Legal provisions of COM(2016)850-2 - Amendment of Regulation (EU) No 575/2013 as regards several forms of credit ratio's, management of financial risks, and reporting requirements - Main contents
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| dossier | COM(2016)850-2 - Amendment of Regulation (EU) No 575/2013 as regards several forms of credit ratio's, management of financial risks, and ... |
|---|---|
| document | COM(2016)850  |
| date | November 23, 2016 |
Article 1
Reg u I at i o n (EU) No 575/2013 ,s amended as follows.
(1) Artie,e 1 i s replaced by the following.
Article 1 Sco p e
This Regulation lays down uniform rules concerning general prudential requirements that institutions, financial holding companies and mixed financial holding companies supervised under Directive 2013/36/EU shall comply with in relation to the following items.
(a) own funds requirements relating to entirely quantifiable, uniform and standardised elements of credit risk, market risk, operational risk and settlement risk,
(b) requirements limiting large exposures,
(c) I i q u i d i ty requirements relating to entirely quantifiable, uniform and standardised elements of liquid ity risk,
(d) reporting requirements related to points (a), (b) and (c) and to leverage,
(e) public disclosure requirements.
This Regulation lays down uniform rules concerning the own funds and eligible liabilities requirements that resolution entities that are global s y ste mically important institutions (G~Slls) or part of G-SII s and material subsidiaries of non- EU G-SII s shall comply with.
This Regulation does not govern publication requirements for competent authorities in the field of prudential regulation and supervision of institutions as set out in Uirecti ve 2013/36/EU.".
(2) Artic,e2i s replaced by the following.
Article 2 Supervisory p owe r s
1. F or the purposes of ensuring compliance with this Kegulation, competent authorities shall have the powers and shall follow the procedures set out in Directive
2013/36/EU and in this Kegulation,
2. F or the purposes of ensuring compliance with this Keg u lati o n, resolution authorities
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shall have the powers and shall follow the procedures set out in Directive
2014/59/EU and in this Kegulation,
3. For the purposes of ensuring compliance with the requirements concerning own
funds and eligible liabilities competent authorities and resolution authorities shall c o o p e rate . . (3) Artic,e4is amended as follows.
(a) in paragraph 1, point (7) is replaced by the following.
(7) collective investment undertaking or CIU means a UCITS as defined in Artie,e 1(2) of D i re cti v e 2009/65/EC of the Luropean Parliament and of the Council or an AIF as defined in point (a) of Article 4(1) of D i re cti v e 2011/61/EU ofthe European Parliament and ofthe Council , ,
(b) in paragraph 1, point (20) is replaced by the following.
(20) financial holding company means a financial institution, the subsidiaries of which are exclusively or mainly institutions or financial institutions, and which is not a mixed financial holding company.
The subsidiaries of a financial institution are mainly institutions or financial institutions where at least one of them is an institution and where more than 50% of the e q u i ty, consolidated assets, revenues, personnel or other indicator considered relevant by the competent authority of the financial institution are associated with subsidiaries that are institutions or financial institutions. ,
(c) in paragraph 1, point (26) is replaced by the following.
(26) financial institution means an undertaking other than an institution and other than a pure industrial holding company, the principal activity of which is to acquire holdings or to pursue one or more of the activities listed in points (2) to (12) and point (15) or A nnex I to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution within the meaning of LJirective 2007/64/EC of the Luropean Parliament and of the uouncil , and an asset management company, but excluding insurance holding companies and mixed_activi ty insurance holding companies as defined, respectively, in points (f) and (g) or Article 212(1) or Directive 2009/1 38/EC; " ;
(d) in point (39) of paragraph 1, the following subparagraph is inserted.
Two or more natural or legal persons who fulfil the conditions set out in points (a)
Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on th e coordination of laws, regulations and administrative provisions relating to und erta kings for collective
investment in transferable securities (UCITS) (OJ L 302 17.11.2009, P. 32).
Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund M anagers and amending Directives 2003/41/EC and 2009/65/EC and Regu I at i o n s
(EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, P. 1).
Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment
services in the internal market amending LJirectives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing LJirective 97/5/EC (OJ L 319, 5.12.2007, P. 1).
38
or (b) because of their direct exposure to the same CCP for clearing activities purposes are not considered as constituting a group of connected clients. ,
(e) in point (71) of paragraph 1, the introductory sentence in point (b) is replaced by the following.
(b) for the purposes of Art i cle 97 it means the sum of the following. ,
(f) in point (72) of paragraph 1, point (a) is replaced by the following.
(a) it is a regulated market or a third_country market that is considered to be equivalent to a regulated market in accordance with the procedure set out in Article
25(4)(a) of Directive 2014/65/EU;";
(g) in paragraph 1, point (86) is replaced by the following.
(86) trading book means all positions in financial instruments and commodities held by an institution either with trading intent, to hedge either positions held with trading intent or positions referred to in Article 104(2), excluding positions referred
to i n Artice 104(3);".
(h) in paragraph 1, point (91) is replaced by the following.
"(91) trade exposure means a current exposure, including a variation margin due to
the clearing member but not yet received, and any potential future exposure of a clearing member or a client, to a CCP aris ing from contracts and transactions listed
in points (a), (b) and (c) of Article 301(1), as well as initial margin;".
(i) in paragraph 1, point (96) is replaced by the following.
(96) internal hedge means a position that materially of f s ets the component risk e I e m e n ts b etw een a trading book position and one or more non~trading book position or between two trading desks, .
(j) in paragraph 1, the following points are added.
(129) resolution authority means a resolution authority as defined in point ^ I O J of Article 2(1) of Directive 2014/59/EU;
(130) resolution entity means a resolution entity as defined in point (83a) of Article
2(1) of Directive 2014/59/EU;
(131) resolution group means a resolution group as defined in point (83b) of Article
2(1) of Directive 2014/59/EU;
(132) global system ically important institution ' (G-SII) means a G-SII that has been identified in accordance with Article 131(1) and (2) of Directive 2013/36/EU;
(133) n o n " EU global systemically important institution (non- EU G-SII) means global systemically important banking groups or banks (G-SIBs) that are n ot G-Slls and that are included in the list of G-SIBs published by the Financial Stability Board, as regularly updated,
(134) material subsidiary means a subsidiary that on an individual or consolidated basis mee ts any of the following conditions.
\&) the subsidiary holds more than 5% of the consolidated risk_weighted assets of its original parent undertaking,
39
(b) the subsidiary generates more than 5% of the total operating income of its original parent undertaking,
\c) thetotal leverage exposure measure of the subsidiary is more than 5% of the consolidated leverage exposure measure of its original parent u n d e rta king s ,
(135) 'G-SII entity means an entity with legal personality that is a G-SII s or is part of an G-SII or of a non- EU G-SII;
(136) bail"in tool means the bail"in tool as defined in point (57) of Artie,e 2(1) of
Directive 2014/59/EU;
(137) group means a group of undertakings of which at least one is an institution and which consi sts of a parent undertaking and its subsidiaries, or of undertakings linked to each other by a relationship as set out in Art i cle 22 of Directive 2013/34/EU of the Luropean Parliament and of the council ,
(138) 'se curities financing transaction or 'SFT' means a repurchase transaction, a securities or commodities lending or borrowing transaction, or a margin lending tr a n s a ct i o n ,
(139) systemic i n v est m e n t f i r m means an i n v est m e nt f i r m that has been identified as a G-SII or an O-SII in accordance with Article 131(1), (2) or (3) of Directive
2013/36/EU";
(140) initial margin or I M means any collateral, other than variation margin, collected from or posted to an e n t i ty to cover the current and potential future exposure of a transaction or of a po rtf o Mo oftransactions in the time period needed to liquidate those transactions, or to re~hedge their market risks, following the default of the counterpa rty to the transaction or po rtf o Mo oftransactions,
(141) market risk means the risk of losses arising from movements in market prices,
(142) foreign exchange risk means the risk of losses arising from movements in foreign exchange rates,
(143) commodi ty risk means the risk of losses arising from movements in com modi ty p r i ces,
(144) trading desk means a well~identified group of dealers set up by the institution to Jointly manage a po rtf o Mo of trading book positions in accordance with a well" defined and consi st ent business strategy and operating under the same risk management structure. .
(k) the following paragraph 4 is added.
"4. EBA shall develop dra ft regulatory technical standards specifying in which circumstances the conditions set out in points (a) or (b) of the first subparagraph of point (39) are met.
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial state men ts and related repo rts o f ce rta in ty p es of undertakings, amending LJ i recti v e 2006/43/EC of the European Parliament and of the Council and
repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, P. 19).
40
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [one year after the entry into force of the Regulation].
Power is conferred on the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with /Art i c I es 10 to 14 of Regulation (EU) No 1093/2010.".
Art i cle 6 is amended as follows.
(a) Paragraph 1 is replaced by the following.
Institutions shall comply with obligations laid down in Parts T wo to Five, Seven and Eight on an individual basis. ,
(b) The following paragraph 1a is inserted.
1a. By way of derogation from paragraph 1, only institutions identified as resolution entities, that are also G-SII or are part of a G-SII and that do not have subsidiaries shall comply with the requirement laid down in A rticle 92a on an individual basis.
Only material subsidiaries of a non-EU G"SII that are not subsidiaries of an EU parent institution, that are not resolution entities and that do not have subsidiaries shall comply with Art i cle 92b on an individual basis. .
I n Art i cle 7, paragraphs 1 and 2 are replaced by the following.
"1. C ompetent authorities may waive the application of Article 6(1) to any subsidiary, where both the subsidiary and the parent undertaking have their head off ice situated in the same M ember State and the subsidiary is included in the supervision on a consolidated basis of the parent undertaking, which is an institution, a financial holding company or a mixed financial holding company, and all of the following conditions are satisfied, in order to ensure that own funds are distributed adequately between the parent undertaking and the subsidiary.
(a) there is no current or expected material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities by the parent undertaking to the subsidiary,
(b) either the parent unde rta king satisfies the competent authori ty regarding the prudent management of the subsidiary and has declared, with the permission of the competent authori ty, that it guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of negligible interest,
(c) the risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary,
(d) the parent undertaking holds more than 50 % of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary.
2. After having consulted the consolidating supervisor, the competent authori ty may waive the application of Article 6(1) to a subsidiary having the head office situated in a different Member State than the head office of its parent undertaking and included in the supervision on a consolidated basis of that parent undertaking, which is an
41
institution, a financial holding company or a mixed financial holding company, provided that all of the following conditions are satisfied.
(a) the conditions laid down in points (a) to (d) of paragraph 1,
(b) the institution grants a guarantee to its subsidiary, which at all times fulfils the following conditions.
(■)
the guarantee is provided for at least an amount equivalent to the amount of the own funds requirement of the subsidiary which is waived,
(ii) the guarantee is triggered when the subsidiary is unable to pay its debts
or other liabilities as they fall due or a determination has been made in accordance with Artie,e 59(3) of D i re cti v e 2014/59/EU in respect of the subsi diary, whichever is the earliest,
l^iiij the guarantee is fully c o I I ate r a I i se d for at least 50% of its a m o u nt th ro u g h a financial collateral arrangement as defined in point (a) of Artie,e 2(1) of l_J i re cti v e 2002/47/EC of the Luro pea n Parliament and of the Uouncil ,
(iv) the guarantee and financial collateral arrangement are governed by the laws of the M ember State where the head off ice of the subsidiary is situated, unless otherwise specified by the competent authority of the s u b s i d i a ry ,
(v) the collateral backing the guarantee is an eligible collateral as referred to in Article 197 , which, following appropriately conservative haircuts, is sufficient to fully cover the amount referred to in point (iii),
(vi) the collateral backing the guarantee is unencumbered and is not used as collateral to back any other guarantee,
(vii) there are no legal, regulatory or operational barriers to the transfer of the collateral from the parent undertaking to the relevant subsidiary. .
Artie,e 8 , s replaced by the following.
Article 8
Wa Ive r from the application of liquid ity requirements on an individual basis
Competent authorities may waive in full or in part the application of Part S i x to a n institution and to all or some of its subsidiaries having their head off ices situated in the same M e m b e r State as the institution s head office and supervise them as a single I i q u i d i ty sub~group, where all of the following conditions are satisfied.
(a) the parent institution on a consolidated basis or a subsidiary on a sub" consolidated basis complies with Part Six;
(b) the parent institution on a consolidated basis or the subsidiary institution on a sub"consolidated basis monitors at all times the liquidi ty positions of all
directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial
ollateral arrangements (OJ L 168, 27.6.2002, P. 43).
42
institutions within the liquidity sub~group that are subject to the waiver in accordance with this paragraph and ensures a sufficient level of liquidity for all of those institutions,
(c) the institutions within the liquidi ty sub~group have entered into contracts that, to the satisfaction of competent authorities, provide for the free movement of funds b etw een them to enable them to meet their individual and Joint obligations as they become due,
(d) there is no current or expected material practical or legal impediment to the fulfilment of the contracts referred to in point (c).
Competent authorities may waive in full or in part the application of Part S i x to a n institution and to all or some of its subsidiaries having their head off ices situated in d i f f e r e n t M ember States than the institutions head off ice and supervise them as a single liquidi ty sub~group, only after following the procedure laid down in Arti c I e 21 and only to the institutions whose competent authorities agree about the following e I e m e n ts .
ya) their assessment of the compliance with the conditions referred to in paragraph
1;
yb ) their assessment of the compliance of the organisation and treatment of
liquid i ty risk with the criteria set out in Article 86 of D i recti v e 2013/36/EU across the single liquidi ty sub~group,
yc) the distribution of amounts, location and ownership of the required liquid assets to be held within the single liquidi ty sub~group,
yd ) the determination of minimum amounts of liquid assets to be held by institutions for which the application of PartS ix will be waived,
ye) the need for stricter parameters than those set out in Part Six;
unrestricted sharing of complete information b etw een co mpetent authorities,
) a full understanding ofthe implications of such a waiver.
A n a u t h o r i ty that is competent for supervising on an individual basis an institution and all or some of its subsidiaries having their head off ices situated in different M ember States than the institutions head off ice may waive in full or in part the application of Part S ix to that institution and to all or some of its subsidiaries and supervise them as a single liquidi ty sub~group, provided that all of the following conditions are satisfied.
(a) the conditions referred to in paragraph 1 and in point (b) of paragraph 2,
(b) the parent institution on a consolidated basis or a subsidiary institution on a sub"consolidated basis grants to the institution or group of institutions having their head off ice situated in another M ember State a guarantee that fulfils all of the following conditions.
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(.)
the guarantee is provided for an amount at least equivalent to the amount of the net liquidity outflows that the guarantee substitutes and that is calculated in accordance with Commission Delegated Regulation (EU) 2015/6rö on an individual basis for the institution or on a sub" consolidated basis for the group of institutions subjectto the waiver and benefitting from the guarantee, without taking into account any preferential treatment,
(ii) the guarantee is triggered when the institution or group of institutions subject to the waiver and benefitting from the guarantee is unable to pay its debts or other liabilities as they become due or a determination has been made in accordance with Artie,e 59(3) of D i re cti v e 2014/59/EU in respect of the institution or group of institutions subject to the waiver, whichever is the earliest,
(iii) the guarantee is fully col lateral ised through a financial collateral arrangement as defined in point (a) of Artie,e 2(1) of D i recti v e
2002/47/EC;
(iv) the guarantee and the financial collateral arrangement are governed by the laws of the M ember State where the head off ice of the institution or group of institutions subject to the waiver and benefitting from the guarantee is situated, unless otherwise specified by the competent a u t h o r i ty of those institutions,
(v) the collateral backing the guarantee is eligible as high quali ty liquid asset as defined in Art i cles 10 to 13 and 15 of Commission Delegated Regulation (EU) 2015/61 and, following the application of the haircuts referred to in Uhapter 2 or T itle II of that Regulation, covers at least 50% of the amount of the net liquid ity outflows calculated in accordance with that Regulation on an individual basis for the institution or on a sub_consolidated basis for the group of institutions subject to the waiver and benefitting from the guarantee, without taking into account any preferential treatment,
(vi) the collateral backing the guarantee is unencumbered and is not used as collateral to back any other transaction,
(vii) there are no current or expected legal, regulatory or practical impediments to the transfer of the collateral from the institution granting the guarantee to the institution or group of institutions subject to the waiver and benefitting from the guarantee.
Competent authorities may also apply paragraphs 1, 2 and 3 to one or some of the
Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 or the European Parliament and the Council with regard to liquidity coverage requirement
for Credit Institutions (OJ L11, 17.1.2015, p. 1).
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subsidiaries of a financial holding company or mixed financial holding company and supervise as a single liquidi ty sub~group the financial holding company or mixed financial holding company and the subsidiaries that are subject to a waiver or the subsidiaries that are subjectto a waiver only. References in paragraphs 1, 2 and 3 to the parent institution shall be understood as covering the financial holding company or the mixed financial holding company.
Competent authorities may also apply paragraphs 1, 2 and 3 to institutions which are members of the same institutional protection scheme referred to in Artie,e 113(7), provided that those institutions meet all the conditions laid down therein, and to other institutions linked by a relationship as referred to in Artie,e 113(6), provided that those institutions meet all the conditions laid down therein. Competent authorities shall in that case determine one of the institutions subjectto the waiver to meet Part Six on the basis of the consolidated situation of all institutions of the single liquid i ty sub_group.
W here a waiver has been granted under paragraphs 1 to 5, competent authorities may also apply Article 86 of D i re cti v e 2013/36/EU, or parts thereof, at the level of the single liquidi ty sub~group and waive the application of Article 86 of D i recti v e 2013/36/EU, or pa rts thereof, on an individual basis.
W here a waiver has been granted under paragraphs 1 to 5, for the pa rts of Part Six that are waived, competent authorities shall apply the reporting obligations set out in Article 415 of this Ixegulation at the level of the single liquidi ty sub group and waive the application of Article 415 on an individual basis.
W here a waiver is not granted under paragraphs 1 to 5 to institutions to which a
waiver was previously granted on an individual basis, competent authorities shall
take into account the time needed for those institutions to get prepared for the
application of Part S ix or part thereof and provide for an appropriate transitional
period before applying those provisions to those institutions. .
Article 11 is replaced by the following.
Article 11 General treatment
For the purpose of applying the requirements of this Regulation on a consolidated basis, the te rms institutions, parent institutions in a \\A em ber State , 'EU parent institution and parent undertaking , as the case may be, shall also refer to financial holding companies and mixed financial holding companies authorised in accordance
with Article 21a of Directive 2013/36/EU.
Parent institutions in a M ember State shall comply, to the extent and in the manner
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prescribed in Article 18, with the obligations laid down in Parts T wo to Tour and Tart Seven on the basis of their consolidated situation. The parent undertakings and their subsidiaries subject to this Regulation shall set up a proper organisational structure and appropriate internal control mechanisms in order to ensure that the data required for consolidation are duly processed and forwarded. In particular, they shall ensure that subsidiaries not subject to this Regulation implement arrangements, processes and mechanisms to ensure a proper consolidation.
By way of derogation from paragraph 2, only parent institutions identified as resolution entities that are G-Slls or p a rt of G-Slls or part of non- EU G-Slls shall comply with Art i cle 92a on a consolidated basis, to the extent and in the manner prescribed by Article 18.
Only EU parent undertakings that are a material subsidiary of non- EU G-Slls and are not resolution entities shall comply with Art i cle 92b on a consolidated basis to the extent and in the manner prescribed by Art i cle 18.
EU parent institutions shall comply with Part S ix on the basis of their consolidated situation, where the group comprises one or more credit institutions or investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of A nnex I to Directive 2004/39/EC Pending the report from the Vvom mission referred to in Article 508(2) of this Ixegulation, and where the group comprises only invest ment firms, competent authorities may exempt the EU parent institutions from compliance with Part S ix on a consolidated basis, taking into account the nature, scale and complexi ty of the investment firms a ct i v i t i es .
W here a waiver has been granted under paragraphs 1 to 5 of Article 8, the institutions and, where applicable, the financial holding companies or mixed financial holding companies that are part of a liquidity sub~group shall comply with PartS ix on a consolidated basis or on the sub_consolidated basis of the liquidi ty sub" gro u p.
W here Article 10 is applied, the central body referred to in that Article shall comply with the requirements of Pa rts Two to Eight on the basis of the consolidated situation of the whole as constituted by the central body together with its affiliated institutions. In addition to the requirements in paragraphs 1 to 4, and without prejudice to other provisions of this Kegulation and LJirective 2013/36/EU, when it is Justified for supervisory purposes by the specificities of the risk or of the capital structure of an institution or where M ember States adopt national laws requiring the structural separation of activities within a banking group, competent authorities may require the institution to comply with the obligations laid down in Parts T wo to Tour and
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Parts Six to Eight of this Regulation and in Title VII of D i re cti v e 2013/36/EU on a sub"consolidated basis.
Applying the approach set out in the first subparagraph shall be without prejudice to effective supervision on a consolidated basis and shall neither entail disproportionate adverse effects on the whole or pa rts of the financial system in other M ember State s or in the Union as a whole nor form or create an obstacle to the functioning of the internal market.
(8) Article 12 is replaced by the following.
Article 12
Co n s o I I da te d calculation fo r G-Slls with multiple resolution entities
Wh ere more than one G-SII entity belonging to the same G-SII is a resolution entities, the EU p a rent institution of that G-SII shall calculate the amount of own funds and eligible liabilities referred to in point (a) of Art i cle 92 a (1 ) . That calculation shall be und erta ken based on the consolidated situation of the EU parent institution as if it were the only resolution entity of the G-SII.
Where the amount calculated in accordance with the first subparagraph is lower than the sum of the amounts of own funds and eligible liabilities referred to in Article 92a(1)(a) of all resolution entities belonging to that G-SII, the resolution authorities shall act in accordance with Article 45d(3) and
45h(2) of D ireet i ve 2014/59/EU.
Wh ere the amount calculated in accordance with the first subparagraph is higher than the sum of the amounts of own funds and eligible liabilities referred to in Article 92a(1)(a) of all resolution entities belonging to that G-SII, the resolution authorities may act in accordance with Artiole 45d(3) and
45h(2) ot D ireet i ve 2014/59/EU.".
(9) Article 13 is replaced by the following.
Article 13
Application of disclosure requirements on a consolidated basis
1. EU parent institutions shall comply with Part E ight on the basis of their consolidated situation.
Large subsidiaries of EU parent institutions shall disclose the information specified
in Articles 437, 438, 440, 442, 450, 451, 451a, 451 d and 453 on an individual basis
or, where applicable in accordance with this Kegulation and LJirective 2013/36/EU, on a sub"consoli dated basis,.
2. Institutions identified as resolution entities that are a G-SII or are part of a G-Slls shall comply with Part E ight on the basis of their consolidated financial situation.
3. T he first subparagraph of paragraph I shall not apply to EU parent institutions, EU parent financial holding companies, EU parent mixed financial holding companies or resolution entities where they are included in equivalent disclosures on a consolidated basis provided by a parent undertaking established in a third country.
The second subparagraph of paragraph 1 shall apply to subsidiaries of parent undertakings established in a third country where those subsidiaries qualify as large subsidiaries.
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w here Article 10 is applied, the central body referred to in that Article shall comply
with Part E ight on the basis of the consolidated situation of the central body. Article
18(1) shall apply to the central body and the affiliated institutions shall be treated as
subsidiaries of the central body. .
Article 18 is replaced by the following.
Article 18 ods of prudential consolidation
The institutions, financial holding companies and mixed financial holding companies that are required to comply with the requirements referred to in Section 1 of this Chapter on the basis of their consolidated situation shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries. Paragraphs 3 to 7 of this Article shall not apply where Part S ix applies on the basis of the consolidated situation of an institution, financial holding company or mixed financial holding company or on the sub_consolidated situation of a liquidity sub~group as set out in Artie I es 8 and 10.
Institutions that are required to comply with the requirements referred to in Arti c I es 92a or 92 b on a consolidated basis shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries in the relevant resolution groups.
W here consolidated supervision is required pursuant to Article 111 of Directive 2013/36/EU, ancillary services undertakings shall be included in consolidation in the cases, and in accordance with the methods, laid down in this Artie,e.
W here undertakings are linked by a relationship within the meaning of Artie,e 22(7) of l_J i re cti v e 2013/34/EU, competent authorities shall determine how consolidation is to be carried out.
The consolidating supervisor shall require the proportional consolidation according to the share of capital held of participations in institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where the liabili ty of those undertakings is limited to the share of the capital they hold.
In the case of participations or capital ties other than those referred to in paragraphs 1 and 4, the competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require use of the equi ty m et h o d. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.
The competent authorities shall determine whether and how consolidation is to be
48
carried out in the following cases.
(a) where, in the opinion of the competent authorities, an institution exercises a significant influence over one or more institutions or financial institutions, but without holding a participation or other capital ties in these institutions, and
(b) where tw o or more institutions or financial institutions are placed under single management other than pursuantto a contract or clauses of their memoranda or articles of association.
In particular, the competent authorities may permit, or require use of, the method provided for in Artie,e 22(7) to (9) of Directive 2013/34/EU. T hat method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision.
EBA shall develop dra ft regulatory technical standards to specify conditions according to which consolidation shall be carried out in the cases referred to in paragraphs 2 to 6 of th i s Artie,e.
EBA shall submitthose draftregulatory technical standardsto the Uommission by 31 Dece m ber 201 6.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regu,at,on (EU) No 1093/2010.".
Article 22 is replaced by the following
Article 22
Sub-consolidation in case of entities in third countries
Subsidiary institutions shall apply the requirements laid down in Articles 89 to 91 and Parts T hree and Tour on the basis of their sub_consol idated situation if those institutions have an institution or a financial institution as a subsidiary in a third country, or hold a participation in such an unde rta king.
By way of derogation from paragraph 1, subsidiary institutions may not apply the requirements laid down in Articles 89 to 91 and Parts Three and Four on the basis of their sub_consolidated situation where the total assets of their subsidiary in the third country are less than 10 % of the total amount of the assets and off "balance sheet items of the subsidiary institution. The title of Part Two is replaced by the following.
" OWN FUNDS AND ELIGIBLE LIABILITIES".
I n Article 33(1), point (c) is replaced by the following.
\c) fair value gains and losses on derivative liabilities of the institution that result from changes in the own credit risk of the institution. .
In Article 36, point (j) is replaced by the following.
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(j) the amount of items required to be deducted from Ad ditional Tier 1 items pursuant to Article 56 that exceeds the /Ad ditional Tier 1 items of the institution, .
I n Art i cle 37, the following point (c) is added.
(c) the amount to be deducted shall be reduced by the amount of the accounting revaluation of the subsidiaries intangible assets derived from the consolidation of subsidiaries attributable to persons other than the undertakings included in the consolidation pursuantto Uhapter 2 or T itl e II of Part One.".
In the first subparagraph of Artie,e 39(2) , the introductory phrase is replaced by the following.
Deferred tax assets that do not rely on future profitabili ty shall be limited to deferred tax assets arising from temporary differences, created prior to [date of adoption by the College of the amending Regulation], where all the following conditions are met. .
I n Article 45, point (i) of point (a) is replaced by the following.
(i) the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the long position is at I east 365 days,
I n Article 49, the following subparagraph is added at the end of paragraph 2.
This paragraph shall not apply when calculating own funds for the purposes of the requirements in Articles 92a and 92b. .
Artie,e 52(1) is amended as follows.
(a) point (a) is replaced by the following
(a) the instruments are directly issued by an institution and fully paid up ,
(b) point (p) is replaced by the following.
(p) the law or contractual provisions governing the in st rumen ts require that, upon a decision by the resolution authority to exercise the power referred to in Article 59 of D i re cti v e 2014/59/EU, the principal amount of the in st rumen ts is to be written down on a permanent basis or the instruments are to be converted to Vvommon Qquity Tier 1 i n str u m e nts , ,
in para grap
h 1, the following points (q) and (r) are added.
yq) the in st rumen ts may only be issued under, or be otherwise subjectto the laws of a third country where, under those laws, the exercise of the write down and conversion power referred to in Article 59 of D i recti v e 2014/59/EU is effective and enforceable based on statutory provisions or legally enforceable contractual provisions that recognise resolution or other write~down or conversion actions,
(r) the instruments are not subject to any set - of f arrangements or netting rights that would undermine their capacity to absorb losses. .
I n Article 56, point (e) is replaced by the following.
\e) the amount of items required to be deducted from Tier 2 items pursuant to
50
Article 66 that exceeds the Tier2 items of the institution, .
I n Article 59, point (i) of point (a) is replaced by the following.
(i) the maturity date of the short position is the same as, or later than the maturity date of the long position or the residual maturity of the long position is at least 365 days, .
In Article 62, point (a) is replaced by the following.
(a) capital in st rumen ts and subordinated loans where the conditions laid down in Article 63 are met, and to the ex tent specified in Article 64;".
Art i cle 63 is amended as follows.
(a) point (a) is replaced by the following.
(a) the in st rumen ts are directly issued or the subordinated loans are directly raised, as applicable, by an institution and fully paid_up,
(b) point (d) is replaced by the following.
(d) the claim on the principal amount of the instruments under the provisions governing the instruments or the claim of the principal amount of the subordinated loans under the provisions governing the subordinated loans, as applicable, ranks below any claim from eligible liabilities instruments, .
(c) point (n) is replaced by the following.
(n) the law or contractual provisions governing the in st rumen ts require that, upon a decision by the resolution author i ty to exercise the power referred to in Article 59 of D i re cti v e 2014/59/EU, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Vvommon Qquity Tier 1 i n str u m e nts ,
(d) the following points (o) and (p) are added.
(o) the in st rumen ts may only be issued under, or be otherwise subject to the laws of a third country where, under those laws, the exercise of the write down and conversion power referred to in Article 59 of D i re cti v e 2014/59/EU is effective and enforceable based on statutory provisions or legally enforceable contractual provisions that recognise resolution or other write~down or conversion actions,
(p) the instruments are notsubjectto any set" off arrangements or netting rights that would undermine their capacity to absorb losses. .
Article 64 is replaced by the following.
"Article 64 Amortisation of Tier 2 i nstr u m e nts
The full amount of Tier 2 in st rumen ts with a residual maturi ty of more than five years shall qualify as Tier 2 i te m s .
The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of matur i ty of the instruments is calculated by multiplying the result derived
51
from the calculation in point y&) by the amount referred to in point yb) as follows.
(a) the carrying amount of the instruments or subordinated loans on the first day of the final five year period of their contractual maturity divided by the number of calendar days in that period,
(b) the number of remaining calendar days of contractual maturi ty of the instruments or subordinated loans. .
i n Article 66, the following point (e) is added.
(e) the amount of items required to be deducted from eligible liabilities items pursuant to Art i cle 7 2 e that exceeds the eligible liabilities of the institution. .
i n Article 69, point (i) of point (a) is replaced by the following.
(i) the maturity date of the short position is the same as, or later than the maturity date of the long position or the residual maturity of the long position is at least 365 days, .
The following Chapter 5a is inserted after Art i cle 72.
"CHAPTER 5a
Eligible liabilities
Section 1
Eligible liabilities items and instruments
Article 72a E, igible liabilities items
Eligible liabilities items shall consist of the following, unless they fall into any of the categories of excluded liabilities laid down in paragraph 2.
(a) eligible liabilities in st rumen ts where the conditions laid down in Art i cle 72b are met, to the extent that they do not qualify as L/ommon Lquity Tier 1, Ad ditional Tier 1 and Tier 2 items,
(b) Tier 2 instruments with a residual maturi ty of at least one year, to the extent thatthey do not qualify as items in accordance with Article 64.
By way of derogation from paragraph 1, the following liabilities shall be excluded from eligible liabilities items.
(a) covered deposits,
(b) sight deposits and shortterm deposits with an original maturi ty of less than one year,
(c) the part of eligible deposits from natural persons and micro, small and medium_sized enterprises which exceeds the coverage level referred to in Artie,e 6 of Direetive 2014/49/EU;
(d) deposits that would be eligible deposits from natural persons, micro, small and m e d i u m—s ized enterprises if they were not made through branches located
52
outside the Union of institutions established within the Union,
secured liabilities, including covered bonds and liabilities in the form of financial instruments used for hedging purposes that form an integral part of the cover pool and that according to national law are secured in a way similar to covered bonds, provided that all secured assets relating to a covered bond cover pool remain unaffected, segregated and with enough funding and excluding any part of a secured liabili ty or a I i a b i I i ty for which collateral has been pledged that exceeds the value of the assets, pledge, lien or collateral against which it is secured,
any liabili ty that arises by virtue of the holding of client assets or client money including client assets or client money held on behalf of collective investment undertakings, provided that such a client is protected under the applicable insolvency law,
any liabili ty that arises by virtue of a fiduciary relationship b etw een the resolution e n t i ty or any of its subsidiaries (as fiduciary) and another person (as beneficiary) provided that such a beneficiary is protected under the applicable insolvency or civil law,
liabilities to institutions, excluding liabilities to entities that are part of the same group, with an original maturity of less than seven days,
liabilities with a remaining maturi ty of less than seven days, owed to systems or operators of systems designated in accordance with LJirective 98/26/EC or their participants and arising from the participation in such a system,
a liabili ty to any one of the following.
(■)
an employee, in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of remuneration that is not regulated by a collective bargaining agreement, and except for the variable component of the remuneration of material risk takers as referred to in Artie,e 92(2) of D i re cti v e 2013/36/EU;
(ii) a commercial or trade creditor, where the liabili ty arises from the provision to the institution or the parent undertaking of goods or services that are critical to the daily functioning of the institution s or parent undertakings operations, including IT services, utilities and the rental, servicing and upkeep of premises,
(iii) tax and social security authorities, provided that those liabilities are preferred under the applicable law,
(iv) deposit guarantee schemes, where the liability arises from contributions due in accordance with LJirective 2014/49/EU.
liabilities arising from derivatives,
liabilities arising from debt instruments with embedded derivatives.
Article 72b
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Ei igible liabilities instruments
Liabilities shall qualify as eligible liabilities instruments, provided they comply with the conditions laid down in this Artie,e and only to the extent specified in this Arti c I e.
Liabilities shall qualify as eligible liabilities instruments provided that all of the following conditions are met.
(a) the liabilities are directly issued or raised, as applicable, by an institution and are fully paid_up,
(b) the liabilities are not purchased by any of the following.
(.)
the institution or an entity included in the same resolution group,
\'\'\) an undertaking in which the institution has a direct or indirect participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights orcapital of that undertaking,
the purchase of the liabilities is not funded directly or indirectly by the resolution entity,
the claim on the principal amount of the liabilities under the provisions governing the instruments is wholly subordinated to claims arising from the excluded liabilities referred to in Artie,e 72a(2). T his subordination requirement shall be considered to be met in any of the following situations.
(i) the contractual provisions governing the liabilities specify that in the event of normal insolvency proceedings as defined in point 47 of Artie,e 2(1) of D i re cti v e 2014/59/EU , the claim on the principal amount of the instruments ranks below claims arising from any of the excluded liabilities referred to in Artie,e 72a(2);
(ii) the law governing the liabilities specifies that in the event of normal insolvency proceedings as defined in point 47 of Artie,e 2(1) of Directive 2014/59/EU, the claim on the principal amount of the instruments ranks below claims arising from any of the excluded liabilities referred to in Artie,e 72a(2);
the in st rumen ts are issued by a resolution e n t i ty which does not have on its balance sheet any excluded liabilities as referred to in Article 72a(2) that rank pari passu orjuniorto eligible liabilities instruments,
the liabilities are neither secured, nor subject to a guarantee or any other arrangement that enhances the seniori ty of the claim by any of the following.
(■)
the institution or its subsidiaries,
the parent undertaking of the institution or its subsidiaries,
any undertaking that has close links with entities referred to in points (i)
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\g J the liabilities are not subject to any set off arrangements or netting rights that would undermine their capacity to absorb losses in resolution,
(h) the provisions governing the liabilities do not include any incentive for their principal amount to be called, redeemed, repurchased prior to their maturi ty o r repaid early by the institution, as applicable,
(i) subject to Article 72c(2), the liabilities are not redeemable by the holders of the in st rumen ts prior to their maturi ty ,
G)
(■)
where the liabilities include one or more call options or early repayment options, as applicable, the options are exercisable at the sole discretion of the i ss u e r,
the liabilities may only be called, redeemed, repurchased or repaid early where the conditions laid down in Articles 77 and 78 are met,
the provisions governing the liabilities do not indicate explicitly or implicitly that the liabilities would or might be called, redeemed, repurchased or repaid early, as applicable by the resolution e n t i ty other than in case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication,
(m) the provisions governing the liabilities do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in case of the insolvency or liquidation of the resolution e n t i ty ,
(n) the level of interest or dividend payments, as applicable, due on the liabilities is not be amended on the basis of the credit standing of the resolution e n ti ty or its parent undertaking,
(o) the contractual provisions governing the liabilities require that, where the resolution authority exercises write down and conversion powers in accordance with Article 48 of D i re cti v e 2014/59/EU, the principal amount of the liabilities be written down on a permanent basis or the liabilities be converted to Com mon Equity Tier 1 i n str u m e nts .
In addition to the liabilities referred to in paragraph 2, liabilities shall qualify as eligible liabilities in st rumen ts up to an aggregate amount that does not exceed 3.5% ofthetotal risk exposure amount calculated in accordance with paragraphs 3 and 4 of Article 92, provided the
i at.
all the conditions laid down in paragraph 2 except for the condition in point ^ d J are m et,
the liabilities rank pari passu with the lowest ranking excluded liabilities ref e rre d to i n Article 72a(2); and
the inclusion of these liabilities in eligible liabilities items does not have a material adverse impact on the resolvabil i ty of the institution, as confirmed by the resolution author i ty after having assessed the elements referred to in points
55
(b) and (c) of Artie,e 45b(3) of D i re cti v e 2014/59/EU.
An institution may decide not to include in eligible liabilities items the liabilities referred to in the first subparagraph.
W here an institution takes a decision as referred to in the second subparagraph of paragraph 3, liabilities shall qualify as eligible liabilities instruments in addition to the liabilities referred to in paragraph 2, provided that.
(a) the decision by the institution not to include in eligible liabilities items liabilities referred to in the first subparagraph of paragraph 3 is effective, in accordance with paragraph 5,
(b) all the conditions laid down in paragraph 2, except for the condition in point (d) of that paragraph, are met,
(c) the liabilities rank pari passu or are senior to the lowest ranking excluded liabilities referred to in Artie,e 72a(2);
(d) on the balance sheet of the institution, the amount of the excluded liabilities refe rre d to i n Artie,e 72a(2) which rank pari passu or below those liabilities in insolvency does not exceed 5% of the amount of the own funds and eligible liabilities of the institution,
(e) the inclusion of those liabilities in eligible liabilities items does not have a material adverse impact on the resolvabil i ty of the institution, as confirmed by the resolution author i ty after having assessed the elements referred to in points (b) and (c) of Artie,e 45b(3) of D i recti v e 2014/59/EU.
The decision referred to in the second subparagraph of paragraph 3 shall speci f y whether the institution intends either to include the liabilities referred to in paragraph 4 in eligible liabilities items or not to include any of the liabilities referred to in paragraphs 3 and 4. A n institution may not decide to include liabilities referred to in both paragraphs 3 and 4 in eligible liabilities items.
The decision shall be published in the annual report and shall take effect 6 months after the publication of that report. The decision shall be effective for at least one year.
The competent authority shall consult the resolution authori ty when examining whetherthe conditions of this Artie,e are fulfilled.
Article 72c
Amortisation of eligible liabilities instruments
Eligible liabilities instruments with a residual maturity of at least one year shall fully qualify as eligible liabilities items.
Eligible liabilities in st rumen ts with a residual maturi ty below one year shall not qualify as eligible liabilities items.
For the purposes of paragraph 1, wh
ere a eligible liabilities instrument includes a
56
holder redemption option exercisable prior to the original stated maturity of the instrument, the maturi ty of the instrument shall be defined as the earliest possible date on which the holder can exercise the redemption option and request redemption or repayment of the instrument.
Article 72d
Consequences of the eligibility conditions ceasing to be met
Where in the case of an eligible liabilities instrument the applicable conditions laid down in Article 72b cease to be met, the liabilities shall immediately cease to qualify as eligible liabilities in str u m ents.
Liabilities referred to in Article 72b(2) may continue to count as eligible liabilities instruments as long as they qualify as eligible liabilities instruments under Article 72b(3) or Artie, e72b(4).
Section 2
deductions from eligible liabilities items
Article 72e Deductions from eligible liabilities items
Institutions that are subject to Art i cle 92a shall deduct the following from eligible I i a b i I iti es ite m s .
(a) direct, indirect and synthetic holdings by the institution of own eligible liabilities in st rumen ts, including own liabilities that that institution could be obliged to purchase as a result of existing contractual obligations,
(b) direct, indirect and synthetic holdings by the institution of eligible liabilities instruments of g-sii entities with which the institution has reciprocal cross holdings that the competent authori ty considers to have been designed to artificially inflate the loss absorption and recapitalisation capaci ty of the resolution e ntity ,
(c) the applicable amount determined in accordance with Art icle 72i of direct, indirect and synthetic holdings of eligible liabilities instruments of g-sii entities, where the institution does not have a significant investment in those entities,
(d) direct, indirect and synthetic holdings by the institution of eligible liabilities in st rumen ts of g-sii entities, where the institution has a significant investment in those entities, excluding underwriting positions held for fewer than five working days.
For the purposes of this Section, all in st rumen ts ranking pari passu with eligible liabilities instruments shall be treated as eligible liabilities in st rumen ts, with the exception of in st rumen ts ranking pari passu with in st rumen ts recognised as eligible liabilities pursuantto Article 72b(3) and (4).
For the purposes ofthisSection, institutions may calculate the amount of holdings of
57
the eligible liabilities instruments referred to in Art i cle / /L.b\ó) as follows.
h — the amount of holdings of the eligible liabilities instruments referred to in
Arti c I e 72 b (3) ',
i — the index denoting the issuing institution,
H i = the total amount of holdings of eligible liabilities of the issuing institution i
referred to in Article 72b(3),
I i = the amount of liabilities included in eligible liabilities items by the issuing
institution i within the limits specified in Arti cle 72b(3) according to the latest disclosures by the issuing institution,
— the total amount of the outstanding liabilities of the issuing institution i referred to in Article 72b(3) according to the latest disclosures by the issuer.
W here an EU parent institution or a parent institution in a Member State that is subject to Arti cle 92a has direct, indirect or synthetic holdings of own funds instruments or eligible liabilities in st rumen ts of one or more subsidiaries which do not belong to the same resolution group as that parent institution, the resolution a u t h o r i ty of that parent institution, after consulting the resolution authorities of any subsidiaries concerned, may permitthe parent institution to derogate from paragraphs 1(c), 1(d) and 2 by deducting a lower amount specified by the home resolution a u t h o r i ty. That lower amount must be at least equal to the amount (m) calculated as follows.
mt =0i + ?i- max {0; [(Oj + P4) - rRG x Rt]}
Where
i = the index denoting the subsidiary,
01 = the amount of own funds instruments issued by subsidiary i which is
recognised in consolidated own funds by the parent institution,
Pi = the amount of eligible liabilities in st rumen ts issued by subsidiary i and held
by the parent institution,
rR(3 = the ratio applicable to the respective resolution group in accordance with point (a) of Article 92a(l) and Article 45d of Directive 2014/59/EU;
R, = the total risk exposure amount of the G SM e n t i ty i calculated in accordance
w i th Artie,e 92(3) ahd (4).
58
Wh
ere the parent institution is allowed to deduct the lower amount in accordance
with the first subparagraph, the difference b etw een the amount calculated in accordance with paragraphs 1(c), 1(d) and 2 and this lower amount shall be deducted by the subsidiary from the corresponding element of own funds and eligible liabilities.
