits (FCs) are SPEs established to “raise funds, often from unrelated enterprises, and remit those funds to their parents or to another related enterprise.” The main difference with “Intra group lending companies” is the relation with unrelated enterprises on the liability side.
- MNEs’ use of FCs obscures financial linkages between countries, complicating assessment of exposures and understanding of capital deployment; countries may record these transactions differently, with some looking through the FC.
- This Guidance Note (GN) explores two aspects of recording debt issued by FCs to provide more meaningful information:
  - Under which circumstances some debt securities issued by FCs should be recorded as Direct Investment (DI) and how to interpret those DI statistics.
  - Alternatives for recording FC activities to better illustrate links between FC portfolio investment liabilities and DI assets.

### Issues for Discussion (overview)
- Two main issues associated with debt issued by FCs:
  1. Functional category of instruments issued by foreign affiliates, including FCs.
  2. Whether it is possible to improve analytical usefulness of statistics by linking DI and portfolio investment activities of FCs.

### First Issue: Functional Category of Instruments Issued by Conduits
- Asset side:
  - FCs typically do not transact on open markets on the asset side; they remit funds raised to parents or related enterprises, typically through loans to parent or fellow enterprises, trade credits or advances repaid in goods.
  - Some MNEs, often in commodities businesses, set up entities abroad that raise funds and extend trade advances to parents, with repayment via delivery of goods.
- Liability side:
  - FCs issue debt securities on open markets, which are classified as Portfolio Investment (BPM6, paragraph 5.44).
  - Pattern similar to debt securities issued by banks or general government; commercial databases cover liquid instruments well. Handbook on securities statistics describes “common types of debt security.”
- Sophisticated and hybrid instruments:
  - Hybrid instruments (convertible bonds, contingent convertible bonds (CoCo’s), non-participating (preferred) shares) combine features of equity and debt.
  - OECD mentions some hybrid arrangements are used “in aggressive tax planning to exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions to achieve double non-taxation, including long-term taxation deferral.”
  - Some hybrid instruments are negotiable and some are not (directly held by affiliated entities). Raises question: should non-negotiable affiliated holdings be considered “securities”? How to distinguish loan-like versus debt-security-like instruments?
- Increasing importance of instrument classification for DI statistics:
  - Compilers increasingly collect security-by-security data for equity and debt security items of DI balance sheets.
  - GN D.7 recommends a supplementary item for debt securities in DI.
  - Debt securities between affiliated parties likely small for most countries and may differ in nature from arm’s length debt securities.
- Classification order:
  - Determine instrument type first, then functional category follows. BPM6 Table 6.1 “Link between Financial Assets Classification and Functional Categories” lists eligible functional categories for each instrument.
- Functional category implications:
  - FCs typically remit funds via loans (assets) and issue debt securities (liabilities). Loans are classified as DI (if intra-group), while debt securities issued to market participants are Portfolio Investment; debt securities held by affiliates are DI.
  - The instrument-type-first approach means a debt security issued by a conduit should in most cases not be classified as DI.
  - The functional category pattern should be symmetric across countries to avoid cross-country functional category asymmetries.
  - GN D.7 implementation may reveal debt securities between affiliated parties; identifying them separately will help users interpret DI debt security statistics.

### Second Issue: Contribution of Conduits to Direct Investment
- Typical simplified pattern:
  - MNE establishes an FC abroad. FC raises funds from investors in financial markets (F3) and passes them to headquarters and other affiliates through intercompany lending (F4) to fund productive assets. Diagram assumes MNE headquarters, FC, and affiliate resident in three different countries.
  - Affiliate in Country 3 may hold part of the debt issued by the FC (F3), thus classified DI.
  - Note: F3 = Debt securities; F4 = Loans; F5 = Equity.
- Classification of intercompany lending:
  - Loans to affiliate and headquarters are DI operations. An FC is typically a Captive Financial Institution; BPM6 paragraph 6.28 states debt between affiliated entities are withdrawn from DI only if both parties are from selected affiliated financial corporations, which do not include Captive Financial Institutions.
- Shortcomings of current recording for analytical purposes:
  - Understates exposure of capital markets (lenders 1 to n) to the country of the MNE headquarters by focusing exposure on the country of the FC.
  - Obscures nature of intercompany lending: FCs have no revenue of their own to repay debt, so parent is likely responsible, making intercompany lending riskier than generally assumed for DI.
  - BPM6 paragraph 6.26: “intercompany lending is identified separately from other debt for debt analysis because this lending has different implications for risk and vulnerability compared with debt between unrelated parties.”
  - Linking DI debt with corresponding open market funding would clarify the nature of the debt.
  - Insertion of the FC correctly records amount of MNE debt under current standards but does not characterize it by functional category or partner economy in the most economically meaningful way.
- Exchange rate risk assessment:
  - Statistics on FCs may understate home country exposure to debt in foreign currency if FC-issued debt is in a different currency (e.g., US dollars) than the currency in which MNE earns majority of revenues; this complicates assessing exchange rate risks for home countries.