Article 72f
Deduction of holdings of own eligible liabilities instruments
For the purposes of point (a) of Article 72e (1 ) , institutions shall calculate holdings on the basis of the gross long positions subject to the following exceptions.
(a) institutions may calculate the amount of holdings on the basis of the net long position
provided that both the following conditions are met.
(0
the long and short positions are in the same underlying exposure and the short positions involve no counterparty risk,
(ii) either both the long and the short positions are held in the trading book or both are held in the non~trading book,
institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own eligible liabilities instruments in those indices,
institutions may net gross long positions in own eligible liabilities instruments resulting from holdings of index securities against short positions in own eligible liabilities in st rumen ts resulting from short positions in underlying indices, including where those short positions involve counterpa rty risk, provided that both the following conditions are met.
(0
the long and short positions are in the same underlying indices,
\'\'\) either both the long and the short positions are held in the trading book or both are held in the non~trading book.
Article 72g Deduction base for eligible liabilities Items
For the purposes of points (b), (c) and (d) of Artie,e 72e(1), institutions shall deduct the gross long positions subjectto the exceptions laid down in Art i c I es 72 h to
Article 72h
Deduction of holdings of eligible liabilities of other GSII entities
Institutions not making use of the exception set out in Article 72j, they shall make the deductions referred to in points (c) and (d) of Artie,e72e(1) in accordance with the following.
(a) they may calculate direct, indirect and synthetic holdings of eligible liabilities
instruments on the basis of the net long position in the same underlying exposure provided that both the following conditions are met.
(i) the maturity of the short position matchesthe maturity of the long position or has a residual maturity of at least one year,
59
\\'\) either both the long position and the short position are held in the trading book or both are held in the non~trading book
they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by looking through to the underlying exposure to the eligible liabilities instruments in those indices.
Article 72i
duction of eligible liabilities where the institution does not have a significant investment in
G-SII entities
For the purposes of point (c) of Article 72e(l), institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph.
(a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the L/ o m m o n Lquity Tier 1, A d d i t i o n a I Tier 1, Tier 2 instruments of financial sector entities and eligible liabilities instruments of G" Sll entities in none of which the institution has a significant investment exceeds 10% of the Vvommon Lqui ty Tier 1 items of the institution after applying the following.
(i) Articles 32 to 35|
points (a) to ( g ) / points (k)(ii) to (v) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitabil i ty and arise from temporary differences,
(iii) Articles 44 and 45;
yb) the amount of direct, indirect and synthetic holdings by the institution of the eligible liabili ty in st rumen ts of G-SII entities in which the institution does not have a significant investment divided by the aggregate amount of the direct, indirectand synthetic holdings by the institution ofthe L/ommon Lquity Tier 1, Additional Tier 1 , Tier 2 in st rumen ts of financial sector entities and eligible liabili ty instruments of G-SII entities in none of which the resolution e n t i ty has a significant investment.
Institutions shall exclude underwriting positions held for five working days or fewer from the amounts referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1.
The amount to be deducted pursuantto paragraph 1 shall be apportioned across each eligible liabilities instrument of a G-SII e n t i ty held by the institution. Institutions shall determine the amount of each eligible liabilities instrument that is deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph.
60
the amount of holdings required to be deducted pursuantto paragrap
hi
\b J the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the eligible liabilities in st rumen ts of G-SII entities in which the institution does not have a significant investment represented by each eligible liability instrument held by the institution.
4. T he amount of holdings referred to in point (c) of Artie,e 72e(1) that is equal to or less than 10 % of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a) (i), (ii) and (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weigh ts in accordance with Chapter 2 or 3 of Title I I of Part T hree and the requirements laid down in Title iv of PartT hree, as applicable.
5. Institutions shall determine the amount of each eligible liabilities instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount of holdings required to be risk weighted pursuantto paragraph 4 by the proportion resulting from the calculation in point (b) of paragraph 3.
Article 72j
Trading book exce pti o n from deductions from eligible liabilities Items
1. Institutions may decide not to deduct a designated part of their direct, indirect and synthetic holdings of eligible liabilities instruments, that in aggregate and measured on a gross long basis is equal to or less than 5% of the Vvommon Lqu ity Tier 1 i te m s of the institution after applying Articles 32 to 36, provided that all of the following conditions are met.
(a) the holdings are inthetrading book,
(b) the eligible liabilities instruments are held for no longerthan 30 business days.
2. T he amounts of the items that are not deducted pursuant to paragraph I shall be subjectto own funds requirements for items in the trading book.
3. W here in the case of holdings deducted in accordance with paragraph I the conditions laid down in that paragraph cease to be met, the holdings shall be deducted in accordance with Art i cle 7 2 g without applying the exceptions laid down in Articles 72h and 72i.
Section 3 Own funds and eligible liabilities
Article 72k E, i g I b I e Liabilities
The eligible liabilities of an institution shall consist of the eligible liabilities items of the institution after the deductions referred to in Article 72e.
61
Article 72i Own F~ u n ds and eligible liabilities
own funds and eligible liabilities of an institution shall consist ofthe sum of its own funds and its ible liabilities. .
8) I n Part T wo, Title I, the title of Chapter 0 is replaced by the following.
eneral requiremen ts f o r own funds and eligible liabilities
Arti cle 73 is amended as follows.
(a) the title is replaced by the following. Distributions on instruments ,
(b) paragraphs 1,2, 3 and 4 are replaced by the following.
"1. Ca pital instruments and liabilities for which an institution has the sole discretion to decide to pay distributions in a form other than cash or own funds in st rumen ts shall not be capable of qualifying as L/ommon Lquity Tier 1, A d d i t i o n a I Tier 1, Tier 2 or, eligible liabilities instruments, unless the institution has received the prior permission ofthe competent author ity .
2. C ompetent authorities shall grant the permission referred to in paragraph I only where they consider all the following conditions to be met.
(a) the ability of the institution to cancel payments under the instrument would not be adversely affected by the discretion referred to in paragraph 1, or by the form in which distributions could be made,
(b) the abili ty ofthe instrument or ofthe liabili ty to absorb losses would not be adversely affected by the discretion referred to in paragraph 1, or by the form in which distributions could be made,
(c) the quali ty of the capital instrument or liabili ty would not otherwise be reduced by the discretion referred to in paragraph 1, or by the form in which distributions could be made.
The competent authority shall consult the resolution author ity regarding an institution s compliance with those conditions before granting the permission referred to in paragraph 1.
3. Ca pital in st rumen ts and liabilities for which a legal person other than the institution issuing them has the discretion to decide or require that the payment of distributions on those instruments or liabilities shall be made in a form other than cash or own funds in st rumen ts shall not be capable of qualifying as Common Equi ty Tier 1, A d d i t i o n a I Tier 1, Tier2 or eligible liabilities instruments.
4. Institutions may use a broad market index as one ofthe bases for determining the level of distributions on /Ad d i t i o n a I Tier 1, Tier 2 and eligible liabilities i n str u m e nts . ,
(c) paragraph 6 is replaced by the following.
6. Institutions shall report and disclose the broad market indices on which their capital and eligible liabilities in st rumen ts rely. .
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(30) In Artie,e 75 the introductory phrase is replaced by the following.
The maturi ty requirements for short positions referred to in point (a) of Art i c I e 45, point (a) of Article 59, point (a) of Article 69 and point (a) of Article 72h shall be considered to be met in respect of positions held where all of the following conditions are met. .
(31) In Article 76, paragraphs 1, 2 and 3 are replaced by the following!
"1. F or the purposes of point (a) of Article 42, point (a) of Article 45, point (a) of Article 57, point (a) of Article 59, point (a) of Article 67, point (a) of Article 69 and point (a) of Art i cle 7 2 h, institutions may reduce the amount of a long position in a capital instrument by the portion of an index that is made up of the same underlying exposure that is being hedged, provided that all of the following conditions are met.
(a) either both the long position being hedged and the short position in an index used to hedge that long position are held in the trading book or both are held in the non~trading book,
(b) the positions referred to in point (a) are held at fair value on the balance sheet of the institution.
2. W here the competent authority has given its prior permission, an institution may use a conservative estimate of the underlying exposure of the institution to instruments included in indices as an alternative to an institution calculating its exposure to the items referred to in one or several of the following points.
\a) own L/ommon Qquity Tier 1, A d d i t i o n a I Tier 1, Tier 2 and eligible liabilities in st rumen ts included in indices,
\b) Vvommon Lqui ty Tier 1, A dditional Tier 1 and Tier 2 in st rumen ts of financial sector entities, included in indices,
(c) eligible liabilities in st rumen ts of institutions, included in indices.
3. C ompetent authorities shall grant the permission referred to in paragraph L. only where the institution has demonstrated to their satisfaction that it would be operationally burdensome for the institution to monitor its underlying exposure to the items referred to in one or several of the points of paragraph 2, as applicable. .
(32) Article 77 I s replaced by the following.
Article 77
Conditions for reducing own funds and eligible liabilities
An institution shall obtain the prior permission of the competent authority to do either or both of the f o Mowing.
\&) reduce, redeem or repurchase L/ o m m o n Lquity Tier 1 instruments issued by the
institution in a manner that is permitted under applicable national law,
(b) effect the call, redemption, repayment or repurchase of Additional Tier 1 , Tier 2 or
eligible liabilities instruments as applicable, prior to the date of their contractual m atu r i ty. .
(33) Article 78 i s replaced by the following.
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Article 78
Supervisory permission for reducing own funds and eligible liabilities
The competent authori ty shall grant permission for an institution to reduce, repurchase, call or redeem L/ommon Lquity Tier 1, A d d i t i o n a I Tier 1, Tier 2 or eligible liabilities instru ments where either of the following conditions is met.
(a) earlier than or at the same time as the action referred to in Arti c I e 77, the institution replaces the instruments referred to in Arti cle 77 with own funds or eligible liabilities instruments of equal or higher quali ty at terms that are sustainable for the income capacity of the institution,
(b) the institution has demon strated to the satisfaction of the competent authori ty that the own funds and eligible liabilities of the institution would, following the action in question, exceed the requirements laid down in this Regulation, in, Directive 201 3/36/EU and in LJirective 2014/59/EU by a margin that the co m petent authori ty considers necessary.
The competent authori ty shall consult the resolution authori ty before granting that p e r m i ss ion.
W here an institution provides sufficient safeguards as to its capaci ty to operate with own funds above the amount of the requirements laid down in this Regulation, in Directive 201 3/36/EU and in LJirective 2014/59/EU, the resolution author i ty , af te r consulting the competent authori ty, may grant a general prior permission to that institution to effect calls, redemptions, repayments or repurchases of eligible liabilities in st rumen ts, subjectto criteria that ensure that any such future actions will be in accordance with the conditions laid down in points (a) and (b) of this paragraph. This general prior permission shall be granted only for a certain time period, which shall not exceed one year, after which it may be renewed. The general prior permission shall only be granted for a certain predetermined amount, which shall be set by the resolution authori ty. Resolution authorities shall inform the competent authorities about any general prior permission granted.
W here an institution provides sufficient safeguards as to its capaci ty to operate with
own funds above the amount of the requirements laid down in this Regulation, in
Directive 201 3/36/EU and in LJirective 2014/59/EU, the competent authori ty , a fte r
consulting the resolution authori ty, may grant that institution a general prior
permission to that institution to effect calls, redemptions, repayments or repurchases
of eligible liabilities instruments, subject to criteria that ensure that any such future
actions will be in accordance with the conditions laid down in points (a) and (b) of
this paragraph. This general prior permission shall be granted only for a certain time
period, which shall not exceed one year, after which it may be renewed. The general
prior permission shall be granted for a certain predetermined amount, which shall be
set by the competent authority. In case of Common Equity Tier 1 instruments, that
0 0/
predetermined amount shall not exceed O/O of the relevant issue and shall not exceed 10 % of the amount by which Common Equity Tier 1 ca pital exceeds the sum of the Common Equity Tier 1 cap ital requirements laid down in this Ixegulation, in Directive 201 3/36/EU and in LJirective 2014/59/EU by a margin that the competent authori ty considers necessary. In case of Ad d i t i o n a I Tier 1 in st rumen ts or Tier 2
64
instruments, that predetermined amount shall not exceed 10% of the relevant issue and shall not exceed 3 % of the total amount of o u tsta n d i n g Ad d i ti o n a I Tier 1 instruments or Tier 2 instruments, as applicable. In case of eligible liabilities instruments, the predetermined amount shall be set by the by the resolution author i ty after it has consulted the competent authority.
Competent authorities shall withdraw the general prior permission where an institution breaches any of the criteria provided forthe purposes of that permission.
When assessing under point (a) of paragraph 1 the sustainabil ity of the replacement instruments for the income capacity of the institution, competent authorities shall consider the extent to which those replacement capital instruments and liabilities would be more costly forthe institution than those they would replace.
W here an institution takes an action referred to in point (a) of Art i cle 77 and the refusal of redemption ofL/ommon Lquity Tier 1 instruments referred to in Article 27 is prohibited by applicable national law, the competent authori ty may waive the conditions laid down in paragraph 1 of this Art i cle provided that the competent authori ty requires the institution to limit the redemption of such in st rumen ts on an appropriate basis.
Competent authorities may permit institutions to call, redeem, repay or repurchase Ad ditional Tier 1 or Tier 2 in st rumen ts during the five years following their date of i ss u e~w here the conditions laid down in paragraph 1 are met and any of the following conditions.
(a) there is a change in the regulatory classification of those instruments that would be likely to result in their exclusion from own funds or reclassification as a lower quality form of own funds, and both the following conditions are m et.
(■)
the competent authori ty considers such a change to be sufficiently c e rta i n,
(ii) the institution demon st rates to the satisfaction of the competent authori ty that the regulatory reclassification of those instruments was not reasonably foreseeable at the time of their issuance,
(b) there is a change in the applicable tax treatment of those in st rumen ts which the institution demon st rates to the satisfaction of the competent authori ty i s material and was not reasonably foreseeable at the time of their issuance,
\c) the instruments are grandfathered under Article 484 of the CRR;
(d) earlier than or at the same time as the action referred to in Art i cle 77, the institution replaces the instruments referred to in Art i cle 77 with own funds or eligible liabilities instruments of equal or higher quali ty at terms that are sustainable for the income capaci ty of the institution and the competent authority has permitted that action based on the determination that it would be
65
beneficial from a prudential point of view and Justified by exceptional circu instances,
(e) the Additional Tier 1 or Tier 2 instruments are repurchased for market making
purposes.
The competent author i ty shall consult the resolution authori ty on those conditions before granting permission.
EBA shall develop dra ft regulatory technical standards to speci f y the following.
(a) the meaning of sustainable for the income capaci ty of the institution,
(b) the appropriate bases of limitation of redemption referred to in paragraph 3,
(c) the process including the limits and procedures for granting approval in advance by competent authorities for an action listed in Art i cle 77, and data requirements for an application by an institution for the permission of the competent authori ty to carry out an action listed in Art i cle 77, including the process to be applied in the case of redemption of shares issued to members of cooperative societies, and the time period for processing such an application,
(d) the exceptional circumstances referred to in paragraph 4,
(e) the meaning oftheterm market making referredto in paragraph 4.
E B A shall submit those draftregulatorytechnical standards to the Commission by [3 months after entry into force].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.".
Art i cle 79 is amended as follows.
(a) The title is replaced by the following.
Temporary waiver from deduction from own funds and eligible liabilities ,
(b) paragraph 1 is replaced by the following.
"1. W here an institution holds capital instruments or liabilities or has granted subordinated loans, as applicable, that qualify temporarily as L/ommon Lquity Tier 1, Additional Tier 1, Tier 2 in a financial sector e n t i ty or as eligible liabilities instruments in an institution and where the competent authori ty considers those holdings to be for the purposes of a financial assistance operation designed to reorganise and save that entity or that institution, the competent authority may waive on a temporary basis the provisions on deduction that would otherwise apply to those i n str u m e nts . .
Article 80 is amended as follows.
(a) The title is replaced by the following.
Continuing review of the quality of own funds and eligible liabilities ,
(b) paragraph 1 is replaced by the following.
"1. EBA shall monitor the quali ty of own funds and eligible liabilities instruments
66
issued by institutions across the Union and shall notify the Commission immediately where there is significant evidence that those in st rumen ts do not meet the respective eligibility criteria set out in this Regulation.
Competent authorities shall, without delay and upon request by EBA, f o r w a r d all information to EBA that EBA considers relevant concerning new capital in st rumen ts or new ty pes of liabilities issued in order to enable EBA to monitor the quality of own funds and eligible liabilities in st rumen ts issued by institutions across the Union. ,
(c) in paragraph 3, the introductory phrase is replaced by the following.
"3. EBA shall provide technical advice to the Uommission on any significant changes it considers to be required to the definition of own funds and eligible liabilities as a result of any of the following. .
(36) In Article 81, paragraph I is replaced by the following.
"1 . Minority interests shall comprise the sum ofCommon Equity Tier 1 cap i ta I where the following conditions are met.
(a) the subsidiary is one ofthe following.
(i) an institution,
(ii) an undertaking that is subject by virtue of applicable national law to the requirements of this Kegulation and LJirective 2013/36/EU;
(iii) an intermediate financial holding company in a third country that is subject to the same rules as credit institutions of that third country and where the Uom mission has decided in accordance with Article 107(4) that those rules are at least equivalent to those of this Regulation,
(b) the subsidiary is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One|
\c) thevvommon Lqui ty Tier 1 ca pital, referred to in the introductory part of this paragraph, is owned by persons other than the undertakings included in the consolidation pursuantto Uhapter 2 or T itl e II of Part One.".
(37) Article 82 i s replaced by the following.
Article 82
(T)u a I ifying Additional Tier 1, Tier 1, Tier 2 ca p ita I and qua! ifying o wn fu n ds
Qualifying Ad d it i o n a I Tier 1, Tier 1, Tier 2 capital and qualifying own funds shall comprise the minority interest, Additional Tier 1 or Tier 2 instruments, as applicable, plus the related retained earnings and share premium accounts, of a subsidiary where the f o Mowing conditions are met.
(a) the subsidiary is either ofthe following.
(i) an institution,
(ii) an undertaking that is subject by virtue of applicable national law to the requirements of this Kegulation and LJirective 2013/36/EU;
(iii) an intermediate financial holding company in a third country that is subjectto
67
the same rules as credit institutions of that third country and where the Commission has decided in accordance with Article 107(4) that those rules are at least equivalent to those of this Regulation,
the subsidiary is included fully in the scope of consolidation pursuant to Chapter 2 of Title II of Part One|
those instruments are owned by persons other than the undertakings included in the consolidation pursuantto Uhapter 2 or T itl e II of Part One.".
I n Art i cle 83, the introductory phrase of paragraph 1 is replaced by the following.
"1. A dditional Tier 1 and Tier 2 in st rumen ts issued by a special purpose e n t i ty, and the related share premium accounts, are included until 31 December 2021 in q u a I i f y i n g Ad ditional Tier 1, Tier 1 or Tier 2 capital or qualifying own funds, as applicable, only where the following conditions are met. .
Art i cle 92 is amended as follows.
(a) in paragraph 1, the following point (d) is added.
(d) a leverage ratio of 3%.".
(b) in paragraph 3, points (b), (c) and (d) are replaced by the following.
(b) the own funds requirements for the trading~book business of an institution for th e f o Mowing.
(iv) market risks as determined in accordance with Title IV of th is r art,
(v) large exposures exceeding the limits specified in Articles 395 to 401 , to the extent that an institution is permitted to exceed those limits, as determined in accordance with Part F our.
\c) the own funds requirements for market risks as determined in Title IV of th i s r art for all business activities that generate foreign~exchange or com modi ty risks,
(d) the own funds requirements determined in accordance with Title V, with the exception of Article 379 for settlement risk. .
The following Arti cles 92a and 92b
are i n s e rte d .
Article 92a
GSII Re quirement for own funds and eligible liabilities
Subject to Arti cles 93 and 94 and to the exceptions set out in paragraph 2 of this Article, institutions identified as resolution entities and that are a G-SII or part of a G-SII shall at all times satisfy the following requirements for own funds and eligible I iabi I ities.
(a) a risk"based ratio of 1 8%, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total risk exposure amount calculated in accordance with paragraphs 3 and 4 of Article 92(3) and (4),
(b) a non~risk~based ratio of 6,75%, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total exposure
68
measure referred to in Artie,e 429(4).
2. The requirement laid down in paragraph 1 shall not apply in the following cases.
(a) within the three years following the date on which the institution or the group of which the institution is part has been identified as a G-SII ;
(b) within the tw o years following the date on which the resolution authori ty has applied the bail"in tool in accordance with LJirective 2014/59/EU;
(c) within the tw o years following the date on which the resolution e n t i ty has put in place an alternative private sector measure referred to in point (b) of Art i c I e
32(1) or D i recti v e 2014/59/EU by which capital in st rumen ts and other
liabilities have been written down or converted into L/ommon Lquity Tier 1 in order to recapitalise the resolution e n t i ty without the application of resolution to o I s.
3. W here the aggregate resulting from the application of the requirements laid down in point (a) of paragraph 1 to each resolution e nt i ty of the same G-SII exceeds the requirement of own funds and eligible liabilities calculated in accordance with Article 12, the resolution authori ty of the EU parent institution may, after having consulted the other relevant resolution authorities, act in accordance with Arti c I es 45d(3) or 45h(1)of Directive 2014/59/EU.
Article 92b
Nan-EU GSII Re q u ir e m e nt for own funds and eligible liabilities
Institutions that are material subsidiaries of non- EU G-Slls and that are not resolution entities shall at all times satisfy a requirement for own funds and eligible liabilities equal to 90%) of the requirements for own funds and eligible liabilities laid down in Article 92a.
For the purposes of compliance with paragraph 1, Additional Tier 1, Tier 2 and eligible liabilities i n str uments shall only count where they are held by the parent undertaking ofthe institution in a third cou ntry . .
(41) Artie,e 94 i s replaced by the following.
"Article 94
Derogation for small trading book business
1 . By way of derogation from point (b) of Article 92(3), institutions may calculate the
own funds requirement of their trading~book business in accordance with paragraph
2 provided that the size of the institutions' OH" and off"balance sheet trading~book
business is equal to or less than the following thresholds on the basis of an assessment carried out on a monthly basis.
(a) 5 % ofthe institutionstotal assets,
(b) EUR 50 million.
2. W here the conditions set out in paragraph I are met, institutions may calculate the
own funds requirement of their trading~book business as follows.
69
for the contracts listed in point 1 or A nnex II, contracts relating to equities which are referred to in point 3 or A nnex II and credit derivatives, institutions may exempt those positions from the own funds requirement referred to in
p o i nt ( b) of Artiee 92(3);
(b) for trading book positions other than those referred to in point (a), institutions may replace the own funds requirement referred to in point (b) of Artie,e 92(3) with the requirement calculated in accordance with point (a) of Artie,e 92(3).
Institutions shall calculate the size of their on- and off "balance sheet trading book business on a given date for the purposes of paragraph 1 in accordance with the following requirements.
all the positions assigned to the trading book in accordance with Artie,e 104 shall be included in the calculation except for the following.
(i) positions concerning f o re i g n ~ e x c h a n g e and commodities,
(ii) credit derivatives that are recognised as internal hedges again st non-trading book credit risk exposures or counterparty risk exposures,
(b) all positions shall be valued attheir market prices on that given date, where the market price of a position is not available on that date, institutions shall take the mo st recent market value for that position.
(c) the absolute value of long positions shall be summed with the absolute value of short positions.
Institutions shall noti f y the competent authorities when they calculate, or cease to calculate, the own fund requirements of their trading~book business in accordance with this paragraph 2.
A n institution that no longer meets any of the conditions of paragraph 1 shall immediately noti f y the competent authority thereof.
An institution shall cease to determine the own fund requirements of its trading~book business in accordance with paragraph 2 within three months in one of the following cases.
(a) the institution does not meet any of the conditions of paragraph 1 for three consecutive months,
(b) the institution does not meet any of the conditions of paragraph 1 during more than D out of the last 12 m o n t h s.
Where an institution ceases to calculate the own fund requirements of its trading-book business in accordance with this Artie,e, it shall only be permitted to calculate the own funds requirements of its trading~book business in accordance with this Artie,e where it demonstrates to the competent authority that all the conditions set out in paragraph 1 have been metfor an uninterrupted full year period.
70
Institutions shall not enter into a trading book position for the only purpose of complying with any of the conditions set out in paragraph 1 during the monthly assess m e nt. .
Artie,e 99 i s replaced by the following.
"At/c/e 99
Re p o rti n q on
own funds requirements and financial information
Institutions shall reportto their competent authorities on the obligations laid down in Article 92 in accordance with this Artie,e.
Resolution entities shall report to their competent authorities on the obligations laid down in Art i cle 92a and 92b at least on a semiannual basis.
In addition to the own funds reporting referred to in paragraph 1, institutions shall report financial information to their competent authorities where they are one of the following.
(a) an institution subjectto Article 4 of Regulation (EC) No 1606/2002;
(b) a credit institution that prepares its consolidated accounts in accordance with the international accounting standards pursuant to Art i cle 5(b) of Regulation
(EC) No 1606/2002.
Competent authorities may require from credit institutions that determine their own funds on a consolidated basis in accordance with international accounting standards pursuant to Artie,e 24(2) of this Kegulation, to report financial information in accordance with this Artie,e.
The reports required in accordance with paragraphs 1 to 3 shall be submi tte d on an annual basis by small institutions as defined in Article 430a and, s u bj e ct to paragraph 6, semiannually or more frequently by all other institutions.
The reporting on financial information referred to in paragraphs 2 and 3 shall only comprise information that is needed to provide a comprehensive view of the institution s risk profile and the systemic risks posed by institutions to the financial sector or the real economy as set out in Kegulation (EU) No 1093/2010. EBA shall develop dra ft implementing technical standards to specify the uniform formats, frequency, dates of reporting, definitions and IT solutions for the reporting referred to in paragraphs 1 to 3 and in Artie,e 100.
The reporting requirements laid down in this Article shall be applied to institutions in a proportionate manner, having regard to their size, complexity and the nature and level of risk of their activities.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Art i cle 15 of Regulation (EU)
No 1093/2010.
71
EBA shall assess the financial impact on institutions of Commission Implementing Regulation (EU) No 680/2014 in terms of compliance costs and report its findings to the Uom mission by no later than [31 December 2019], T hat report shall in particular examine whether reporting requirements have been applied in a sufficiently proportionate manner. For those purposes, the report shall.
(a) classify institutions into categories based on their size, complexi ty and the nature and level of risk of their activities. The report shall in particular include a category of small institutions as defined in Artie,e 430a;
(b) measure the reporting burden incurred by each category of institutions during the relevant period to meet the reporting requirements set out in Implementing Regulation (EU) No 680/2014, taking into account the following principles.
(■)
the reporting burden shall be measured as the ratio of compliance costs relative to institutions net income during the relevant period,
(ii) the compliance costs shall comprise all expenditure directly or indirectly related to the implementation and operation on an o n ~ g o i n g basis of the reporting systems, including expenditure on staff, IT systems, legal, accounting, auditing and consultancy services,
(iii) the relevant period shall refer to each annual period during which institutions have incurred compliance co sts to prepare for the implementation of the reporting requirements laid down in Implementing Kegulation (EU) No 680/2014 and to continue operating the reporting systems on an o n ~ g o i n g basis,
(c) assess whether and to what extent compliance co sts substantially prevented newly incorporated institutions from entering the market,
(d) assess the impact of compliance costs, as referred to in point (b)(ii), on each category of institutions in terms of opportunity costs, and
(e) recommend amendments of Implementing Regulation (EU) No 680/2014 to reduce the reporting burden on institutions or specified categories of institutions where appropriate having regard to the objectives of this Regulation and Directive 201 3/36/EU. T he report shall, at a minimum, make recommendations on how to reduce the level of granulari ty of reporting requirements for small institutions as defined in Artie,e 430a.
For the purposes of point (d) of paragraph 7, opportunity costs shall mean the value lostto institutions for services not provided to customers due to compliance costs. Competent authorities shall consult EBA on whether institutions, other than those
Commission Implementing Regulation (EU) No 680/2014 of 16 April 2014 I aying down implementing technical standards with regard to supervisory reporting of institutions according to hCegulation (EU) No
575/2013 or the European Parliament and of the Council (OJ L 191 28.6.2014, P. 1).
72
referred to in paragraphs 2 and 3, should report on financial information on a consolidated basis in accordance with paragraph 2, provided that all of the following conditions are met.
(a) the relevant institutions are not already reporting on a consolidated basis,
(b) the relevant institutions are subjectto an accounting framework in accordance
with LJirective 86/635/EEC;
(c) financial reporting is considered necessary to provide a comprehensive view of the risk profile of those institutions activities and of the systemic risks they pose to the financial sector or the real economy as set out in Regulation (EU)
No 1093/2010.
EBA shall develop dra ft implementing technical standards to specify the forma ts that institutions referred to in the first subparagraph shall use for the purposes set out therein.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the second subparagraph in accordance with Article 15 of Regulation
(EU) No 1093/2010.
W here a competent author i ty considers information not covered by the implementing technical standards referred to in paragraph 6 as necessary for the purposes set out in paragraph 0, it shall notify EBA and the ESRB of the additional information it deems necessary to include in the implementing technical standards referred to in that paragraph.
Competent authorities may waive the requirements to report data items specified in the implementing technical standards referred to in this Arti c I e and Art i cles 100, 101, 394, 415 and 430 where those data items are already available to the competent authorities by means other than those specified under the above mentioned implementing technical standards, including where that information is available to the competent authorities in differentformats or levels of granulari ty. . Artie,e 100 i s replaced by the following.
"Art,a,e WO
Reporting requirements on asset encumbrance
Institutions shall report to their competent authorities on their level of asset encu m brance.
The report referred to in paragraph 1 shall provide for a breakdown by type of asset encumbrance, such as repurchase agreements, securities lending, securitised exposures or loans attached as collateral to covered bonds.
I n Article 101 (1), the introductory phrase is replaced by the following.
1. Institutions shall report to their competent authorities on a semiannual basis
73
the following aggregate data for each national immovable property market to which they are exposed. .
I n Article 1 01 , p a ra g ra p h s 4 and 5 are replaced by the following.
"4. EBA shall develop dra ft implementing technical standards to specify uniform formats for, definitions of and frequencies and reporting dates of the aggregate data referred to in paragraph 1, as well as the IT solutions.
Power is conferred on the Commission to adoptthe implementing technical standards referred to in the first subparagraph in accordance with Art i cle 15 of Regulation (EU)
No 1093/2010.
5. By way of derogation from paragraph 1, small institutions as defined in Article 430a shall reportthe information referred to in paragraph I on an annual basis. .
Artie,e 102 is amended as follows.
(a) Paragraphs 2, 3 and 4 are replaced by the following.
"2. T rading intent shall be evidenced on the basis of the strategies, policies and procedures set up by the institution to manage the position or portfolio in accordance w i th Article 104.
3. Institutions shall establish and maintain systems and controls to manage their trading book in accordance with Articles 103.
4. T rading book positions shall be attributed to trading desks established by the institution in accordance with Article 104 b, unless the institution is eligible for the treatment set out in Article 94 or has been granted the waiver referred to in Article 104b(3)."
\b) I he following paragraphs 5 and 6 are added.
"5. P ositions in the trading book shall be subject to the requirements for prudent valuation specified in Article 1 05.
6. Institutions shall treat internal hedges in accordance with Article 106. . Art i cle 103 is amended as follows.
(a) Paragraph 1 is replaced by the following.
1. Institutions shall have in place clearly defined policies and procedures for the overall management of the trading book. Those policies and procedures shall at least add re ss.
(a) which activities the institution considers to be trading business and as constituting part of the trading book for own funds requirement purposes,
(b) the extent to which a position can be marked~to~market daily by reference to an active, liquid two_way market,
(c) for positions that are marked~to~ model, the extent to which the institution can.
(■)
identify all material risks of the position,
74
hedge all material risks of the position with instruments for which an active, liquid two_way market exists,
I derive reliable estimates for the key assumptions and parameters used in the model.
the extent to which the institution can, and is required to, generate valuations for the position that can be validated externally in a consistent manner,
the extentto which legal restrictions or other operational requirements would impede the institutions ability to effect a liquidation or hedge of the position in the shortterm,
the extent to which the institution can, and is required to, actively manage the risks of positions within its trading operation,
(g) the extent to which the institution may transfer risk or positions
b etw een the non~trading and trading books and the criteria for those transfers as referred to in Article 104b.";
(b) In paragraph 2, the introductory part is replaced by the following.
2. In managing its positions or po rtf o lios of positions in the trading book the institution shall comply with all ofthe following requirements. ,
(c) In paragraph 2, point (a) is replaced by the following.
(a) the institution shall have in place a clearly documented trading strategy for the position or po rtf o lios in the trading book, which shall be approved by senior management and include the expected holding period, ,
yd) In paragraph 2, the introductory part of point ) is amended as follows.
(b) the institution shall have in place clearly defined policies and procedures for the active management of positions or po rtf o lios in the trading book. Those policies and procedures shall include the following. ,
(e) In paragraph 2, point (b)(i) is amended as follows.
(i) which positions or po rtf o lios of positions may be entered into by each trading desk or, as the case may be, by designated dealers, .
Artie,e 104 i s replaced by the following.
"Art,a,e 104
Inclusion in the trading book
Institutions shall have in place clearly defined policies and procedures for determining which position to include in the trading book for the purposes of calculating their capital requirements, in accordance with the requirements set out in Artie,e 102, the definition oftrading book provided in point (86) of Artie,e 4(1) and the provisions of this Article, taking into account the institution s risk management
75
capabilities and practices. The institution shall fully document its compliance with those policies and procedures, shall subjectthem to internal audit at least on a yearly basis and make the results ofthat audit available to the competent authorities. Positions in the following instruments shall be assigned to the trading book.
in st rumen ts that meet the criteria for the inclusion in the correlation trading p o rtf o Mo ( CT P) , as referred to in paragraphs 6 to 9,
1 financial in st rumen ts that are managed on a trading desk established in accordance with Article 104b;
financial instruments giving rise to a net short credit or equ i ty position,
' instruments resulting from underwriting commitments,
financial assets or liabilities measured at fair value,
instruments resulting from m a r k et~ m a k i n g activities,
' collective investment undertakings, provided that they meet the conditions specified in paragraph 10 of th i s Artie e;
' I i ste d equities,
trad i ng~related SFTs;
G)
options including bifurcated embedded derivatives from instruments in the non_trading book that relate to credit or equity risk.
For the purposes of point (c) of this paragraph, an institution shall have a net short equi ty position where a decrease in an equi ty price results in a profit for the institution. Correspondingly, an institution shall have a net short credit position where a credit spread increase or deterioration in the credi tw orthiness of an issuer or group of issuers results in a profitforthe institution.
Positions in the following instruments shall not be assigned to the trading book.
(a) instruments designated for sec u riti sati o n warehousing,
(b) real estate holdings,
{ c) reta i I and SME cred it,
(d) other collective investment undertakings than the ones specified in point (g) of paragraph 2 in which the institution cannot look through the fund on a daily basis or where the institution cannot obtain real prices for its equity investment in the fund on a daily basis,
(e) derivative contracts with underlying instruments referred to in point (a) to (d),
(f) in st rumen ts held for the purpose of hedging a particularrisk of a position in an in st rum ent referred to in point (a) to (e).
N otw ithstanding paragraph 2, an institution may not assign a position in an instrument referred to in points (e) to (i) of paragraph 2 to the trading book where that institution is able to satisfy the competent authorities that the position is not held
76
with trading intend or does not hedge positions held with trading intend.
Competent authorities may require an institution to provide evidence that a position that is not referred to in paragraph 3 shall be assigned to the trading book. In the absence of suitable evidence, competent authorities may require the institution to reallocate that position to the non~trading book, except for the positions referred to in points (a) to (d) of paragraph 2.
Competent authorities may require an institution to provide evidence that a position that is not referred to in points (a) to (d) of paragraph 2 shall be assigned to the non~ trading book. In the absence of suitable evidence, competent authorities may require the institution to reallocate that position to the trading book, unless that position is referred to paragraph 3.
CTP se curitisation positions and n~th~to~default credit derivatives that meet all of the following criteria shall be assigned to the CTP:
(a) the positions are neither re~securitisation positions, nor options on a securitisation tranche, nor any other derivatives of securitisation exposures that do not provide a pro~rata share in the proceeds of a securitisation tranche,
(b) all their underlying instruments are.
(■)
single~name instruments, including single~name credit derivatives, for which a liquid tw o_way market exi sts,
(ii) commonlytraded indices based on the instruments referred to in point
(■)■
A tw o_way market is considered to exist where there are independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined within one day and settled at that price within a relatively short time conforming to trade c u sto m.
Positions with any of the following underlying instruments shall not be included in
the CTP:
(a) underlying instruments that belong to the exposure classes referred to in points (h) or (i) of Article 112;
(b) a claim on a special purpose e n t i ty, collateralised, directly or indirectly, by a position that, according to paragraph 6, would itself not be eligible for inclusion in the CTP.
Institutions may include in the CTP positions that are neither securitisation positions nor n_th"to"default credit derivatives but that hedge other positions of that po rtf o Mo, provided that a liquid tw o_way market as described in the last subparagraph of paragraph 7 existsforthe instrumentor its underlying instruments.
77
Institution shall assign a position in a collective investment undertaking to the trading book where it meets at least one of the following conditions.
(a) the institution can look through the collective investment undertaking on a daily basis,
(b) the institution can obtain prices for the collective investment undertaking on a daily basis. .
The following Articles 104a and 104 b are in se rte d .
"Article 104a 'classification of a position
Institutions shall have in place clearly defined policies for identifying which exceptional circumstancesjustify the re~classification of a trading book position as a non_trading book position or conversely a non~trading book position as a non~trading book for the purposes of determining their own funds requirements to the satisfaction of the competent authorities. The institutions shall review these policies at least annually.
EBA shall develop guidelines by [tw o years after the entry into force of this Regulation] on the meaning of exceptional circumstances for the purpose of this Arti c I e.
Competent authorities shall grant permission to re_cl assify a trading book position as a non_trading book position or conversely a non~trading book position as a non-trading book for the purposes of determining their own funds requirements only where the institution has provided the competent authorities with written evidence that its decision to re ~ cI a ss i f y that position is the result of an exceptional circumstance that is consistent with the policies set out by the institution in accordance with paragraph 1 . For that purpose, the institution shall provide sufficient evidence that the position no longer meets the condition to be classified as a trading book or non_trading book positions pursuant to Artie,e 104.
The decision referred to in the first subparagraph shall be approved by the management body of the institution.
W here the competent authorities have granted their permission in accordance with paragraph 2, the institution shall.
(a) publicly disclose at the earliest reporting date the information that its position has been reclassified,
(b) subject to the treatment set out in paragraph 4, determine as from the earliest reporting date the own funds requirements of the reclassified position in accordance with Article 92,
78
w here, at the earliest reporting date, the net change in the amount of the institution s own funds requirements arising from reclassifying the position results in a net decrease of own funds requirements, the institution shall hold additional own funds equal to this net change and publicly disclose the amount of those additional own funds. The amount of those additional own funds shall remain con st ant until the position matures unless, the competent authorities permit the institutionto phase this amount out at an earlier date.
The reclassification of a position in accordance with this article shall be irrevocable.
Article 104b quirements for trading desk
Institutions shall establish trading desks and attribute each of their trading book positions to one of these trading desks. Trading book positions shall be attributed to the same trading desk only where they satisfy the agreed business strategy for the trading desk and are consistently managed and monitored in accordance with paragraph 2.
Institutions trading desks shall at all times meetall of the following requirements.
(a) each trading desk shall have a clear and distinctive business strategy and a risk management structure that is adequate for its business strategy,
(b) each trading desk shall have a clear organisational structure,positions in a given trading desk shall be managed by designated dealers within the institution, each dealer shall have dedicated functions in the trading desk, one dealer shall be assigned to one trading desk only,one dealer in each trading desk shall take a lead role in overseeing the activities and the other dealers of the trading desk,
(c) position limits shall be set within each trading desk according to the business strategy ofthattrading desk,
(d) re p o rts on the activities, profitabili ty, risk management and regulatory requirements at the trading desk level shall be produced at least on a weekly basis and communicated to the management body of the institution on a regular basis,
(e) each trading desk shall have a clear annual business plan including a well" defined remuneration policy based on sound criteria used for performance measure m ent.
Institutions shall noti f y the competent authorities on the manner in which they comply with paragraph 2. Competent authorities may require an institution to change the structure or organisation of its trading desks to comply with this Artie,e. By way of derogation from paragraph 1, institutions using the approaches set out in points (a) and (c) of Artie,e 325(1) to determine the own funds requirements for
79
market risk may apply for a waiver for part or all of the requirements set out in this Art i cle. Competent authorities may grant the waiver where the institution demon st rates that.
(a) non_compliance with paragraph 2 would not have a material adverse impact on the institution s ability to manage and monitor effectively the market risks of its trading book positions,
(b) the institution complies with the general trading book management requirements set out in Article 103. .
Article 1 05 is amended as follows.
(a) paragraph 1 is replaced by the following.
1 . AII trading book positions and non~trading book positions measured at fair value shall be subject to the standards for prudent valuation specified in this Artie,e. Institutions shall in particular ensure that the prudent valuation of their trading book positions achieves an appropriate degree of certai n ty having regard to the dynamic nature of trading book positions and non~trading book positions measured at fair value, the demands of prudential soundness and the mode of operation and purpose of capital requirements in respect of trading book positions and non~trading book positions measured affair value. ,
(b) paragraphs 3 and 4 are replaced by the following.
3. Institutions shall revalue trading book positions affair value at least on a daily basis. Changes in the value of those positions shall be reported in the profit and loss account of the institution.
4. Institutions shall mark their trading book positions and non~trading book
positions measured at fair value to market whenever possible, including when applying the relevant capital treatmentto those positions. ,
(c) paragraphs 3 and 4 are replaced by the following.
"6. W here marking to market is not possible, institutions shall conservatively mark to model their positions and po rtf o lios, including when calculating own funds requirements for positions in the trading book and positions measured affair value in the non_trading book. ,
(d) in paragraph 7, the last subparagraph is replaced by the following.
For the purposes of point (cl), the model shall be developed or approved independently of the trading desks and shall be independently teste d, including validation ofthe mathematics, assumptions and s of tw are implementation. ,
\e) in paragraph
11,
point(a) is replaced by the following.
(a) the additional amount of time it would take to hedge out the position or the risks within the position beyond the liquidity horizons that have been assigned to the risk factors ofthe position in accordance with Article 325be, .
Article 1 06 is amended as follows.
(a) paragraphs 2 and 3 are replaced by the following.
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"2. T he requirements of paragraph I shall apply without prejudice to the requirements applicable to the hedged position in the non~trading book or in the trading book, where relevant.
3. W here an institution hedges a non~trading book credit risk exposure or
co u nterpa rty risk exposure using a credit derivative booked in its trading book, this credit derivative position shall be recognised as an internal hedge of the non~trading book credit risk exposure or counterpa rty risk exposure for the purpose of calculating the risk_wei g hted exposure amounts referred to in Artie,e 92(3)(a) where the institution enters into another credit derivative transaction with an eligible third party protection provider that meets the requirements for unfunded credit protection in the non~trading book and perfectly offsets the marketrisk of the internal hedge.
Both an internal hedge recognised in accordance with the first subparagraph and the credit derivative entered into with the third pa rty shall be included in the trading book for the purposes of calculating the own funds requirements for market risks. ,
\b) I he following paragraphs 4, 5 and 6 are added.
4. W here an institution hedges a non~trading book equi ty risk exposure using an e q u i ty derivative booked in its trading book, this equi ty derivative position shall be recognised as an internal hedge of the non~trading book equi ty risk exposure for the purpose of calculating the risk_wei g hted exposure amounts referred to in Article 92(3) (a) where the institution enters into another equi ty derivative transaction with an eligible third pa rty protection provider that meets the requirements for unfunded credit protection in the non~trading book and perfectly offsets the market risk of the internal hedge.