### Outcomes: First Issue — Functional Category of Instruments Issued by FC
- Typical functional category mapping (liability side) for an entity of SPE type “Financial Conduit” or “intragroup lending”:
  - Equity → DI
    - Equity should not represent the main part of FC’s balance sheet.
  - Debt (Loan) → DI (Intra-group lending)
    - FC may also take bank loans from unaffiliated foreign banks (Other Investment) on a smaller scale.
    - BPM6 paragraph 5.51: “Loans are financial assets that (...) are evidenced by documents that are not negotiable.”
  - Debt security → PI when held by market participants (FC)
    - “Securities held by market participants (probably the major part of debt securities issued)”
    - BPM6 paragraph 5.44: “Debt securities are negotiable instruments serving as evidence of a debt.”
  - Debt security → DI when held by affiliates (probably a minor part)
- Implications:
  - DI classification of FC equity is uncontroversial since FC is usually a direct investment company; equity is typically relatively small.
  - For debt instruments issued by an SPE: typical classification should be DI for loans, PI for debt securities issued to market participants, DI if the security is held by an affiliate. Thus, a debt security issued by a conduit should in most cases not be classified DI.
  - The same functional category pattern should apply symmetrically on the asset side to avoid cross-country asymmetries.
  - GN D.7 implementation may highlight debt securities between affiliated parties; separating these will help interpretation of DI debt securities.

### Outcomes: Second Issue — Contribution of Conduits to Direct Investment
- Four possible proposals considered:
  1. Option 1 — No changes to standards (status quo).
     - Recognizes researchers use commercial databases and methods (e.g., Coppola et al. (2020)) to elucidate FC activities.
     - BIS data and some national ad-hoc statistics (e.g., Bank of Russia) shed light on FCs’ role in external financing.
     - IMF SPE reporting template significantly addresses data gaps on FCs; not necessary to change current reporting framework.
  2. Option 2 — Include an “of which” item to identify DI lending of FCs.
     - SPE reporting template will collect some information needed but not all; debt securities issued by SPEs (portfolio investment) on the liability side are a good proxy for FC activity.
     - On the asset side, debt instruments may include contributions of other SPE types (e.g., “intragroup lending” entities), especially in countries hosting many SPEs.
     - Additional information identifying intercompany lending of FCs would need to be added to the SPE reporting template.
     - Key feasibility question: ability of countries to spot FCs in their Statistical Business Register (SBR); compilers should distinguish on the liability side between debt securities (“FC” type) and loans (“Intra group lending” type).
     - Feasibility studies necessary to determine whether distinctions can be implemented in national compilation systems, particularly in financial centers.
  3. Option 3 — Identify economy of the entity that ultimately sponsored the FC (ultimate investor/UIE).
     - Would help analysts understand financial linkages created through FCs by including UIE in SBR identification.
     - Rejected as too burdensome at this time, though could be pursued by revising the SPE reporting template and implemented by countries that host FCs.
  4. Option 4 — Impute transactions and positions between resident government sector and the economy of the FC (analogous to treatment for government entities issuing debt abroad to support national economy).
     - Treatment used for government-sponsored FCs ensures borrowing by the FC is reflected in transactions and positions of the entity ultimately responsible; consistent with SNA 2008 and 2014 Government Finance Statistics Manual.
     - Rejected because it is not as necessary for corporations and would be much too complex to establish as standards for FCs.
- DITT views:
  - On the first issue, DITT unanimously supported the decision tree (instrument-first → functional category).
  - On the second issue, the majority of DITT supported maintaining the status quo (Option 1).
    - Members noted separate reporting of FCs may raise confidentiality issues and additional information may not be sufficient to capture FC risks without further research and analysis.
  - Two members supported Option 2 — separately identifying FCs through an “of which FCs” under DI/debt in the annual reporting of SPEs if feasible for countries.
  - One member noted that support for Option 1 did not preclude future consideration of Option 3 as part of Balance of Payments Task Team (BPTT) work on the nationality concept.
  - One member raised whether Option 1 should apply to SPEs owned by public corporations or whether SPEs owned by public corporations should follow recommendations for government-owned SPEs in GN D.5.
    - SPEs of public corporations are indirectly owned by government and could serve quasi-fiscal purposes; quasi-fiscal operations are government operations carried out by units other than general government that have the same fiscal impact as general government units.
    - SPEs of public corporations could also serve similar purposes to private-company SPEs, such as supporting production activities by accessing capital.