Both an internal hedge recognised in accordance with the first subparagraph and the equi ty derivative entered into with the third pa rty shall be included in the trading book for the purpose of calculating the own funds requirements for market risks.
5. W here an institution hedges non~trading book interest rate risk exposures using an interest rate risk position booked in its trading book, this position shall be considered to be an internal hedge for the purposes of assessing the interest rate risks arising from non_trading positions in accordance with Art i cles 84 and 98 of Directive 2013/36/EU where the following conditions are met.
(a) the position has been attributed to a trading desk established in accordance with Article 104 b the business strategy of which is solely dedicated to manage and mitigate the market risk of internal hedges of interest rate risk exposure. For that purpose, that trading desk may enter into other interest rate risk positions with third parties or other trading desks of the institution, as long as those other trading desks perfectly offset the market risk of those other interest rate risk positions by entering into opposite interest rate risk positions with third parties,
(b) the institution has fully documented how the position mitigates the interest rate risks arising from non~trading book positions for the purposes of the requirements laid down in Articles 84 and 98 of Directive 2013/36/EU;
6. T he own funds requirements for market risks of all the positions assigned to or entered into by the trading desk referred to in point (a) of paragraph 3 shall be calculated on a standalone basis as a separate po rtf o Mo and shall be additional to the
81
own funds requirements for the other trading book positions. .
I n Article 107, p aragraph O is replaced by the following.
"3. F or the purposes of this Kegulation, exposures to a third country investment firm, a third country credit institution and a third country exchange shall be treated as exposures to an institution only where the third country applies prudential and supervisory requirements to that entity that are at least equivalent to those applied in the Union. .
Article 128, paragraphs 1 and 2 are replaced by the following.
"1 . Institutions shall assign a 150 % risk weight to exposures that are associated with particularly high risks.
2. F or the purposes of this Artie,e, institutions shall treat speculative immovable property financing as exposures associated with particularly high risks. .
Article 132 is replaced by the following.
"Article 132
Own funds requirements for exposures in the form of units or shares in ClUs
Institutions shall calculate the risk_weighted exposure amount for their exposures in the form of units or shares in a CIU by multiplying the risk~weighted exposure amount of the ClU's exposures, calculated in accordance with the approaches referred to in the first subparagraph of paragraph 2, with the percentage of units or shares held by those institutions.
W here the conditions set out in paragraph O are met, institutions may apply the look" through approach in accordance with Artie,e 132a(1) or the m a n d ate " b a se d approach in accordance with Artie,e 132a(2).
Subject to Article 132b(2), institutions that do not apply the look"through approach
or the mandate based approach shall assign a risk weight of 1,250 % ('fall-back approach ') to their exposures in the form of units or shares in a CIU.
Institutions may calculate the risk weighted exposure amount for their exposures in the form of units or shares in a CIU by using a combination of the approaches referred to in this paragraph, provided that the conditions for using those approaches are m et.
Institutions may determine the risk weighted exposure amount of r a ClU's ex posures in accordance with the approaches set out in Art i cle 132a where all of the following conditions are met.
la) the CIU i s one of the following.
(i) an undertaking for collective investment in transferable securities (UCITS), governed by Directive 2009/65/EC;
(ii) an EU AIF managed by an EU AIFM registered under Article 3(3) of
Directive 2011/61/EU;
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U i i j an AIF managed by an EU AIFM authorised under Article 6 of
Directive 2011/61/EU;
(i v) an AIF managed by a non- EU AIFM authorised under Article 37 of
Directive 2011/61/EU;
(v) a non- EU AIF managed by a non- EU AIFM and marketed in accordance with Article 42 of D i re cti v e 2011/61/EU;
(b) the Cl U's prospectus or equivalent document includes the following:
(i) the categories of assets InwhichtheCIUis authorised to invest,
(ii) where investment limits apply, the relative limits and the methodologies to calculate them,
\c) reporting by the CIU to the institution complies with the following re q u i re m e nts .
(i) the business of the CIU is reported at least as frequently as that of the i n st i t u t i o n ,
(ii) the granularity of the financial information is sufficient to allow the institution to calculate the ClU's risk weighted exposure amount in accordance with the approach chosen by the institution,
(iii) where the institution applies the look"through approach, information about the underlying exposures is verified by an independent third p a rty .
Institutions that do not have adequate data or information to calculate the risk weighted exposure amount of a ClU's exposures in accordance with the approaches set out in Article 132a may rely on the calculations of a third party, provided that all of the following conditions are met.
(a) thethird pa rty is one of the following.
(i) the depository institution or the depository financial institution of the
CIU, provided that the CIU exclusively invests in securities and
deposits all securities at that depository institution or depository financial institution,
UN for ClUs not covered by point (i), the CIU management company, provided that the company meets the condition set out in point (a) of paragraph 3.
(b) thethird pa rty carries out the calculation in accordance with the approaches set out in paragraphs 1, 2 and 3 of Art i cle 132a, as applicable,
(c) an external auditor has confirmed the correctness of the third pa rty s
83
ca I c u I ati o n .
Institutions that rely on third_pa rty calculations shall multiply the risk weighted exposure amount of a ClU's exposures resulting from those calculations by a factor
or 1,2.
W here an institution applies the approaches referred to in Article 132a for the purpose of calculating the risk~weighted exposure amount of a ClU's ex posures
('level 1 CIU'), and any of the underlying exposures or the level 1 CIU is an exposure in the form of units or shares in another CIU ('level 2 CIU'), the risk
weighted exposure amount of the level 2 ClU's exposures may be calculated by using any of the three approaches described in paragraph 2. The institution may use the look"through approach to calculate the risk~weighted exposure amounts of ClUs' exposures in level O and any subsequent level only where it used that approach for the calculation in the preceding level. In any other scenario it shall use the fa I hback approach.
The risk weighted exposure amount of a ClU's exposures calculated in accordance with the look"through approach and the mandate based approach shall be capped at the risk weighted amount of that ClU's exposures calculated in accordance with the
fan-back approach.".
The following Art i cle 132a is inserted.
"Article 132a
Approaches fo r calculating risk we I g hted exposure a m o u nts of CI LJs
W here the conditions of Article 132(3) are met, institutions that have sufficient information about the individual underlying exposures of a CIU shall look through to those exposures to calculate the risk weighted exposure amount of the CIU, risk weighting all underlying exposures of the CIU as if they were directly held by those i n st i t u ti o n s .
W here the conditions of Article 132(3) are met, institutions that do not have sufficient information about the individual underlying exposures of a CIU to use the look"through approach may calculate the risk weighted exposure amount of those
exposures in accordance with the limits set in the ClU's mandate and relevant
legislation.
For the purposes of the fir st subparagraph, in stitutions shall carry out the calculations under the assumption that the CIU first incurs exposures to the maximum extent allowed under its mandate or relevant legislation in the exposures attracting the highest own funds requirement and then continues incurring exposures in descending order until the maximum total exposure limit is reached.
Institutions shall carry out the calculation referred to in the first subparagraph in accordance with the methods set out in this Chapter, in Chapter 5 of this Title, and in Sections 3, 4, or 5 or C hapterO of this I itle.
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By way of derogation from point (d) of Artie,e 92(3), institutions that calculate the risk weighted exposure amount of a ClU's exposures in accordance with paragraphs 1 or 2 of this r\rticle may replace the own funds requirement for the credit valuation adjustment risk of derivatives exposures of that CIU by an amount equal to 50% of the exposure value of those exposures calculated in accordance with Jection 3, 4 or 5 of Chapter 6 of this Title, as applicable.
By way of derogation from the first subparagraph, an institution may exclude from the calculation of the own funds requirement for credit valuation adjustment risk derivatives exposures which would not be subject to that requirement if they were incurred directly by the institution.
EBA shall develop dra ft regulatory technical standards to speci f y how institutions shall calculate the risk weighted exposure amount referred to in paragraph 2 where any of the inputs required for that calculation are not available.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [nine months after entry into force].
Power is conferred on the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cle 15 of Regulation (EU)
No 1093/2010.".
is i n se rte d .
(56) T he following Article 132b
"Article 132b
Exclusions from the approaches for calculating risk weighted exposure amounts of ClUs
/ o m m o n
Institutions shall exclude from the calculations referred to in Art i cle 132 C c Equity Tier 1 , A dditional Tier 1, and Tier 2 in st rumen ts held by a CIU which m u st be deducted in accordance with Article 36(1), Article 56 and Article 66, respectively. Institutions may exclude from the calculations referred to in Arti cle 132 exposures in the form of units or shares in ClUs in the sense of points (g) and (h) of Artie,e 150(1) and instead apply thetreatmentset out in Arti cle 133 to those exposures. . (57) Artie,e 152 i s replaced by the following.
"Article 152
Trea tm ent of exposures in the fo r m of u n its or shares in ClUs
Institutions shall calculate the risk weighted exposure amounts for their exposures in the form of units or shares in a CIU by multiplying the risk weighted exposure
amount of the CIU, ea, culated in accordance with the approaches set out in this Artie,e, with the percentage of units or shares held by those institutions.
W here the conditions in Artie,e 132(3) are met, institutions that have sufficient information about the individual underlying exposures of a CIU shall look through to those underlying exposures to calculate the risk weighted exposure amount of the
85
CIU, ri sk weighting all underlying exposures of the CIU as if they were directly held by the institutions.
By way of derogation from point (d) of Artie,e 92(3), institutions that calculate the risk weighted exposure amount of the CIU in accordance with paragraphs 1 or 2 of this Article may replace the own funds requirement for credit valuation adjustment risk of derivatives exposures of that CIU by an amount equal to 50% of the exposure value of those exposures calculated in accordance with Jection 3, 4 or 5 of Chapter 6 of this Title, as applicable.
By way of derogation from the first subparagraph, an institution may exclude from the calculation of the own funds requirement for credit valuation adjustment risk derivatives exposures which would not be subject to that requirement if they were incurred directly by the institution.
Institutions that apply the look"through approach in accordance with paragraphs 2 and 3 and that fulfil the conditions for permanent partial use in accordance with Article 1 50, or that do not meet the conditions for using the methods set out in this Chapter for all or parts of the underlying exposures of the CIU, shall calculate risk weighted exposure amounts and expected loss amounts in accordance with the following principles.
(a) for exposures belonging to the equity exposure class referred to in point (e) of Artie,e 147(2), institutions shall apply the simple risk_weight approach set out in Article 155(2);
(b) for exposures belonging to the securitisation exposure class, institutions shall apply the ratings based method set out in Article 261;
(c) for all other underlying exposures, institutions shall apply the Standardised Approach laid down in Chapter2 of this Title.
For the purposes of point (a) of the first subparagraph, where the institution is unable to differentiate b etw een private equi ty exposures, exchange~traded exposures and other equi ty exposures, it shall treat the exposures concerned as other equi ty ex posures.
W here the conditions of Artie,e 132(3) are met, institutions that do not have sufficient information about the individual underlying exposures of a CIU may calculate the risk weighted exposure amount for those exposures in accordance with the mandate_based approach set out in Article 132a(2). H owever, for the exposures listed in point (a), (b) and (c) of paragraph 4 of this Artie,e, institutions shall apply the approaches set outtherein.
Subject to Article 132b(2), institutions that do not apply the look"through approach in accordance with paragraph 2 and 3 of this Article or the m a n d ate-b a s e d approach in accordance with paragraph 0 of this Article shall apply the fall"back approach
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referre d to i n Artie,e 132(2).
Institutions that do not have adequate data or information to calculate the risk weighted amount of a CIU in accordance with the approaches set out in paragraphs 2, 3, 4 and 5 may rely on the calculations of a third pa rty, provided that all of the following conditions are met.
(a) thethird pa rty is one of the following.
(i) the depository institution or the depository financial institution of the
CIU, provided that the CIU exclusively invests in securities and
deposits all securities at that depository institution or depository financial institution,
UN for ClUs not covered by point (i), the CIU management company, provided that the CIU management company meets the criteria set out
in p o i nt (a) of Artiee 132(3);
(b) for exposures other than those listed in points (a), (b) and (c) paragraph 4, the third party carries outthe calculation in accordance with the approach set out in Artie,e 132a(1);
(c) for exposures listed in points (a), (b) and (c) of paragraph 4, the third pa rty carries outthe calculation in accordance with the approaches set outtherein,
(d) an external auditor has confirmed the correctness of the third pa rty s ca I c u I ati o n .
Institutions that rely on third_pa rty calculations shall multiply the risk weighted exposure amounts of a ClU's exposures resulting from those calculations by a factor
or 1,2.
For the purposes of this Article, the provisions in Article 132(5) and (6) and Article
132b shall apply.".
I n Article 201 (1), point (h) is replaced by the following.
( h ) q u a I i f y ing central counterparties. .
The following Article 204a is i n se rte d .
"At/c/e 204a E, i g i b I e ty pes of eq u i ty derivatives
Institutions may use equity derivatives, which are total return swaps or economically effectively similar, as eligible credit protection only for the purpose of conducting internal hedges.
W here an institution buys credit protection through a total return swap and records the net payments received on the swap as net income, but does not record the off sett ing deterioration in the value of the asset that is protected either through reductions in fair value or by an addition to reserves, that credit protection does not qualify as eligible credit protection.
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Where an institution conducts an internal hedge using an equity derivative, in order for the internal hedge to qualify as eligible credit protection for the purposes of this Chapter, the credit risk transferred to the trading book shall be transferred out to a third pa rty or p a rti e s.
W here an internal hedge has been conducted in accordance with the first subparagraph and the requirements in this Chapter have been met, institutions shall apply the rules set out in Jections 4 to 6 of this Uhapter for the calculation of risk weighted exposure amounts and expected loss amounts where they acquire unfunded credit protection. .
Art i cle 223 is amended as follows.
(a) In paragraph 3, the last subparagraph is replaced by the following.
In the case of OTC derivative transactions institutions using the method laid down in Jection 6 or C hapter 6 shall calculate E\/A as follows!
EVA = E.".
(b) In paragraph 5, the la st subparagraph is replaced by the following.
I n th e case of OTC derivative transactions, institutions using the methods laid down in Sections 3, 4 and 5 of Chapter 6 of this Title shall take into account the risk" mitigating effects of collateral in accordance with the provisions laid down in those Sections, as applicable.
In Article 272, points (6) and (12) are replaced by the following.
(6) hedging set means a group of transactions within a single netting set for which full or partial offsetting is allowed for determining the potential future exposure under the methods set out in Jections 3 or 4 of this Uhapter ,
(12) 'C u rre nt M a r k et Va I u e or CMV means, for the purposes of Jection O to Section 5 of this Chapter, the net market value of all the transactions within a netting set gross of any collateral held or posted where positive and negative market values are netted in computing the CMV;".
In Article 272, the following points (7a) and (12a) are in se rte d .
(7a) one way margin agreement means a margin agreement under which an institution is required to post variation margins to a counterparty but is not entitled to receive variation margin from thatcounterpa rty or vice~versa, .
"(12a) net independent collateral amount or NICA means the sum of the volatili ty ~ adjusted value of net collateral received or posted, as applicable, to the netting set other than variation margin, .
Art i cle 273 is amended as follows.
(a) Paragraph 1 is replaced by the following.
1. Institutions shall calculate the exposure value for the contracts listed in A n n e x II on the basis of one of the methods set out in Jections 3 to 6 of this C h a pte r i n accordance with this Artie,e.
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An institution which does not meet the conditions set out in Article 273a (2) shall n ot use the method set out in Section 4 of this Chapter. A n institution which does not meet the conditions set out in Art i cle 273a (3) shall not use the method set out in Section 5 of this Chapter.
To determine the exposure value for the contracts listed in point 3 of A n n e x II an institution shall not use the method set out in Section 5 of this Chapter.
Institutions may use in combination the methods set out in Jections 3 to 6 of this Chapter on a permanent basis within a group. A single institution shall not use in combination the methods set out in Jections 3 to 6 of this C hapter on a permanent basis.
\b) Paragraphs 6, 7, 8 and 9 are replaced by the following.
"6. U nder all methods set out in Jections 3 to 6 of th is C hapter, the exposure value for a given counterpa rty shall be equal to the sum of the exposure values calculated for each netting set with that counterparty.
By way of derogation from the first subparagraph, where one margin agreement applies to multiple netting sets with that counterpa rty and the institution is using one of the method set out in Section 3 and Section 6 of this Chapter to calculate the exposure value of these netting sets, the exposure value shall be calculated in accordance with that Section.
For a given counterpa rty, the exposure value for a given netting set of OTC derivative instruments listed in Annex II calculated in accordance with this Chapter shall be the greater of zero and the difference b etw een the sum of exposure values across all netting sets with the counterpa rty and the sum of CVA for that co u nterpa rty being recognised by the institution as an incurred write~down. The credit valuation adjustments shall be calculated without taking into account any offsetting debit value adjustment a ttr ibuted to the own credit risk of the firm that has been already excluded from own funds in accordance with point (c) of Artie,e 33(1).
7. In calculating the exposure value in accordance with the methods set out in Sections 3 to 5 of this Chapter, institutions may treat two OTC derivative contracts included in the same netting agreement that are perfectly matching as if they were a single contractwith a notional principal equals to zero.
For the purposes of the first subparagraph, two OTC derivative contracts are perfectly matching when they meetall of the following conditions.
(a) their risk positions are opposite,
(b) their features, with the exception ofthetrade date, are identical,
(c) their cashflows fully offset each other.
8. Institutions shall determine the exposure value for exposures arising from long settlement transactions by any of the methods set out in Jections 3 to 6 of this Chapter, regardless of which method the institution has chosen for treating OTC derivatives and repurchase transactions, securities or commodities lending or borrowing transactions, and margin lending transactions. In calculating the own funds requirements for long settlement transactions, an institution that uses the
89
approach set out in Chapter 3 may assign the risk weights under the approach set out in Chapter 2 on a permanent basis and irrespective of the materiality of those positions.
9. F or the methods set out in Jections 3 to 6 of th is C hapter, institutions shall treat transactions where specific wrong way risk has been identified in accordance with Artie,e 291.".
The following Articles 273a and 273b are inserted.
Article 273a
Conditions for using simplified methods for calculating the exposure value
An institution may calculate the exposure value of derivative positions in accordance with the method set out in Section 4 provided that the size of its on- and off "balance sheet derivative business is equal to or less than the following thresholds on the basis of an assessment carried out on a monthly basis.
(a) 10 % of the institution's total assets;
(b) EUR 150 mi,,ion;
For the purposes of this paragraph, institutions shall determine the size of their on-and off" balance sheet derivative business on a given date by including all their derivative positions except credit derivatives that are recognised as internal hedges again st non_trading book credit risk exposures.
An institution may calculate the exposure value of interest rate, foreign exchange and gold derivative positions in accordance with Section 5, provided that the size of its on- and off "balance sheet derivative business is equal to or less than the following thresholds on the basis of an assessment carried out on a monthly basis.
(a) 5 % of the institution's total assets;
(b) EUR 20 million;
For the purposes of this paragraph, institutions shall determine the size of their on-and off" balance sheet derivative business on a given date by including all their derivative positions referred to contracts in paragraphs 1 and 2 of Annex II,
For the purposes of paragraphs 1 and 2, institutions shall calculate the size of their on- and off" balance sheet derivative business on a given date in accordance with the following requirements.
(a) derivative positions shall be valued at their market prices on that given date. W here the market value of a position is not available on a given date, institutions shall take the most recent market value for that position.
(b) the absolute value of long positions shall be summed with the absolute value of short positions.
nstitutions shall noti f y the competent authorities of the methods set
out in Sections 4
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or 5 of this Chapter that they use, or cease to use, as applicable, to calculate the exposure value of their derivative positions
Institutions shall not enter into a derivative transaction for the only purpose of complying with any of the conditions set out in paragraph 1 and 2 during the monthly assess m e nt.
Article 273b
compliance with the conditions for using simplified methods for calculating the exposure
value ofderivatives
A n institution that no longer meets any of the conditions set out in Arti cle 2 7 3 a (1 ) or (2) shall immediately notifythe competentauthority thereof.
An institution shall cease to apply Article 273a(l) or (2) within three months of one of the following cases occurring.
the institution does not meetany of the conditions of Artie,e 273a(1) or (2) for three consecutive months,
(b) the institution does not meet any of the conditions of Artie,e 273a(1) or (2), as applicable, during more than D out of the last 12 m o n t h s.
W here an institution ceases to apply Artie,e 273a(1) or (2), it shall only be permi tte d to determine the exposure value of its derivatives positions with the use of the methods set out in Jection 4 or 5 of this Uhapter, as applicable, where it demon st rates to the competent authori ty that all the conditions set out in Article 273a(1) or (2) have been metfor an uninterrupted full year period. .
I n Part T hree, Title II, Chapter 6, S ection O is replaced by the following.
"Section 3
Standardised Approach for Counterparty Credit Risk
/Uc/e 274
Exp os u re value
An institution may calculate a single exposure value at netting set level for all the transactions covered by a contractual netting agreement where all the following conditions are met.
(a) the netting agreement belongs to one of the ty pe of contract netting agreements
ref e rre d to i n Article 295;
(b) the netting agreement has been recognised by competent authorities in
accordance with Article 296;
\c) the institution has fulfilled the obligations laid down in Artie,e 297 in r es p e ct of the netting agreement.
Wh
ere any of those conditions are not met, the institution shall treat each transaction
91
as if it was its own netting set.
Institutions shall calculate the exposure value of a netting set under the Standardised Approach for Counterparty Credit Risk Method as follows.
Exposure value = a ■ (RC + PFE)
where.
RC = the replacement cost calculated in accordance with Article 275;
PFE = the potential future exposure calculated in accordance with Article 278i
a = 1,4.
The exposure value of a netting set subject to a contractual margin agreement shall be capped at the exposure value of the same netting set not subject to any form of margin agreement.
Where multiple margin agreements apply to the same netting set, institutions shall allocate each margin agreement to the group of transactions in the netting set to which that margin agreement contractually applies to and calculate an exposure value separately for each of those grouped transactions.
Institutions may set to zero the exposure value of a netting set that satisfies all of the following conditions.
(a) the netting set is solely composed of sold options,
(b) the current market value of the netting set is at all times negative,
(c) the premium of all the options included in the netting set has been received upfront by the institution to guarantee the performance of the contracts,
(d) the netting set is notsubjectto any margin agreement.
In a netting set, institutions shall replace a transaction which is a linear combination
of bought or sold call or put options with all the single options that form that linear
combination, taken as an individual transaction, for the purpose of calculating the
exposure value of the netting set in accordance with this section.
Article 275 Re placement cost
Institutions shall calculate the replacement cost ( RC) for netting sets notsubjectto a margin agreement, in accordance with the following formula.
RC = max{CMV - NICA, 0}
Institutions shall calculate the replacement cost for single netting sets subject to a margin agreement in accordance with the following formula.
92
RC = max{CMV -VM- NICAJH + MTA - NICA,0}
where.
VM — thevolatili ty "adjusted value of the net variation margin received
or posted, as applicable, to the netting set on a regular basis to mitigate changes in the netting sets CMV;
TH — the margin threshold applicable to the netting set under the
margin agreement below which the institution cannot call for collateral,
MTA — the minimum transfer amount applicable to the netting set under
the margin agreement.
Institutions shall calculate the replacement costfor multiple netting sets subjectto a margin agreement in accordance with the following formula.
RC = '"«*|^ max[CMVi.O} - maxfVMufi + NICAMA. 0}, 0
+ »>«* j^j min{CMVj,0} - min{VMMA + NICAMA.0}.0
i — the index that denotes the netting sets subject to the single margin
a g ree m ent,
CMV, = the CMV o f n ett i n g s et i ,
VM [\/]/\ ~~ the sum of the v o I at i I ity ~a dj u sted value of collateral received or
posted, as applicable, on a regular basis to multiple netting sets to mitigate changes in their CMV;
N I CA[\/]/\ = the sum of the v o I at i I ity ~a dj u sted value of collateral received or
posted, as applicable, to multiple n ett i n g sets other than VM \\J\fi\.
For the purposes of the first subparagraph, N I CAmA
may be calculated attrade~level, at netting set" level or at the level of all the netting sets to which the margin agreement applies depending on the level at which the margin agreement applies.
Article 276 Re cognition and treatment of collateral
For the purposes of this Section, institutions shall calculate the collateral amounts of
VM, VMma, NICA ahd NICAma,
by applying all of the following requirements.
(a) where all the transactions included in a netting set belong to the trading book, only collateral that is eligible under Artie,e 299 shall be recognised,
(b) where a netting set contains at least one transaction that belongs to the non-trading book, only collateral that is eligible under Artie,e 197 shall be recognised,
93
collateral received from a counterpa rty shall be recognised with a positive sign and collateral posted to a counterparty shall be recognised with a negative sign.
the v o I a t i I i ty " a dj u ste d value of any type of collateral received or posted shall be calculated in accordance to Art i cle 223. For the purpose of this calculation, institutions shall not use the method sets out in Article 225.
the same collateral item shall not be included in both VM and NICA at the sa m e ti m e ,
the same collateral item shall not be included in both VM[\/1A a n d N I CA[\/1A at the same time,
any collateral posted to the counterpa rty that is segregated from the assets of that counterpa rty and, as a result of that segregation, is bankruptcy remote in the event of the default or insolvency of that counterpa rty shall not be
recognised in the calculation of NICA and NICAma.
For the calculation of the volatili ty "adjusted value of collateral posted referred to in point (d) of paragraph 1, institutions shall replace the formula in Artie,e 223(2) w i th the following formula.
CVA = C-(1 + Hc + Hfx)
For the purpose of point (d) of the paragraph 1, institutions shall set the liquidation period relevant for the calculation of the volatili ty "adjusted value of any collateral received or posted in accordance with one of the following time horizon.
for the netting sets referred to in Artie,e 276(1) , the time horizon shall be one year,
(b) for the netting sets referred to in Articles 276(2) and (3) , the time horizon shall be the margin period of risk determined in accordance with point(b) of Artie, e 279d(1).
Article 277
Mapping oftransactions to risk categories
Institutions shall map each transaction of a netting set to one of the following six risk categories to determine the potential future exposure of the netting set referred to in
Article 278:
interest rate risk, foreign exchange risk, credit risk, e q u i ty risk, commodity risk, oth e r risks.
94
Institutions shall conduct the mapping referred to in paragraph 1 on the basis of the primary risk driver of the transaction. Fortransactions other than those referred to in paragraph 3, the primary risk driver shall be the only material risk driver of a derivative position.
From [date of application of this Regulation], for a derivative transaction allocated to the trading book for which an institution uses the approaches laid down in either Chapters 1a or 1b to calculate the own funds requirements for market risk, the primary risk driver shall be the risk factor associated with the highest absolute s e n s i t i v i ty among all the sensitivities for that transaction calculated in accordance with Uhapter I b of Title IV.
N otw ithstanding paragraphs 1 and 2, when mapping transactions to the risk categories listed in paragraph 1, institutions shall apply the following requirements.
(g) where the primary risk driver of a transaction is an inflation variable, institutions shall map the transaction to the interest rate risk category,
(h) where the primary risk driver of a transaction is a climatic conditions variable, institutions shall map the transaction to the com modi ty risk category.
By way of derogation from paragraph 2, institutions shall map derivative transactions that have more than one material risk driver to more than one risk category. Where all the material risk drivers of one of those transactions belong to the same risk category, institutions shall only be required to map one time thattransaction to this risk category based on the most material of those risk drivers. W here the material risk drivers of one of those transactions belong to different risk categories, institutions shall map that transaction one time to each risk category for which the transaction has at leastone material risk driver, based on the most material of the risk drivers in that risk category.
EBA shall develop dra ft regulatory technical standards to specify in greater detail.
(a) a method for identifyingthe only material risk driver oftransactions other than those referred to in paragraph 3,
(b) a method for identifying transactions with more than one material risk driver and for identifying the most material of these risk drivers for the purposes of paragraph 3,
E B A shall submit those draftregulatorytechnical standards to the Commission by [6 months after the entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Article 277a
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H,
edging sets
Institutions shall establish the relevant hedging sets for each risk category of a netting set and assign each transaction to those hedging sets as follows.
transactions mapped to the interest rate risk category shall be assigned to the same hedging set only where their primary risk driver is denominated in the same currency.
transactions mapped to the foreign exchange risk category shall be assigned to the same hedging set only where their primary risk driver is based on the same currency pair,
all the transactions mapped to the credit risk category shall be assigned to the same hedging set,
all the transactions mapped to the equity risk category shall be assigned to the same hedging set,
transactions mapped to the com modi ty risk category shall be assigned to one of the following five hedging sets based on the nature of their primary risk driver.
(■)
energy,
agricultural goods,
climatic conditions,
other com modifies.
transactions mapped to the other risks category shall be assigned to the same hedging setonly where their primary risk driver is identical.
For the purpose of point (a), transactions mapped to the interest rate risk category that have an inflation variable as the primary risk driver shall be assigned to separate hedging sets, other than the hedging sets established for transactions mapped to the interest rate risk category that have an inflation variable as the primary risk driver. Those transactions shall be assigned to the same hedging set only where their primary risk driver is denominated in the same currency.
By the way of derogation from paragraph 1, institutions shall establish separate individual hedging sets in each risk category for the following transactions.
(a) transactions for which the primary risk driver is either the market implied v o I at i I i ty or the realised volatili ty of a risk driver or the correlation b etw een tw o risk drivers,
(b) transactions for which the primary risk driver is the difference b etw een tw o risk drivers mapped to the same risk category or transactions that consist of tw o payment legs denominated in the same currency and for which a risk driver from the same risk category of the primary risk driver is contained in the
96
other payment leg than the one containing the primary risk driver.
For the purposes of point (a) of the first subparagraph, institutions shall assign transactions to the same hedging set of the relevant risk category only where their primary risk driver is identical.
For the purposes of point (b) of the first subparagraph, institutions shall assign transactions to the same hedging set of the relevant risk category only where the pair of risk drivers in those transactions as referred to in point (b) is identical and the two risk drivers contained in this pair are positively correlated. Otherwise, institutions shall assign transactions referred to in point (b) to one of the hedging sets established in accordance with paragraph 1, on the basis of only one of the tw o risk drivers referred to in point (b).
The institutions shall make available upon request by the competent authorities the
number of hedging sets established in accordance with paragraph 2 for each risk
category, with the primary risk driver or the pair of risk drivers of each of those
hedging sets and with the number of tra n sa cti o n s in each of those hedging sets.
Article 278 Potential future exposure
Institutions shall calculate the potential future exposure (PFE) of a netting set as
follows.
PFE = multiplier * ^ AddOn^
where.
a — the index that denotes the risk categories included in the calculation of
the potential future exposure of the netting set,
AddO n — the add'on for risk category a calculated in accordance with
Articles 280a to 280f, as applicable,
multiplier — the multiplier factor calculated in accordance with the formula
referred to in paragraph 3.
For the purposes of this calculation, institutions shall include the add~on of a given risk category in the calculation of the potential future exposure of a netting set where at lea st one transaction of the netting set has been mapped to that risk category.
The potential future exposure of multiple netting sets subject to one margin agreement, as referred in Artie,e 275(3), shall be calculated as the sum of all the individual netting sets considered as if they were not subject to any form of margin agree ment.
For the purpose of paragraph 1,the multipliershall be calculated as follows.
97
multiplier = \ . L n,
r mm j 1, Floorm +
1, z/z > 0 (1 - F/oor„,) ■ exp {^~j^> otherwise
Floorm = 5%',
^ (a)
2 * (1 — Floorm) * ^ Addon^
ICMV - NIC A for the hedging sets referred to in Article 275(1)
CMV -VM— NIC A for the hedging sets referred to in Article 275(2) CMVi - NICAi for the hedging sets referred to in Article 275(3)
NICA, — the net independent collateral amount calculated only for
transactions that are included in netting set i . NICA, shall be calculated at trade-level or at netting set"level depending on the margin agreement.
/Uc/e 279
Ic u I ati o n of risk position
"or the purposes of calculating the risk category add~ons referred to in Articles 280 a to 280f, nstitutions shall calculate the risk position of each transaction of a n ett i n g set as f o I lows.
RiskPosition = 5 ■ AdjNot ■ MF
3 — thesupervisory delta ofthetransaction calculated in accordance
with the formula laid down in Artie,e 279a;
AdjN ot — the adjusted notional amount of the transaction calculated in
accordance with Article 279b;
MF — the maturity factor of the transaction calculated in accordance
with the formula laid down in Artie,e 279e;
Article 279a Supervisory delta
Institution shall calculate the supervisory delta (8) cis follows.
(a) for call and put options that entitle the option buyer to purchase or sell an underlying instrument at a positive price on a single date in the future, except where those options are mapped to the interest rate risk category, institutions shall use the following formula.
98
5 = sign • N
f In + 0.5 ■ a2 ■ t\ type-----——-
V
a-yff
sign ty pe
N(x)
f—1 where the transaction is a putOptiOfl
where the transaction is a call OptlOfl
f—1 where the transaction is a bought o pt i o n
I +1 where the transaction is a sold option
the spot or forward price of the underlying instrument of the
the strike price of the option,
— the cumulative distribution function for a standard normal
random variable meaning the probability that a normal random variable with mean zero and variance of one is less than or equal to x ,
P
o pti o n ,
k
T — the expiry date of the option which is the only future date at
which the option may be exercised. The expiry date shall be expressed in years using the relevant business day convention.
G = the supervisory volatili ty of the option determined in
accordance with Table 1 on the basis of the risk category of the transaction and the nature ofthe underlying instrumentofthe option.
Tab le 1
| Risk category | Underly ing i n str u m e nt | Su perv isory v o i at i i ity |
| Foreign Exchange | Am | 15% |
| Cred it | Sing i e~ n a me i n str u m e nt | 100% |
| M ultiple~names i n str u m e nt | 80% | |
| Equity | Sing le_na me i n str u m e nt | 120% |
| M ultiple_names i n str u m e nt | 75% | |
| Co m mod ity | E i ectr i c ity | 150% |
| Other commodities (ex c i u d ing | 70% |
99
| e lectr i c ity ) | ||
| Oth ers | Am | 150% |
Institution using the forward price of the underlying instrument of an option shall ensure that.
(■)
the forward price is consistent with the characteristics of the option,
\'\ \) the forward price is calculated using a relevant interest rate prevailing at the reporting date,
(iii) the forward price integrates the expected cash"flows of the underlying instrument before the expiry of the option.
(b) for tranches of a synthetic securitisation, institutions shall use the following
f o r m u I a .
15
o = sign
sign
A D
1-1
(1 + 14 -A) ■ (1 + 14 ■ D)
where credit protection has been obtained through the transaction 1 where credit protection has been provided through the traTlsaction
the attach ment point of the tranche,
the detachment point of the tranche.
(c) for transactions not referred to in points (a) or ( b) , institutions shall use the following supervisory delta.
(+1 where the transaction is a long position in the primary risk driver I J. where the transaction is a short position in the primary risk driver
For the purposes of this Section, a long position in the primary risk driver means that the market value of the transaction increases when the value of the primary risk driver increases and a short position in the primary risk driver means that the market value of the transaction decreases when the value of the primary risk driver i ncreases.
For transactions referred to in Article 277(3), a long position is a transaction for which the sign of the sensitivity of the primary risk driver is positive and a short position is a transaction for which the sign of the sensitivi ty of the primary risk driver is negative. Tor transactions other than the ones referred to in Artie,e 277(3), institutions shall determine whether those transactions are long or short positions in the primary risk driver based on objective information about the structure of those transactions or their intend.
Institutions shall determine whether a transaction with more than one material risk
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driver is a long position or a short position in each of the material risk driver in accordance with the approach used under paragraph 2 forthe primary risk driver. EBA shall develop dra ft regulatory technical standards to speci f y .
(a) the formula that institutions shall use to calculate the supervisory delta of call and put options mapped to the interest rate risk category compatible with market conditions in which interest rates may be negative as well as the supervisory volatility that is suitable for that formula,
(b) what objective information concerning the structure and the intend of a transaction institutions shall use to determine whether a transaction that is not refe rre d to i n Artie,e 277(2) is a long or short position in its primary risk d r i ver,
E B A shall submit those dra ft regulatory technical standardsto the Commission by [6 months after the entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Article 279b /\dj usted notional amount
I nstitutions shall calculate theadjusted notional amount as follows.
(a) for transactions mapped to the interest rate risk category or the credit risk category, institutions shall calculate the adjusted notional amount as the product of the notional amount of the derivative contract multiplied by the supervisory duration factor, which shall be calculated as follows.
exp{-R ■ S) - exp(-R - E) supervisory duration factor----
R — the supervisory discount rate, R — 5%,
S = the start date which is the date at which a transaction sta rts fixing or
making payments, other than payments related to the exchange of collateral in a margin agreement. W here the transaction has already been fixing or making payments at the reporting date, the start date shall be equal to 0. T h e sta rt d ate shall be expressed in years using the relevant business day convention.
W here a transaction has one or multiple future dates at which the institution or the co u nterpa rty may decide to terminate the transaction earlier than its contractual m at u r i ty, the start date shall be equal to the earliest of the following.
(i) the date or the earliest of the multiple future dates at which the institution or the counterpa rty may decide to terminate the transaction earlier than its contractual maturi ty ,
(ii) the date at which a transaction sta rts fixing or making payments, other than
101
pay merits related to the exchange of collateral in a margin agreement,
W here a transaction has a financial instrumentasthe underlying instru ment that may give rise to contractual obligations additional to those of the transaction, the start date of the transaction shall be determined based on the earliest date at which the underlying instrumentsta rts fixing or making payments.
E — the end date which is the date at which the value ofthe lastcontractual
payment of a transaction is exchanged b etw een the institution and the counterpa rty. The end date shall be expressed in years using the relevant business day convention.
Where a transaction has a financial instrument as underlying instrument that may give rise to contractual obligations additional to those of the transaction, the end date of the transaction shall be determined based on the last contractual payment of the underlying instrument ofthe transaction,
(b) for transactions mapped to the foreign exchange risk category, institutions shall calculate the adjusted notional amount as follows.
(■)
where the transaction consists of one payment leg, the adjusted notional amount shall be the notional amount ofthe derivative contract,
(ii) where the transaction consi sts of tw o payment legs and the notional amount of one payment leg is denominated in the institution s reporting currency, the adjusted notional amount shall be the notional amount of the other payment leg.
(iii) where the transaction consi sts of tw o payment legs and the notional amount of each payment leg is denominated in another currency than the institutions reporting currency, the adjusted notional amount shall be the largest of the notional amounts of the tw o payment legs after those amounts have been converted into the institutions reporting currency atthe prevailing spot exchange rate.
(c) fortransactions mapped to the equity risk category or com modity risk category, institutions shall calculate the adjusted notional amount as the product of the market price of one unit of the underlying instrument of the transaction multiplied by the number of units in the underlying instrument referenced by the transaction
Institution shall use the notional amount as the adjusted notional where a transaction mapped to the equi ty risk category or com modi ty risk category is contractually expressed as a notional amount, rather than the number of units in the underlying instrument,.
Institutions shall determine the notional amount or number of units ofthe underlying instrument for the purpose of calculating the adjusted notional amount of a transaction referred to in paragraph 1 as follows.
(a) where the notional amount or the number of units of the underlying instrumentofatransaction is not fixed until itscontractual maturi ty .
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(.)
for deterministic notional amounts and numbers of units of the underlying instrument, the notional amount shall be the weighted average of all the deterministic values of notional amounts or number of units of the underlying instrument, as applicable, until the contractual maturity of the transaction, where the weights are the proportion of the time period during which each value of notional amount applies,
(ii) for stochastic notional amounts and numbers of units of the underlying instrument, the notional amount shall be the amount determined by fixing current market values within the formula for calculating the future market values.
(b) for binary and digital options, the notional amount shall be the largest value of the possible states of the option payoffatthe expiry of the option.
W ithout prejudice to the first subparagraph, if a possible state of the option payoff is stochastic, institution shall use the method set out in point (ii) of point (a) to determinethe value of the notional amount,
(c) for contracts with multiple exchanges of the notional amount, the notional amount shall be multiplied by the number of remaining payments still to be made in accordance with the contracts,
(d) for contractsthat provides for a multiplication of the cash flows pay ments or a multiplication of the underlying of the contract, the notional amount shall be adjusted by an institution to take into account the effects of the multiplication on the risk structure of those contracts.
Institutions shall convert the adjusted notional amount of a transaction into their reporting currency at the prevailing spot exchange rate where the adjusted notional amount is calculated under this Artie,e from a contractual notional amount or a market price of the number of units of the underlying instrument denominated in another currency.
Article 279c Ma tu r i ty Fa ctor
I nstitutions shall calculate the maturi ty f a cto r ( M F ) as follows.
(a) for transactions included in netting sets as referred to institution shall use the following formula.
in Artie,e 275(1),
MF — ^Jmin{max{M, 10/One BusinessYear}, 1}
where.
M = the remaining maturi ty of the transaction which is equal
to the period of time needed forthetermination of all contractual obligations of the transaction. For that purpose, any optionali ty of a derivative contract shall be considered to be a contractual obligation. The remaining maturi ty shall be expressed
103
in years using the relevant business clay convention.
W here a transaction has another derivative contract as underlying instrument that may give rise to additional contractual obligations beyond the contractual obligations of the transaction, the remaining maturity of the transaction shall be equal to the period of time needed for the termination of all contractual obligations of the underlying instrument.
OneBusi nessYear — one year expressed in business days using the relevant
business day convention.
(b) for transactions included in the netting sets referred to in Artie,e 275(2) and (3), the maturity factor is defined as.
3 MPOR
MF = —
2 J OneBusinessYear
where.
MPOR — the margin period of risk ofthe netting setdetermined in
accordance with Artie,e 285(2) to (5).
w hen determining the margin period of risks for transactions between a client and a clearing member, an institution acting either as the client or as the clearing member shall replace the minimum period set out in point (b) of Article 285(2) with 5 business days.
2. F or the purpose of paragraph I, the remaining maturi ty shall be equal to the period of
time until the next reset date for transactions that are structured to settle outstanding exposure following specified payment dates and where the terms are reset in such a way that the market value of the contract shall be zero on those specified payment d ate s.
Article 280 d g i n g set su perviso ry factor coe ffi c ient
For the purposes of calculating the add~on of a hedging set as referred to in Articles 280 a to 280f, the hedging set supervisory facto rcoefficient £ shall be the f o Mowing.
for the hedging sets established 1H accordance with Article 275(1) f o r the hedging s ets established 1H accordance with point (a) of Article 275(2) f o rthe hedging sets established 1H accordance with point (b) of Article 275(2)
Article 280a Interest rate risk category add~on
For the purposes of Art i cle 278institutions shall calculate the interest rate risk category add_on for a given netting set as follows.
JR
AddOnIR = ^ AddOnf
104
J — the index that denotes all the interest rate risk hedging sets
established in accordance with point (a) of Artie,e 277a(1) and with Artie,e 277a(2) for the netting set,
a n R
AAd dwn 3 — the add_on of hedging set J of the interest rate risk category
calculated in accordance with paragraph 2.
Th
e add'on of hedging set J of the interest rate risk category shall be calculated as
follows.
AddOnjR = ej * SFIR * EffNotj
IR
where.
Gj — thehedgingsetsupervisoryfactorcoefficientofhedging
set J determined in accordance with the applicable value specified in Article 280:
-IR
the supervisory factor for the interest rate risk category
SF
with a value equal to 0,5%;
r m IR _
LfflMot j — the effective notional amount of hedging set J calculated in
accordance with paragraphs 3 and 4.
For the purpose of calculating the effective notional amount of hedging set J , institutions shall first allocate each transaction of the hedging set to the appropriate bucket in Table 2. They shall do so on the basis of the end date of each transaction as
determined under point (a) of Artie,e 279b(1):
Tab le 2
| End d ate | |
| B u c k et | |
| (i n y ears) | |
| 1 | >0 and <=1 |
| 2 | >1 and <= 5 |
| 3 | > 5 |
Institutions shall then calculate the effective notional of hedging set J in accordance with the f o Mowing f o r m u I a .
EffNotjR= \(DL1) +(DL2) + (D,i3) +lA-DjyDL2 + lA-DjyDL3+0.6-DL1-DL3
D,
the index that denotes the risk position,
the effective notional amount of bucket k of hedging set J calculated
105
a s fo Mows
d>*= z
RiskPositiorii
l £ Bucket k
Article 280b Fa reign Exchange risk category a dd~o n
For the purposes of Arti cle 278 the foreign exchange risk category add_on for a given netting set shall be calculated as follows.
AddOnFX = ^ AddOnFX
i
J — the index that denotes the foreign exchange risk hedging sets established in
accordance with Artie,e 277a(1)( b) and with Artie,e 277a(2) for the netting set,
AddO n j — the add_on of hedging set J of the foreign risk category
calculated in accordance with paragraph 2.
The add_on of hedging set J of the foreign exchange risk category shall be calculated as follows.
hFX\
AddOn[x = €j ■ SFFX ■ \EffNotf
where.
Gj — the hedging setsupervisory factor coefficient of hedging set J
calculated in accordance with Article 280:
opFX
0\ — the supervisory factor for the foreign exchange risk category
with a value equal to 4%; r m IR
LfflMot j — the effective notional of hedging set J calculated as follows.
EffNotfx = ^ RiskPositiorii
l e Hedging set j
Article 280c Credit risk category add~on
istitutions shall establish the relevant credit
For the purposes of paragraph 2, ins reference entities of the netting set in accordance with the following.
(a) There shall be one credit reference e n t i ty for each issuer of a reference debt
instrument that underlies a single_name transaction allocated to the credit risk category. Single~name transactions shall be assigned to the same credit reference e n t i ty only where the underlying reference debt instrument of those transactions is issued by the same issuer,
106
(b) There shall be one credit reference e n t i ty for each group of reference debt instruments or single~name credit derivatives that underlie a multi~name transaction allocated to the credit risk category. M u Iti ~ n a m es transactions shall be assigned to the same credit reference e n t i ty only where the group of underlying reference debt instruments or single~name credit derivatives of those transactions has the same constituents.
For the purposes of Art i cle 278, institution shall calculate the add_on for the credit risk category for a given netting set as follows.
^Credit
AddOnCredit = ^ AddOnf
J — the index that denotes all the credit risk hedging sets established
in accordance with point (c) of Artie,e 277a(1) and with Artie,e 277a(2) for the n etti n g set,
A (~\ Credit _ i /
AAd dwn j — the credit risk category add_on for hedging set J calculated in
accordance with paragraph 2.
Institutions shall calculate the credit risk category add_on of hedging set J as follows.
AddOnfredit =
^pcredit . AddOn{Entityj) j + ^ (l - (pfredit )2) ■ (AddOn(Entityj)f
J — the index that denotes the credit reference entities of the
netting setestablished in accordance with paragraph 1,
Gj — thehedgingsetsupervisoryfactorcoefficientofhedging
set J determined in accordance with Artie,e 280(3);
AddOn(E n t i tyj) — the add_on for credit reference e n t i ty J determined in
accordance with paragraph 4,
p. — the correlation factor ofe n t i ty J . W here the credit
reference e ntity J has been established in accordance with paragraph 1(a), pd ed t =
50%. W here the credit reference e ntity J has been established in accordance with l Credlt _ QHO/
iPh1(b),PjL™dlt=8(
restitutions shall calculate the add-on for credit reference e nt i ty J as follows.
LCredit
AddOn(Entityj) = EffNotf
where.
C N I Credit _ i /
LfflMot ; — the effective notional of credit reference e n t i ty J calculated as
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f o Mows.
EffNot)
Credit
I
SpCredit . Riskpositiom
I £ Credit reference entity j
I — the index that denotes the risk position,
CC Credit _
jrj(| — the supervisory factor applicable to credit reference
e n t i ty J determined in accordance with paragraph 5.
For the purposes of paragraph 4, institutions shall calculate the supervisory factor applicable to credit reference e n t i ty J as follows.
(a) For credit reference e n ti ty J established in accordance with point (a) of
-1 CT Credit
paragraph I, JT^ shall be mapped to one of the six supervisory factors set
out in Table 3 of this Article based on an external credit assessment by a n o m i n a te d ECAI of the corresponding individual issuer. Tor an individual issuer for which a credit assessment by a nominated ECAI is n ot a v a i I a b I e .
(i) an institution using the approach referred to in Chapter 3 of Title II shall map the internal rating of the individual issuer to one of the external credit assessment,
\\'\) an institution using the approach referred to in Uhapter 2 or T itle II shall assign SFJ(, redlt = 0,54 % to this credit reference entity. However, where an institution applies Art i cle 128 to risk weight counterpa rty credit risk exposures to this individual issuer, SFJ(lUredlt= 1,6 % sh a I I be ass i g n e d,
(b) For credit reference entities J established in accordance with point (b) of paragraph 1.
(i) where a position I assigned to credit reference entity J is a credit index
CC Credit
listed on a recognised exchange, O I-j, i shall be mapped to one of
the two supervisory factors set out in Table 4 of this Article based on the majority of credit quality of its individual constituents,
(ii) where a position I assigned to credit reference e n t i ty J is not referred to in point \\) of this point, shall be the weighted average of the supervisory factors mapped to each constituent in accordance with the method set out in point (a) of this paragraph, where the weights are defined by the proportion of notional of the constituents in that position.
Tab le 3
C
red it quality step
Supervisory factor f o r single-
name
transactions
108
| 1 | 0,38% |
| 2 | 0,42% |
| 3 | 0,54% |
| 4 | 1,06% |
| 5 | 1,6% |
| 6 | 6,0% |
| Tab Ie 4 | |
| Dominant credit q u a I ity | Supervisory factor for quoted i n d ices |
| Investment grade | 0,38% |
| Non - investm ent grade | 1,06% |
Article 280d Equity risk category a d d ~o n
For the purposes of paragraph 2, institutions shall establish the relevant equity reference entities of the netting set in accordance with the following .
(a) there shall be one equi ty reference e n t i ty for each issuer of a reference equi ty instrument that underlies a single~name transaction allocated to the equi ty risk category. Single~name transactions shall be assigned to same equi ty reference e n t i ty only where the underlying reference equi ty instrument of those transactions is issued by the same issuer,
(b) there shall be one equi ty reference e n t i ty for each group of reference equi ty in st rumen ts or single~name equi ty derivatives that underlie a multi~name transaction allocated to the equity risk category. M u Iti ~ n a m es transactions shall be assigned to the same equi ty reference e n ti ty only where the group of underlying reference equi ty instruments or single~name equi ty derivatives, as applicable, of those transactions has the same constituents.
For the purposes of Article 278, for a given netting set, institution shall calculate the equi ty risk category add_on as follows.
* 1 ity
AddOnEc<uity = ^AddOnfquit
109
J — the index that denotes all the credit risk hedging sets established
in accordance with point (d) of Artie,e 277a(1) and with Artie,e 277a(2) for the n etti n g set,
A p. Equity _ i /
AAd dwn j — add_on of hedging set J of the credit risk category determined
in accordance with paragraph 3.
Institutions shall calculate the equity risk category add_on for hedging set J as follows.
AddOn*quity =ej
Y^p^ ■ AddOn(Entityj) j + £ (l - (p*quity )') ■ (AddOn(Entityj)j
J
where.
J — theindexthatdenotestheequi ty reference entities of the netting
setestablished in accordance with paragraph 1,
Gj = hedging set supervisory factor coefficient of hedging set J
determined in accordance with Article 280:
AddOn(E n t i tyj) — the add_on for equi ty reference e n t i ty J determined in accordance with paragraph 4,
p. — the correlation factorofe n t i ty J . W here the equi ty reference
entity j has been established in accordance with paragraph 1(a), pJEqu ty =50%. Where
the equi ty reference entity J has been established in accordance with paragraph 1(b),
PjEquity =80%.
I nstituti ons shall calculate the add-on of equi ty reference e n t i ty J as follows.
.Equity
AddOn(Entityj) = SFfqutty ■ EffNotf
where.
CC Equity _ i /
0\ j — the supervisory factor applicable to equi ty reference e n t i ty J .
W hen the equity reference e n t i ty J has been established in accordance with
paragraph 1(a), SFru,ty = 32%; when the equi ty reference e n t i ty J has been
Eq u i 1
established in accordance with paragraph 1(b), SF/""'^ 20%
O,
C [\| Equity _ i /
LfflMot j — the effective notional of equi ty reference e n t i ty J calculated as
f o Mows.
EffNo^quity = ^
RiskPositioni
e Equity reference entity j
Article 280e Commodity risk category add-on
For the purposes of Article 278, institutions shall calculate the commodity risk
110
category a cl cl ~ o n for a given netting set as follows.
,Com
AddOnCom = ^ AddOnf
J — theindexthatdenotesthecommodi ty hedging sets established
in accordance with point (e) of Artie,e 277a(1) and with Artie,e 277a(2) for the n etti n g set,
AddO n j — the com modi ty risk category add_on for hedging set J determined in accordance with paragraph 4.
For the purpose of calculating the add_on of a com modi ty hedging set of a given netting set in accordance with paragraph 4, institutions shall establish the relevant com modi ty reference ty pes of each hedging set. Com modi ty derivative transactions shall be assigned to same commodi ty reference ty pe only where the underlying com modi ty instrument of those transactions has the same nature.
By way of derogation from paragraph 2, competent authorities may require an institution with large and concentrated commodi ty derivative po rtf o lios to consider additional characteristics other than the nature of the underlying commodi ty instrumentto establish the commodi ty reference ty pes of a commodi ty hedging set in accordance with paragraph 2.
EBA shall develop dra ft regulatory technical standards to specify in greater detail what constitutes a large and concentrated com modi ty derivative po rtf o Mo as referred to in the first subparagraph.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [15 months a ft e r the entry into force ofthis Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Institutions shall calculate the commodi ty risk category add~on for hedging set J as follows.
AddOnfom = Ej *
pcom . ^AddOn(Type]k) J + (1 - (pCom)2) ■ ^ (AddOnftypeff)'
where.
k — theindexthatdenotesthecommodi ty reference ty pes of
the netting set established in accordance with paragraph 2,
Gj — thehedgingsetsupervisoryfactorcoefficientofhedging
111
set J calculated in accordance with Article 280;
Ad dOn(TypeJ) — theadd_onofcommodi ty reference ty pe k calculated in
accordance with paragraph 5,
Con
O — the correlation factorofthecommodi ty risk category
with a value equal to 40%.
Institution shall calculate the add_on for com modi ty reference ty pe k as follows.
t-Com
AddOn(TypeJk) = SF£om * EffNot^
where.
SF
Con
— the supervisory factor applicable to commodi ty reference ty p e
k .
W hen the commodi ty reference ty pe k corresponds to transactions allocated to the
hedging set referred to in point(i) of point(e) of Artiee 277b(1), SF, = 40%; oth e rw ise, SFkUom = 18%.
ot k — the effective notional amount of commodity reference ty p e k
calculated as follows.
EffNotckom = ^
RiskPositioni
e Commodity reference type k
Article 280f er risks category add-on
For the purposes of Article 278, institutions shall calculate the other risk category add-on for a given netting set as follows.
^Other ZiUUUT
I
j
AddOn0ther = ^AddOrtf
J — the index that denotesthe other risk hedging setsestablished in
accordance with point(f) of Art i cle 2 7 7 a (1 ) and with Article 277a(2) for the netting set,
A p. Other _ i /
AAd dwn j — the other risks category add_on for hedging set J determined in
accordance with paragraph 2.
Institutions shall calculate the other risks category add~on for hedging set J as follows.
h0ther I
AddOrfther = £j *SF0ther * \EffNotj
where.
Gj — the hedging setsupervisory factor coefficient of hedging set J
calculated in accordance with Article 280;
112
CpOther _
O!- — the supervisory factorforthe other risk category with a value
equal to 8%',
C [\| Other _ i /
LfflMot j — the effective notional amount of hedging set J calculated as follows.
EffNot°ther = ^ RiskPositio^
l e Hedging set j „
(66) In Part T hree, Title II, Chapter 6, S ection H is replaced by the following.
"Section 4
Simplified Standardised Approach for Connterparty Credit Risk
Method
Article 281 Calculation of the exposure value
Institution shall calculate a single exposure value at netting set level in accordance with Section 3 of th is Chapter, subjectto paragraph 2.
The exposure value of a netting set shall be calculated in accordance with the
following requirements,
institutions shall not apply the treatment referred to in Artiee 274(6);
(b) by way of derogation from Artie,e 275(1), instiutions shall apply the following.
For netting sets not referred to in Article 275(2), institutions shall calculate the replacement cost in accordance with the following formula.
RC = max{CMV, 0} .
\c) by way of derogation from Artie,e 275(2), instiutions shall apply the following.
For netting sets oftransactionsthataretraded on a recognised exchange, netting sets of transactions that are centrally cleared by a central counterpa rty authorised in accordance with Article 14 of r e g u I at i o n (eu) 648/2012 or recognised in accordance Article 25 of with Regulation (eu) 648/2012 or netting sets oftransactions for which collateral is exchanged bilaterally with the counterpa rty in accordance with Artie,e 11 or r e g u I a t i o n (eu) 648/2012, institutions shall calculate the replacement cost in accordance with the following formula.
RC = TH + MTA
where.
TH = the margin threshold applicable to the netting set under the margin
agreement below which the institution cannot call for collateral,
MTA = the minimum transfer amount applicable to the netting set under the
margin agreement,
(d) by way of derogation from Artie,e 275(3), instiutions shall apply the following. For netting sets subject to a margin agreement, where the margin agreement applies
113
to multiple netting sets, institutions shall calculate the replacement cost as the sum of the replacement cost of each individual netting set calculated in accordance with paragraph 1 as if they were not margined.
\e) all hedging sets shall be established in accordance with Artie,e 277a(1).
(f) institutions shall set to 1 the multiplier in the formula used to calculate the potential future exposure in Artie,e 278(1), a s follows.
PFE = V Addon^
(g) By way of derogation from Artie,e 279a(1), instiutions shall apply the f o Mowing.
For all transactions, institutions shall calculate the supervisory delta as follows.
(+1 where the transaction is a long position in the primary risk driver I J. where the transaction is a short position in the primary risk driver
(h) The formula used to compute the supervisory duration factor in point (a) of Artie,e 279b(1) shall read as follows.
supervisory duration factor — E — S
(i) The maturity factor referred to in Article 279c(1) shall be calculated as follows.
l^iiij for transactions included in netting sets referred to in Artie,e
275(1), MF = 1;
(b) for transactions included in netting sets referred to in Artie,e 275(2) and
(3), MF = 0,42;
(j) The formula used to calculate the effective notional of hedging set J in A
280a(3) shall read as foil
„ „ „ rt i c I e
o ws.
EffNot'j* = \Djil\ + \Dji2\ + \Dji^\
(k) The formula used to calculate the credit risk category add_on for hedging set J of the credit risk category in Artie,e 280e(3) shall read as follows.
AddOrfredit = Zj\AddOn(Entityj)\:
(l) The formula used to calculate the equity risk category add_on for hedging set J of the equity risk category in Artie,e 280d(3) shall read as folic
lows.
AddOn-quity = ^jAddOn(Entityj)\
j
The formula used to calculate the com modi ty risk category add_on for hedging set J ofthe commodi ty risk category in Artie,e 280e(3) shall read as follows.
114
AddOrf0171 =^jAddOn(TypeJk)\
I n Part T hree, Title II, Chapter 6, S ection 0 is replaced by the following.
"Section 5 Original Exposnre Method
Article 282 Calculation of the exposure value
Institutions may calculate a single exposure value for all the transactions within a contractual netting agreement where all the conditions set out in Article 274(1) are met. Otherwise, institutions shall calculate an exposure value separately for each transaction treated as its own netting set.
The exposure value of a netting set or transaction shall be the product of 1,4 times
the sum of the current replacement cost and the potential future exposure.
The current replacement cost referred to in paragraph 2 shall be determined as
follows.
(a) for netting sets of transactions that are traded on a recognised exchange, or netting sets of transactions that are centrally cleared by a central counterpa rty authorised in accordance with Article 14 of r e g u I ati o n (eu) 648/2012 or recognised in accordance with Article 25 of Regulation (eu) 648/2012 or netting sets of transactions for which collateral is exchanged bilaterally with the counterparty in accordance with Article 11 of Regulation (eu) 648/2012, institutions shall calculate the current replacement cost referred to in paragraph 2 as follows.
RC = TH + MTA
where.
th = the margin threshold applicable to the netting set under the margin
agreement below which the institution cannot call for collateral,
MTA = the minimum transfer amount applicable to the netting set under the
margin agreement
(b) for all other netting sets or individual transactions, institutions shall calculate the current replacement cost referred to in paragraph 2 as follows.
RC = max{CMV, 0}
In order to calculate the current replacement cost, institutions shall update current market values at least monthly.
Institutions shall calculate the potential future exposure referred to in paragrap follows.
h 2
115
y&) the potential future exposure of a netting set is the sum of the potential future exposure of all the transactions included in the netting set, as calculated in accordance with point (b),
(b) the potential future exposure of a single transaction is its notional amount multiplied by.
(i) the product of 0,5% multiplied by the residual maturity of the transaction for interest~rate contracts,
(m) 4% for contracts concerning f o r e i g n ~ e x c h a n g e rate contracts,
(iii) 18% for contracts concerning gold contracts,
(c) the notional amount referred to in point (b) shall be determined in accordance with points (a) and (b) of Artie,e 279b(1) and with Artie,e 279b(2) and (3), as a p p I i c a b I e,
(d) the potential future exposure of netting sets referred to in point (a) of paragraph 3 shall be multiplied by 0,42.
For calculating the potential exposure of i n te r est" rate contracts in accordance with point (b)(ii), an institution may choose to use the original maturity instead of the residual maturi ty of the contracts. .
(68) In Artie,e 283, paragraph H is replaced by the following.
"4. For a,, OTC derivative transactions and for long settlementtransactions for which an institution has not received permission under paragraph I to use the IMM, the institution shall use the methods set out in Section 3 or Section 5. T hose methods may be used in combination on a permanent basis within a group.
(69) Artie, e 298, s replaced by the following.
TW/c/s 298
Effects of recog n iti o n of netting as r i s k~ re d u c i n g Netting for the purposes of Section 3 to 6 shall be recognised as set out in those Jections, .
(70) In Artie,e 299, point (a) of paragraph 2 is deleted.
(71) Artie,e 300 ,s amended as follows.
(a) the introductory sentence is replaced by the following.
"For the purposes of this Section and of Part Seven, the following definitions shall apply:";
(b) the following points (5) to (11) are added.
"(5) cash transactions means transactions in cash, debt instruments and equities as
well as spot foreign exchange and spot commodities transactions, repurchase transactions and securities or commodities lending and securities or commodities borrowing transactions are not cash transactions,
(6) indirect clearing arrangement means an arrangement that meets the conditions
laid down in the second subparagraph of Artie,e 4(3) of R e g u I at i o n (EU) No
116
648/2012;
(7) 'multi level client structure' means an indirect clearing arrangement under which
clearing services are provided to an institution by an e n t i ty which is not a clearing member, but is itself a client of a clearing member or of a higher~level client,
(8) 'higher-level client' means the entity providing clearing services to a lower-level
c I i e nt,
(9) 'lower-level client' means the entity accessing the s ervices of a CCP through a
higher_level client,
(10) 'unfunded contribution to a default fund' means a contribution that an institution
acting as a clearing member has contractually comm i tte d to provide to a CCP after th e CCP has depleted its default fund to cover the losses it incurred following the default of one or more of its clearing members,
(11) 'fully guaranteed deposit lending or borrowing transaction' means a fully
collateralised money market transaction in which tw o counterparties exchange deposits and a CCP interposes itself b etw een them to ensure the performance of
those counterparties' payment obligations.";
Article 301 is replaced by the following.
"Article 301
Ma teria I scope
This Section applies to the following contracts and transactions for as long as they are o u tsta nding with a CCP:
(a) the contracts listed in Annex II and credit derivatives,
(b) SFTs and fully guaranteed deposit lending or borrowing transactions,
(c) long settlementtransactions.
This Section does not apply to exposures arising from the settlement of cash transactions. Institutions shall apply the treatment laid down in Title V of th is r art to trade exposures arising from those transactions and a 0% ri sk weight to defaultfund contributions covering only those transactions. Institutions shall apply the treatment set out in Arti cle 307 to default fund contributions that cover any of the contracts listed in the first subparagraph in addition to cash transactions.
For the purposes of this Section, the following shall apply.
initial margin shall not include contributions to a CCP for mutualised loss sharing arrangements,
(b) initial margin shall include collateral deposited by an institution acting as a clearing member or by a client in excess of the minimum amount required respectively by the CCP or by the institution acting as a clearing member, provided the CCP or the institution acting as a clearing member may, in appropriate cases, prevent the institution acting as a clearing member or the client from withdrawing such excess collateral,
IcJ where a CCP uses initial margin to mutualise losses among its clearing
117
members, institutions acting as clearing members shall treatthat initial margin
as a default fund contribution.".
In Article 302, paragraph 2 is replaced by the following.
"2. Instit utions shall assess, through appropriate scenario analysis and stress testing, whether the level of own funds held against exposures to a CCP, including potential future or contingent credit exposures, exposures from default fund contributions and, where the institution is acting as a clearing member, exposures resulting from contractual arrangements as laid down in Artie,e 304, adequately relates to the
inherent risks of those exposures.".
Article 303 is replaced by the following.
"Article 303
Tre atment of clearing members exposures to CCPs
An institution that acts as a clearing member, either for its own purposes or as a financial intermediary b etw een a client and a CCP, shall calculate the own funds requirements for its exposures to a CCP a s follows.
it shall apply the treatment set out in Article 306 to its trade exposures with the
CCP;
(b) it shall apply the treatment set out in Art i cle 307 to its default fund contributions to the CCP.
For the purposes of paragraph 1, the sum of an institution s own funds requirements for its exposures to a QCCP due to trade exposures and default fund contributions shall be subjectto a cap equal to the sum of own funds requirements that would be applied to those same exposures if the CCP were a non- qualifying CCP.". Article 304 is amended as follows.
(a) paragraph 1 is replaced by the following.
"1. An institution acting as a clearing member and, in that capacity, acting as a
financial intermediary b etw een a client and a CCP, shall calculate the own funds requirements for its CCP "related transactions with the client in accordance with Sections 1 to 8 of this Chapter, with Section 4 of C hapter H of this I itle and with
Title VI of this Part, as applicable.";
(b) paragraphs 3, 4 and 5 are replaced by the following.
"3. Where ciïï. institution acting as a clearing member uses the methods set out in Section 3 or 6 of this C hapter to calculate the own funds requirement for its exposures, the following shall apply.
\&) by way of derogation from Article 285(2), the institution may use a margin period of risk of at least five business days for its exposures to a client,
(b) the institution shall apply a margin period of risk of at least 10 b u s i n ess days for its exposures to a CCP;
118
\c) by way of derogation from Artie,e 285(3), where a netting set included in the calculation meets the condition set out in point (a) of that paragraph, the institution may disregard the limit set out in that point provided that the netting set does not meet the condition in point (b) of that paragraph and does not contain disputed trades,
(d) where a CCP retains variation margin against a transaction and the institution s collateral is not protected again st the insolvency of the CCP, the in sti t u t i o n shall apply a margin period of risk that is the lower b etw een one year and the remaining matur i ty of the transaction, with a floor of 10 business days.
4. By way of derogation from point (h) of Article 281 (2), where an institution acting as a clearing member uses the method set out in Section 4 of this Chapterto calculate the own fund requirement for its exposures to a client, the institution may use a maturity factor equal to 0,21 for its calculation.
5. By way of derogation from point (d) of Article 282(4), where an institution acting as a clearing member uses the method set out in Section 5 of this Chapterto calculate the own fund requirement for its exposures to a client, it may use a maturity factor
equal to 0,21 in that calculation.";
(c) the following paragraphs 6 and 7 are added.
"6. An institution acting as a clearing member may use the reduced exposure at
default resulting from the calculations in paragraphs 3, 4 and 5 for the purposes of calculating its own funds requirements for CVAri sk in accordance with Title VI.
7. A n institution acting as a clearing member that collects collateral from a client for a CCP 'related transaction and passes the collateral on to the CCP may recognise that collateral to reduce its exposure to the client for that CCP 'related transaction.
In case of a multilevel client structure the treatment set out in the first subparagraph
may be applied at each level of that structure.".
Article 305 is amended as follows.
(a) paragraph 1 is replaced by the following.
"1. An institution that is a client shall calculate the own funds requirements for its
CCP "related transactions with its clearing member in accordance with Jections I to O of this Uhapter, with Jection 4 or C hapter H of this I itle and with Title VI of this
Part, as applicable.";
(b) in paragraph 2, point (c) is replaced by the following.
"(c) the client has conducted a sufficiently thorough legal review, which it has kept up to date, that substantiates that the arrangements that ensure that the condition in point (b) is met are legal, valid, binding and enforceable under the relevant laws of
the relevant j u Tsdiction or jurisdictions;";
(c) in paragraph 2, the following subparagraph is added.
"An institution may take into account any clear precedents of transfers of client
positions and of corresponding collateral at a CCP, and any industry intent to continue with this practice, when the institution assesses its compliance with the
119
condition in point (b) of the first subparagraph.";
(d) paragraphs 3 and 4 are replaced by the following.
"3. By way of derogation from paragraph 2 of this Article, where an institution that is
a client fails to meet the condition set out in point (a) of that paragraph because that institution is not protected from losses in the case that the clearing member and another client of the clearing memberjointly default, but all the other conditions set out in point (a) of that paragraph and in the other points of that paragraph are met, the institution may calculate the own funds requirements for its trade exposures for CCP "related transactions with its clearing member in accordance with Article 306, subjectto replacing the 2 % risk weight in point (a) of Artie,e 306(1) with a 4 % risk weight.
4. In the case of a multilevel client structure, an institution that is a lower_level client accessing the services of a CCP through a higher~level client may apply the treatment set out in paragraph 2 or 3 only where the conditions in those paragraphs
are met at every level of that structure.".
Article 306 is amended as follows.
(a) in paragraph 1, point (c) is replaced by the following.
"(c) where the inst itution is acting as a financial intermediary b etw een a client and a CCP and the terms of the CCP 'related transaction stipulate that the inst itution is not required to reimburse the clientfor any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, it may set the exposure value of the trade exposure with the CCP that corresponds to that CCP 'related transaction to
zero;";
(b) in paragraph 1, the following point (d) is added.
"(d) where an institution is acting as a financial intermediary b etw een a client and a
CCP and the terms of the CCP "related transaction stipulate that the in st itution is required to reimburse the clientfor any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, it shall apply the treatment in point (a) or (b), as applicable, to the trade exposure with the CCP that corresponds to
th at CCP-related transaction";
paragrap
hs 2 and 3 are replaced by the following.
"2. By way of derogation from paragraph 1, where assets posted as collateral to a
CCP or a clearing member are bankruptcy remote in the event that the CCP, th e clearing member or one or more of the other clients of the clearing member become insolvent, an institution may attribute an exposure value of zero to the counterpa rty credit risk exposures for those assets.
3. A n institution shall calculate exposure values of its trade exposures with a CCP in accordance with Sections 1 to 8 of this Chapter and with Section 4 or C h a pter \ of
this Title, as applicable.".
Article 307 is replaced by the following.
120
"Article 307
Own funds requirements for contributions to the default fund of a CCP
An institution acting as a clearing member shall apply the following treatmentto its exposures arising from its contributionstothe defaultfund of a CCP:
(a) it shall calculate the own funds requirement for its pre- funded contributions to the defaultfund of a QCCP in accordance with the approach set out in Article 308|
(b) it shall calculate the own funds requirement for its pre~funded and unfunded contributions to the default fund of a n o n ~ q u a I i f y i n g CCP in accordance with the
approach set out in Artiee 309;
(c) it shall calculate the own funds requirement for its unfunded contributions to the
defaultfund of a QCCP in a c c o rdance with the treatment set out in Article 310.".
(79) Artic,e 308is amended as follows.
(a) Paragraphs 2 and 3 are replaced by the following.
"2. An institution shall calculate the own funds requirement (K) to cover the
exposure arising from its pre~funded contribution (DF,) as follows.
CCP + ^l'CM
Ki = max \kccp ■ °^ , 8% ■ 2% ■ DF,]
(. Dtrrp + DFrM )
i — the index denoting the clearing member,
^CCP = the hypothetical capital of the QCCP communicated to the institution by the
QCCP in accordance with Article 50c of Regulation (EU) No 648/2012;
DF(~jm — the sum of pre~funded contributions of all clearing members of the
QCCP communicated to the institution by the QCCP in accordance with Article 50c of Regulation (EU) No 648/2012;
DFcCP = the pre-funded financial resources of the CCP communicated to the
institution by the CCP in accordance with Article 50c of Regulation (EU) No
648/2012.
3. A n institution shall calculate the risk weighted exposure amounts for exposures arising from that institution s pre~funded contribution to the default fund of a QCCP for the purposes of Arti cle 92(3) as the own funds requirement ( K.(~jm J ' determined in
accordance with paragraph 2, multiplied by 12,5.";
(b) paragraphs 4 and 5 are del ete d . (80) Article 309 I s replaced by the following.
"Article 309
Own fu n ds requirements fo r pre ~fu n ded contributions to the default fu n d of a n o n ~q u a I ifying CCP and for unfunded contributions to a n o n ~ q u a I ify i n g CCP
1. A n institution shall apply the following formula to calculate the own funds
requirement ( K.) for the exposures arising from its pre~funded contributions to the
121
default fund of a non~quali f y ing CCP (D F) and from unfunded contributions (UC) to
such CCP:
K = DF + UC.
2. A n institution shall calculate the risk weighted exposure amounts for exposures arising from that institutions contribution to the default fund of a nonqualifying CCP for the purposes of Art i cle 92(3) as the own funds requirement ( K.) , determined
in accordance with paragraph 1, multiplied by 12,5.".
(81) Artie,e 310 i s replaced by the following.
"Article 310
Own fu n cfs requirements fo r u nfu n deel contributions to the d efa u it fu n d of a QCCP An institution shall apply a 0% ri sk weight to its unfunded contributionstothe default fund of
a QCCP ".
(82) Article 311 I s replaced by the following.
"Article 317
Own funds requirements for exposures to CCPs that cease to meet certain conditions
3. Institutions shall apply the treatment set out in this Article where it has become known to them, following a public announcement or notification from the competent a u t h o r i ty of a CCP used by those institutions or from that CCP itself, that the CCP will no longer comply with the conditions for authorisation or recognition, as applicable.
4. W here the condition in paragraph I is met, institutions shall, within three months of the circumstance set out in that paragraph arising, or earlier where the competent authorities of those institution require it, do the following with respect to their exposures to that CCP:
(a) apply the treatment set out in point (b) of Artie,e 306(1) to their tra d e
exposures to that
CCP:
(b) apply the treatment set out in Artie,e 309 to their pre~funded contributions to the defaultfund of that CCP and to its unfunded contributions to that CCP:
\c) treat their exposures to that CCP, other than the exposures listed in points ^ a J and (b) of this paragraph, as exposures to a corporate in accordance with the
Standardised Approach for credit risk in Chapter 2 of this Title.".
(83) In Part Three, Title IV, C hapter I is replaced by the following.
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C h a pte r 1 General P
rovisions
Article 325
Approaches for calculating the own funds requirements for market risks
A n institution shall calculate the own funds requirements for market risks of all trading book positions and non~trading book positions subject to foreign exchange risk or com modity risk in accordance with the following approaches.
(a) from [date of application of this Regulation], the standardised approach set out in Chapter 1a of this Title,
(b) from [date of application of this Regulation], the internal model approach set out in Chapter 1b of this Title only for those positions assigned to trading desks for which the institution has been granted a permission by competent authorities to use that approach as set out in Article 325ba,
(c) after [date of application of this Regulation], only institutions that meet the conditions defined in Article 325a(1) may use the simplified standardised approach referred to in paragraph 4 to determine their own funds requirements for market risks,
(d) until [date of application of this Regulation], the simplified internal model approach set out in Chapter 5 of this Title for those risk categories for which the institution has been granted the permission in accordance with Art i c I e 363 to use that approach in. After [ date of application of this IxegulationJ, institutionsshall no longer use the simplified internal model approach set out in Chapter 5 to determine the own funds requirements for market risks.
The own funds requirements for markets risks calculated with the simplified standardised approach referred to in point (c) of paragraph 1 means the sum of the following own funds requirements, as applicable.
(a) the own funds requirements for position risks referred to in Chapter 2 of this Titlei
in C h a pte r 3
An
the own funds requirements for foreign exchange risks referred to in Uhapte of this Titled
the own funds requirements for com modi ty risks referred to in Chapter 4 of this Titled
nstitution may use in combination the approaches set out in points (a) and (b) of
paragraph 1 on a permanent basis within a group provided that the own funds requirements for market risks calculated under the approach set out in point (a) does not exceed 90% of the total own funds requirements for market risks. Oth erw i se, the institution shall use the approach set out in point (a) of paragraph 1 for all the positions subjectto the own funds requirements for market risks.
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An institution may use in combination the approaches set out in points (c) and (d) of paragraph 1 on a permanent basis within a group in accordance with Article 363. An institution shall not use either of the approaches set out in points (a) and (b) of paragraph 1 in combination with the approach set out in point (c).
Institutions shall not use the approach set out in point (b) of paragraph 1 for instruments in the trading book that are securitisation positions or positions included i n th e CTP as defined in paragraphs 7 to 9 of Article 104.
For the purpose or calculating the own funds requirements for CVA ri sks using the advanced method set out in Art i cle 383, institutions may continue to use the simplified internal model approach set out in Chapter 5 of this Title after [date of application of this Regulation] at which date institutions shall cease to use that approach for the purposes of calculating the own funds requirements for market risks.
EBA shall develop regulatory technical standards to specify in more detail how institutions shall determine the own funds requirements for market risks for non-trading book positions subject to foreign exchange risk or commodity risk in accordance with the approaches set out in points (a) and (b) of paragraph 1.
E B A shall submit those dra ft regulatory technical standardsto the Commission by [6 months after the entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with article 10 to 14 or R e g u I a t i o n
(EU) No 1093/2010.
Article 325a
Conditions for using the Simplified Standardised Approach
An institution may calculate the own funds requirements for market risks with the approach referred to in point (c) of Article 325(1) provided that the size of the institution s on and off" balance sheet business subject to market risks is equal to or less than the following thresholds on the basis of an assessment carried out on a monthly basis.
(a) 10 % of the institutionstotal assets,
(b) EUR 300 million.
Institutions shall calculate the size of their on- and off "balance sheet subject to market risks on a given date in accordance with the following requirements.
(a) all the positions assigned to the trading book shall be included, except credit derivatives that are recognised as internal hedges against non~trading book credit risk exposures,
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1 all non~trading book positions generating foreign~exchange and com modity risks shall be included,
all positions shall be valued at their market prices on that date, except for positions referred to in point (b). If the market price of a position is not available on a given date, institutions shall take the most recent market value for that position,
1 all the non_trading book positions generating commodi ty risks shall be considered as an overall net foreign exchange position and valued in accordance with Article 352
all the non_trading book positions generating commodi ty risks shall be valued using the provisions set out in Articles 357 to 358,
the absolute value of long positions shall be summed with the absolute value of short positions.
Institutions shall noti f y the competent authorities when they calculate, or cease to calculate, their own fund requirements for market risks in accordance with this Arti c I e.
A n institution that no longer meets any of the conditions of paragraph 1 shall immediately noti f y the competent authority.
Institutions shall cease to calculate the own fund requirements for market risks in accordance with paragraph 1 within three months of one of the following cases.
(a) the institution does not meet any of the conditions of paragraph 1 for three consecutive months,
(b) the institution does not meet any of the conditions of paragraph 1 during more than D out of the last 12 m o n t h s,
Where an institution ceases to calculate the own fund requirements for market risks in accordance with paragraph 1, it shall only be permitted to calculate the own fund requirements for market risks according to paragraph 1 where it demonstrates to the competent authority that all the conditions set out in paragraph 1 have been met for an uninterrupted full year period.
I nstitutions shall notenter into a position forthe only purpose of complying with any of the conditions set out in paragraph 1 during the monthly assessment.
Article 325b Allowances for consolidated requirements
Subjectto paragraph 2 and only forthe purpose of calculating net positions and own funds requirements in accordance with this Title on a consolidated basis, institutions may use positions in one institution or undertaking to offset positions in another institution or undertaking.
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Institutions may apply paragraph 1 only subject to the permission of the competent authorities, which shall be granted if all of the following conditions are met.
(a) there is a satisfactory allocation of own funds within the group,
(b) the regulatory, legal or contractual framework in which the institutions operate is such as to guarantee mutual financial support within the group.
W here there are undertakings located in third countries all of the following conditions shall be met in addition to those in paragraph 2.
(a) such undertakings have been authorised in a third country and either satisfy the definition of a credit institution or are recognised th ird_cou ntry investment firms,
(b) such undertakings comply, on an individual basis, with own funds requirements equivalent to those laid down in this Regulation,
(c) no regulations exist in the third countries in question which might significantly affectthe transfer of funds within the group.
Article 325c Structural hedges of foreign exchange risk
A ny position which an institution has deliberately taken in order to hedge again st the adverse effect of foreign exchange rates on its ratios referred to in Artie,e 92(1) may, subject to permission of the competent authorities, be excluded from the calculation of own funds requirements for market risks, provided the following conditions are m et.
(a) the exclusion is limited to the large st ofthe following amounts.
(i) the amount of investment in affiliated entities denominated in foreign currencies but which are not consolidated with the institution,
(ii) the amount of investment in consolidated subsidiaries denominated in foreign currencies.
(b) the exclusion from the calculation of own funds requirements for market risks is madeforatleastsix months,
(c) the institution has provided to the competent authorities the details of that position, has substantiated that that position has been entered into for the purpose of hedging partially or totally again st the adverse effect of the exchange rate on its ratios defined in accordance with Artie,e 92(1) and th e amounts of that position that are excluded from the own funds requirements for market risk as referred to in point (a).
A ny exclusion of positions from the own funds requirements for market risks in accordance with paragraph 1 shall be applied consistently and remain in place for the life ofthe assets or other items.
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3. C ompetent authorities shall approve any subsequent changes by the institution to the
amounts that shall be excluded from the own funds requirements for market risks in accordance with paragraph 1. . (84) In Part 3, Title IV, the following Chapters 1a and 1b are added.
C h a pte r 1 a The standardised approach
Section 1 General provisions
Article 325d Scope and structure of the standardised approach
An institution shall calculate the own funds requirements for market risk with the standardised approach for a po rtf o Mo of trading book positions or non~trading book positions generating foreign~exchange and com modi ty risks as the sum of the following three com ponen ts.
(a) the own funds requirement under the sensitivities based method set out in Section 2 of this Chapter,
(b) the default risk own funds requirement set out in Section 5 of this Chapter which is only applicable to the trading book positions referred to in thatSection,
(c) the own funds requirements for residual risks set out in Section 4 of this Chapter which is only applicable to thetrading book positions referred to in thatSection.
Section 2
Sensitivities-based method own funds requirement
Article 325e Den n iti o ns
For the purposes of this Chapter, the following definitions shall apply!
(1 ) risk class means one of the following seven categories, (i) general interest rate risk, (ii) non~securitisation credit spread risk, (i i i) securitisation credit spread risk (non_CTP), (i v) securitisation credit spread risk (CTP), (v) equity risk, (vi) com modi ty risk, and (vii) foreign exchange risk.
(2) sensitivity means the relative change in the value of an position, calculated with the institutions pricing model, as a result of a change in the value of one of the relevant risk factors of the position.
(3) bucket means a subcategory of positions within one risk class with a similar risk profile to which a risk~weight is assigned as defined in subsection 1 ofS e ct i on O of this C h a pte r.
Article 325f Components of the sensitivities~based method
1. Institutions shall calculate the own funds requirement for market risk under the
s e n s i t i v i t i es-b a s e d method by aggregating the following three own fund requirements
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in accordance with Article 325i.
(a) own fund requirements for delta risk which captures the risk of changes in the value of an instrument due to movements in its non~volatili ty related risk factors and assuming a linear pricing function,
(b) own fund requirements for vega risk which captures the risk of changes in the value of an instrument due to movements in its volatility~related risk factors,
(c) own fund requirements for curvature risk which captures the risk of changes in the value of an instrument due to movements in the main n o n ~ v o I at i I i ty related risk"factors not captured by delta risk.
For the purposes of the calculation referred to in paragraph 1,
(d) all the positions of instruments with optionality shall be subject to the own fund requirements referred to in points (a), (b) and (c) of paragraph 1.
(e) all the positions of in st rumen ts without optionality shall only be subjectto the own fund requirements referred to in points (a) of paragraph 1.
For the purposes of this Chapter, instruments with optionali ty include, amongst others. calls, puts, caps, floors, swaptions, barrier options and exotic options. Embedded options, such as prepayment or behavioural options, shall be considered to be standalone positions in options for the purpose of calculating the own funds requirements for market risks.
For the purposes of this Chapter, instruments whose cash flows can be written as a linear function of the underlyings notional value shall be considered to be instruments without optionality.
Article 325g Own funds requirements for delta and vega risks
Institutions shall apply the delta and vega risk factors described in subsection 1 of Section 3 of this Chapter to calculate the own fund requirements for delta and vega risks.
Institutions shall apply the process set out in paragraphs 3 to 8 to calculate own funds requirements for delta and vega risks.
For each risk class, the sensitivi ty of all in st rumen ts in scope of the own funds requirementsfor delta or vega risksto each of the applicable delta or vega risk factors included in that risk class shall be calculated by using the corresponding formulas in s u bsecti o n 2 or S ection 3 of this Chapter. If the value of an instrument depends on several risk factors, the sensitivity shall be determined separately for each risk factor. Sensitivities shall be assigned to one of the buckets b within each risk class. W ithin each bucket b , the positive and negative sensitivities to the same risk factor shall be n ette d, giving rise to net sensitivities (s^) to each risk factor k within a buck et.
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The net sensitivities to each risk factor [Sfc) within each bucket shall be multiplied by the corresponding risk weigh ts (RW^j prescribed in Section 6, giving rise to weighted sensitivities ( l/l/S^) to each risk factor within that bucket in accordance with the following formula.
WSk = RWk ■ sk
The weighted sensitivities to the different risk factors within each bucket shall be aggregated in accordance with the formula below, where the quantity within the square root function is floored at zero, giving rise to the bucket_specific sensitivity (K-b) ■ The corresponding correlations for weighted sensitivities within the same
bucket [Pfcl)/ laid down in Section 6, shall be used.
Kb = ^ WS2k +YJYupkl WSk wSi
-J k k k=tl
The bucket" specific sensitivi ty (K.^j shall be calculated for each bucket within a risk class in accordance with paragraphs 5 to 7. 0 nee the bucket" specific sensitivi ty has been calculated for all buckets, weighted sensitivities to all risk factors across buckets shall be aggregated in accordance with the formula below, using the corresponding correlations f bc for weighted sensitivities in different buckets laid down in 6, giving rise to the risk_class specific delta or vega own funds requirement.