### Rejected Alternatives (summary)
- Option 3 (identify ultimate investor/UIE via SBR) rejected as too burdensome at this time despite potential analytical benefits.
- Option 4 (impute FC borrowing to resident government sector for corporations, analogous to government-sponsored FC treatment) rejected because it would be excessively complex and unnecessary for corporations.
- Annex IV (not reproduced here) describes some other rejected options considered by the drafting team.

*Prepared by Maria Borga (IMF), Paul Feuvrier (Luxembourg), Fedor Kharlashin (Russia), Mirco Lattwein (Germany), Francesca Spinelli (OECD).*

### 1.   Do you agree with decision tree summarized under paragraph 16 to derive the functional

### d14-financial-conduits - Decision tree to derive functional category of instruments issued by FCs

### Decision tree and consultation questions
- Paragraph 16 of the Guidance Note (GN) proposes a decision tree to derive the functional category of instruments issued by financial conduits (FCs); respondents are asked whether they agree with that decision tree.
- Consultation questions posed by the GN:
  - Q1: Do you agree with decision tree summarized under paragraph 16 to derive the functional category of instruments issued by FCs?
  - Q2: Would you support the following proposals presented in this GN?
    - a) Status quo (option supported by the drafting team), but including the enhanced imputation for SPEs directly owned by government described in GN D.5;
    - b) “Of which” for the lending activities of FCs, for instance, in the SPEs template;
    - c) Information on the UIE of the FC (economy of MNE’s headquarter);
    - d) Imputations to reflect the transactions and positions of the FC in the transactions and positions in the entities that own or control the FC (currently valid for government FCs only—option rejected by drafting team).
  - Q3: Do you agree that the status quo should apply to both entities directly owned or controlled by private corporations and by public corporations? Or, do you think that entities directly owned or controlled by public corporations should be treated according to the recommendations for SPEs directly owned by government described in GN D.5?

### IMF reporting templates and data collection for SPEs/FCs
- In 2021, the IMF will begin collecting data from countries on resident SPEs for calendar year 2020 and any earlier years for which information is available.
- Table 1 (Financial Account Components [Flows and Positions Data]) requests the following components related to SPEs:
  - Direct Investment related to SPEs:
    - 1.1 Equity and investment fund shares /1
      - Equity other than reinvestment of earnings
      - Direct investor in direct investment
      - Direct investment enterprises in direct
      - Between fellow enterprises: if ultimate controlling parent is resident; if ultimate controlling parent is nonresident; if ultimate controlling parent is unknown
      - Reinvestment of earnings
    - 1.2 Debt instruments
      - Direct investor in direct investment enterprises
      - Direct investment enterprises in direct investor
      - Between fellow enterprises: if ultimate controlling parent is resident; if ultimate controlling parent is nonresident; if ultimate controlling parent is unknown
  - Portfolio investment related to SPEs:
    - 2.1 Equity and investment fund shares
    - 2.2 Debt securities: Short-term; Long-term
  - Other Investment related to SPEs: Short-term; Long-term
  - Financial Derivatives related to SPEs
- The template distinguishes flows during the current year 20XX and positions as at end of current year 20XX, and requests Net Acquisition of Assets, Net Incurrence of Liabilities, Assets, and Liabilities drawn from BOP and IIP sources.

### Residual approach, identification of UIE, and security-level challenges
- The GN notes that breaking down FC’s liabilities (debt securities issued) by UIE (country of MNE’s headquarter) is challenging for countries collecting portfolio investment (PI) information at security level and implementing the “residual approach.”
- Residual approach definition preserved: PI liabilities vis-à-vis rest of the world (RoW) is not the sum of contributors’ liabilities vis-à-vis RoW but instead total liabilities (first source) net of resident holdings (second source).
- Identification of UIE in the SBR is sufficient for the former, but the latter requires the UIE of the issuer at security level, ideally through a reference database, for instance Legal Entity Indicator (LEI) level 2.
- Formal notation (as presented in the GN):
  - FC liabilities vis-à-vis RoW:
    - F C R O W = Σ ISINi − Σ Σ ISINih
      - where ISINix is the outstanding amount associated to ISINi and ISINih the amount of ISINi held by holder h.
  - Liabilities of FC (vis-à-vis RoW) ultimately held by country u:
    - F C R O W u = Σ ISINi(u) − Σ Σ ISINi(u)h
      - with restriction to securities i(u) “ultimately issued” by UIE u.
- Footnotes referenced in the GN:
  - Footnote 20: Or a possible link between the SBR and the UIE as an external source
  - Footnote 21: LEI Level 2 data of an LEI entity theoretically reports both its direct and ultimate parent’s LEI.

### Empirical example: Bank of Russia analytical table and statistic
- Bank of Russia findings described in Annex III:
  - Twenty percent of the corporate debt of the Russian Federation in the form of loans and deposits was initially raised through the placements of so-called Eurobonds and other debt securities by FCs abroad on behalf of Russian residents (standard usage of FCs).
  - At the request of statistical users, the Bank of Russia developed an analytical table presenting data on funds raised on behalf of Russian banks and other sectors by non-resident FCs.
  - For currency risk analysis, liabilities are broken down by major currencies.
  - The information is published quarterly on the Bank of Russia website.
  - The table highlights the correlation between intercompany lending and issuance of debt securities.
  - Table 2 referenced: Corporate Sector External Debt of the Russian Federation (Source: http://www.cbr.ru/vfs/en g/statistics/credit_statistics/debt_corp-sector_e.xlsx).

### Rejected alternatives and rationale
- Rejected alternative 1: Reclassifying intracompany debt of FCs from Direct Investment (DI) to Other Investment, as done for selected affiliated financial corporations (BPM6, paragraph 6.28).
  - Rationale:
    - Extending the exclusion to Captive Financial Institutions (CFIs) and FCs does not make sense because FC loans have little to do with operations currently excluded and would blur the lines between institutional sectors “Other financial intermediaries except insurance corporations and pension funds” and “Captive financial institutions and money lenders”.
    - FC loans would be mixed with securitized loans.
    - Capturing debt between CFIs in DI is crucial to identify non-bank financing for financial stability and macroprudential analysis.
- Rejected alternative 2: Consolidating the FC with the entity that controlled it.
  - Rationale:
    - The Globalization Task Team (GZTT) already rejected consolidation for the broader set of SPEs, so making an exception for FCs would be difficult.
    - Reasons include reluctance to change the conceptual core (which does not permit consolidating entities across national boundaries) and practical considerations such as lack of data exchange between countries for consistent cross-country consolidation.
    - There may be some exceptions for selected government-controlled entities.
- Rejected alternative 3: Developing supplemental statistics on MNEs based on nationality rather than residency (re-attributing borrowing by foreign subsidiaries to home country of parent).
  - Rationale for rejection in the GN:
    - Such an approach goes beyond the balance of payments framework.
    - It would require consolidation of financial measures for the group to eliminate double-counting of funds in transit or round-tripping, for example by netting investments between affiliates from the group’s total assets.
    - The GN rejects it for the GN’s scope but notes it could be considered by the BPTT as part of work on topic B.1 on introducing a nationality concept into the balance of payments/IIP framework.
  - Footnote reference: See the GZTT GN “Special Purpose Entities”.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/d14-financial-conduits.pdf_