Risk — class specific delta or vega own fund requirement = K% + ^ ^ ybc SbSc
J b b c*b
where Sfy ^^^k ^° r a risk factors in bucket b and Sc ^£ JVSfc in bucket c, Wh ere
those values for and Sc produce a negative number for the overall sum of ^ ~\~ ^1 p Sc^f? Ybc ^b^C' tne institution shall calculate the risk_class specific delta or vega own funds requirements using an alternative specification
w h ere by S^=rrl3.X [rnin (2]]^ WSj^-, K^), — K^] for all risk factors in bucket b and Sc=ma.X [min (X^WS^- , Kc), — Kc] for al I risk factors i n bucket c.
The risk"class specific delta or vega risk own fund requirements shall be calculated for each risk class in accordance with paragraphs (1 ) to (8).
Article 325h Own funds requirements for curvature risk
Institutions shall apply the process set out in paragraphs 2 to 6 to calculate own funds requirements for curvature risk.
Using the sensitivities calculated in accordance with Article 325g(4), for each risk class, a net curvature risk requirement CVRb for each risk factor (k) included in that
129
risk class shall be calculated in accordance with the formula below.
CVRk = -mtag [V, >♦)) _ VAxk) _ flM4(«*». '
where.
/ — the index that denotes an instrument subjectto curvature risks associated with risk factor k,
Xfc — the current level of risk factor k,
(^/c) = the value of an instrument / as estimated by the pricing model of the institution by using the current value of risk factor k,
( (RW{curvature) +) \ , (RW(curvature) _ ) \
Vi [Xk ) and Vi [Xk )
— the value of an in str u m e n t / af te r
Xfc is shi f te d upward and downward respectively in accordance with the corresponding risk weights,
(curvature)
i\ VVfc = the risk weight for curvature risk factor k for instrument /
determined in accordance with Section 6.
S^fo — the delta sensitivity of instrument / with respect to the delta risk factor that c o rres p o n d s to curvature risk factor k,
For each risk class, the net curvature risk requirements CVRk cal c ui ate d i n accordance with paragraph 2 shall be assigned to one of the buckets (b) within that risk class.
Al i the net curvature risk requirements CVRk within each bucket (b) shall be aggregated in accordance with the formula below, where the corresponding prescribed correlations fDk! among pairs of risk factors k,l within each bucket shall be used, giving rise to the b u c k et~s p e c i f i c curvature risk own funds requirements.
Kb -N
max I 0,^max(CVRk, 0)2 + ^ ^ pkl CVRkCVRL y(CVRk , CVR{)
k k±l
XfA^CVRji , CVR\) — a function that takes the value 0 if CVRfc and CVRi both have negative signs. In all other cases, \jj(C\7R]^ t Rl) shall takethe value of1.
The net curvature risk own funds requirements shall be aggregated across buckets within each risk class in accordance with the formula below, where the corresponding prescribed correlations ybc for sets of net curvature risk requirements
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belonging to different buckets shall be used. This gives rise to the risk_class specific curvature risk own funds requirements,
Risk class specific curvature risk own funds requirements
EK*+ X XYbc SbS° ^Sb> s^
ai b b c^b
Sfo ^£ CVRfc for all risk factors in bucket b, and Sc ^£ CVRfc in bucketc,
Xp^Sfyf Sg) is a function that takes the value 0 if Sjj and Sq both have negative signs. In all other cases, Xp [Sfyf Sg) takesthe value of 1 .
Where these values for and Sc produce a negative number for the overall sum of
Hb^b + HbUc^bYbc^b^c^i^b' $c)
the institution shall calculate the curvature risk charge using an alternative specification whereby Sfo = 7ÏÏCLX [min^^]^- CV Rfc f KfoKfo ] for all risk factors in bucket b and Sc = 7ÏICLX [mill C2 A: C^^k > ^c)> —for aM risk factors in bucket c.
The risk class specific curvature risk own funds requirements shall be calculated for each risk Cass in accordance w,th p a ra g ra p h s 2 to 5 .
Article 325i
ation of risk~ciass specific own funds requirements for delta, vega and curvature risks
Institutions shall aggregate risk_class specific own funds requirements for the delta, vega and curvature risks in accordance with the process set out in paragraphs 2 to 5. The process to calculate delta, vega and curvature risk_class specific own funds requirements described in /Articles 325 g and 325 h shall be performed three times per risk_class, each time using a different set of correlation parameters Pfcl (correlation b etw een risk factors within a bucket) and Ybc (correlation b etw een buckets within a risk class. Each of those three sets shall correspond to a different scenario, as follows.
(a) the medium correlations scenario, whereby the correlation parameters Pfcl and Ybc remain unchanged from those specified in Section 6.
(b) the high correlations scenario, whereby the correlation parameters and Ybc that are specified in Section 6 shall be uniformly multiplied by 1,25, with and "Ybc subject to a cap at 100%.
(c) the low correlations scenario, whereby the corresponding prescribed correlations specified in Jection D shall be uniformly multiplied by 0,75.
AII the risk_class specific own funds requirements resulting from each scenario shall be aggregated separately for delta, vega and curvature risk, giving rise to three
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different, scenario~specific, own funds requirements for delta, vega and curvature risk.
The final delta, vega or curvature own fund requirements, shall be the largest of the three scenario_specific own fund requirements for delta, vega or curvature risk calculated in accordance with paragraph 3.
The sensiti vities"based method own fund requirement shall be the sum of the three final delta, vega and curvature own funds requirements.
Article 325j
Treatment of i ndex instruments, m u Iti ~ u n d e r I y i n g options
Institutions shall use a look through approach for index in st rumen ts and m u Iti" underlying options where all the constituents of the index or the option have delta risk sensitivities of the same sign. The sensitivities to constituent risk factors from index in st rumen ts and multi~underlying options are allowed to net with sensitivities to single name in st rumen ts without re strictions, exceptfor positions of in the CTP. M ulti"underly ing options with delta risk sensitivities of different signs shall be exempted from delta and vega risk but shall be subject to the residual risk add_on referred to in Section 4 of this Chapter.
Article 325k atment of collective investment undertakings
Institutions shall calculate the own funds requirements for market risk of a position in a collective investmentundertaking (CIU) using one of the following approaches.
(a) A n institution that is able to identi f y the underlying investments of the CIU or the index instrument on a daily basis shall look through to those underlying investments and calculate the own funds requirements for market risk for this position in accordance with the approach set out in Artie, e 325j(1);
here daily prices for the CIU may be obtained but an institution is aware of the mandate of the CIU, that institution shall consider the CIU position as an e q u i ty instrumentforthe purposes ofthe sensitivities based -method,
(c) W here daily prices for the CIU may be obtained but an institution is not aware ofthe mandate ofthe CIU , that institution shall consider the CIU position as an e q u i ty instrumentforthe purposes ofthe sensitivities based -method and assign
that CIU position the risk weight of the equity risk bucket 'other sector'.
Institutions may rely on the following third partiesto calculate and report their own funds requirements for market risk for positions in ClUs, in accordance with the methods set out in this Chapter.
the depository of the CIU provided that the CIU invests exclusively in securities and deposits all those securities at that depository,
132
(b) for other ClUs, the CIU management company, provided that the CIU management company meets the criteria set out in point (a) of Artie,e 132(3).
EBA shall develop regulatory technical standards to speci f y in more detail which risk weights shall be assigned to positions in the CIU referred to in point (b) of paragraph
1
EBA shall submit those dra ft regulatory technical standards to the Uom mission by [fifteen months afterthe entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with article 10 to 14 or R e g u I at i o n
(EU) No 1093/2010.
Article 325/ Un der wr iti ng positions
Institutions may use the process set out in this Artie,e for calculating the own funds requirements for market risks of underwriting positions of debt or equi ty i nstru m ents. I nstitutions shall apply one ofthe appropriate multiplying factors listed in Table 1 to the net sensitivities of all the underwriting positions in each individual issuer, excluding the underwriting positions which are subscribed or sub~underwritten by third parties on the basis of formal agreements, and calculate the own funds requirements for market risks in accordance with the approach set out in this Chapter on the basis ofthe adjusted n et s e n s i t i v i t i es.
Tab le 1
| working day 0 | 100% |
| working day 1 | 90% |
| working days 2 to 3 | 75% |
| working day 4 | 50% |
| working day 5 | 25% |
| after working day 5 | 0% |
For the purpose of th i s Arti c I e, working day U means the working day on which the institution becomes unconditionally committed to accepting a known qua n t i ty of securities at an agreed price.
Institutions shall notify the competent authorities ofthe application ofthe process set out in this Artie,e.
Section 3
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Risk factor and sensitivity definitions
Subsection 1 Risk factor definitions
/\rti c Ie 325m General interest rate risk factors
For all general interest rate risk factors, including inflation risk and cross~currency basisTisk, there shall be one bucket per currency, each containing different ty pes of risk fa cto r.
The delta general interest rate risk factors applicable to interest rate~sensitive instruments shall be the relevant risk"free rates per currency and per each of the following maturities. 0,25 years, 0,5 years, 1 year, 2 years, 3 years, 5 years, 10 years, 15 years, 20 years, 30 years. Institutions shall assign risk factors to the specified vertices by linear interpolation or by using a method that is most consistent with the pricing functions used by the independent risk control function of the institution to report market risks or profits and losses to senior management.
Institutions shall obtain the risk"free rates per currency from money market instruments held inthetrading book of the institution that have the lowest credit risk, such as overnight index swaps.
W here institutions cannot apply the approach referred to in paragraph the risk~free rates shall be based on one or more market"implied swap curves used by the institution to mark positions to market, such as the interbank offered rate swap curves.
W here the data on m a r k et~ i m p I i e d swap curves described in paragraph L. and the first subparagraph of this paragraph are insufficient, the risk"free rates may be derived from the most appropriate sovereign bond curve for a given currency.
W here institutions use the risk factors derived in accordance with the procedure set out in the second subparagraph of this paragraph for sovereign debt instruments, the sovereign debt instrument shall not be exempted from credit spread risk own funds requirements. In those cases, where it is not possible to disentangle the risk"free rate from the credit spread component, the sensitivity to this risk factor shall be allocated both to the general interest rate risk and to credit spread risk classes.
In the case of general interest rate risk factors, each currency shall constitute a separate bucket. Institutions shall assign risk factors within the same bucket, but with different maturities, a different risk weight, in accordance with Section 6.
Institutions shall apply additional risk factors for inflation risk to debt instruments whose cash flows are functionally dependent on inflation rates. Those additional risk factors shall consist of one vector of market~implied inflation rates of different maturities per currency. For each instrument, the vector shall contain as many components as there are inflation rates used as variables by the pricing model of the
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institution for that instrument.
Institutions shall calculate the sensitivity of the instrument to the additional risk factor for inflation risk referred to in paragraph 4 as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Each currency shall constitute a separate bucket. W ithin each bucket, institutions shall treat inflation as a single risk factor, regardless the number of com ponen ts of each vector. Institutions shall offset all sensitivities to inflation within a bucket, calculated as described above, in order to give rise to a single net sensitivi ty per bucket.
Debt instruments that involve payments in different currencies shall also be subject to cross_currency basis risk b etw een those currencies. For the purposes of the sensitivities based method, the risk factors to be applied by institutions shall be the cross"currency basis risk of each currency over either US dollar or EUR. I nstituti o ns shall compute cross currency bases that do not relate to either basis over USD o r basis over EUR either on basis over US dollar or basis over EUR'.
Each cross"currency basis risk factor shall consist of one vector of cross~currency basis of different maturities per currency. For each instrument, the vector shall contain as many components as there are cross~currency basis used as variables by the pricing model of the institution for that instrument. Each currency shall constitute a different bucket.
Institutions shall calculate the sensitivi ty of the instrument to this risk factor as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Each currency shall constitute a separate bucket. W ithin each bucket there shall be tw o possible distinct risk factors, basis over EUR and basis over USD, regardless of the number of components there are in each cross_currency basis vector. The maximum number of net sensitivities per bucket shall be tw o.
The vega general interest rate risk factors applicable to options with underlyings that are sensitive to general interest rate shall be the implied volatilities of the relevant risk"free rates as described in paragraph 2 and 3, which shall be assigned to buckets depending on the currency and mapped to the following maturities within each buck et. 0,5 years, 1 year, 3 years, 5 years, 10 years. I here shall be on bucket per currency.
For netting purposes, institutions shall consider implied volatilities linked to the same risk"free rates and mapped to the same maturities to constitute the same risk fa cto r.
W here institutions map implied volatilities to the maturities as referred to in this paragraph, the following shall apply.
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y&) where the maturi ty of the option is aligned with the maturi ty of the underlying, a single risk factor shall be considered, which shall be mapped in accordance with that maturity.
(b) where the maturity of the option is shorter than the maturity of the underlying, the following risk factors shall be considered as follows.
(i) the first risk factor shall be mapped in accordance with the maturi ty of th e o pti o n ,
(ii) the second risk factor shall be mapped in accordance with the residual maturi ty of the underlying of the option at the expiry date of the option.
The curvature general interest rate risk factors to be applied by institutions shall consist of one vector of risk"free rates, representing a specific risk"free yield curve, per currency. Each currency shall constitute a different bucket. For each instrument, the vector shall contain as many components as there are different maturities of risk" free rates used as variables by the pricing model of the institution for that instrument. Institutions shall calculate the sensitivity of the instrumentto each risk factor used in the curvature risk formula in accordance with Art i cle 325 h . For the purposes of
the curvature risk, institutions shall consider vectors corresponding to different yield curves and with a different number of components as the same risk factor, provided that those vectors correspond to the same currency. Institutions shall offset sensitivities to the same risk factor. There shall be only one net sensitivi ty per buck et.
There shall be no curvature risk charge for inflation and cross currency basis risks.
Article 325n Credit spread risk factors for n o n ~sec u r iti sati o n
The delta credit spread risk factors to be applied by institutions to n o n ~ se c u r i ti s at i o n instruments that are sensitive to credit spread shall be their issuer credit spread rates, inferred from the relevant debt instruments and credit default swaps, and mapped to each of the following maturities. 0.25 years, 0.5 years, 1 year, 2 years, 3 years, 5 y e a rs, 10 years, 15 y e a rs, 20 years, 30 years. Institutions shall apply one risk factor per issuer and maturi ty, regardless of whether those issuer credit spread rates are inferred from debts instruments or credit default swaps. The buckets shall be sectorial buckets, as referred to in Section 6, and each bucketshall include all the risk factors allocated to the relevant sector.
The vega credit spread risk factors to be applied by institutions to options with non~ securitisation underlyings that are sensitive to credit spread shall be the implied volatilities of the underlyings issuer credit spread rates inferred as laid down in
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paragraph 1, which shall be mapped to the following maturities in accordance with the maturity of the option subject to own funds requirements. 0.5 years, 1 year, 3 years, u years, 10 years. I he same buckets shall be used as the buckets that were used for the delta credit spread risk for non~securitisation.
The curvature credit spread risk factors to be applied by institutions to non-securitisation instruments shall consist of one vector of credit spread rates, representing a specific issuer credit spread curve. For each instrument, the vector shall contain as many components as there are different maturities of credit spread rates used as variables in the pricing model of the institution for that instrument. The same buckets shall be used as the buckets that were used for the delta credit spread risk for n o n ~s e c u r i t i sat i o n .
Institutions shall calculate the sensitivity of the instrumentto each risk factor used in the curvature risk formula S^fo in accordance with Art i cle 325 h. For the purposes of the curvature risk, institutions shall consider vectors inferred from either relevant debt in st rumen ts or credit default swaps and with a different number of components as the same risk factor as long as those vectors correspond to the same issuer.
Article 325o Credit spread risk r isk ~fa cto r s for securitisation
Institutions shall apply the CTP securitisations credit spread risk factors referred to in paragraph O to securitisation positions that belong to the CTP, as refe rre d to i n Artie,e 104(7) to (9),
Institutions shall apply the securitisations non- CTP credit spread risk factors referred to in paragraph 0 to securitisation positons that do not belong to the CTP, as refe rre d to i n Artie,e 104(7) to \ ö ) .
The buckets applicable to the credit spread risk of securitisations that belong to the CTP shall the same as the buckets applicable to the credit spread risk of non-securitisations, as referred to in Section 6.
The buckets applicable to the credit spread risk of securitisations that do not belong to the CTP shall be specific to this risk_class category, as referred to in Section 6.
The credit spread risk factors to be applied by institutions to securitisation positions that belong to the CTP are the following.
(a) the delta risk factors shall be all the relevant credit spread rates of the issuers of the underlying exposures of the securitisation position, inferred from the relevant debt in st rumen ts and credit default swaps, and for each of the f o I lowing maturities. 0.5 years, 1 year, 3 years, 5 years, 10 years.
(b) the \/e ga risk factors applicable to options with securitisation positions that belong to the CTP as underlyings shall be the implied volatilities of the credit
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spreads of the issuers of the underlying exposures of the securitisation position, inferred as described in point a of this paragraph, which shall be mapped to the following maturities in accordance with the maturi ty of the corresponding option subject to own funds requirements. 0.5 years, 1 year, 3 years, 5 years, 10 years.
(c) the curvature risk factors shall be the relevant credit spread yield curves of the issuers of the underlying exposures of the securitisation position expressed as a vector of credit spread rates for different maturities, inferred as indicated in paragraph a of this paragraph. For each instrument, the vector shall contain as many com ponen ts as there are different maturities of credit spread rates that are used as variables by the pricing model of the institution for that instrument.
Institutions shall calculate the sensitivity of the securitisation position to each risk factor used in the curvature risk formula as specified in Art i cle 325 h . For the
purposes of the curvature risk, institutions shall consider vectors inferred either from relevant debt in st rumen ts or credit default swaps and with a different number of components as the same risk factor as long as those vectors correspond to the same issuer.
The credit spread risk factors to be applied by institutions to securitisation positions that do not belong to the CTP shall refer to the spread of the tranche rather than the spread of the underlying in st rumen ts and shall be the following.
(a) the delta risk factors shall be the relevant tranche credit spread rates, mapped to the following maturities, in accordance with the maturi ty of the tranche. 0.5 years, 1 year, 3 years, 5 years, 10 y e a rs .
(b) the vega risk factors applicable to options with securitisation positions that do not belong to the CTP as underlyings shall be the implied volatilities of the credit spreads of the tranches, each of them mapped to the following maturities in accordance with the maturi ty of the option subject to own funds re q u i re m e nts . 0,5 years, 1 year, 3 years, 5 years, 10 years.
(c) the curvature risk factors shall be the same as those described in point (a) of this paragraph. To all those risk factors, a common risk weight shall be applied, as referred to in Section 6.
Article 325p Equity r i sk~fa ctors
The buckets for all equity risk factors shall be the sectorial buckets referred to in S e ct i o n 6.
The equi ty delta risk factors to be applied by institutions shall be all the equi ty spot prices and all the equity repurchase agreement rates or equity repo rates.
For the purposes of equi ty risk, a specific equi ty repo curve shall constitute a single risk factor, which is expressed as a vector of repo rates for different maturities. For each instrument, the vector shall contain as many components as there are different
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maturities of repo rates that are used as variables by the pricing model of the institution for that instrument.
Institutions shall calculate the sensitivity of the instrument to this risk factor as the change in the value of the instrument, according to its pricing model, as a result of a 1 basis point shift in each of the components of the vector. Institutions shall offset sensitivities to the repo rate risk factor of the same equity security, regardless of the number of components of each vector.
The e q u i ty vega risk factors to be applied by institutions to options with underlyings that are sensitive to equi ty shall be the implied volatilities of equity spot prices, which shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements. 0,5 years, 1 year, 3 years, u years, 10 years. I here shall be no vega risk capital charge for equity repo rates.
The equi ty curvature risk factors to be applied by institutions to options with underlyings that are sensitive to equi ty are all the equi ty spot prices, regardless of the m at u r i ty of the corresponding options. There shall be no curvature risk charge for equity repo rates.
Article 325q
Commodities risk-factors
The buckets for all com modi ty risk factors shall be the sectorial buckets referred to in Se ct i o n 6.
The com modi ty delta riskfactorsto be applied by institutionsto com modi ty sensitive instruments shall be all the com mod i ty spot prices per com modi ty ty pe and per each of the tw o contract grades, basic or par grade. Institutions shall only consider tw o com modi ty prices on the same ty pe of com modi ty, with the same maturi ty and with the same ty pe of contract grade to constitute the same risk factor where the set of legal terms regarding the delivery location are identical.
The commodi ty vega risk factors to be applied by institutions to options with underlyings that are sensitive to commodi ty shall be the implied volatilities of com modi ty prices per commodi ty type, which shall be mapped to the following m at u r i ty steps in accordance with the maturities of the corresponding options subject to own funds requirements. 0,5 years, 1 year, 3 years, 5 years, 10 years. Institutions shall consider sensitivities to the same commodi ty ty pe and allocated to the same maturity to be a single risk factor, which institutions shall then offset.
The commodi ty curvature risk factors to be applied by institutions to options with underlyings that are sensitive to commodi ty shall be one set of commodi ty prices with different maturities per commodity ty pe, expressed as a vector. For each
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instrument, the vector shall contain as many components as there are prices of that com modity that are used as variables by the pricing model of the institution for that instrument. Institutions shall not differentiate b etw een com modi ty prices by grade or by delivery location.
The sensitivity of the instrumentto each risk factor used in the curvature risk formula ^ik. sna'' be calculated as specified in Art i cle 325 h . For the purpose of curvature risk, institutions shall consider vectors having a different number of components to constitute the same risk factor provided that those vectors correspond to the same com modi ty ty p e .
Article 325r Fa reign exchange risk risk-factors
The foreign exchange delta risk factors to be applied by institutions to foreign exchange sensitive in st rumen ts shall be all the spot exchange rates b etw een the currency in which an instrument is denominated and the institutions reporting currency. There shall be one bucket per currency pair, containing a single risk factor and a single a net sensitivi ty .
The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates b etw een the currency pairs referred to in paragraph 1. Those implied volatilities of exchange rates shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements. 0,5 years, 1 year, 3 years, 5 years, 10 years.
The foreign exchange curvature risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the same as those referred to in paragraph 1.
Institutions shall not be required to distinguish b etw een onshore and off shore variants of a currency for all foreign exchange delta, vega and curvature risk factors.
Subsection 2: Sensitivity definitions
Article 325s Delta risk sensitivities
Institutions shall calculate delta girr s ensitivities as follows.
(a) the sensitivities to risk factors consisting of risk~free rates shall be calculated as f o Mows.
Vi(rkt + 0.0001,x,y ...) - ^(rfct,x,y...)
Srkt 0.0001
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— the rate of a risk"free curve k a with maturity t, Vi (.) — the pricing function of instrument i, x,y — other variables in the pricing function.
(b) the sensitivities to risk factors consisting of inflation risk and cross~currency basis (.S^.) shall be calculated as follows.
s
Vt (je» + 0.0001 lm, y, z ...) - Vt(je», y, z ...)
x' 0.0001
Xji — a vector of m components representing the implied inflation curve or the cross-currency basis curve for a given currency J with m being equal to the number of inflation or cross_currency related variables used in the pricing model of instrument
IjYl — the u n i ty matrix of dimension (1 x m), Vi (.) — the pricing function of the instrument y, z — other variables in the pricing model
Institutions shall calculate the delta credit spread risk sensitivities for all securitisation and non~securitisation positions ) e
Vi(cskt + 0.0001,x,y,...) -Vi(cskt,x,y
ScSkt 0.0001
= the value of the credit spread rate of an issuerj at maturity t, Vi (.) — the pricing function of instrument i, x,y — other variables in the pricing function.
I nstitutions shall calculate delta equ i ty sensitivities as follows.
(a) the sensitivities to risk factors k (sk) consisting on equity spot prices shall be calculated as follows.
VfCl.Ol EQk,x,y,...) - Vi{EQk,x,y,...) Sk =-
0.01
k is a specific equity security,
EQk i sthe value of the spot price of that equi ty se c u r i ty , and V, (.) is the pricing function of instrument i.
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x,y are other variables in the pricing model
(b) the sensitivities to risk factors consisting on equi ty repos rates shall be calculated as follows.
ViiXkt +0.0001 lm,y,z...) -Viixji.y.z ...)
Sxk 0.0001
k — the index that denotes the equi ty ,
X^j — a vector of m components representing the repo term restructure for a specific equi ty k with m being equal to the number of repo rates corresponding to different maturities used in the pricing model of instrument i,
IjYl — the u n i ty matrix of dimension (1 x m),
Vi (.) — the pricing function of the instrument i,
y, z — other variables in the pricing model of instrument i.
I nstituti ons shall calculate the delta com modi ty sensitivities to each risk factor k (s k) as follows.
V^l.01 CTY^-V^CTY^
0.01
k — a given commodity risk factor, C~fYk — the value of risk factor k,
\/i (.) = the market value of instrument / as a function of risk factor k.
Institutions shall calculate the delta foreign exchange sensitivities to each foreign exchange risk factor k (sk) as follows.
Vtil.OlFX^-VtiFXk)
0.01
k — a given foreign exchange risk factor, FXft = the value of the risk factor,
\/i (.) = the market value of instrument / as a function ofthe risk factor k.
Article 325t Vega risk sensitivities
Institutions shall calculate the vega risk sensitivity of an option to a given risk factor k (sk) as follows.
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_ ^(0.01+ volk,x,y) - Vi{yolk,x,y~) Sk~ ÖÏÏÏ
k — a specific vega risk factor, consisting of an implied volatili ty,
— the value of that risk factor, which should be expressed as a percentage, x,y — other variables in the pricing function.
In the case of risk classes where vega risk factors have a maturity dimension, but where the rules to map the risk factors are not applicable because the options do not have a maturi ty, institutions shall map those risk factors to the longest prescribed m at u r i ty . Those options shall be subjectto the residual risks add_on.
In the case of options that do not have a strike or barrier and options that have multiple strike or barriers, institutions shall apply the mapping to strikes and maturity used internally by the institution to price the option. Those options shall also be subjectto the residual risks add_on.
Institutions shall not calculate the vega risk for securitisation tranches included in the CTP refe rre d to i n Artie,e 104(7) to (9) that do not have an implied volatility. Delta and curvature risk charges shall be computed for those securitisation tranches.
Article 325u Requirements on sensitivity computations
Institutions shall derive sensitivities from the UlStltU-tlOIl 's pricing model used in their
profit and loss reporting.
I nstitutions shall assume that the implied volatili ty remains con st ant when computing the delta sensitivities for instruments subjectto optional i ty ..
Institutions shall assume that the underlying of the option follows either a lognormal or a normal distribution in the pricing models from which sensitivities are derived when computing a vega general interest rate risk or credit spread risk sensitivi ty. Institutions shall assume that the underlying follows either a lognormal or a normal distribution in the pricing models from which sensitivities are derived when computing a vega equi ty , c o m m o d i ty or foreign exchange sensitivi ty . Institutions shall calculate all sensitivities excluding credit valuation adjustments.
Section 4 The Residual Risk Add-On
Article 325v Own fund requirements for Residual Risks
In addition to the own funds requirements for market risk set out in Section 2 of this
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Chapter, institutions shall apply additional own fund requirements in accordance with this Artie, e to instruments exposed to residual risks.
In st rumen ts are exposed to residual risks where they meet any of the following conditions.
(a) the instrument references an exotic underlying,
(b) the instrument bears other residual risks.
Institutions shall calculate the additional own fund requirements referred to in paragraph 1 as the sum of gross notional amounts of the in st rumen ts referred to in paragraph 2 multiplied by the following risk weigh ts.
(a) 1 ,0% in the case of instruments referred to in point (a) of paragraph 2,
(b) 0,1% in the case of instruments referred to in point (b) of paragraph 2.
By the way of derogation from paragraph 1, institution shall not apply the own fund requirement for residual risks to an instrument that meets any of the following conditions.
(a) the instrument is listed on a recognised exchange,
(b) the instrument is eligible for central clearing in accordance with Regulation
(EU) 648/2012;
(c) the instrument perfectly offsets the market risks of another position of the trading book, in which case the tw o perfectly matching trading book positions shall be exempted from the own fund re q u i re m e nt f o r residual risks.
EBA shall develop regulatory technical standards to specify in more details what is an exotic underlying and which instruments are exposed to other residual risks for the purpose of paragraph 2.
W hen developing those dra ft regulatory technical standards, EBA shall ta ke the following elements into account.
(d) Exotic underlying shall include exposures that are not in the scope of the delta, vega or curvauture risk tretaments under the sensiti vities_based method laid down in Jection L. or the default risk charge laid down in Jection 5. EBA shaii at least examine whether longevi ty risk, weather, natural disasters and future realised volatil i ty should be considered as exotic underlying exposures.
(e) W hen defining which instruments ar exposed to other residual risks, EBA shall at lea st examine instru men ts that meetany of the following criteria.
(i) A n instrument is subject to vega and curvature risk own funds
requirements in the sensitivities based method laid down in Section 2
and generates pay - of f s that cannot be replicated as a finite linear combination of plain~vanilla options,
(i i) A n instrument is a securitisation position that belongs to the CTP, as
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referred to i n Artie,e 104(7) to (9). N orrsecuritisation hedges that belong to the CTP shall not be considered.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [fifteen months afterthe entry into force of this Regulation]
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with article 10 to 14 or r e g u I a t i o n
(EU) No 1093/2010.
Section 5 The Default Risk Charge
Article 325\a/ Definitions and general provisions
Default risk own funds requirements shall apply to debt and equity instruments, to derivative in st rumen ts having the former instruments as underlyings and to derivatives whose pay - of f s or fair values are affected by the event of default of an obligor other than the counterpa rty to the derivative instrument itself. Institutions shall calculate the default risk requirements shall be calculated separately for each of the following ty pes of instruments. non~securitisations, securitisations that do not belong to the -CTP and securitisations that belong to the CTP. T he final default risk own funds requirements for an institution shall be the summation of these three co m ponents.
For the purposes of this Section, the following definitions shall apply.
short exposure means that the default of an issuer or group of issuers leads to a gain for the institution, regardless of the ty pe of instrument or transaction creating the exposure.
long exposure means that the default of an issuer or group of issuers leads to a loss for the institution, regardless of the ty pe of instrument or transaction creating the exposure.
gross Jump to default (jtd) amount means the estimated size of the loss or gain that the default of the obligor would produce on a specific exposure.
netjump to default (jtd) amount means the estimated size of the loss or gain that the default of the obligor would produce on a specific institution, after offsetting among gross jtd amounts hastaken place.
LCD is the loss given default of the obligor on an instrument issued by this obligor expressed as a share of the notional of the instrument.
default risk weigh ts mean the percentage representing the estimated probabilities of default of each obligor, according to the credi tw orthiness of that obligor.
subsection 1
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DEFAULT RISK CHARGE FOR NON-SECURITISATIONS
Article 325x Gross jump to default amounts
Institutions shall calculate the gross JTD amounts for each long exposure to debt instruments formulas follows .
JTDlong = max{LGD ■ Vnotional + P&Llong + Adjustmentlong }
where.
Vnotlona, = the notional value of the instrument,
— a term which adju sts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure. Gains shall enter the formula with a positive sign and losses with a negative.
AdJ ustment|Qng — the amount by which, due to the structure of the derivative instrument, the institution s loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument. Increases shall enter the Adj ustment|0ng term with a positive sign and decreases with a negative sign.
Institutions shall calculate gross JTD amounts for each short exposure to debt instruments formulas follows.
JTDshort = max{LGD ■ Vnotionai + P&Lshort + Adjustmentshort}
where.
Vnotlona, = the notional value of the instrumentthat shall enter into the formula with a negative sign,
P&Lshort — a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the short exposure. Gains shall enter into the formula with a positive sign and losses with a negative sign.
AdJ ustmentshort — the amount by which, due to the structure of the derivative instrument, the institutions gain in the event of default would be increased or reduced relative to the full loss on the underlying instrument. Decreases shall enter the Adj ustmentshort term with a positive sign and decreases with a negative sign.
The LGD for debt instruments to be applied by institutions for the purposes of the calculation set out in paragraphs 1 and 2 shall be the following.
exposures to non~senior debt instruments shall be assigned an LGD or 100%; (b) exposures to senior debt in st rumen ts shall be assigned an LGD or 75%; \c) exposures to covered bonds, as referred to in Artie,e 129, shall be assigned an
LGD of 25%.
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For the purpose of the calculations set out in paragraph 1 and 2, notional values in the case of debt instruments shall be the face value of the debt instrument. For the purpose of the calculations set out in paragraph 1 and 2, notional values in the case of derivative instruments on an underlying debt security shall be the face value of the underlying debt instrument.
For exposures to equity instruments, institutions calculate the gross JTD amounts as follows, instead of those referred to in paragraph 1 and 2.
]TDiong = max{LGD ■ V + P&Liong + Adjustmentiong ) JTDshort = max{LGD ■ V + P&Lshort + Adjustmentshort]
where
V — the fair value of the equity or, in case of derivative instruments on equities, the fair value of the underlying equi ty ofthe derivative instrument.
Institutions shall assign an LGD or 100% to equi ty instrumentsforthe purpose ofthe calculation set out in paragraph 6.
In the case of exposures to default risk arising from derivative in st rumen ts whose pay of f s in the event of default ofthe obligor are not related to the notional value of a specific instrument issued by this obligor or to the LGD of the obligor or an instrument issued by this obligor, institutions shall use alternative methodologies to esti mate the vjross JTD amounts, which shall meet the definition of vjross JTD i n paragraph O of article 325t.
EBA shall develop dra ft regulatory technical standards to specify in more details how institutions shall calculate JTD amounts for different ty pes of instruments in accordance with this Artie,e, and which alternative methodologies institutions shall use for the purpose ofthe estimation of vjross JTD amounts referred to in paragraph
7.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [fifteen months afterthe entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with article 10 to 14 or R e g u I a t i o n
(EU) No 1093/2010.
Article 325y Net Jump to default amounts
Institutions shall calculate netjump to default amounts by offsetting the gross JTD amounts of short and long exposures. Offsetting shall only be possible among exposures to the same obligor where short exposures have the same or lower
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seniority than long exposures.
Offsetting shall be either full or partial depending on the maturities of the offsetting ex posures.
(a) offsetting shall be full where all offsetting exposures have maturities of one year or more,
(b) offsetting shall be partial where at least one of the offsetting exposures has a m a t u r i ty of less than one year, in which case, the size of the JTD amount of each exposure with a maturity of less than one year shall be scaled down by the
ratio of the exposure's maturity relative to one year.
W here no offsetting is possible gross JTD amounts shall equal net JTD a m o u n ts in the case of exposures with maturities of one year or more, vjross JTD a m o u nts w ith maturities of less than one year shall be scaled down to calculate net JTD a m o u n ts .
The scaling factor for those exposures shall be the ratio of the exposure's maturity
relative to one year, with a floor of 3 months.
For the purposes of paragraphs 2 and 3, the maturities of the derivative contracts, and not those of their underlyings, shall be considered. Cash equity exposures shall be assigned a maturity of either one year or three months, at the institution s discretion.
Article 325z icuiation of default risk own funds requirement
Net JTD amounts, irrespective of the type of counterparty, shall be multiplied by the corresponding default risk weigh ts in accordance with their credit quali ty as specified in Table 2. Ta b I e 2
| Credit quality category | Default risk weight |
| Credit quality step 1 | 0.5% |
| Credit quality step 2 | 3% |
| Credit quality step 3 | 6% |
| Credit quality step 4 | 15% |
| Credit quality step 5 | 30% |
| Credit quality step 6 | 50% |
| U n rated | 15% |
D
ef au Ited
100%
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Exposures which would receive a 0% ri sk_weight under the Sta ndardised approach for credit risk in accordance with Part iii, Title ii, Chapter 2 shall receive a 0% default risk weight for the default risk own fund requirements,
The weighted net JTD shall be allocated to the following buckets, corporates, sovereigns, and local govern me nts/ municipalities.
We i g h te d n et JTD amounts shall be aggregated within each bucket in accordance with the following formula.
max\\ V RWt ■ net JTD-] - WtS ■ (Y RWt ■ \net JTdA ; o]
(\*—>ie Long J 'ie Short ' J
i — to the index that denotes an instrument belonging to bucket b, DRCu — default risk own fund requirement for bucket b,
WtS = a ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated as follows.
X net JTD
y j j , Qt _ long
"2 not JTD + YXnotJTD I
fcJ Song I short!
The summation of long and short positions for the purposes of the DRCj^ and the WtS shall be made for all positions within a bucket regardless of the credit quality step to which those positions are allocated, resulting in the bucket_specific default risk own fund requirements.
The final default risk own fund requirement for non_securitisations shall be calculated as a simple sum of the bucket"level own fund requirements.
Subsection 2
Default Risk Charge forsecuritisations (non-CTP)
Article 325a a Jump to default amounts
Grossjump to default amounts for securitization exposures shall be the fair values of the se c u r i t i sa t i o n exposures.
Netjump to default amounts shall be determined by offsetting long grossjump to default amounts and short gross Jump to default amounts. Offsetting shall only be possible among securitisation exposures with the same underlying asset pool and belonging to the same tranche. No of f s etting shall be permitted b etw een securitisation exposures with different underlying asset pools, even where the attachment and detachment points are the same.
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W here, by decomposing or combining existing securitisation exposures, other existing securitisation exposures can be perfectly replicated, except for the maturi ty, the exposures resulting from the decomposition or combination may be used instead of the original ones for the purposes of of f s ett i n g .
Where, by decomposing or combining existing exposures in underlying names, the entire tranche structure of an existing securitisation exposure can be perfectly replicated, the exposures resulting from decomposition or combination may be used for the purposes of offsetting. Where underlying names are used in this way, they shall be removed from the non_securitisation default risk treatment,
Art i cle 325y shall apply to both original and replicated securitisation exposures. The relevant maturities shall be those of the securitisation tranches.
Article 325a b
Ic u I ati o n of default risk own fu n c/s requirement fo r securltlsatlons
Net JTD amounts of securitisation exposures shall be multiplied by 8% of the risk weight that applies to the relevant securitisation exposure, including STS securitisations, in the non~trading book in accordance with the hierarchy of approaches set out in Title II, Chapter 5, S ection O, and irrespective of the type of counterpa rty .
A m at u r i ty of one year shall be applied to all tranches where risk weigh ts are
calculated in accordance with the SEC-IRBA and SEC-ERBA.
The risk-weighted JTD amounts for individual cash securitisation exposures shall be capped atthe fair value of the position.
Risk-weighted netJTD amounts shall be assigned to the following buckets.
(a) one common bucketforall corporates, regardless the region.
(b) 44 different buckets corresponding to I bucket per region for each of the eleven asset classes defined. I he eleven asset classes are ABCP, A u to Loans/Leases, RMBS, C red it Cards, CMBS, C ol lateral ised Loan Ubl i gati ons, CDO- squared, Small and M edium Enterprises, Student loans, Other reta iI, Other wholesale. The 4 regions are Asia, E urope, INorth r\ merica, and other regions.
In order to assign a securitisation exposure to a bucket, institutions shall rely on a classification commonly used in the market. Institutions shall assign each securitisation exposure to only one of the buckets above. Any securitisation exposure that an institution cannot assign to a ty pe or region of underlying shall be assigned to the categories other retail , other wholesale or other regions respectively. We i g h te d n et JTD amounts shall be aggregated within each bucket in the same way as for default risk of non_securitisation exposures, using the formula in Art i c I e
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325z(4) , resulting in the default risk own fund requirement for each bucket.
The final default risk own fund requirement for non~securitisations shall be
calculated as a simple sum of the bucket"level own fund requirements.
Subsection 3 Default Risk Charge forsecuritisations (CTP)
Article 325a c Sco p e
For the CTP, the capital charge shall include the default risk for securitisation exposures and for n o n ~ se c u r i t i sat i o n hedges. These hedges shall be removed from the default risk non~securitisation calculations. There shall be no diversification benefit b etw een the default risk charge for non~securitisations, default risk charge for securitisations (non- CTP) and default risk charge for the securitisation CTP. For traded n o n - se c u r i t i sat i o n credit and equity derivatives, JTD amounts by individual constituent issuer legal e n t i ty shall be determined by applying a look" through approach.
Article 325a d Jump to defa u It a m o u nts for the CTP
Gross Jump to default amounts for securitisation exposures and non~securitisation exposures in the CTP shall be the fair values of those exposures.
Nth"to_default products shall be treated as tranched products with the following attachment and detachment points.
attachment point — (N -1) / Total N a m es (b) detachment point — N /T ota I Names
where 'Total Names' shall be the total number of HciUlCS 111 the underlying basket or
pool.
Netjump to default amounts shall be determined by offsetting long and short gross Jump to default amounts. Offsetting shall only be possible among exposures that are otherwise identical except for maturi ty. Offsetting shall only be possible in the following cases.
(a) for index products, offsetting shall be possible across maturities among the same index family, series and tranche, subject to the specifications for exposures of less than one year laid down in Article 325y. l ong and short gross Jump to default amounts that are perfect replications may be offset through decomposition into single name equivalent exposures using a valuation model. For the purposes of this Article, decomposition with a valuation model means that a single name constituent of a securitisation is valued as the difference b etw een the unconditional value of the securitisation and the
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conditional value of the securitisation assuming that single name defaults with a LGD or 100%. I n such cases, the sum of gross Jump to default amounts of single name equivalent exposures obtained through decomposition shall be equal to the grossjumpto default amount of the undecom posed exposure.
(b) Offsetting through decomposition as set out is point (a) shall not be allowed for re~securitisati o ns.
(c) For indices and index tranches, offsetting shall be possible across maturities among the same index family, series and tranche by replication or decomposition, ror the purposes ofthis Artie,e!
(i) replication means that the combination of individual securitisation index tranches are combined to replicate another tranche of the same index series, or to replicate an untranched position in the index series.
(ii) decomposition means replicating an index by a securitisation of which the underlying exposures in the pool are identical to the single name exposures that compose the index.
Where the long and short exposures are otherwise equivalent except for one residual component, offsetting shall be allowed and the net Jump to default amount shall reflectthe residual exposure.
(d) Different tranches of the same index series, different series of the same index and different index families may not be offset.
Article 325a e
I c u I ati o n ofciefaultrisk o wn fu n c/s requirement fo r the CJP Net JTD amounts shall be multiplied by.
(a) for tranched products, the default risk weights corresponding to their credit q u a I i ty as specified in Artie,e 348(1) and (2);
(b) for non_tranched products, by the default risk weigh ts referred to in Artie,e 325y (1).
Risk-weighted net JTD amounts shall be assigned to buckets that correspond to an index..
We i g h te d n et JTD amounts shall be aggregated within each bucket in accordance with the following formula.
DRCb = max j (y RWt ■ net]TDi ) - WtSCTP ■ (y RWt ■ \net]TDi\) ; 01
(\£—'i£Long ) ^^—>i£ Short ' J
i — an instrument belonging to bucket b,
DRCu — the default risk own fund requirement for bucket b,
WtSotD — the ratio recognising a benefit for hedging relationships within a bucket, which shall be calculated in accordance with the WtS formula set out in Artie,e
152
325z(4), but using long and short positions across the entire CTP and notjust the positions in the particular bucket.
Institutions shall calculate the default risk own fund requirements of the CTP (DRCcTp) by using the following formula,
DRCCTP = max ^^(max{DRCb, 0} + 0.5 ■ min{DRCb, 0}), oj
Section 6 Risk weights and Correlations
Subsection 1 Delta risk weights and correlations
Article 325af Risk weights for general interest rate risk
For currencies not included in the most liquid currency subcategory as referred to in point (b) of Article 325be(5), the risk weights of the risk~free rate risk factors shall be the following.
Tab I e 3
| M atu r ity | 0.25 year | 0.5 year | 1 year | 2 y ear | 3 year |
| Risk we ig ht (percentage p o i nts) | 2.4% | 2.4% | 2.25% | 1.88% | 1.73% |
| M atu r ity | 5 y ear | 10 year | 1 5 year | 20 y ear | 30 year |
| Risk we ig ht (percentage p o i nts) | 1.5% | 1.5% | 1.5% | 1.5% | 1.5% |
A common risk weight of 2.25% shall be set both for all inflation and cross currency basis risk factors.
For the currencies included in the most liquid currency subcategory as referred to in p o i nt (b) of 325be(7) and the domestic currency of the institution, the risk weights of the risk"free rate risk factors shall be the risk weigh ts referred to in Table 3 of this Article divided by
Article 325ag Intra bucket correlations for general interest rate risk
between interest rate risk factors within the same bucket, the same assigned maturity
153
but corresponding to different curves correlation fDk! shall be set at 99.90%. B etw een interest rate risk factors within the same bucket, corresponding to the same curve, but having different maturities, correlation shall be set in accordance with the following formula.
\Tk~Tl\
max
( o \Tk~Ti\ \
e\ m!7i{rfc;r,};;4oo/0
Tfc (respectively 7~j) — the maturity that relates to the risk free rate,
e = 3%.
D etw een interest rate risk factors within the same bucket, corresponding to different curves and having different maturities, the correlation pk, shall be equal to the correlation parameter specified in paragraph 2 multiplied by 99,90%.
B etw een risk"free rates risk factors and inflation risk factors, the correlation shall be
set at 40%.
B etw een cross~currency basis risk factors and any other general interest rate risk factors, including another cross~currency basis risk factor, the correlation shall be set at 0%.
Article 325a h
Correlations across buckets for general interest rate risk he para meter yöc = 50% shall be used to aggregate risk factors belonging to different buckets.
Article 325a i
Risk we I g hts for credit spread risk (n o n ~ sec u r iti s ati o n s)
Risk weights shall be the same for all the maturities (0,5 years, 1 year, 3 years, 5 y e a rs, 10 years) within each bucket.
Tab I e 4
D u c k et number
Cred it quality
Risk
we ig ht (p ercenta
p o i nts)
| 1 | Am | Central government, including central banks, of a ~ !-r\r>/ . . q 0.50% IVIember Jtate |
| 2 | Cred it quality step 1 to 3 | Central government, including central banks, of a third country, multilateral development banks and ~ rn/ a U.0% international organisations referred to in /Article 117(2) and 118 |
154
3
4
5
6 7
8
9
10
11
12
13 14
15 16
17
Reg io n a I or Io
ent it i es
cal authority and public sector
F i n a n
cial sector entities including credit institutions
incorporated or established by a central r r\n/
O.u%
government, a regional government or a local authority and promotional lenders
Dasic materials, energy, industrials, agriculture, manufacturing, mining and quarrying
Consumer goods and services, transportation and storage, administrative and support service act i v it i es
Technology, telecom munications
Health care, utilities, professional and technical act i v it i es
Covered bonds issued by credit institutions in Member States
1.5%
Cox
>vered bonds issued by credit institutions in third co u ntr i es
quality step 4 to 6
Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) and 118
Regional or local authority and public sector ent it i es
Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders
Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying
12.0%
7.0%
Consumer goods and services, transportation and storage, administrative and support service 8.5%) act i v it i es
echnology, telecom munications
H
ealth care, utilities, professional and technical
act i v it i es
5.0%
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18 Oth er sector 12.0%
To assign a risk exposure to a sector, credit institutions shall rely on a classification that is commonly used in the market for grouping issuers by industry sector. Credit institutions shall assign each issuer to only one of the sector buckets in the table under paragraph 1. Risk positions from any issuer that a credit institution cannot assign to a sector in this fashion shall be assigned to bucket 18.
Article 325aj
Intra bucket correlations for credit spread risk (n o n ~ se c u r iti sati o n s)
D etw een tw o sensitivities WSk and WSl within the same bucket, the correlation parameter Pk\ shall be set as follows.
_ _ (name) _ (tenor) _ (basis)
pkl= Pk, ' Pfe, • Pfe,
where.
n (name) -1
D]i\ shall be equal to I where the two names of sensitivities k and / are identical,
and 35% oth e rw i s e ,
n («nor) -1
D]i\ shall be equal to I where the tw o vertices of the sensitivities k and / are
identical, and to 65% oth e rw i se ,
(basis) -1
D]i\ shall be equal to I where the two sensitivities are related to same curves, and
99,90% oth erw i se .
The correlations above do not apply to the bucket 18 referred to in Art i cle 325a i (1) . The capital requirement for the delta risk aggregation formula within bucket 18 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to b u c ket 1 8'.
kb(bucketi8) = EfclW^J
Article 325a k
Correlations across buckets for credit spread risk (n o n ~ sec u r iti s ati o n s)
The correlation parameter y'bc that applies to the aggregation of sensitivities between different buckets shall be set as follows.
nc=n!r'"n9) ■n!"aor)
where.
Ybc ^ ^ 's equal to 1 where the tw o buckets have the same credit quali ty c a te g o ry ^either credit quality step 1 to 3 or credit quality step 4 to 6), and 50% otherwise. Tor the purposes of this calculation, bucket 1 shall be considered as having the same credit quality category as buckets that have credit quality step 1 to 3;
(sector) -1
ybc shall be equal to I where the tw o buckets have the same sector, and to the
following percentages otherwise.
Ta b I e 5
156
2.
| B u c k et | 1,2 and 11 | 3 and 12 | 4 and 13 | 5 and 14 | 6 and 15 | 7 and 16 | 8 and 17 | 9 and 10 |
| 1,2 and 11 | 75% | 10% | 20% | 25% | 20% | 15% | 10% | |
| 3 and 12 | 5% | 15% | 20% | 15% | 10% | 10% | ||
| 4 and 13 | 5% | 15% | 20% | 5% | 20% | |||
| 5 and 14 | 20% | 25% | 5% | 5% | ||||
| 6 and 15 | 25% | 5% | 15% | |||||
| 7 and 16 | 5% | 20% | ||||||
| 8 and 17 | 5% | |||||||
| 9 and 10 |
Th
e capital requirement for bucket
18 shall be added to the overall risk class level
capital, with no diversification or hedging effects recognised with any other bucket.
Article 325a I
Risk weights for credit spread risk sec u r iti sati o ns (CTP) Risk weights shall be the same for all maturities (0,5 year, 1 year, 3 years, 5 years, 10 years) w ith i n
each bucket.
Tab I e 6
Ducket n u m b er
Cred it q u a I ity
Risk
we ig ht (p erce nta
p o i nts)
A,
Central government, including central banks, of States of the Union
4%
Central government, including central banks, of a third country, multilateral development banks and international 4%) organisations referred to in Article 117(2) and 118
R.
egional or local authority and public sector entities
4%
Cred it q u a I ity
ste p 1 to 3
Financial sector entities including credit institutions
incorporated or established by a central government, a no/
O /C
regional government or a local authority and promotional lend ers
Dasic materials, energy, industrials, agriculture,
manufacturing, mining and quarrying
5%
157
| Consumer goods and services, transportation and storage, | 4% | ||
| 6 | administrative and support service activities | ||
| 7 | Technology, telecom munications | 3% | |
| 8 | Health care, utilities, professional and technical activities | 2% | |
| 9 | Covered bonds issued by credit institutions established in M ember States of the Union | 3% | |
| 10 | Covered bonds issued by credit institutions in third countries | 6% | |
| Central government, including central banks, of a third | |||
| 11 | country, multilateral development banks and international organ is at ions ref erre d to in Art i cle 117(2) and 118 | 13% | |
| 12 | Regional or local authority and public sector entities | 13% | |
| Financial sector entities including credit institutions | |||
| incorporated or established by a central government, a | 16% | ||
| 13 | Cred it q u a I ity | regional government or a local authority and promotional lend ers | |
| 14 | step 4 to 6 | Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying | 10% |
| 15 | Consumer goods and services, transportation and storage, administrative and support service activities | 12% | |
| 16 | Technology, telecom munications | 12% | |
| 17 | Health care, utilities, professional and technical activities | 12% | |
| 18 | Other sector | 13% |
Article 325a m
Co r re I ati o n s fo r credit spread risk securitisations (C TP) The delta risk correlation shall be derived in accordance with Art i cle 325 aj,
(basis) -1
except that, for the purposes of this paragraph, Dk\ shall be equal to I where the
two sensitivities are related to same curves, and 99,00% ot h e rw i s e . The correlation yöcshall be derived in accordance with Article 325ak.
Article 325a n
Risk weights for credit spread risk securitisations (non-CTP)
Risk weights shall be the same for all the maturities (0,5 year, 1 year, 3 years, 5 y e a rs, 10 years) within each bucket.
Tab I e 7
158
| B u c k et number | Cred it quality | Sector | Risk weight (percentage p o i nts) | |
| 1 | RMBS - Prime | 0.9% | ||
| 2 | RMBS - Mid-Prime | 1.5% | ||
| 3 | RMBS -Sub-Prime | 2.0% | ||
| 4 | Sen ior Cred it | & | CMBS | 2.0% |
| 5 | quality 1 to 3 | ste p | ABS " Student loans | 0.8% |
| 6 | ABS " Credit cards | 1.2% | ||
| 7 | ABS - Auto | 1.2% | ||
| 8 | CLO non-CTP | 1.4% | ||
| 9 | RMBS - Prime | 1.125% | ||
| 10 | RMBS - Mid-Prime | 1.875% | ||
| 11 | RMBS -Sub-Prime | 2.5% | ||
| 12 | Non "sen & C | o r red it | CMBS | 2.5% |
| 13 | quality 1 to 3 | ste p | ABS " Student loans | 1% |
| 14 | ABS " Credit cards | 1.5% | ||
| 15 | ABS - Auto | 1.5% | ||
| 16 | CLO non-CTP | 1.75% | ||
| 17 | RMBS - Prime | 1.575% | ||
| 18 | RMBS - Mid-Prime | 2.625% | ||
| 19 | RMBS -Sub-Prime | 3.5% | ||
| 20 | Cred it | CMBS | 3.5% | |
| 21 | quality 4 to 6 | ste p | ABS " Student loans | 1.4% |
| 22 | ABS " Credit cards | 2.1% | ||
| 23 | ABS - Auto | 2.1% | ||
| 24 | CLO non-CTP | 2.45% |
159
25 Oth er sector 3.5%
To assign a risk exposure to a sector, credit institutions shall rely on a classification that is commonly used in the market for grouping issuers by industry sector. Credit institutions shall assign each tranche to one of the sector buckets in the table under paragraph 1. Risk positions from anytranchethata credit institution cannot assign to a sector in this fashion shall be assigned to bucket 25.
Article 325a o
Intra bucket correlations for credit spread risk sec u r iti sati o n s (non-CTP)
D etw een tw o sensitivities WSk and WSl within the same bucket, the correlation parameter Pk\ shall be set as follows.
„ „ tranche „ tenor „ basis
pkl= Pk, ' Pfe, • Pfc,
where.
(tranche) -1
D]i\ shall be equal to I wherethe tw o names of sensitivities k and / are within
the same bucket and related to the same securitisation tranche (more than 80% overlap in notional terms), and to 40% oth e rw i s e ,
„ (tenor) -1
D]i\ shall be equal to I wherethe tw o vertices of the sensitivities k and / are
identical, and to 80% oth e rw i se ,
(basis) -1
D]i\ shall be equal to I where the two sensitivities are related to same curves, and
to 99,90% oth e rw i s e .
The correlations above shall not apply to bucket 25. T he capital requirement for the delta risk aggregation formula within bucket 25 shall be equal to the um of the absolute values of the netweighted sensitivities allocated to that bucket.
kb(buoket25) = Efcl^sj
Article 325a p
Correlations across b uckets for credit spread risk sec u r iti s a tl o n s (non-CTP)
The correlation parameter *Yb0 shall apply to the aggregation of sensitivities b etw een different buckets and shall be set at 0%.
The capital requirement for bucket 25 shall be added to the overall risk class level capital, with no diversification or hedging effects recognised with any other bucket.
Article 325a q Risk weights for equity risk
The risk weights for the sensitivities to equity and equity repo rates are set out in the following table.
Tab I e 8
160
Risk
Risk
)ucket number
Eco n or
cap ita I i sat i o n
weight Ixisk weight
for equity for equity
spot price repo rate
(percentage (percentage
points) points)
Lmergmg market
economy
Ad vanced
economy
Lmergmg m a r k et economy
Cons
ïsumer goods and
services, transportation
and stor ag e,
administrative and
support service
activities, healthcare, ut i I it ies
55%
I elecommunications,
i n d u str i a I s 60%
Dasic materials, energy, agricu Iture,
manufacturing, mining and quarrying
Financials including govern menfbacked financials, real estate activities, technology
55%
Consumer goods and
services, transportation
and stor ag e,
administrative and
support service
activities, healthcare, ut i I it ies
I elecommunications,
i n d u str i a I s 35%
Dasic materials, energy, agricu Iture,
manufacturing, mining and quarrying
40%
Financials including govern menfbacked
financials,
activities, technology
A,
sectors described under bucket numbers 1,
2, 3 and 4
50%
70%
0.55%
0.60%
0.45%
0.55%
0.30%
0.35%
0.40%
0.50%
0.70%
161
| 10 | Ad vanced economy | All sectors described under bucket numbers 5, 6, 7 and 8 | 50% | 0.50% | |
| 11 | Other sector | 70% | 0.70% |
2. 3.
For the purposes of this Article, what constitutes a small and a large market capitalisation shall be specified by EBA in accordance with Article 325be. EBA shall develop dra ft regulatory technical standards to speci f y what constitutes emerging market and advanced economies for the purpose of this Article.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [fifteen months afterthe entry into force of this Regulation]
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
W hen assigning a risk exposure to a sector, credit institutions shall rely on a classification that is commonly used in the market for grouping issuers by industry sector. Credit institutions shall assign each issuer to one of the sector buckets in the table under paragraph 1 and shall assign all issuers from the same industry to the same sector. Risk positions from any issuer that a credit institution cannot assign to a sector in this fashion shall be assigned to bucket 11. M ultinational or m ultrsector e q u i ty issuers shall be allocated to a particular bucket on the basis of the most material region and sector in which the equity issuer operates.
Article 325a r Intra b ucket correlations fo r eq u I ty risk
The delta risk correlation parameter pk, shall be s et at 99 , 90% b etw een tw o
sensitivities WSk and WSl within the same bucket where one is a sensitivity to an e q u i ty spot price and the other a sensitivi ty to an e q u i ty repo rate, where both are related to the same equity issuer name.
In other cases than the cases referred to in paragraph 1, the COITClcitlOÏÏ pctTcttllCtCr pkl
b etw een tw o sensitivities WSk and WSl to e q u i ty spot price within the same bucket shall be set as follows.
(a) 1 5% b etw een tw o sensitivities within the same bucket that fall under large marketcapitalisation, emerging market economy (bucket number 1,2, 3 or 4).
(b) 25% b etw een tw o sensitivities within the same bucket that fall under large market capitalisation, advanced economy (bucket number 5, 6, 7, or 8).
(c) 7,5% b etw een tw o sensitivities within the same bucket that fall under small marketcapitalisation, emerging market economy (bucket number 9).
162
(d) 12,5% b etw een tw o sensitivities within the same bucket that fall under small market capitalisation, advanced economy (bucket number 10).
The correlation parameter pk, b etw een tw o sensitivities WSk and WSl to e q u i ty re p o
rate within the same bucket shall be set in accordance with paragraph (b)
D etw een tw o sensitivities WSk and WSl within the same bucket where one is a
sensitivity to an equity spot price and the other a sensitivity to an equity repo rate and
both sensitivities relate to a diffe rent equity issuer name, the correlation parameter pk,
shall be set at the correlations specified in paragraph l multiplied by 99,9u7o. The correlations above shall not apply to bucket 11. T he capital requirement for the delta risk aggregation formula within bucket 11 shall be equal to the sum of the absolute values of the netweighted sensitivities allocated to that bucket.
kb(buoketn) = EfclWASJ
Article 325a s Correlations across buckets for equity risk
The correlation parameter *Yb0 shall apply to the aggregation of sensitivities b etw een different buckets. It is set at 15% where the two buckets fall within buckets 1 to 10. This capital requirement for bucket 11 shall be added to the overall risk class level capital, with no diversification or hedging effects recognised with any other bucket.
Article 325at Risk weights for commodity risk
he risk weigh ts f o rthe sensitivitiesto commodities are set out in the f o Mowing table.
Tab I e 9
Risk
bucket number Ducket name
we i g ht (percentage points)
| 1 | Energy ~ Solid combustibles | 30% |
| 2 | Energy ~ Liquid combustibles | 35% |
| 3 | Energy ~ Electricity and carbon trading | 60% |
| 4 | Fre i ght | 80% |
| 5 | M etals — non'precious | 40% |
163
| 6 | Gaseous combustibles | 45% |
| 7 | Precious metals (including gold) | 20% |
| 8 | Grains & oilseed | 35% |
| 9 | Livestock & dairy | 25% |
| 10 | Softs and other ag r i c u Itu ra Is | 35% |
| 11 | Oth er com modity | 50% |
For
Article 325a u Intra bucket correlations for commodity risk
the purpose of correlation recognition, any tw o commodities shall be considered
distinct commodities where there exi sts in the market tw o contracts differentiated only by the underlying com modi ty to be delivered again st each contract.
D etw een tw o sensitivities WSk and WSl within the same bucket, the correlation parameter Pk\ shall be set as follows.
_ _ commodity/ _ tenor/ _ basis/
Pk,= Pk, 7 • Pk, • Pk,
(commodity) *1
D]i\ shall be equal to Iwh
ere the t w o commodities of sensitivities /cand / are
h 3
identical, and to the intra~bucket correlations in the table in paragraph O otherwise,
Pk,
(tenor)
shall be equal to
1 w h
ere the tw o vertices of the sensitivities k and / are
identical, and to zjz) /O otherwise
ere the t w o sensitivities are identical in both
(■)
(basis) -1
D]i\ shall be equal to I wh
contract grade of the com modi ty and (ii) delivery location of a commodi ty, and
99,90% oth erw i se .
Th
(commodity)
e intra_bucket correlations Uk\ are.
Ta b I e 1 0
D u c k et number
bucket name
Correlation
(Pcom m od ity)
| 1 | Energy ~ | Solid combustibles | 55% |
| 2 | Energy ~ | _iqu id combustibles | 95% |
| 3 | Energy ~ trad i n g | Llectricity and carbon | 40% |
| 4 | Fre i ght | 80% |
164
| 5 | M et als — non'precious | 60% |
| 6 | Gaseous combustibles | 65% |
| 7 | Precious metals (including gold) | 55% |
| 8 | Grains & oilseed | 45% |
| 9 | Livestock & dairy | 15% |
| 10 | Softs and other ag r i cu Itu ra I s | 40% |
| 11 | Oth er com modity | 15% |
Article 325a v Co r re I ati o n s across b uckets fo r co m m od ity risk
The correlation parameter "Ybc applying to the aggregation of sensitivities between different buckets shall set at.
(a) 20% where the two buckets fall within bucket numbers 1 to 10;
( b) 0% where any of the tw o buckets is bucket number 11.
Article 325a\A/ Risk weights for foreign exchange risk
1. Ari sk weight of 30% shall apply to all sensitivities to foreign exchange.
2. The risk weight of the foreign exchange risk factors concerning currency pairs which are composed by the Euro and the currency of a M ember State participating in the second stage of the economic and monetary union shall be the risk weight referred to in paragraph I divided by
3. T he risk weight of the foreign exchange risk factors included in the most liquid currency pairs subcategory as referred to in point (c) of 325be(7) shall be the risk weight referred to in paragraph I divided by
Article 325ax Correlations for foreign exchange risk
A uniform correlation parameter "Ybc equal to 60%) shall apply to the aggregation of sensitivities to foreign exchange.
Subsection 2
Vegaand curvature risk weights and correlations
Article 325ay Vega and curvature risk weights
1. T he delta buckets referred to in subsection I shall be applied to vega risk factors.
2. The risk weight for a given vega risk factor k [RWfc^ shall be determined as a share
165
of the current value of that risk factor k, which represents the implicit volatil i ty of a n underlying, as described in Section 3.
The share referred to in paragraph 2 shall be made dependent on the presumed I i q u i d i ty of each ty pe of risk factor in accordance with the following formula.
RWk = (Value of risk factor k)x min
risk class
Vïö
; 100%
RWa shall be set at
55%;
Lihlfisfc Class 's tne regulatory liquidi ty horizon to be prescribed in the determination of each vega risk factor /C. ^^fisk. CldSS1 sna'' be set in accordance with the following ta b I e !
Ta b I e 1 1
| Risk class | LHrisk class |
| GIRR | 60 |
| CSR n o n "secu r itisat i o ns | 120 |
| CSR secu r it isat i o ns (CTP) | 120 |
| CSR secu r it i sat i o n s (non- CTP) | 120 |
| Equity (large cap) | 20 |
| Equity (small cap) | 60 |
| Com mod ity | 120 |
| FX | 40 |
Buckets used in the context of delta risk in subsection 1 shall be used in the curvature risk context unless specified otherwise in this Chapter.
For foreign exchange and curvature risk factors, the curvature risk weights shall be relative shi f ts equal to the delta risk weigh ts referred to in subsection 1.
For general interest rate, credit spread and com modi ty curvature risk factors, the curvature risk weight shall be the parallel shi ft of all the vertices for each curve based on the highest prescribed delta risk weight in subsection 1 for each risk class.
Article 325a z \/ega and curvature risk correlations
) etw een vega risk sensitivities within the same bucket of the GIRR rl s k c I ass, th e
166
correlation parameter f)k! shall be set as folic
pkl = mm
^(opti on maturity ) ^(underlying maturity )_ ^|
Pkl — -p-
\Tk-Ti\
(option maturity) ~a'min\Tk j,} „ 1 °/ T T
fjj,j shall be equal to c 1 K u where 11 shall be set at I /0, 1 and
shall be the maturities of the options for which the vega sensitivities are derived, expressed as a number of years,
LÜ ~U\
„ \lk~ll I
(underlying maturity) minW-T1/} „ 10/ t(/ tU
Pfci is equal to c- ^ K 1 i, where Ct is set at I /O, 1 and i £ are
the maturities of the underlyings of the options for which the vega sensitivities &V6, derived minus the maturities of the corresponding options, expressed in both cases as a number of years.
B etw een vega risk sensitivities within a bucket of the other risk classes, the correlation parameter pkl shall be set as follows.
pki = mm
(DELTA) (option maturity ) .1 Pkl ' Pkl ' i\
(DELTA)
Pfcl shall be equal to the delta intra bucket correlation corresponding to the
bucket to which vega risk factors k and I would be allocated to.
(option maturity)
Pfcl shall be defined as in paragraph I.
w ith regard to vega risk sensitivities b etw een buckets within a risk class (GIRR and non- GIRR) , the same correlation parameters for fbC/ as specified for delta correlations for each risk class in Section 4, shall be used in the vega risk context.
There shall be no diversification or hedging benefit recognised in the standardised approach b etw een vega and delta risk factors. Ve ga and delta risk charges shall be aggregated by simple summation.
The curvature risk correlations shall be the square of corresponding delta risk correlations Pkl and y6creferred to in subsection 1 .
C h a pte r 1 b The in te rnal model approach
SECTION 1
PERMISSION AND OWN FUNDS REQUIREMENTS
Article 325ba Per m i ssi o n to use interna! models
Af te r having verified institutions compliance with the requirements set out in
167
Articles 325 b i to 325 bk, competent authorities shall grant permission to institutions
to calculate their own funds requirements by using their internal models in
accordance with Arti cle 325 b b for the po rtf o Mo of all positions attributed to trading
desks that fulfil the following requirements.
the trading desks have been established in accordance with Article 104b;
(b) the trading desks have met the Profit&L oss attribution ('P&L attr i b uti o n J requirement set out in Article 325bh for the im mediately preceding 12 months,
\c) the trading desks have met the back"testing requirements referred to in Article 325bg(1) for the immediately preceding 250 business days,
(d) for trading desks that have been assigned at least one of those trading book positions referred to in Article 325bm, the trading desks fulfil the requirements set out in Arti cle 325bn for the internal default risk model.
Institutions that have been granted the permission referred to in paragraph 1 to use their internal models for each trading desk shall reportto the competent authorities as follows.
the weekly unconstrained expected sho rtf a II measure UESf ca, c uI ate d i n accordance with paragraph 5 for all the positions in the trading desk which shall be reported to the competent authorities on a monthly basis.
(b) the monthly own funds requirements for market risks calculated in accordance with Chapter 1a of this Title as if the institution not been granted the permission referred to in paragraph 1 and with all the positions attributed to the trading desk considered on a standalone basis as a separate po rtf o Mo. These calculations shall be reported to the competent authorities on a monthly basis.
An institution that has been granted the permission referred to in paragraph 1 shall immediately noti f y its competent authorities that one of its trading desks no longer meets any of the requirements set out in paragraph 1. That institution shall no longer be permitted to apply this Chapter to any of the positions attributed to that trading desk and shall calculate the own funds requirements for market risks in accordance with the approach set out Chapter 1a for all the positions attributed to that trading desk at the earliest reporting date and until the institution demon st rates to the competent authorities thatthe trading desk again fulfils all the requirements set out in paragraph 1.
By way of derogation from paragraph 3, competent authorities may, in extraordinary circumstances, permit an institution to continue using its internal models for the purpose of calculating the own fund requirements for market risks of a trading desk that no longer meets the conditions referred to in points (b) or (c) of paragraph 1. W hen competent authorities exercise that discretion, they shall notify EBA and
168
substantiate their decision.
For positions attributed to trading desks for which an institution has not been granted the permission referred to in paragraph 1, the own funds requirements for market risk shall be calculated by that institution in accordance with Chapter 1a of this Title. For the purpose of that calculation, all those positions shall be considered on a standalone basis as a separate portfolio.
For a given trading desk, the unconst rained expected sho rtf a II measure referred to in point (a) of paragraph 2 shall mean the unconst rained expected sho rtf a II measure calculated in accordance with Art i cle 325 b c for all the positions assigned to that trading desk considered on a standalone basis as a separate po rtf o Mo. By way of derogation from Art i cle 325 b d, institutions shall fulfil the following requirements when calculating that unconst rained expected sho rtf a II measure for each trading
the stress period used in the calculation of the partial expected shortfall number PES, for a given trading desk shall be the stress period identified in accordance with point (c) of Article 325bd(1) for the purpose of determining PES, for all the trading desks for which institutions have been granted the permission referred to in paragraph 1,
when calculating the partial expected sho rtf a II numbers PESt and PES, for a
given trading desk, the scenarios of future shocks shall only be applied to the
modellable risk factors of positions assigned to the trading desk which are
included in the subset of modellable risk factors chosen by the institution in
accordance with point (a) of Article 325bd(1) for the purpose of determining pre RS
r LJt for all the trading desks for which institutions have been granted the
permission referred to in paragrap
h 1.
IVIaterial changes to the use of internal models that an institution has received permission to use, the extension of the use of internal models that the institution has received permission to use and material changes to the institutions choice of the subset of modellable risk factors referred to in Article 325bd(2) shall require a separate permission by itscompetent authorities.
Institutions shall notify the competent authorities of all other extensions and changes to the use of the internal models for which the institution has received permission to
EBA sh
all develop dra ft regulatory technical standards to speci f y the following.
y&) the conditions for assessing materiality of extensions and changes to the use of internal models and changes to the subset of modellable risk factors referred to i n Arti c I e 325 b d ]
' \
J the assessment methodology under which competent authorities verify an institution s compliance with the requirements set out in Article 325bi to 370;
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EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [tw o years a ft er the entry into force of this Regulation]
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
EBA shall develop draft regulatory technical standards to specify in greater detail the extraordinary circumstances under which competent authorities may permit an institution to continue using its internal models for the purpose of calculating the own fund requirements for market risks of a trading desk that no longer meets the conditions referred to in points (b) or (c) of paragraph 1.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [six months afterthe entry into force of this Regulation]
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Article 325bb Own funds requirements when using internal models
An institution using an internal model shall calculate the own funds requirements for the p o rtf o Mo of all positions attributed to trading desks for which the institution has been granted the permission referred to in Article 325ba(1) as the sum of the following.
(a) the higher ofthe following values.
(0
the institution s previous day s expected shortfall risk measure calculated in accordance with Article 325bc (ESt-l),
an average of the daily expected sho rtf a II risk measure calculated in accordance with Art i cle 325 b c for each of the preceding si x ty b u s i ness days (ES ), multiplied by the multiplication factor ( m c) in accordance with Article 325bg,
the higher ofthe following values.
(■)
the institution s previous day s stress scenario risk measure calculated in
accordance Jection 0 of this Title (SSt-i);
an average of the daily stress scenario risk measure calculated in accordance with Section 5 of this Title for each of the preceding sixty
business days (SSavg).
Institutions holding positions in traded debt and equity instruments that are included in the scope ofthe internal defaultrisk model and attributed totrading desks referred to in paragraph 1 shall fulfil an additional own funds requirement expressed as the
170
higher of the following values.
(a) the most recent own funds requirement for default risk calculated in accordance with Section 3,
(b) the average of the amount referred to in point(a) over the preceding 12 weeks.
Section 2 General requirements
Article 325bc /Expected shortfall risk measure
Institutions shall calculate the expected sho rtf a II risk measure 'ESt' referre d to i n point(a) of Article 325bb(1) for any given date t and for any given po rtf o Mo of trading book positions as follows.
ESt = p * (UESt) + (1 - p) * ^ UESÏ
i — the index that denotesthe five broad risk factor categories listed in the
fir st column of Table 13 of Arti c I e 325 b e ,
uest = the unconstrained expected sho rtf a II measure calculated as follows.
?FC \
PES
UESt = PES*S * max (-tTF, 1
1 1 \PEStRC
ues: = the uncon st rained expected sho rtf a II measure for broad risk factor
category i and calculated as follows.
UESlt = PESfSli * max [ \ „*RCi, 1
(PESFtcx \PES*'
P — the supervisory correlation factor across broad risk categories,
p = 50%;
PFQRS
rl_Ot — the partial expected shortfall number that shall be calculated for
all the positions in the portfolio in accordance with Article 325bd(2);
PFQRC
rl_Ot — the partial expected shortfall number that shall be calculated for
all the positions in the portfolio in accordance with Article 325bd(3),
the partial expected shortfall number that shall be calculated for
pestfc
all the positions in the portfolio in accordance with Artice 325bd(4); nrcRS,,
rl_Ot — the partial expected sho rtf a II number for broad risk factor
category i that shall be calculated for all the positions in the po rtf o Mo in accordance w i th Article 325bd(2);
prcRC,,
ri_Ot — the partial expected sho rtf a II number for broad risk factor
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category i that shall be calculated for all the positions in the po rtf o Mo in accordance with Article 325bd(3)|
PES," — the expected sho rtf a II number for broad risk factor category i
that shall be calculated for all the positions in the po rtf o Mo in accordance with of Artie,e 325bd(4).
Institutions shall only apply scenarios of future shocks to the specific set of modellable risk factors applicable to each partial expected shortfall number as set out i n Art i cle 325 b d when determining each partial expected sho rtf a II number for the calculation of the expected sho rtf a II risk measure in accordance with paragraph 1. W here at least one transaction of the portfolio has at least one modellable risk factor which has been mapped to the broad risk category i in accordance with Article 325 be, institutions shall calculate the unconst rained expected sho rtf a II measure for broad risk factor category i and include it in the formula of the expected sho rtf a I I risk measure referred to in paragraph 2.
Article 325bcJ rti a I ex p ecte d sho rtf a II calculations
Institutions shall calculate all the partial expected sho rtf a II numbers referred to in Article 325bc(l ) as f o Mows.
(a) daily calculations of the partial expected sho rtf a II numbers,
(b) at 97,5th percentile, one tailed confidence interval,
(c) for a given po rtf o Mo of trading book positions, institution shall calculate the partial expected sho rtf a II number ESt at time t accordance with the following f o r m u I a .
PESt
(PESt(T))2 + > PESt(T,j)* ,V > > 1J
Ir"iv,j; j io
j>2
J — indexthatdenotesthefiveliquidi ty horizons listed in the first
column of Table 1,
LH — the length of liquidity horizons J as expressed in days in I able
1;
T — the basetime horizon, where T= 10 days,
PESt(T) — the partial expected sho rtf a II number that is determined by
applying scenarios of future shocks with a 10 "days time horizon only to the specific set of modellable risk factors of the positions in the po rtf o Mo set out in paragraphs 2, 3 and 4 for each partial expected shortfall number referred to in Article 325bc(2).
PESt(T,j) — the partial expected sho rtf a II number that is determined by
applying scenarios of future shocks with a 10 "days time horizon only to the specific
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set of model lable risk factors of the positions in the po rtf o lio set out in paragraphs 2, 3 and 4 for each partial expected shortfall number referred to in Article 325bc(2) and of which the effective liquidity horizon, as determined in accordance with Article
325be(2), is equal or longer than LH,.
Table 1
| Liquidity horizon J | Length of liquidity horizon J (in days) |
| 1 | 10 |
| 2 | 20 |
| 3 | 40 |
| 4 | 60 |
| 5 | 120 |
For the purposes of calculating the partial expected sho rtf a II numbers PESt and
RS,
PES, " refe rre d to i n Article 325bc(2), institutions shall, in addition to the requirements set out in paragraph 1, meetthe following requirements.
i n ca I c u I ati n g PES, , institutions shall only apply scenarios of future shocks to a subset of modellable risk factors of positions in the po rtf o lio which has been chosen by the institution, to the satisfaction of competent authorities, so that the following condition is metattime t, with the sum taken over the preceding 60 b u s i n ess days.
1 4^ PESfEk
fe=0 t_/c
A n institution that no longer meets the requirement referred to in the first subparagraph of this point shall immediately noti f y the competent authorities thereof and update the subset of modellable risk factors within tw o weeks in order to meet that requirement. W here, after tw o weeks, that institution has failed to meet that requirement, it shall revertto the approach set out in Chapter 1a to calculate the own fund requirements for market risks for some trading desks, until that institution can demonstrate to the competent authority that it is meeting the requirement set out in the first subparagraph of this point,
(b) in calculating PESfKb" institutions shall only apply scenarios of future shocks to the subset of modellable risk factors of positions in the po rtf o lio chosen by the institution for the purposes of point (a) and which have been mapped to the broad risk factor category / in accordance with Article 325be,
(c) the data inputs used to determine the scenarios of future shocks applied to the
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modellable risk factors referred to in points (^a J and ) shall be calibrated to
historical data from a continuous 12 "month period of financial stress that shall
pre RS
be identified by the institution in order to maximise the value of r LJt Institutions shall review the identification of this stress period at least on a monthly basis and shall noti f y the outcome of that review to the competent authorities. For the purpose of identi f y ing that stress period, institutions shall use an observation period starting at least from 1 J a n u a ry 2007, to the satisfaction of the competent authorities.
(d) the model inputs of PES,Kb" shall be calibrated to the 12 "month stress period that has been identified by the institution for the purposes of point (c).
For the purpose of calculating the partial expected sho rtf a II numbers PESt and PES," refe rre d to i n Article 325bc(2), institutions shall, in addition to the requirements set out in paragraph 1, meetthe following requirements.
i n ca I c u I ati n g PES. , institutions shall only apply scenarios of future shocks to the subset of modellable risk factors of positions in the po rtf o Mo referred to in point (a) of paragraph 3,
(b) in calculating PES,' , institutions shall only apply scenarios of future shocks to the subset of modellable risk factors of positions in the po rtf o Mo referred to in point (b) of paragraph 3,
(c) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors referred to in points (a) and (b) shall be calibrated to historical data from the preceding 12 "months period. I hose data shall be updated at least on a monthly basis.
For the purpose of calculating the partial expected sho rtf a II numbers PESt and PES," refe rre d to i n Article 325bc(2), institutions shall, in addition to the requirements set out in paragraph 1, meetthe following requirements.
in ca I c u I ati n g PES, , institutions shall apply scenarios of future shocks to all the modellable risk factors of positions in the portfolio,
(b) in calculating PES, ■ , institutions shall apply scenarios of future shocks to all the modellable risk factors of positions in the po rtf o Mo which have been mapped to the broad risk factor category / in accordance with Article 325be,
(c) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors referred to in points (a) and (b) shall be calibrated to historical data from the preceding 12 "months period. I hose data shall be updated at least on a monthly basis. W here there is a significant upsurge in the price volatil i ty of a material number of modellable risks factors of an institutions po rtf o Mo which are not in the subset of risk factors referred to in point (a) of paragraph 2, competent authorities may require an institution to use historical data from a period shorter than the preceding 12 'months, but such shorter period shall not be shorter than the preceding 6' m onths period. Competent authorities shall notify EBA of any decision requiring an institution to use historical data from a shorter period than 12 months and substantiate it.
174
In calculating a given partial expected sho rtf a II number referred to in Artie,e 325bc(2), institutions shall maintain the values of the modellable risks factors for which they have not been required in paragraphs 2, 3 and 4 to apply scenarios of future shocks for this partial expected sho rtf a II number.
By way of derogation from point (a) of paragraph 1, institutions may decide to calculate the partial expected sho rtf a II n u m b e rs PESt , PESt and PESt on a weekly basis.
Article 325be Liquidity horizons
Institutions shall map each risk factor of positions attributed to trading desks for which they have been granted the permission referred to in Article 325ba(1) or are in the process of being granted that permission to one of the broad risk factor categories listed in Table 2, as well as to one of the broad risk factor subcategories listed in that Tab I e.
The I i q u i d i ty horizon of a risk factor of the positions referred to in paragraph 1 shall be the liquidity horizon of the corresponding broad risk factor subcategories it has been mapped to.
By way of derogation from paragraph 1, an institution may decide, for a given trading desk, to replace the liquidi ty horizon of a broad risk subcategory listed in Table 2 with one of the longer liquidi ty horizons li ste d i n Table 1. W here an institution takes this decision, the longer liquidi ty horizon shall apply to all the modellable risk factor of the positions attributed to this trading desk mapped to this broad risk subcategory for the purpose of calculating the partial expected shorfall numbers in accordance with point (c) of Article 325bd(l).
An institution shall notify the competent authorities of the trading desks and the broad risk subcategories for which it decides to apply the treatment referred to in the first subparagraph.
For calculating the partial expected sho rf all numbers in accordance with point (c) of Article 325bd(l), the effective liquidi ty horizon effective LH' of a given modellable risk factor of a given trading book position shall be calculated as follows.
SubCatLH irMat>LHe EffectiveLH = \ min (subCatLH, min{LHj/LHj > Matfj ,r LH1 <Mat <LH6 LHl irMat<LH7
the maturity ofthetrading book position,
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SubCatLH — the length of liquidity horizon of the model lable
risk factor determined in accordance with paragraph 1,
min. {LH/LH,^ Mat} — the length of one ofthe liquidi ty horizons listed
in Table ... which is the nearest above the maturity of the trading book position.
Currency pairs that are composed by the EUR and the currency of a L/lember State participating in the second stage of the economic and monetary union shall be included in the most liquid currency pairs subcategory in the foreign exchange broad risk factor category of Table 2.
A n institution shall verify the appropriateness of the mapping referred to in paragraph 1 at least on a monthly basis.
EBA shall develop dra ft regulatory technical standards to speci f y in greater detail.
how institutions shall map trading book positions to broad risk factors categories and broad risk factor subcategories for the purpose of paragraph 1 ,
' the currencies that constitute the most liquid currencies subcategory in the interest rate broad risk factor category of Table 2,
the currency pairs that constitute the most liquid currency pairs subcategory in the foreign exchange broad risk factor category of Table 2,
' the definition of a small and large capitalisation for the equi ty price and v o I at i I i ty subcategory in the equi ty broad risk factor category of Table 2,
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by six months afterthe entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Table 2
| Bro a d risk facto r categ o r i es | Broad risk factor subcategories | Liquidity h o r i z o n s | Length of the liquidity horizon (in days) |
| Interest rate | Most liquid currencies and domestic c u rren c y | 1 | 10 |
| Other currencies (excluding most liquid currencies) | 2 | 20 | |
| Vo I at i I ity | 4 | 60 | |
| Oth er types | 4 | 60 | |
| Credit spread | Central government, including central banks, of Member States of the | 2 | 20 |
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| Union | |||
| Covered bonds issued by credit institutions established in Member States of the Union (Investment Grade) | 2 | 20 | |
| Sovereign (Investment Grade) | 2 | 20 | |
| Sovereign (High Yield) | 3 | 40 | |
| Corporate (Investment Grade) | 3 | 40 | |
| Corporate (High Yield) | 4 | 60 | |
| Vo 1 at i 1 ity | 5 | 120 | |
| Oth er types | 5 | 120 | |
| E q u ity | Equity price (Large capitalisation) | 1 | 10 |
| Equity price (Small capitalisation) | 2 | 20 | |
| Volatility (Large capitalisation) | 2 | 20 | |
| Volatility (Small capitalisation) | 4 | 60 | |
| 0th er types | 4 | 60 | |
| Fore i g n E x c h a n ge | Most liquid currency pairs | 1 | 10 |
| Other currency pairs (excluding most liquid currency pairs) | 2 | 20 | |
| Vo 1 at i 1 ity | 3 | 40 | |
| 0th er types | 3 | 40 | |
| Com mod ity | Energy price and carbon emissions price | 2 | 20 |
| Precious metal price and non~ferrous m eta 1 price | 2 | 20 | |
| Other commodity prices (excluding Energy price, carbon emissions price, precious metal price and non~ferrous metal price) | 4 | 60 | |
| Energy volatility and carbon emissions v o 1 at i 1 ity | 4 | 60 | |
| Precious metal volatility and non~ferrous | 4 | 60 |
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| metal volatility | |||
| Other commodity volatilities (excluding | 5 | 120 | |
| Energy volatility, carbon | |||
| emissions volatility, precious | |||
| metal volatility and non~ferrous | |||
| metal volatility) | |||
| Oth er types | 5 | 120 |
Article 325bf Assess m e nt of the m o de II a b i I ity of risk factors
Institutions shall assess, on a monthly basis, the modellability of all the risk factors of the positions attributed to trading desks for which they have been granted the permission referred to in Article 325ba(1) or are in the process of being granted that p e r m i ss ion.
An institution shall consider a risk factor of a trading book position as modellable where all the following conditions are met.
24
risk factor over the preceding I /^"months period
the institution has identified at least /^H verifiable prices which contained that
no 12-,
there is no more than one month b etw een the dates of tw o consecutive observations of verifiable prices identified by the institution in accordance with point (a) ,
there is a clear and apparent relationship b etw een the value of the risk factor and each verifiable price identified by the institution in accordance with point
Fo
rthe purposes of paragra
P h 2,
a verifiable price means any one of the following.
y&J the market price of an actual transaction to which the institution was one of the p a rt i es,
(b) the market price of an actual transaction that was entered into by third parties and for which price and trade date are publicly available or have been provided by a third party,
(c) the price obtained from a committed quote provided by a third pa rty.
For the purposes of points (b) and (c) of paragraph 3, institutions may consider a price or a committed quote provided by a third pa rty as a verifiable price, provided that the third pa rty agrees to provide evidence ofthetransaction or a commited quote to co mpetent authorities upon request.
A n institution may identify a verifiable price for the purpose of point (a) of paragraph 2 for more than one risk factor.
Institutions shall consider risk factors derived from a combination of modellable risk
178
factors as modellable.
W here an institution considers a risk factor to be modellable in accordance with paragraph 1, the institution may use data other than the verifiable prices it used to prove that the risk factor is modellable in accordance with paragraph 2 to calculate the scenarios of future shocks applied to that risk factor for the purpose of calculating the partial expected sho rtf a II referred to in Article 365 as long as that data inputs fulfils the relevant requirements set out in Art i c I e 325 b d .
Institutions shall consider as non - model lable a risk factor that does not fulfil all the conditions set out in paragraph 2 and shall calculate the own funds requirements for that risk factor in accordance with Article 325bl.
Institutions shall consider risk factors derived from a combination of modellable and non~modellable risk factors as non~modellable.
By way of derogation from paragraph 2, competent authorities may permit an institution to consider a risk factor that meets all of the conditions in paragraph 2 as non~modellable for a period of less than one year.
Article 325bg
gulatory b a ck~testi n g requirements and multiplication factors
For any given date, an institution s trading desk meets the backtesting requirements referre d to i n Article 325ba(1) where the number of overshootings as referred to in paragraph L. for that trading desk that occurred over the most recent 250 b u s i ness days do not exceed any of the following.
(a) 12 overshootings for the val ue~at~ risk number, calculated at a 99th percenti le one ta i I e d ' c o n f i d e n c e internal on the basis of back'testing hypothetical changes in the p o rtf olio s value,
(b) 12 overshootings for the val ue~at~ risk number, calculated at a 99th percenti le one ta i I e d ' c o n f i d e n c e internal on the basis of back'testing actual changes in the p o rtf o Mo s value,
(c) 30 overshootings for the v a I u e~ at~ r i s k number, calculated at a 97,5th percentile one tai led"conf i dence internal on the basis of back"testing hypothetical changes in the p o rtf olio s value,
(d) 30 overshootings for the v a I u e~ at~ r i s k number, calculated at a 97,5th percentile one ta i I e d ' c o n f i d e n c e internal on the basis of back'testing actual changes in the p o rtf o Mo s value,
For the purpose of paragraph 1, institutions shall count daily overshootings on the basis of back"testing hypothetical and actual changes in the po rtf o I i o s value composed of all the positions attributed to the trading desk. An overshooting shall mean a o n e~ d a y change in that po rtf o Mo s value that exceeds the related val ue~at~ risk
179
number calculated by the institutions internal model in accordance with the following requirements.
(a) a one_day holding period,
(b) scenarios of future shocks shall apply to the risk factors of the trading desks positions referred to in Art i cle 325b h (3) and which are considered modellable in accordance with Article 325bf,
(c) data inputs used to determine the scenarios of future shocks applied to the modellable risk factors shall be calibrated to historical data from the preceding 12 "months period. I hose data shall be updated at least on a monthly basis,
(d) unless stated otherwise in this Artie,e, the institution s internal model shall be based on the same modelling assumptions as those used for the calculation of the expected shortfall risk measure referred to in point (a) of Article 325bb(l).
Institutions shall count the daily overshootings referred to in paragraph 2 i n accordance with the following.
(a) back"testing hypothetical changes in the po rtf o lios value shall be based on a comparison b etw een the po rtf o lios end_of"day value and, assuming unchanged positions, its value at the end of the subsequent day,
(b) back"testing actual changes in the po rtf o lios value shall be based on a comparison b etw een the po rtf o lios end_of"day value and its actual value at the end of the subsequent day excluding fees, commissions, and net interest income,
(c) an overshooting shall be counted each day the institution is not able to assess the p o rtf o Mo s value or is not able to calculate the val ue~at~ risk number referred to in paragraph 1,
A n institution shall calculate, in accordance with paragraphs 5 and 6, the multiplication factor (rnc) referred to in Art i cle 325 b b for the po rtf o Mo of all the positions attr ibuted to trading desks for which it has been granted the permission referre d to i n Article 325ba(1). T hat calculation shall be updated on at least a monthly basis.
The multiplication factor (mc) shall be the sum of the value of 1,5 and an add_on b etw een 0 and 0,5 in accordance with Table 3. For the portfolio referred to in paragraph 4, this add_on shall be calculated by the number of overshootings that occurred over the most recent 250 business days as evidenced by the institutions back"testing of the val ue~at~ risk number calculated in accordance with point (a) of this paragraph in accordance with the following.
(a) an overshooting shall be a o n e ~ d a y change in the po rtf o Mo s value that exceeds the related v a I u e ~ at" r i s k number calculated by the institution s internal model in accordance with the following .
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(i) a one-day holding period,
(ii) a 99" percentile, one tailed confidence interval,
(iii) scenarios of future shocks shall apply to the risk factors of the trading desks positions referred to in Art i cle 325b h (3) and which are considered model lable in accordance with Article 325bf,
(iv) data inputs used to determine the scenarios of future shocks applied to the model lable risk factors shall be calibrated to historical data from the preceding 12 "months period. I hose data shall be updated on at least a monthly basis,
(v) unless stated otherwise in this Art i cle, the institutions internal model shall be based on the same modelling assumptions as those used for the calculation of the expected shortfall risk measure referred to in point (a) of Article 325bb(l)i
the number of overshootings shall be equal to the higher of the number of overshootings under hypothetical and actual changes in the value of the p o rtf o Mo,
in counting daily overshootings, institutions shall apply the provisions set out in paragraph 3.
Tab I e 3
| Number of overshootings | Add-on |
| Fewer than 5 | 0,00 |
| 5 | 0,20 |
| 6 | 0,26 |
| 7 | 0,33 |
| 8 | 0,38 |
| 9 | 0,42 |
| More than 9 | 0,50 |
Competent authorities may limit the add~on to that resulting from overshootings under back"testing hypothetical changes where the number of overshootings under back"testing actual changes does not result from deficiencies in the internal model. Competent authorities shall monitor the appropriateness of the multiplication factor referred to in paragraph 4 or a trading desks compliance with the backtesting requirements referredto in paragraph 1. I nstitutions shall notify promptly, and in any
181
case no later than within five working days after the occurrence of an overshooting, the competent authorities of overshootings that result from their back"testing program me and provide an explanation for those overshootings.
By way of derogation from paragraphs 2 and 5, competent authorities may permit an institution not to count an overshooting where a o n e ~ d a y change in its po rtf o I i o s value exceeds the related value~at~risk number calculated by that institutions internal model is attr ibutable to a non~modellable risk factor. To do so, the institution shall substantiate to the competent authorities that the stress scenario risk measure calculated in accordance with Art i cle 325 b I for this non~modellable risk factor is higher than the positive difference b etw een the institutions po rtf o lios value and the related val ue~at~ risk number.
EBA shall develop dra ft regulatory technical standards to further specify the technical elements that shall be included in the actual and hypothetical changes the p o rtf olios value of an institution for the purpose of this Artie,e.
EBA shall submit those dra ft regulatory technical standards to the Uom mission by [six months afterthe entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Article 325bh Profit and loss attribution requirement
For any given month, an institutions trading desk meets the profit and loss (P& l_) attribution requirements for the purpose of Article 325ba(1) where that trading desk complies with the requirements set out in this Art i cle.
The P&L attr ibution requirement shall ensure that the theoretical changes in atrading desk p o rtf o lios value, based on the institutions risk~measurement model, are sufficiently close to the hypothetical changes in the trading desk po rtf o lios value, based on the institution s pricing model.
An institution's compliance with the P&L attribution requirement shall lead, for each position in a given trading desk, to the identification of a precise list of risk factors that are deemed appropriate for veri f y ing the institutions compliance with the backtesting requirement set out in Art i cle 325 b g .
EBA shall develop dra ft regulatory technical standards to further specify.
(a) in light of international regulatory developments, the technical criteria that shall ensure that the theoretical changes in a trading desk po rtf o lios value is sufficiently close to the hypothetical changes in the trading desk po rtf o lios value for the purposes of paragraph 2,
182
yb) the technical elements that shall be included in the theoretical and hypothetical changes in a trading desk po rtf o lios value for the purpose of this Artie,e.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [six months afterthe entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
Article 325bi Requirements on risk measurement
Institutions using an internal risk~measurement model used to calculate the own funds requirements for market risks as referred to in Arti cle 325 b b shall ensure that that model meets all of the requirements.
(a) the internal risk" measurement model shall capture a sufficient number of risk factors, which shall include at leastthe risk factors referred to in subsection 1 of section 3 of Chapter 1a unless the institution demonstrates to the competent authorities that the omission of those risk factors does not have a material impact on the results of the P&L attribution requirement as referred to in Arti cle 325 b h. A n institution shall be able to explain to the competent authorities why it has incorporated a risk factor in its pricing model but not in its internal risk" measurement model.
(b) the internal risk" measure ment model shall capture nonlinearities for options and other products as well as correlation risk and basis risk. Proxies used for risk factors shall show a good track record for the actual position held.
(c) the internal risk" measurement model shall incorporate a set of risk factors corresponding to the interest rates in each currency in which the institution has interest rate sensitive on- or off 'balance sheet positions. The institution shall model the yield curves using one of the generally accepted approaches. For material exposures to i nte rest' rate risk in the major currencies and markets, the yield curve shall be divided into a minimum of six maturi ty segments, to capture the variations of volatili ty of rates along the yield curve and the number of risk factors used to model the yield curve shall be proportionate to the nature and complexity of the institution s trading strategies The model shall also capture the risk of less than perfectly correlated movements b etw een di ff erent yield curves,
(d) the internal risk"measurement model shall incorporate risk factors corresponding to gold and to the individual foreign currencies in which the institution s positions are denominated. For ClUs the actual foreign exchange positions of the CIU shall be taken into account. Institutions may rely on third p a rty reporting of the foreign exchange position of the CIU, where the correctness of that report is adequately ensured. Foreign exchange positions of a CIU of which an institution is not aware of shall be carved out from the internal models approach and treated in accordance with Chapter 1a of this Titlei
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the internal risk -measurement model shall use a separate risk factor for at least each of the equity markets in which the institution holds significant positions. The sophistication of the modelling technique shall be proportionate to the m a te r i a I i ty of the institutions activities in the equi ty markets. The model shall incorporate at least one risk factor that captures systemic movements in equity prices and the dependency of that risk factor with the individual risk factors for each equi ty markets For material exposures to equi ty markets, the model shall incorporate at least one idiosyncratic risk factor for each equity exposure.
the internal risk -measurement model shall use a separate risk factor for at least each com modi ty in which the institution holds significant positions unless the institution has a small aggregate commodi ty position compared to all its trading activities in which case a separate risk factorfor each broad commodi ty ty pe will be acceptable. For material exposures to commodi ty markets, the model shall capture the risk of less than perfectly correlated movements b etw een similar, but not identical, commodities, the exposure to changes in forward prices arising from maturi ty mismatches and the convenience yield between derivative and cash positions.
(g) proxies shall be appropriately conservative and shall be used only where available data are insufficient, including during the period of stress.
(h) for material exposures to volatili ty risks in instruments with optionali ty, the internal risk -measure ment model shall capture the dependency of implied volatilities across strike prices and options maturities.
Institutions may use empirical correlations within broad risk factor categories and, for the purposes of calculating the unconst rained expected sho rtf a II measure UESt as referre d to i n Article 325bc(1), ac ross broad risk factor categories only where the institution s approach for measuring those correlations is sound, consistent with the applicable liquidi ty horizons, and implemented with integri ty.
Article 325bj Qualitative requirements
Any internal r i s k ~ m e a s u re m e n t model used for the purposes of this Chapter shall be conceptually sound and implemented with integri ty and shall comply with all of the following qualitative requirements.
(a) any internal risk -measure ment model used to calculate capital requirements for market risks shall be closely integrated into the daily r i s k ~ m a n a g e m e n t process of the institution and serve as the basis for reporting risk exposures to senior management,
(b) an institution shall have a risk control unit that is independent from business trading units and that reports directly to senior management. That unit shall be responsible for designing and implementing any internal risk -measure ment model. That unit shall conduct the initial and o n ~ g o i n g validation of any internal model used for purposes of this Chapter and shall be responsible for the overall risk management system. That unit shall produce and analyse daily
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re p o rts on the output of any internal model used to calculate capital requirements for market risks, and on the appropriateness of measures to be taken intermsoftrading limits,
the institutions management body and senior management shall be actively involved in the risk_control process and the daily repo rts produced by the risk" control unit shall be reviewed by a level of management with sufficient authority to enforce reductions of positions taken by individual traders and reductions in the institution s overall risk exposure,
the institution shall have a sufficient number of staff skilled to a level appropriate to the sophistication of any internal risk" measure ment models, and being skilled in the trading, risk~control, audit and back~office areas,
the institution shall have in place a documented set of internal policies, procedures and controls for monitoring and ensuring compliance with the overall operation of any internal risk" measure ment models,
any internal risk" measurement model shall have a proven track record of reasonable accuracy in measuring risks,
(g) the institution shall frequently conduct a rigorous programme of stress testing, including reverse stress tests, which shall encompass any internal risk" measurement model. The results of these stress tests shall be reviewed by senior managementat on at least a monthly basis and comply with the policies and limits approved by the institutions management body. The institution shall take appropriate actions where the results of those stress tests show excessive losses arising from the tradings business of the institution under certain circu mstances,
(h) the institution shall conduct an independent review of any internal risk" measurement models, either as part of its regular internal auditing process,or by mandating a th i rd" pa rty undertaking to conduct that review, to the satisfaction of competent authorities.
For the purpose of point (h), a th i rd" pa rty undertaking means an undertaking that provides auditing or consulting services to institutitons and that has staff that is sufficiently skilled in the area of market risks in trading activities.
The review referred to in point (h) of paragraph 1 shall include both the activities of the business trading units and the independent risk_control unit.The institution shall conduct a review of its overall risk"management process at least once a year. That review shall assess the following.
(a) the adequacy of the documentation of the risk_management system and process and the organisation of the risk_control unit,
(b) the integration of risk measures into daily risk management and the integrity of the management information system,
(c) the processes the institution employs for approving risk_pricing models and valuation systems that are used by front and back_office personnel,
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the scope of risks captured by the model, the accuracy and appropriateness of the risk_measurement system and the validation of any significant changes to the internal risk -measurement model,
the accuracy and completeness of position data, the accuracy and appropriateness of volatili ty and correlation assumptions, the accuracy of valuation and risk sensitiv i ty calculations and the accuracy and appropriateness for generating data proxies where the available data are insufficient to meet the requirement set out in this Chapter,
the verification process the institution employs to evaluate the consistency, timeliness and reliability of data sources used to run any of its internal risk" measurement models, including the independence of those data sources,
(g) the verification process the institution employs to evaluate back"testing requirements and P&L attribution requirements that are conducted in order to assess the internal risk -measure ment models accuracy.
(h) where the review is performed by a third~pa rty undertaking in accordance to point (h) of paragraph 1, the verification that the internal validation process set out in Article 325 bk fulfils its objectives.
Institutions shall update the techniques and practicesthey use for any of the internal risk_measurement models used for the purposes of this Chapter in line with the evolution of new techniques and best practices that develop in respect of those internal risk -measure ment models.
Article 325bk Inter n a I \/a I i dati o r
Institutions shall have processes in place to ensure that any internal risk" measurement model used for purposes of this Chapter has been adequately validated by suitably qualified parties independent of the development process to ensure that any such models are conceptually sound and adequately capture all material risks. Institutions shall conduct the validation referred to in paragraph 1 in the following circu mstances.
when any internal risk~measurment model is initially developed and when any significant changes are made to that model,
on a periodic basis and especially where there have been significant structural changes in the market or changes to the composition of the po rtf o Mo which might lead to the internal risk~measurment model no longer being adequate.
The validation of any internal risk -measurement model of an institution shall not be limited to back"testing and P&L attribution requirements, but shall, as a minimum, includes the following.
(a) tests to verify whether the assumptions made in the internal model are appropriate and do not underestimate or overestimatethe risk,
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yb) own internal model validation tests, including back"testing in addition to the
regulatory back"testing programmes, in relation to the risks and structures of their p o rtf o I i o s,
(c) the use of hypothetical po rtf o lios to ensure that the internal risk~measurment model is able to account for particular structural features that may arise, for example material basis risks and concentration risk or the risks associated with the use of proxies.
Article 325bi Calculation of stress scenario risk measure
At time t, an institution shall calculate the stress scenario risk measure for all the non~modellable risk factors of the trading book positions in a given po rtf o Mo as follows.
ICSS™(i) + ^55tz(t)
the index that denotes all the n o n ~ m o d e I I a b I e risk factors of the
positions in the po rtf o Mo which represent an idyosyncratic risk which has been mapped to the credit spread broad risk factor category in accordance with Article 325be(1) and for which the institution has demonstrated, to the satisfaction of the competent authorities, that those risk factors are uncorrelated,
I — the index that denotes all the non~modellable risk factors ofthe
positions in the po rtf o Mo other than those denoted by the index m ,
ICSStm
with paragraphs 2 and 3, ofthe n o n ~ m o d e I I a b I e risk facto
the stress scenario risk measure, as determined in accordance
r m ,
SS' — the stress scenario risk measure, as determined in accordance
with paragraphs 2 and 3, ofthe n o n ~ m o d e I I a b I e risk factor I ,
The stress scenario risk measure of a given non~modellable risk factor means the loss that is incurred in all the trading book positions of the portfolio which includes that non~modellable risk factor where an extreme scenario of future shock is applied to that risk factor.
Institutions shall determine to the satisfaction of competent authorities appropriate extreme scenarios of future shock for all the model I a b I e risk"factors.
EBA shall develop dra ft regulatory technical standards to speci f y in greater details.
(a) how institutions shall determine the extreme scenario of future shock applicable to non~modellable risk factors and how they shall apply that extreme scenario of future shock to those risk factors,
(b) a regulatory extreme scenario of future shock for each broad risk factor
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subcategory listed in Table 2 of Article 325be which institutions may use when they cannot determine an extreme scenario of future shock in accordance with point (a), or which competent authorities may require the institution to apply when those authorities are not satisfied with the extreme scenario of future shock determined by the institution.
In developing those dra ft regulatory technical standards, EBA shall ta k e i nto consideration that the level of own funds requirements for market risk of a non-model lable risk factor as set out in this Article shall be as high as the level of own funds requirements for market risks that would be calculated under this Chapter were this risk factor modellable.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [six months afterthe entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
SECTION 2 I NTERNAL DEFAULT RISK MODEL
Article 325b m Sco pe of the i nter n a I default risk model
All the institution s positions that have been attributed to trading desks for which the institution has been granted the permission referred to in Article 325ba(l) shall be subject to an own funds requirement for default risk where the positions contain at lea st one risk factor mapped to the broad risk categories equi ty or credit spread in accordance with Article 325be(1). T hat own funds requirement, which is incremental to the risks captured by the own funds requirements referred to in Article 325bb(l), shall be calculated with the institutions internal default risk model which shall comply with the requirements laid down in this Section
There shall be one issuer of traded debt or equity instruments related to at least one risk factorfor each of the positions referred to in paragraph 1.
Article 325bn Per mission to use an Internal default risk model
Competent authorities shall grant an institution permission to use an internal default risk model to calculate the own funds requirements referred to in Article 325bb(2) for all the trading book positions referred to in Art i cle 325 b m that are assigned to a given trading desk provided that the internal default risk model complies with Articles 325bo, 325bp, 325bq, Articles 325bj and 325 bk for that trading desk. EBA shall issue guidelines on the requirements of Articles 325bo, 325bp and 325 bq b y [tw o years a ft e r the entry into force of this Regulation].
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w here an institutions trading desk, for which at least one of the trading book positions referred to in Art i cle 325 b m has been assigned to, do not meet the requirements set out in paragraph 1, the own funds requirements for market risks of all the positions in this trading desk shall be calculated in accordance with the approach set out in Chapter 1a.
Article 325bo
Own funds requirements for default risk using an internal default risk model
Institutions shall calculate the own funds requirements for default risk using an internal default risk model for the portfolio of all the positions referred to in Article 325 b m as f o Mows.
(a) the own funds requirements shall be equal to a val ue~at~risk number measuring potential losses in the market value of the po rtf o Mo caused by the default of issuers related to those positions at the 99,9 % confidence interval over a time horizon of one year,
\bJ the potential loss referred to in point \a) means a direct or indirect loss in the market value of a position caused by the default of the issuers and which is incremental to any losses already taken into account in the current valuation of the position. The default of the issuers of equity positions shall be represented by the issuers equity prices dropping to zero,
(c) institutions shall determine default correlations b etw een different issuers based on a conceptually sound methodolgy and using objective historical data of market credit spreads and equi ty prices covering at least a 10 year time period including the stress period identified by the institution in accordance with Article 325bd(2). T he calculation of default correlations b etw een different issuers shall be calibrated to a one~yeartime horizon,
(d) the internal default risk model shall be based on a one~year constant position ass u m pti o n .
Institutions shall calculate the own funds requirement for default risk using an internal default risk model as referred to in paragraph 1 on at least a weekly basis. By way of derogation from points (a) and (c) of paragraph 1, an institution may replace the time horizon of one year by a time horizon of si x ty days for the purpose of calculating the default risk of equi ty positions, in which case the calculation of default correlations b etw een equi ty prices and default probabilities shall be consistent with a time horizon of si x ty days and the calculation of default correlations b etw een equi ty prices and bond prices shall be consistent with a time horizon of one year.
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Article 325bp
Recognition of hedges in an internal default risk model
Institutions may incorporate hedges in their internal default risk model and they may net positions where the long and short positions refer to the same financial i n str u ment.
Institutions may in their internal default risk model only recognise hedging or diversification effects associated with long and short positions involving different instruments or different securities of the same obligor, as well as long and short positions in different issuers by explicitly modelling the gross long and short positions in the different in st rumen ts, including modelling of basis risks b etw een different issuers.
Institutions shall capture in their internal default risk model material risks that could occur during the interval b etw een the hedges maturi ty and the one year time horizon as well as the potential for significant basis risks in hedging strategies by product, s e n i o r i ty in the capital structure, internal or external rating, maturi ty, vintage and other differences in their instruments. Institutions shall recognise a hedge only to the extent that it can be maintained even as the obligor approaches a credit or other event.
Article 325bq
rticu/ar requirements for an internal default risk model
The internal default risk model referred to in Article 325bn(l) shall be capable of modelling the default of individual issuers as well as the simultaneous default of multiple issuers and take into account the impact of those defaults in the market values of the positions included in the scope of that model . For that purpose, the default of each individual issuer shall be modelled using at least tw o ty p e of systematic risk factors and at least one idiosyncratic risk factor.
The internal default risk model shall reflect the economic cycle, including the dependence b etw een recovery rates and the systematic risk factors referred to in paragraph 1.
The internal default risk model shall reflect the nonlinear impactof options and other positions with material nonlinear behaviour with respect to price changes. Institutions shall also have due regard to the amount of model risk inherent in the valuation and estimation of price risks associated with those products.
The internal default risk model shall be based on data that are objective and u p~to~ d ate.
To simulate the default of issuers in the internal default risk model, the institution's
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estimates of default probabilities shall meet the following requirements, the default probabilities shall be floored at 0,03%;
(b) the default probabilities shall be based on a one~year time horizon, unless stated otherwise in this Section,
(c) default probabilities shall be measured using, solely or in combinaison with current market prices, default data from a historical time period of at least five years, default probabilities shall not be inferred solely from current market p r i ces.
(d) an institution that has been granted the permission to estimate default probabilities in accordance with Jection 1, C hapter 3, Title II, Part 3 shall use the methodology set out in Jection 1, C hapter 3, Title II, Part 3 to calculate default probabilities,
(e) an institution that has not been granted the permission to estimate default probabilities in accordance with Jection 1, C hap ter 3, Title II, Part 3 shall develop an internal methodology or use external sources to estimate default probabilities. In both situations, the estimates of default probabilities shall be consistent with the requirements set out in this Artie,e.
To simulate the default of issuers in the internal default risk model, the institution's
estimates of loss given default shall meetthe following requirements . the loss given default estimates are floored at 0%;
(b) the loss given default estimates shall reflectthe seniority of each position,
(c) an institution that has been granted the permission to estimate loss given default in accordance with Jection 1, C hapter 3, Title II, Part 3 shall use the methodology set out in Jection 1, C hapter 3, Title II, Part 3 to calculate loss given default esti mates,
(d) an institution that has not been granted the permission to estimate loss given default in accordance with Jection 1, C hapter 3, Title II, Part 3 shall develop an internal methodology or use external sources to estimate default probabilities. In both situations, the estimates of loss given default shall be consistent with the requirements set out in this Artie,e.
As part of the independent review and validation of their internal models used for the purposes of this Chapter, including for the risk measurement system, institutions shall do all of the following.
(a) verify that their modelling approach for correlations and price changes is appropriate for their po rtf o Mo, including the choice and weigh ts of th esy ste m ati c risk factors of the model,
(b) perform a vari ety of stress tests, including sensitivi ty analysis and scenario analysis, to assess the qualitative and quantitative reasonableness of the internal default risk model, in particular with regard to the treatment of concentrations. Those tests shall not be limited to the range of past events
191
experienced,
(c) apply appropriate quantitative validation including relevant internal modelling bench marks.
8. The internal default risk model shall appropriately reflect issuer concentrations and concentrations that can arise within and across product classes under stressed conditions.
9. T he internal default risk model shall be consistent with the institution s internal risk management methodologies for identi f y i ng, measuring, and managing trading risks. Institutions shall have clearly defined policies and procedures for determining the default correlation assumptions b etw een different issuers in accordance with Art i c I e
325bo(2).
10.
11.
Institutions shall document their internal models so that their correlation and other
modelling assumptions aretransparentforthe competent authorities. 12. EBA shall develop dra ft regulatory technical standards to specify the requirements
that have to be fulfilled by an institutions internal methodology or external sources for esti mating default probabilities and loss given default in accordance with point (e) of paragraph 5 and point (d) of paragraph 6.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [15 months a ft e r the entry into force ofthis Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.".
(85) In Title IV of PartT hree, the I itle of L/hapter ^_ is replaced by the following.
C h a pte r 2
O w n funds requirements for position risks under the simplified
standardised approach
(86) In Title IV of PartT hree, the I itle of L/hapter O is replaced by the following.
C h a pte r 3
O w n funds requirements for foreign~exchange risk under the simplified standardised approach
(87) In Title IV of PartT hree, the I itle of L/hapter H is replaced by the following.
C h a pte r 4
O w n funds requirements for com modity risks under the simplified standardised approach
(88) I n Title IV of Part T hree, the I itle of Uhapter 0 is replaced by the following.
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C h a pte r 5
n funds requirements using the simplified internal models
approach
The introductory part in Article 384(1) is replaced by the following.
" 1. A n institution which does not calculate the own funds requirements for CVA risk for its counterparties in accordance with Art i cle 383 shall calculate a po rtf o Mo own funds requirements for CVA risk for each counterpa rty in accordance with the following formula, taking into account CVA hedges that are eligible in accordance
w i th Article 386:"
The definition of EAD,'0" in Article 384(1) is replaced by the following.
" EAD itotal — the total counterpa rty credit risk exposure value of counterpa rty i (summed across its netting sets) including the effect of collateral in accordance with the methods set out in Sections 3 to 6 of Title II, Chapter 6 as applicable to the calculation of the own funds requirements for counterpa rty credit risk for that co u nterpa rty .
Article 390 i s replaced by the following.
"/W/c/e 390 Calculation of the exposure value
The exposures to a group of connected clients shall be calculated by adding the exposures to individual clients in that group.
The overall exposures to individual clients shall be calculated by adding the exposures ofthetrading book and those of the non~trading book. For exposures in the trading book institutions may.
(a) offset their long positions and short positions in the same financial instruments issued by a given client with the net position in each of the different in st rumen ts being calculated in accordance with the methods laid down in Part Three, Title IV, Chapter 2.',
(b) offset their long positions and short positions in different financial instruments issued by a given client but only where the short position isjunior to the long position or the positions are of the same seniori ty.
For the purposes of point (a) and (b), securities may be allocated into buckets based on different degrees of seniori ty in order to determine the relative seniori ty of positions.
Institutions shall calculate exposures arising from contracts referred to in A n n e x II and credit derivatives directly entered into with a client in accordance with one of the methods set out in Part T hree, Title II, Chapter 6, Section 3 to Section 5, as applicable.
Exposures arising from these contracts allocated to the trading book shall also fulfil the requirements set out in Article 299.
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Institutions shall add to the exposures to a client the exposures arising from contracts referred to in A nnex II and credit derivatives not directly entered into with that client but underlying a debt or equity instrument issued by that client. Exposures shall not include any of the following.
(a) in the case of foreign exchange transactions, exposures incurred in the ordinary course of settlement during the tw o working days following payment,
(b) in the case of transactions for the purchase or sale of securities, exposures incurred in the ordinary course of settlement during the five working days following payment or delivery ofthe securities, whichever is the earlier,
(c) in the case ofthe provision of money transmission including the execution of payment services, clearing and settlement in any currency and correspondent banking or financial instruments clearing, settlement and custody services to clients, delayed receipts in funding and other exposures arising from client a ct i v i ty which do not last longer than the following business day,
(d) in the case of the provision of money transmission including the execution of payment services, clearing and settlement in any currency and correspondent banking, intra~day exposures to institutions providing those services,
\e) exposures deducted from CET 1 ite m s or /Ad d iti o n a I Tier 1 items in accordance with Art i cles 36 and 56 or any other deduction from those items that reduces the solvency ratio disclosed in accordance to Artie,e 437.
To determine the overall exposure to a client or a group of connected clients, in respect of clients to which the institution has exposures through transactions referred to in points (m) and (o) of Art i cle 112 or through other transactions where there is an exposure to underlying assets, an institution shall assess its underlying exposures taking into account the economic substance ofthe structure ofthetransaction and the risks inherent in the structure of the transaction its elf, in order to determine whether it constitutes an additional exposure.
EBA shall develop dra ft regulatory technical standards to speci f y .
(a) the conditions and methodologies to be used to determine the overall exposure to a client or a group of connected clients for the types of exposures referred to in paragraph 7,
(b) the conditions under which the structure of the transactions referred to in paragraph 7 do not constitute an additional exposure.
E B A shall submit those dra ft regulatory technical standardsto the Commission by 1 January 2014.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.
EBA sh
all develop draft regulatory technical standards to specify, for the purpose of
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paragraph 5, how to determine the exposures arising from contracts referred to in Annex II and credit derivatives not directly entered into with a client but underlying a debt or equity instrument issued by that client for their inclusion into the exposures to the c I i e nt.
E B A shall submit those draftregulatorytechnical standards to the Commission by [9 months after entry into force].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.".
(92) In Artie,e 391 the following paragraph is added.
For the purposes of the first paragraph, the Commission may adopt, by way of implementing acts, a decision as to whether a third country applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Artie,e 464(2).".
(93) Artie,e 392 i s replaced by the following.
"Article 392 Definition of large exposure
\n institution s exposure to a client or a group of connected clients shall be considered a large xposure where its value is equal to or exceeds 10 9"0 of its Tier 1 capital. .
(94) Artie,e 394, s replaced by the following.
"/W/c/e 394
Reporting requirements
Institutions shall report to their competent authorities the following information for each large exposure that they hold, including large exposures exempted from the
application of Artie,e 395(1):
(a) the ide n t i ty of the client or the group of connected clients to which the institution has a large exposure,
(b) the exposure value before taking into account the effect of the credit risk mitigation, where applicable,
(c) where used, the ty pe of funded or unfunded credit protection,
(d) the exposure value, after taking into account the effect of the credit risk mitigation calculated forthe purposes of Artie,e 395(1) , where applicable.
Institutions subject to Part T hree, Title II, Cha pte r 3 shall report to their competent authorities their 20 ,a rgest exposures on a consolidated basis, excluding the exposures exempted from the application of Artie,e 395(1).
Institutions shall also reportto their competent authorities exposures of a value larger
than or equal to EUR 300 million but less than 10 % of the institution's Tier 1
c a p i ta I .
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In addition to the information referred to in paragraph 1, institutions shall reportthe following information to their competent authorities in relation to their rgest exposures on a consolidated basis to institutions and to shadow banking entities which carry out baking activities outside the regulated framework, including large exposures exempted from the application of Artiee 395(1):
(a) the ide n t i ty of the client or the group of connected clients to which an institution has a large exposure,
(b) the exposure value before taking into account the effect of the credit risk mitigation, where applicable,
(c) where used, the ty pe of funded or unfunded credit protection,
(d) the exposure value after taking into account the effect of the credit risk mitigation calculated forthe purposes of Artie,e 395(1) , where applicable.
The information referred to in paragraphs 1 and 2 shall be reported to competent authorities with the following frequency.
la) small institutions as defined in Artie,e 430a shall report on an annual basis,
(b) subjectto paragraph 4, other institutions shall report on a semiannual basis or more frequently.
EBA shall develop dra ft implementing technical standardsto specify the following.
(a) the uniform forma ts for the reporting referred to in paragraph 3 and the instructions for using those formats,
(b) the frequencies and dates of the reporting referred to in paragraph 3,
(c) the IT solutions to be applied forthe reporting referred to in paragraph 3.
The reporting requirements specified in the dra ft implementing technical standards shall be proportionate, having regard to the institutions size, complexity and the nature and level of risk of their activities.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first Paragraph in accordance with Art i cle 15 of Regulation (EU)
No 1093/2010.
EBA shall develop draft regulatory technical standards to specify the criteria for the identification of shadow banking entities referred to in paragraph 2.
In developing those dra ft regulatory technical standards, EBA shall take into account international developments and internationally agreed standards on shadow banking and shall consider whether.
(a) the relation with an individual or a group of entities may carry risks to the institution s solvency or liquidity position,
(b) entities that are subject to solvency or liquidi ty requirements similar to those imposed by this LJirective and Kegulation (EU) No 1093/2010 shall be entirely
196
or partially excluded from the reporting obligations referred to in paragraph 2 on shadow banking entities.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [one year after en try into force of the A mending Regulation].
Power is conferred on the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.".
Article 395 is amended as follows.
(a) Paragraph 1 is replaced by the following.
"1. A n institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Artie,es 399 to 403, to a client or group of connected clients the value of which exceeds 25 % of its Tier 1 capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25 % of the institution s Tier 1 ea p ita I or EUR 150 million, whichever is higher, provided that the sum of exposure values, after taking into account the effectofthe credit risk mitigation in accordance with Artie I es 399 to 403, to all connected clients that are not institutions does not exceed 25 % of the institution s Tier 1 ea p ita I .
w here the amount of EUR 150 million is higher than 25 % of the institution s Tier 1 capital, the value of the exposure, after having taken into account the effect of credit risk mitigation in accordance with Artie,es 399 to 403, shall not exceed a reasonable limit in terms ofthat institution s Tier 1 capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Arti c I e 81 of Directive 2013/36/EU, to address and control concentration risk. I hat limit shall not exceed 100 % of the institution s Tier 1 ea p ita I .
Competent authorities may set a lower limit than EUR 150 million and shall inform EBA and the Vvom mission thereof.
Dy way of derogation from the first subparagraph, an institution identified as G-SII in accordance with Article 131 of Directive 2013/36/EU shall not incur an exposure to another institution identified as G-SII the value of which, after taking into account the effect of the credit risk mitigation in accordance with Artie,es 399 to 403, exceeds 15 % of its Tier 1 capital. An institution shall comply with such limit no laterthan within 12 months after it is identified as G-SII.".
(b) Paragraph 5 is replaced by the following.
"5. T he limits laid down in this Article may be exceeded for the exposures on the institution s trading book where the following conditions are met.
(a) the exposure on the non~trading book to the client or group of connected clients in question does not exceed the limit laid down in paragraph 1, this limit being calculated with reference to Tier 1 ea pital, so that the excess arises entirely on thetrading book,
(b) the institution meets an additional own funds requirement on the part of the exposure in excess ofthe limit laid down in paragraph 1 which is calculated in
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accordance with Articles 397 and 398,
IcJ where 10 days or less have elapsed since the excess referred to in point (b) occurred, the trading~book exposure to the client or group of connected clients in question shall not exceed 500 % of the institution s Tier 1 ca p ita i ,
(d) any excesses that have persisted for more than 10 days shall not, in aggregate, exceed 600 % of the institutions Tier 1 ca p ita i .
Every time the limit has been exceeded, the institution shall report without delay to the competent authorities the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned. .
Article 396 is amended as follows.
(a) paragraph 1 is amended as follows.
(i) the first subparagraph is replaced by the following.
"W here the amount of EUR 150 million referred to in Article 395(1) is applicable, the competent authorities may allow on a case~by~case basis the 100 % limit in terms of the institutions Tier 1 ca pital to be exceeded.
\ \ \) the following subparagraph is added.
"W here a competent authori ty, in the exceptional cases referred to in the first and second subparagraph, allows an institution to exceed the limit set out in Art i c i e 395(1) for a period longer than O months, the institution shall present to the satisfaction of the competent authori ty a plan for a timely return to compliance with that limit and carry out that plan within the time period agreed with the competent authori ty. Competent authorities shall monitor the implementation of the plan and shall require a more speedy return to compliance if appropriate. .
(b) the following paragraph 3 is added.
"3. F orthe purposes of paragraph 1, EBA shall issue guidelines specifying.
(a) the exceptional cases in which the competent authori ty may allow the limit to be exceeded in accordance with paragraph 1,
(b) the time considered appropriate for returning to compliance,
(c) the measures to betaken by competent authorities to ensure the timely returnto compliance of the institution.
Those guidelines shall be adopted in accordance with Art i cle 16 of Regulation (EU)
No 1093/2010.".
I n Article 397, C olumn 1 of Table 1, the term eligible capital is replaced by the te r m Tier 1 ca p ita i .
Article 399 is amended as follows, (a) paragraph 1 is replaced by the following.
"1. A n institution shall use a credit risk mitigation technique in the calculation of an exposure where it has used this technique to calculate capital requirements for credit
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risk in accordance with Part T hree, Title II and provided it meets the conditions set out in this Artie,e.
For the purposes of Articles 400 to 403, the term guarantee shall include credit derivatives recognised under Part T hree, Title II, Chapter 4 other than credit linked n otes. ,
(b) in paragraph 2, the following subparagraph is added.
"W here an institution uses the standardised approach for credit risk mitigation purposes, point (a) of Artie,e 194(3) shall not apply for the purposes of this paragraph. .
(c) paragraph 3 is replaced by the following.
3. Credit risk mitigation techniques which are available only to institutions using one of the IRB ap proaches shall not be eligible to reduce exposure values for large exposure purposes, except for exposures secured by immovable properties in accordance with Artie,e 402.".
is amended as follows.
(99) Artie,e 400
(a) the first subparagraph of paragraph 1 is amended as follows.
(i) point (j ) is replaced by the following.
(j) trade exposures and default fund contributions to qualified central counterparties, .
(ii) the following point (l) is added.
(l) Holdings by resolution entities of the in st rumen ts and eligible own funds instruments referred to in point (g) of Artie, e 45(3) of D i re cti v e 2014/59/EU issued by other entities belonging to the same resolution group. .
(b) in paragraph 2, point (k) is deleted.
(c) in paragraph 3, the second subparagraph is replaced by the following.
"Competent authorities shall inform EBA of whether or notthey intend to use any of the exemptions provided for in paragraph 2 in accordance with points (a) and (b) of this paragraph and provide EBA with the reasons substantiating the use of those e x e m pti ons. .
(d) the following paragraph 4 is added.
4. The simultaneous application of more than one exemption set out in paragraphs 1 and 2 to the same exposure shall not be permitted.
(100) Artie,e 401 , s replaced by the following.
"Art,a,e 401
Iculating the effect of the use of credit risk mitigation techniques For calculating the value of exposures for the purposes of Art i cle 395(1) an
institution may use the fully adjusted exposure value (E*) as calculated under Part
Three, Title II, Chapter 4, taking into account the credit risk mitigation, volatility
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adjustments and any maturity mismatch referred to in Part Three, Title II, Chapter 4.
2. F or the purposes of the first paragraph, institutions shall use the Financial Uol lateral Co m prehensive M ethod, regardless of the method used for calculating own funds requirements of credit risk.
3. In calculating the value of exposures for the purposes of Article 395(1), institutions shall conduct periodic stress tests of their credit_risk concentrations, including in relation to the realisable value of any collateral taken.
These periodic stress tests referred to in the first subparagraph shall address risks arising from potential changes in market conditions that could adversely impact the institutions adequacy of own funds and risks arising from the realisation of collateral in stressed situations.
The stress tests carried out shall be adequate and appropriate for the assessment of th ose risks.
Institutions shall include the following in their strategies to address concentration risk.
(a) policies and procedures to address risks arising from maturi ty m is m atches between exposures and any credit protection on those exposures,
(b) policies and procedures relating to concentration risk arising from the application of credit risk mitigation techniques and in particular from large indirect credit exposures, for example to a single issuer of securities taken as coll atera I .
4. W here an institution reduces an exposure to a client due to an eligible credit risk mitigation technique in accordance with Article 399(1), it shall treat the part of the exposure by which the exposure to the client has been reduced as having been incurred to the protection provider rather than to the client. .
(101) In Article 403(1) , the first subparagraph is replaced by the following.
"W here an exposure to a client is guaranteed by a third party or secured by collateral issued by a third pa rty, an institution shall. .
(102) In Part S ix, the heading of Title I is replaced by the following.
" DEFINITIONS AND LIQUDITY REQUIREMENTS".
(103) Article 411 i s replaced by the following.
"Article 411
Der, n It I o ns
For the purposes of this Pa rt, the following definitions shall apply.
(1 ) financial customer means a customer, including financial customers belonging to non_f i nancial corporate groups, that performs one or more of the activities listed in Annex I to Directive 201 3/36/E U as its main business or is one of the following.
(a) a credit institution,
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bJ an investment firm,
c) a securitisati on special purpose vehicle
('SSPE');
d) a collective investment undertaking (CIU),
e) a non_open ended invest ment scheme,
f) an insurance undertaking,
g) a reinsurance undertaking,
h) a financial holding company or mixed"financial holding company,
i) a financial institution,
2) retail deposits means a liability to a natural person or to a small or medium~sized enterprise ('SME'), where the SME would qualify for the retail exposure class under the standardised or I RB app roaches for credit risk, or a liability to a company which is eligible for the treatment set out in Artie,e 153(4), and where the aggregate deposits by that SME or company on the basis of a group of connected clients as d ef i ned in point (39) of Artie,e 4(1) don ot exceed EUR 1 million,
(3) personal invest ment company (PIC) means an undertaking oratrustthe owner or beneficial owner of which is either a natural person or a group of closely related natural persons which was set up with the sole purpose of managing the wealth of the owners and which does not carry out any other commercial, industrial or professional a cti v i ty . I he purpose of the PIC may include other ancillary activities such as
segregating the owners' assets from corporate assets, facilitating the transmission of
assets within a family or preventing a split of the assets after the death of a member of the family, provided those activities are connected to the main purpose of
managing the owners' wealth;
(4) deposits broker means a natural person or an undertaking that places deposits from third parties, including retail deposits and corporate deposits but excluding deposits from financial institutions, with credit institutions in exchange of a fee,
(5) 'unencumbered assets' means assets which are not subject to any legal,
contractual, regulatory or other restriction preventing the institution from liquidating, selling, transferring, assigning or, generally, disposing of those assets via an active outright sale or a repurchase agreement,
(6) non~mandatory over~collateralisation means any amount of assets which the institution is not obliged to attach to a covered bond issuance by virtue of legal or regulatory requirements, contractual commitments or for reasons of market discipline, including in pa rticular where.
(a) the assets are provided in excess of the minimum legal, statutory or regulatory overcollateralisation requirement applicable to the covered bonds under the national law of a Member State or a third country,
(b) pursuantto the methodology of a nomina ted ECAI , the assets are not required for the covered bonds to maintain their current credit assessment,
(c) the assets are not required for material credit enhancement purposes,
(7) asset coverage requirement means the ratio of assets to liabilities as determined
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in accordance with the national law of a M ember State or a third country for credit enhancement purposes in relation to covered bonds,
(8) margin loans means col lateral ised loans extended to customers for the purpose of ta king leveraged trading positions,
(9) derivative contracts means the derivatives contracts listed in Annex II and credit derivatives,
(10) stress means a sudden or severe deterioration in the solvency or liquidity position of an institution due to changes in market conditions or idiosyncratic factors as a result of which there is a significant risk that the institution becomes unable to meet its commitments as they become due within the next 30 ca, endar days,
(11) 'Leve, 1 assets means assets of extremely high liquid i ty and credit quali ty a s referred to in the second subparagraph of Artiee 416(1);
(12) 'Leve, 2 assets means assets of high liquidi ty and credit quali ty as referred to in the second subparagraph of Article 416(1) of this Regulation. Level 2 assets are further subdivided into level 2A and 2B assets in accordance with Uhapter 2 or T itl e II of LJelegated Keg u I ati o n (EU) 2015/61;
(13) liquidi ty buffer means the amount of Level 1 and Level 2 assets that an institution holds in accordance with Title II of Delegated Regulation (EU) 2015/61;
(14) net liquidi ty outflows means the amount which results from deducting an institution s liquidity inflows from its liquidity outflows,
(15) reporting currency means the currency in which the liquidi ty items referred to in Titles II, III and IV of this fart shall be reported to the competent authorities in accordance with Article 415(1).".
(104) Article 412 is amended as follows.
(a) paragraph 2 is replaced by the following.
2. Institutions shall not count double liquidi ty outflows, liquidi ty inflows and liquid assets. .
(b) paragraph 4 is replaced by the following.
"4. T he provisions set out in Title II shall apply exclusively for the purposes of specifying reporting obligations set out in Article 415 for investment firms other than systemic invest ment firms. .
(c) the following new paragraph 4a is inserted.
"4a. T he delegated act referred to in Article 460 shall apply to credit institutions and systemic invest ment firms. .
(105) Article 413 I s replaced by the following.
"Art,a,e 413
Stable funding requirement
Institutions shall ensure that long term obligations are adequately met with a divers i ty of stable funding instruments under both normal and stressed conditions.
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2. T he provisions set out in Title III shall apply exclusively for the purpose of specifying reporting obligations set out in Article 415 for investment firms other than system ic investment firms and for all institutions until reporting obligations set out in Article 415 for the net stable funding ratio set out in Title IV have been specified and introduced in the Union.
3. T he provisions set out in Title IV shall apply for the purpose of specifying the stable funding requirement set out in paragraph 1 and reporting obligations set out in Article 415 for credit institutions and systemic investment firms.
4. M ember States may maintain or introduce national provisions in the area of stable funding requirements before binding minimum standards for the net stable funding requirements set out in paragraph 1 become applicable. .
(106) Article 414 i s replaced by the following.
"Article 414
Co m p I i a n ce wi th I i q u i d ity requirements
A n institution that does not meet, or expects not to meet, the requirements set out in Art i c I e 412 or in Article 413(1), including during times of stress, shall immediately notify the competent authorities thereof and shall submit without undue delay to the competent authorities a plan for the timely restoration of compliance with the requirements set out in Article 412 or Article 413(1), as app ropriate. Until compliance has been restored, the institution shall reportthe items referred to in Title II, III or IV, as app ropriate, daily by the end of each day unless the competent authority authorises a lower reporting frequency and a longer reporting delay. Competent authorities shall only grant those authorisations based on the individual situation of an institution and taking into account the scale and complexity of the institutions activities. Competent authorities shall monitor the implementation of the restoration plan and shall require a more speedy restoration if appropriate. .
(107) In Article 415, paragraphs 1, 2 and 3 are replaced by the following!
"1. C redit institutions and systemic investment firms shall report to the competent authorities the items referred to in Title IV in a single currency which shall be the currency of the M e m b e r State in which their head office is located, regardless of the actual denomination of those items. Until reporting obligation and reporting format for the net stable funding ratio set out in Title IV have been specified and introduced in the Union, credit institutions and systemic investment firms shall report to the competent authorities the items referred to in Title III in a single currency which shall be the currency of the M ember State in which their head off ice is located, regardless ofthe actual denomination ofthose items.
Investment firms other than systemic investment firms shall report to the competent authorities the items referred to in Titles II and III and in A nnex III and their components, including the composition of their liquid assets in accordance with Article 416, in a single currency which shall be the currency ofthe M ember State in which their head off ice is located, regardless of the actual denomination of those i te m s .
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The reporting frequency shall be at least on a monthly basis for items referred to in Title II and Annex III and at least on a quarterly basis for items referred to in Titles III and IV.
2. A n institution shall report separately to the competent authorities of the home K/lember State, in the reporting currency, the items referred to in Titles II, III, IV and i n A nnex III as appropriate denominated in the currencies determined in accordance with the following.
(a) where the institution has aggregate liabilities denominated in another currency than the reporting currency which amount to or exceed 5 % of the institution s or the single liquidity sub~group s total liabilities, excluding regulatory capital and off"balance sheet items,
(b) where the institution has a significant branch as referred to in Art i c I e 51 of Directive 201 3/36/EU in a h o st M ember State using another currency than the reporting currency ,
(c) in the reporting currency, where the aggregate amount of liabilities in other currencies than the reporting currency amounts to or exceeds 5% of the institutions or the single liquidi ty subgroups total liabilities, excluding regulatory capital and off"balance sheet items.
3. EBA shall develop dra ft implementing technical standards to specify the f o Mowing.
(a) reporting uniform forma ts and IT solutions with associated instructions for frequencies and reference and remittance dates. The reporting forma ts and frequencies shall be proportionate to the nature, scale and complexity of the different activities of the institutions and shall comprise the reporting required in accordance with paragraphs 1 and 2,
(b) additional liquidi ty monitoring metrics that are required to allow competent authorities to obtain a comprehensive view of the liquidi ty risk profile and which shall be proportionate to the nature, scale and complexi ty of an institution s activities.
EBA shall submit to the Vvom mission those dra ft implementing technical standards for the items specified in point (a) by [one year after the entry into force of the amending Regulation] and for the items specified in point (b) by 1 J a n u a ry 2014.
Until the full introduction of binding liquidi ty requirements, competent authorities may continue to collect information through monitoring tools for the purpose of monitoring compliance with existing national liquidi ty standards.
Power is conferred on the Commission to adoptthe implementing technical standards referred to in the first subparagraph in accordance with Art i cle 15 of Regulation (EU)
No 1093/2010.".
(108) Artic,e416is amended as follows.
(a) paragraph 3 is replaced by the following.
3. In accordance with paragraph 1, institutions shall report assets that fulfil the following conditions as liquid assets.
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y&J they are unencumbered or stand available within collateral pools to be used for obtaining additional funding under committed but not yet funded credit lines available to the institution,
(b) they are not issued by the institution its elf or its parent or subsidiary institutions or another subsidiary of its parent institutions or parent financial holding company,
(c) their price is generally agreed upon by markets participants and can easily be observed in the market or their price can be determined by a formula that is easy to calculate based on publicly available inputs and does not depend on strong assumptions as is ty pically the case for structured or exotic products,
(d) they are listed on a recognised exchange or they are tradable on an active outright sale or via a simple repurchase agreement on repurchase markets. Those criteria shall be assessed separately for each market.
The conditions referred to in points (c) and (d) of the first subparagraph shall not apply to the assets referred to in point (e) of paragraph 1. .
(b) paragraphs 5 and 6 are replaced by the following.
"5. S hares or units in ClUs may be treated as liquid assets up to an absolute amount of EUR 500 million in the po rtf o Mo of liquid assets of each institution provided that the requirements in Artie,e 132(3) are met and that the CIU, an art from derivatives to mitigate interest rate or credit or currency risk, only inve sts in liquid assets as referred to in paragraph I of this Artie,e.
The use or potential use by a CIU of derivative in st rumen ts to hedge risks of permitted inve st men ts shall not prevent that CIU from being eligible. W here the value of the shares or units of the CIU is not regularly marked to market by the third parties referred to in points (a) and (b) of Artie,e 418(4) and the competent authority is not satisfied that an institution has developed robust methodologies and processes for such valuation as referred to in the first sentence of Artie,e 418(4), shares or units in th at CIU shall not be treated as liquid assets.
(e) 6. W here a liquid asset ceases to be eligible in the stock of liquid assets, an institution may nevertheless continue to consider it a liquid asset for an additional period of 30 ea, endar days. W here a liquid asset in a CIU eea ses to be eligible for the treatment set out in paragraph 5, the shares or units in the CIU may nevertheless be considered a liquid asset for an additional period of 30 days provided that those assets do not exceed 10 % of the CIU' s overall assets. .
(d) paragraph 7 is deleted.
(109) Artie,e 419,s amended as follows.
(a) paragraph 2 is replaced by the following.
"2. W here thejustified needs for liquid assets in light of the requirement in Artie,e 412 are exceeding the availability of those liquid assets in a currency, one or more of the following derogations shall apply.
\&) by way of derogation from point (f) of Article 417, the denomination ofthe liquid assets may be inconsistent with the distribution by currency of liquidi ty o u tf I o ws
205
after the deduction of inflows,
(b) for currencies of a Member State or third countries, required liquid assets may be substituted by credit lines from the central bank of that M ember State or third country, which are contractually irrevocably comm i tte d for the next 30 days and are fairly priced, independent of the amount currently drawn, provided that the competent authorities of that M ember State or third country do the same and provided that M ember State or third country has comparable reporting requirements in place,
(c) where there is a deficit of Level 1 assets, additional Level 2A assets may be held by the institution and any cap applicable to those assets in accordance with Art i c I e 1 7 of LJelegated Keg u I ati o n (EU) 2015/61 may be amended. .
(b) paragraph 5 is replaced by the following.
"5. EBA shall develop draft regulatory technical standards to specify the derogations referred to in paragraph 2, including the conditions of their application.
EBA shall submit those dra ft regulatory technical standards to the Uom mission by [six months afterthe entry into force of the amending Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Art i cles 10 to 14 of Regulation (EU) No 1093/2010.".
(110) Artic,e 422is amended as follows.
(a) paragraph 4 is replaced by the following.
"4. Clear ing, custody, cash management or other comparable services referred to in points (a) and (d) of paragraph 3 shall only cover those services to the extent that those services are rendered in the context of an established relationship on which the depositor has substantial dependency. Those services shall not merely consist of correspondent banking or prime brokerage services and institutions shall have evidence that the client is unable to withdraw amounts legally due over a 30 "day horizon without compromising its operational functioning.
Pending a uniform definition of an established operational relationship as referred to in point (c) of paragraph 3, institutions shall themselves establish the criteria to identify an established operational relationship for which they have evidence that the client is unable to withdraw amounts legally due over a 30"day horizon without compromising its operational functioning and shall report those criteria to the competent authorities. Competent authorities may, in the absence of a uniform definition, provide general guidance that institutions shall follow in identifying deposits maintained by the depositor in a context of an established operational relationship. .
(b) paragraph 8 is replaced by the following.
8. Competent authorities may grant the permission to apply a lower outflow percentage on a case~by~case basis, to the liabilities referred to in paragraph 7, when all of the following conditions are fulfilled.
(a) the counterpa rty i s .
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(i) a parent or subsidiary institution of the institution or another subsidiary of the same parent institution,
(ii) linked to the institution by a relationship within the meaning of
Artiee 12(1) or Directive 83/349/EEC;
(iii) an institution falling within the same institutional protection scheme meeting the requirements of Artie,e 113(7);
(iv) the central institution or a member of a n etw ork compliant with
Artie,e 400 (2)(c);
(b) there are reasons to expect a lower outflow over the next 30 days even under a combined idiosyncratic and market" wide stress scenario,
(c) a corresponding symmetric or more conservative inflow is applied by the counterparty by way of derogation from Artie,e 425;
(d) the institution and the counterpa rty are established in the same M ember State. .
(111) In Artie,e 423, paragraphs 2 and 3 are replaced by the following.
"2. A n institution shall notify to the competent authorities all contracts entered into of which the contractual conditions lead, within 30 days following a material deterioration of its credit quali ty, to I i q u i d i ty outflows or additional collateral needs. W here the competent authorities consider those contracts material in relation to the potential liquidity outflows of the institution, they shall require the institution to add an additional outflow for those contracts which shall correspond to the additional collateral needs resulting from a ma te rial deterioration in its credit quali ty, such as a downgrade in its external credit assessment by three notches. The institution shall regularly review the extent of this material deterioration in light of what is relevant under the contracts it has entered into and shall noti f y the result of its review to the competent authorities.
3. T he institution shall add an additional outflow which shall correspond to collateral needs that would result from the impact of an adverse market scenario on its derivatives transactions if material.
EBA shall develop dra ft regulatory technical standards specifying under which conditions the notion of materiality may be applied and specifying methods for the measurement of the additional outflow.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [six months a ft e r the entry into force of the amending Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with r\ rt i c I e s 10 to 14 of Regulation (EU) No 1093/2010.".
(112) In Artie,e 424, paragraph H is replaced by the following.
"4. T he committed amount of a liquidi ty f a c i I i ty that has been provided to an SSPE for the purpose of enabling that SSPE to purchase assets, other than securities, from
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clients that are not financial customers shall be multiplied by 10 % to the extent that the committed amount exceeds the amount of assets currently purchased from clients and that the maximum amount that can be drawn is contractually limited to the amount of assets currently purchased. .
(113) In Artie,e 425(2), point (c) is replaced by the following.
loans with an undefined contractual end date shall be taken into account with a 70 inflow, provided that the contract allows the institution to withdraw and request payment within 30 days, .
20 0/~
(114) In Part S ix, the following new Title IV is i n se rte d afte r Article 428
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"TITLE IV THE NET STABLE FUNDING RATIO
Contents
CHAPTER 1 - The n et sta ble funding ratio
Article 428a Application on a consolidated basis
Vhere the net stable funding ratio set out in this Title applies on a consolidated basis in ccordance with Article 11(4) , the f o Mowing shall apply.
a) required stable funding factors in a subsidiary having its head off ice situated in a third country which are subjectto higher percentagesthan those specified in Chapter 4 of this Title under the national law of that third country setting out the net stable funding requirement shall be subject to consolidation in accordance with the higher rates specified in the national law of thatthird country,
b) available stable funding factors in a subsidiary having its head off ice situated in a third country which are subject to lower percentages than those specified in Chapter 3 of this Title under the national law of that third country setting out the net stable funding requirement shall be subject to consolidation in accordance with the lower rates specified in the national law of thatthird country,
c) third country assets which meet the requirements laid down in Title II of Delegated Regulation (EU) 2015/61 and which are held by a subsidiary having its head off ice situated in a third country shall not be recognized as liquid assets for consolidated purposes where they do not quali f y as liquid assets under the national law of that third country setting out the liquidity coverage requirement,
d) investment firms other than systemic investment firms within the group shall be s u bj e ct to Article 428 b on a consolidated basis and to Article 413 for both individual and consolidated purposes. Except than as specified in this point, investment firms other than systemic investment firms shall remain subject to the detailed net stable funding requirement for investment firms as laid down in the national law of M ember States.
Article 428b net stable funding ratio
The detailed net stable funding requirement laid down in Art i cle 413(1) shall be equal to the ratio of an institution s available stable funding as referred to in Chapter 3 of this Title to the institution s required stable funding as referred to in Chapter 4 of this Title over a one year period and shall be expressed as a percentage. Institutions shall calculate their net stable funding ratio in accordance with the following formula.
Available Stable Funding
---—---= Net Stable Funding Ratio (%)
Required Stable Funding
I nstitutions shal I maintain a netstable funding ratio of at lea st 100%.
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w here at any time the net stable funding ratio of an institution has fallen or can be reasonably expected to fall below 100%, the requirement laid down in Article 414 shall apply. The institution shall aim at restoring its net stable funding ratio to the level referred to in paragraph 2. C ompetent authorities shall assess the reasons for non_compliance with the level referred to in paragraph 2 before taking, where appropriate, any supervisory measures.
Institutions shall calculate and monitor their net stable funding ratio in the reporting currency for all their transactions, irrespective of their actual currency denomination, and separately for their transactions denominated in each of the currencies subjectto separate reporting in accordance with Artie,e 415(2).
Institutions shall ensure that the currency denomination of their liabilities is consistent with the distribution by currency of their assets. W here appropriate, competent authorities may require institutions to restrict currency mismatch by setting limits on the proportion of required stable funding in a particular currency that can be met by available stable funding that is not denominated in that currency. That restriction may only be applied for a currency that is subject to separate reporting in accordance with Artie,e 415(2).
In determining the level of any restriction on currency mismatch that may be applied in accordance with this Artie,e, competent authorities shall at least consider.
(a) whether the institution has the ability to transfer available stable funding from one currency to another and across Jurisdictions and legal entities within its group and to swap currencies and raise funds in foreign currency markets during the one~year horizon of the netstable funding ratio,
(b) the impact of adverse exchange rate movements on existing mismatched positions and on the effectiveness of any foreign currency exchange hedges in place.
A ny restriction on currency mismatch imposed in accordance with this Art i c I e shall constitute a specific liquidity requirement as referred to in Article 105 of D i re cti v e
2013/36/EU.
CHAPTER 2 - eneral rules of calculation ofthe net stable funding ratio
Article 428c Iculation ofthe net stable funding ratio
Unless specified otherwise in this Title, institutions shall take into account assets, liabilities and off"balance sheet items on a gross basis.
For the purpose of calculating their net stable funding ratio, institutions shall apply
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the appropriate stable funding factors set out in Chapters 3 and 4 of this Title to the accounting value of their assets, liabilities and off "balance sheet items, unless specified otherwise in this Title.
Institutions shall not count double required stable funding and available stable funding.
Article 428d Derivatives co ntr a cts
Institutions shall apply the provisions of this Art i cle to calculate the amount of required stable funding for derivatives contracts as referred to in Chapter 4 of this Title.
Dy way of derogation from Artie,e 428c(1), institutions shall take into account the accounting value of derivative positions on a net basis where those positions are included in the same netting set that fulfils the requirements set out in Articles 295, 296 and 297. W here that is not the case, institutions shall take into account the accounting value of derivative positions on a gross basis and they shall treat those derivatives positions as their own netting set for the purpose of Chapter 4 of this Title.
For the purpose of this Title, the market value of a netting set means the sum of the market values of all the transactions included in a netting set.
All derivative contracts referred to in points (a) to (e) of paragraph 2 of A n n e x II that involve a full exchange of principal amounts on the same date shall be calculated on a net basis across currencies, including for the purpose of reporting in a currency that is subjectto a separate reporting in accordance with Artie,e 415(2), even where those transactions are not included in the same netting set that fulfils the requirements set out in Artie,es 295, 296 and 297.
Cash received as collateral to mitigate the exposure of a derivative position shall be treated as such and shall not be treated as deposits to which Chapter 3 of this Title a p p I i e s.
Competent authorities may decide, with the approval of the relevant central bank, to waive the impact of derivatives contracts on the calculation of the netstable funding ratio, including through the determination of required stable funding factors and of provisions and losses, where all of the following conditions are fulfilled.
(a) those contracts have a residual maturity of less than six months,
(b) the counterparty is the ECB or the central bank of a l\/l ember State,
\c) the derivatives contracts serve the monetary policy of the ECB or the central bank of a IVI e m ber State.
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w here a subsidiary having its head off ice in a third country benefits from the waiver referred to in the first subparagraph under the national law of that third country which sets out the net stable funding requirement, that waiver as specified in the national law of the third country shall be taken into account for consolidation purposes. The subsidiary in a third country shall otherwise not benefit from this waiver.
Article 428e
Netting of secured lending transactions and capital m a r ket~ d r I ve n transactions
Dy way of derogation from Artie,e 428c(1), assets and liabilities resulting from secured lending transactions and capital market~driven transactions as defined in Artie,e 192(2) and (3) with a single counterpa rty shall be calculated on a net basis,
provided that those assets and liabilities respect the netting conditions set out in Artie,e 429b(4).
Article 428f Interdependent assets and liabilities
Subjectto priorapproval of competent authorities, an institution may considerthatan asset and a liability are interdependent, provided that all of the following conditions are fulfilled.
the institution acts solely as a pass_through unitto channel the funding from the liability into the corresponding interdependent asset,
' the individual interdependent assets and liabilities are clearly identifiable and have the same principal amount,
the asset and interdependent liabili ty have substantially matched maturities with a maximum delay of 20 days b etw een the maturi ty of the asset and the m atu rity of th e I i a b i I ity ,
' the interdependent liabili ty is requested pursuant to a legal, regulatory or contractual commitment and is not used to fund other assets,
the principal payment flows from the asset are not used for other purposes than repaying the interdependent liability,
the counterparties for each pair of interdependent assets and liabilities are not the same.
Assets and liabilities directly linked to the following products or services shall be considered to meet the conditions of paragraph 1 and be considered as interdependent .
(a) centralised regulated savings, where institutions are legally required to transfer regulated deposits to a centralised fund which is set up and controlled by the central government of a M ember State and which provides loans to promote public interest objectives, provided that the transfer of deposits to the centralised fund occurs on at least a monthly basis,
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yb) promotional loans and credit and liquidity facilities that fulfil the criteria set out in Artie,e 31(9) of De, egated Kegulation (EU) 2015/61 for institutions acting as simple intermediariesthatdo notsupportany funding risk,
IcJ covered bonds as referred to in Artie,e 52(4) of D i re cti v e 2009/65/EC;
(d) covered bonds that meet the eligibility requirements for the treatment set out in Article 129(4) or (5), as app ropriate, where the underlying loans are fully matched funded with the covered bonds issued or where there exists non-discretionary extendable maturity triggers on the covered bonds of one year or more until the term of the underlying loans in the event of refinancing failure at the maturity date of the covered bond ,
(e) derivatives client clearing activities, provided that the institution does not guarantee the performance of the CCP to its clients and, as a result, does not incur any funding risk.
Article 428g
Deposits in institutional protection schemes and cooperative networks
W here an institution belongs to an institutional protection scheme of the ty pe referred to in Artie,e 113(7), to a network that is eligible for the waiver provided for in Article 10 or to a cooperative n etw o r k in a M ember State, the sight deposits that the institution maintains with the central institution and that are considered as liquid assets for the depositing institution in accordance with Article 16 of Regulation (EU) 2015/61 shall be subject to the following requirements.
(a) the appropriate required stable funding factor to be applied under Section 2 of Chapter 4 of this Title for the depositing institution, depending on the treatment of those sight deposits as Level 1, Level 2 A or Level 2 B assets in accordance with Article 16 of Delegated Regulation (EU) 2015/61 and on the relevant haircut applied to those sight deposits for the calculation of the liquidity coverage ratio,
(b) a symmetric available stable funding factor for the central institution receiving the deposit.
Article 428h
Preferential treatment within a group or an institutional protection scheme
1. By way of derogation from Article 428 g and from Chapters 3 and 4 of this Title,
competent authorities may on a case~by~case basis authorise institutions to apply a higher available stable funding factor or a lower required stable funding factor to assets, liabilities and committed credit or liquidi ty facilities where all of the following conditions are fulfilled, (a) the counterpa rty is one of the following.
(i) the parent or a subsidiary of the institution,
(ii) another subsidiary of the same parent,
l^iiij linked to the institution by a relationship within the meaning of Article
12(1) or Directive 83/349/EEC;
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C v J a member of the same institutional protection scheme referred to in Artie,e 113(7) of this Ixegulation as the institution,
(v) the central institution or an affiliate of a network or a cooperative group as referred to in Article 10 of this Regulation,
(b) there are reasons to expect that the liability or committed credit or liquidity f a c i I i ty received constitutes a more stable source of funding or that the asset or committed credit or liquidi ty facility granted requires less stable funding within the one~year horizon of the netstable funding ratio than the same liabili ty, a ss et or c o m m i tte d credit or liquidi ty f a c i I i ty with other counterparties,
(c) the counterpa rty applies a higher required stable funding factor symmetric to the higher available stable funding factor or a lower available stable funding factor symmetric to the lower required stable funding factor,
(d) the institution and the counterpa rty are established in the same M ember State.
2. W here the institution and the counterpa rty are established in different M ember
States, competent authorities may waive the condition set out in point (d) of paragraph 1 where, in addition to the criteria set out in paragraph 1, the following criteria are fulfilled.
(a) there are legally binding agreements and commitments b etw een group entities regarding the liabili ty , asset or committed credit or liquidi ty f a c i I i ty ,
(b) the funding provider presents a low funding risk profile,
(c) the funding risk profile of the funding receiver has been adequately taken into account in the liquidi ty risk management of the funding provider.
The competent authorities shall consult each other in accordance with point (b) of Artie,e 20(1) to determine whetherthe additional criteria set out in this paragraph are m et.
CHAPTER 3 - A v ailable stable funding
SECTION 1
General provisions
Article 428i
Iculation of the amount of available stable funding
Unless specified otherwise in this Chapter, the amount of available stable funding shall be calculated by multiplying the accounting value of various categories or types of liabilities and regulatory capital by the appropriate available stable funding factors to be applied under Section 2. The total amount of available sta ble funding shall be the sum of the weighted amounts of liabilities and regul a to r y capital.
Article 428j
Res I dual ma tur ity of a 11 a b 11 ity or reg u I a to ry ca p ita I
Unless specified otherwise in this Ch
less specified otherwise in this Chapter, institutions shall take into account the
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residual contractual maturity of their liabilities and regulatory capital to determine the appropriate available stable funding factors to be applied under Section 2 of this C h a pte r.
i nstitutions shall take into account existing options to determine the residual maturi ty of a i i a b i i i ty or of regulatory capital. They shall do so on the assumption that investors will redeem a call option at the earliest possible date. For options exercisable at the discretion of the institution, the institution and the competent
authorities shall take into account reputational factors that may limit the institution's
a b i i i ty not to exercise the option, considering in particular market expectations that institutions should redeem certain liabilities before their maturi ty.
To determine the available stable funding factors to be applied under Section 2 of this Chapter, institutions shall treat any portion of liabilities having a residual m at u r i ty of one year or more that matures in less than six months or b etw een six months and less than one year as having a residual maturity of less than six months and b etw een six months and less than one year respectively.
Section 2 Available stable funding factors
Article 428k 0% available stable funding factor
Unless otherwise specified in Articles 4281 to 428 o, all liabilities without a stated m at u r i ty, including short positions and open maturi ty positions, shall be subjectto a 0% available stable funding factor with the exception of the following.
(a) deferred tax liabilities, which shall be treated in accordance with the nearest possible date on which such liabilities could be realised,
(b) m i n o r i ty interests, which shall be treated in accordance with the term of the i n str u ment.
Deferred tax liabilities and minor i ty interests shall be subjectto one of the following fa cto rs.
( i) 0%, where the effective residual maturi ty of the deferred tax liabili ty o r m i n o r i ty interest is less than six months,
(m) 50%, where the effective residual maturi ty of the deferred tax liabili ty or m i n o r i ty interest is of minimum six months and less than one year,
(mi) 100%, where the effective residual maturi ty of the deferred tax liabili ty or minority interest is one year or more.
The following i i a b i i iti es s h a i i be subject to a 0% available stable funding factor.
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y&) trade date payables arising from purchases of financial in st rumen ts, foreign currencies and commodities that are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type oftransactions or that have failed to, but are still expected to, settle,
(b) liabilities that are categorised as interdependent with assets in accordance with
Articie 428f;
(c) liabilities with a residual maturity of less than six months provided by.
(i) the ECB or the central bank of a \\A ember State,
(ii) the central bank of a third country,
(iii) financial customers,
(d) any other liabilities and capital items or instruments not referred to in Artie I es
428, to 428e.
3. Institutions shall apply a 0% available stable funding factor to the absolute value of
the difference, if negative, b etw een the sum of market values across all netting sets with positive market value and the sum of market values across all netting sets with negative market value calculated in accordance with Artie,e 428 d of this Kegulation, The following rules shall apply to the calculation referred to in the first subparagraph.
(a) variation margins received by institutions from their counterparties shall be deducted from the market value of a netting set with positive market value where the collateral received as variation margins qualifies as Level 1 assets under Title II of Delegated Regulation (EU) 2015/61, excluding extremely high q u a I i ty covered bonds referred to in point (f) of Artie, e 10(1) of Del e g ate d Regulation (EU) 201 5/61 , and that institutions are legally entitled and operationally able to reuse,
(b) all variation margin posted by institutions to their counterparties shall be deducted from the market value of a netting set with negative market value.
Article 428i 50% available stable funding factor
Dy way of derogation from Artie,e 428 k, the following liabilities shall be subjectto a 50% available stable funding factor.
(a) deposits received that fulfil the criteria for operational deposits set out in Arti c I e 27
of LJelegated Keg u I ati o n (EU) 2015/61;
(b) liabilities with a residual maturity of less than one year provided by.
(i) the central government of a M ember State or a third country,
(ii) regional governments or local authorities of a M ember State or a third c o u ntry,
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(iii) public sector entities in a Member State or a third country,
(iv) multilateral development banks referred to in Artie,e 117(2) and international organisations referred to in Article 118,
(v) credit institutions as referred to in point (e) of Artie,e 10(1) Of Delegated Regulation (EU) 201 5/61 ',
(vi) non_f i nancial corpora te customers,
(vii) credit unions authorised by a competent authori ty, personal investment companies and clients that are deposit brokers to the extent that those liabilities do notfall under point (a),
liabilities with a residual contractual maturity of minimum six months and less than one year provided by.
(i) the ECB or the central bank of a \\A ember State,
the central bank of a third country,
financial customers,
yd) any other liabilities with a residual maturi ty of minimum six months and less than
one year not referred to in Articles 428m to 428 o.
Article 428m 90% available stable funding factor
Dy way of derogation from Artie,e 428 k, sight retail deposits and term retail deposits having a residual maturity of less than one year that fulfil the criteria set out in Article 25 of Delegated Regulation (EU) 2015/61 shall be subjectto a 90% available stable funding factor.
Article 428n 95%) available stable funding factor
Dy way of derogation from Article 428 k, sight retail deposits and term retail deposits having a residual maturi ty of less than one year that fulfil the criteria set out in Artie,e 24 of De, e g ate d Regulation (EU) 2015/61 shall be subjectto a 95% available stable funding factor.
Article 428o 100%) available stable funding factor
Dy way of derogation from Artie,e 428 k, the following liabilities and capital items and instruments shall be subjectto a 100% available stable funding factor.
thevvommon Lqui ty Tier 1 items of the institution before the adjustments required pursuant to Art i cles 32 to 35, the deductions pursuant to Art i cle 36 and the application of the exemptions and alternatives laid down in Artieies 48, 49 and 79;
(b) the Additional Tier 1 items of the institution before the deduction of the items
referre d to i n Article 56 and before Article 79 has been applied thereto^
IcJ the Tier 2 items of the institution before the deductions referred to in Article 66 and
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before the application of Art i cle 79, having a residual maturi ty of one year or more, excluding any instruments with explicit or embedded options that, if exercised, would reduce the expected maturi ty to less than one year,
any other capital instruments of the institution with a residual maturity of one year or more, excluding any instruments with explicit or embedded options that, if exercised, would reduce the expected maturi ty to less than one year,
any other secured and unsecured borrowings and liabilities with a residual maturi ty of one year or more, including term deposits, unless otherwise specified in Art i c I es
428k to 428n.
CHAPTER 4 - Required stable funding
SECTION 1
General provisions
Article 428p
Iculation of the amount of required stable funding
Unless specified otherwise in this Chapter, the amount of required stable funding shall be calculated by multiplying the accounting value of various categories or ty pes of assets and off 'balance sheet items by the appropriate required stable funding factors to be applied in accordance with Jection 2. T he total amount of required stable funding shall be the sum of the weighted amounts of assets and off 'balance s h e et i te m s .
Assets that institutions have borrowed, including in secured lending transactions and capital market"driven transactions as defined in Artie,e 192(2) and (3), that are accounted for in their balance sheet and on which they do not have beneficial ownership shall be excluded from the calculation of the amount of required stable funding.
Assets that institutions have lent, including in secured lending transactions and capital market driven transactions, that remain on their balance sheet and over which they retain beneficial ownership, shall be considered as encumbered assets for the purposes of this Chapter and shall be subject to appropriate required stable funding factors to be applied under Jection L. of this Chapter, Oth erwise, these assets shall be excluded from the calculation of the amount of required stable funding. The following assets shall be considered to be unencumbered.
(a) assets included in a pool which are available for immediate use as collateral to obtain additional funding under committed or, where the pool is operated by a central bank, uncommitted but not yet funded credit lines available to the institution. Those assets shall include assets placed by a credit institution with the central institution in a cooperative n etw ork or institutional protection
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scheme. Institutions shall assume that assets in the pool are encumbered in order of increasing liquidity on the basis of the liquidity classification set out in Chapter 2 of Del egated Kegulation (EU) 2015/61 , starting with assets ineligible for the liquidi ty b u f f e r,
(b) assets that the institution has received as collateral for credit risk mitigation purposes in secured lending, secured funding or collateral exchange transactions and thatthe institution may dispose of,
(c) assets a tt ached as non -mandatory overcollateralisation to a covered bond i ss u a n c e .
Institutions shall exclude assets associated with collateral recognised as variation margins posted in accordance with point (b) of Art i cles 428 k (3) and 428ag(3) or as initial margins posted or as contributions to the default fund of a CCP in accordance with points (a) and (b) of Artie,e 428 affrom other pa rts of calculation of the amount of required stable funding in accordance with this Chapter in order to avoid any double_counti ng.
Institutions shall include in the calculation of the amount of required stable funding financial instruments, foreign currencies and commodities for which a purchase order has been executed. They shall exclude from the calculation of the amount of required stable funding financial instruments, foreign currencies and commodities for which a sale order has been executed, provided that those transactions are not reflected as derivatives or secured funding transactions in the institutions balance sheet and that these transactions will be reflected in the institutions balance sheet when sett led. Competent authorities may determine required stable funding factors to be applied to off" balance sheet exposures that are not referred to in this Chapter to ensure that institutions hold an appropriate amount of available stable funding for the portion of those exposures that are expected to require funding within the one_year horizon of the net stable funding ratio. To determine those factors, competent authorities shall in particulartake into account material reputational damage for the institution that could resultfrom not providing thatfunding.
Competent authorities shall report to EBA the ty pes of off "balance sheet exposures for which they have determined required stable funding factors at least once a year. They shall include in that report an explanation of the methodology applied to determine those factors.
Article 428q Re si dual m atu r ity of a n a sset
Unless otherwise specified in this Chapter, institutions shall take into account the residual contractual maturi ty of their assets and off "balance sheet transactions when determining the appropriate required stable funding factors to be applied to their
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assets and off" balance sheet items under Section 2 of this Chapter.
For assets that are encumbered, the maturity used to determine the appropriate required stable funding factors to be applied under Section 2 of this Chapter shall be either the residual maturity of the asset or the maturity of the transaction being the source of encumbrance, whichever is the longest. An asset that has less than six months remaining in the encumbrance period shall be subject to the required stable funding factor to be applied under Section 2 of this Chapter to the same asset held unencu m bered.
Where an institution re ~ u s es or re~pledges an asset that was borrowed, including in secured lending transactions and capital market"driven transactions as defined in Artie,e 192(2) and (3), and that is accounted for off balance sheet, the residual maturity of the transaction through which that asset has been borrowed and which is used to determine the required stable funding factor to be applied under Section 2 of this Chapter, shall be the residual maturity of the transaction through which the asset is re~used or re~pledged.
Institutions shall treat assets that have been segregated in accordance with Artie,e 11(3) of R e g u I at i o n (EU) No 648/2012 in accordance with their underlying exposure. Institutions shall however subject those assets to higher required stable funding factors depending on the term of encumbrance to be determined by competent authorities, who shall consider whether the institution can freely dispose or exchange
such assets and the term of the liabilities to the institutions' customers that generate
this segregation requirement.
W hen calculating the residual maturity of an asset, institutions shall take options into account, based on the assumption that the issuer will exercise any option to extend m at u r i ty. For options exercisable at the discretion of the institution, the institution and competent authorities shall take into account reputational factors that may limit
the institution's ability not to exercise the option, in particular considering markets' and clients' expectations that the institution should extend certain assets at their
m at u r i ty d ate .
For amortising loans with a residual con tr actual maturi ty of one year or more, the portion that matures in less than six months and b etw een six months and less than one year shall be treated as having a residual maturi ty of less than six months and between six months and less than one year respectively to determine the appropriate required stable funding factors to be applied in accordance with Section 2 of this C h a pte r.
SECTION 2
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Required Stable Funding Factors
Article 428r 0% required stable funding factor
The following assets shall be subject to a 0% required stable funding factor.
(a) unencumbered assets eligible as Level 1 high quality liquid assets in accordance with Article 10 of Delegated Regulation (EU) 2015/61, excluding extremely high quality covered bonds referred to in point (f) of Artie,e 10(1) Of that Delegated Regulation , regardless of their compliance with the operational requirements as set out in Artie,e 8 of that LJelegated Keg u I ati o n ,
(b) unencumbered shares or units in ClUs eligible for a 0% haircut for the calculation of the liquidi ty coverage ratio in accordance with point (a) of Artie,e 15(2) of De, egated Kegulation (EU) 2015/61, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidi ty buffer as set out in Artie I es 8 and 17 of that Delegated Regulation respectively,
IcJ all central bank reserves, held in the ECB or in the central bank of a M ember State or of a third country, including required reserves and excess reserves,
(d) all claims on the ECB , the central bank of a Member State or of a third country with a residual maturity of less than six months,
(e) trade date receivables arising from sales of financial in st rumen ts, foreign currencies and commodities that are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type oftransaction or that have failed to, but are still expected to, settle,
(f) assets that are categorised as interdependent with liabilities in accordance with Arti cle 428f.
By way of derogation from point (c) of paragraph 1 of this Artie,e, c o m p ete n t authorities may decide, with the agreement of the relevant central bank, to apply a higher required stable funding factor to required reserves, considering in particular the extent to which reserve requirements exist on a one~year horizon and therefore require associated stable funding.
For subsidiaries having their head off ice situated in a third country, where the required central bank reserves are subject to a higher required stable funding factor under the national law of that third country setting out the net stable funding requirement, this higher required stable funding factor shall betaken into account for consolidation purposes.
Article 428s
RO/
U/O required stable funding factor
he following assets and off "balance sheet items shall be subject to a 5% required stable u n d i n g fa cto r.
a J unencumbered shares or units in ClUs e, i g i b I e for a 5% haircut for the calculation of
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the I i q u i cl i ty coverage ratio in accordance with point (b) of Artie,e 15(2) of De, e g ate d Regulation (EU) 201 5/61 , regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Artie I es 8 and 17 of that LJelegated Keg u I ati o n ,
(b) assets that have a residual maturity of less than six months resulting from secured lending transactions and capital market"driven transactions as defined in Artie,e 192(2) and (3) with financial customers, where those assets are col lateral ised by assets that qualify as Level 1 assets under Title II of Delegated Regulation (EU) 2015/61, excluding extremely high quality covered bonds referred to in point yf) of Artie,e 10(1) of that LJelegated Keg u I ati o n , and where the institution would be legally entitled and operationally able to reuse those assets for the life of the transaction, regardless ofwhetherthe collateral has already been reused. Institutions shall take those assets into account on a net basis where Artie,e 428e(1) of this Regulation applies,
(c) the undrawn portion of irrevocable and conditionally revocable committed credit and I i q u i d i ty facilities as they referred to in Art i cle 31 (1 ) of Delegated Regulation (EU)
2015/61;
(d) trade finance off"balance sheet related products as referred to in Artie,e 111(1) of th i s Regulation with a residual maturi ty of less than six months.
Article 428t
70/
/ /O required stable funding factor
Unencumbered assets eligible as Level 1 extremely high quality covered bonds in accordance with point (f) of Artie,e 10(1) or De, egated Kegulation (EU) 2015/61 shall be subject to a 7 % required stable funding factor, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Artie I es 8 and 17 of that LJelegated Keg u I ati o n .
Article 428u 10% required stable funding factor
1. T he following assets and off" balance sheet items shall be subjectto a 10% required
stable funding factor.
(a) assets that have a residual maturi ty of less than six months resulting from secured lending transactions and capital market" driven transactions as defined in Article 192(2) and (3) with financial customers, other than those referred to in point (b) of Artie,e 428s. T hose assets shall be taken into account on a net basis where Artie,e 428e(1) appliesi
(b) assets that have a residual maturi ty of less than six months resulting from transactions with financial customers other than those referred to in point (b) of Artie,e 428s and in point (a) ofthis Article;
(c) trade finance on_balance sheet related products with a residual maturi ty of less than six months,
(d) trade finance off"balance sheet related products as referred to in Article 111(1) with a residual maturi ty of minimum six months and less than one year.
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2. F or all netting sets of derivative contracts that are not subject to margin agreements
under which institutions post variation margins to their counterparties, institutions shall apply a 10% required stable funding factorto the absolute market value of those netting sets of derivative contracts, gross of any collateral posted, where those netting sets have a negative market value.
Article 428v 12%) required stable funding factor
Unencumbered shares or units in CILJs el igible for a 1 2% haircut for the calculation of the I i q u i d i ty coverage ratio in accordance with point (c) of Artie,e 15(2) of De, egated Kegulation (EU) 2015/61 shall be subjectto a 1 2% required stable funding factor, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquid ity buffer as set out in Arti c I es 8 and 17 of that LJelegated Kegulation,
Article 428w 15%) required stable funding factor
The following assets and off-balance sheet items shall be subject to a 15% required stable funding factor.
(a) unencumbered assets eligible as Level 2 A assets in accordance Arti c I e 11 of Delegated Regulation (EU) 201 5/61 , regardless of their compliance with the operational requirements and with the requirements on the composition of the I i q u i d i ty buffer as set out in Arti cles8 and 17 of that Delegated Regulation,
(b) trade finance off_balance sheet related products as referred to in Artie,e 111(1) with a residual maturity of one year or more.
Article 428x 20%) required stable funding factor
1. U nencumbered shares or units in ClUs e, igible for a 20% haircut for the calculation of the liquidi ty coverage ratio in accordance with point (d) of Artie,e 15(2) of Delegated Regulation (EU) 2015/61 shall be subjectto a 20% required stable funding factor, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidi ty buffer as set out in Arti c I es 8 and 17 of that Delegated Regulation.
2. F or all netting sets of derivative contracts subjectto margin agreements under which institutions post variation margins to their counterparties, institutions shall apply a 20% required stable funding factor to the absolute market value of those netting sets of derivative contracts, gross of any collateral posted, where those netting sets have a negative market value.
3. A n institution may replace the stable funding requirement set out in paragraph L. for all netting sets of derivative contracts subject to margin agreements under which an institution posts variation margins to its counterpa rty with the amount of required
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stable funding calculated as the absolute amount of the difference b etw een.
(a) for all netting sets with negative market value, gross of collateral posted, and which are subject to a margin agreement under which the institution posts variation margin to its counterpa rty, the sum of all the risk category Ad don
calculated in accordance with Artiee 278(1);
\bJ for all netting sets with positive market value, gross of collateral received, and which are subject to a margin agreement under which the institution receives variation margin from its counterpa rty, the sum of all the risk category Addon calculated in accordance with Article 278(1).
For the purpose of this calculation and in order to determine the risk position of derivative contracts included in the netting sets referred to in the first subparagraph, institutions shall replace the maturity factor calculated in accordance with point (b) of Artie,e 279e(1) by either the maturi ty factor calculated in accordance with point (a) of A rticle 2 7 9 c (1 ) or by the value of 1.
4. I nstitutions that u s e t h e m et h o d s s et o u t i n Sections 4 o r 5 of C h a pte r 6 of T itl e II of
Part T hree to determine the exposure value of their derivative contracts shall not apply the stable funding requirement set out in paragraph L. of this Artie,e to n etti n g sets of derivative contracts subject to margin agreements under which institutions post variation margins to their counterparties and where those netting sets have a negative market value.
Article 428y 253/0 required stable funding factor
Unencumbered Level 2 B securitisations referred to in point (a) of Art i cle 13(14) of Delegated Regulation (EU) 2015/61 shall be subjectto a 25% required stable funding factor, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidi ty buffer as set out in Artie I es 8 and 17 of that LJelegated Regulation.
Article 428z 30% required stable funding factor
The following assets shall be subjectto a 30% required stable funding factor.
(a) unencumbered high quality covered bonds referred to in point (e) of Artie,e 12(1) of Delegated Regulation (EU) 2015/61, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Articles 8 and 17 of that LJelegated Ixegulation,
(b) unencumbered shares or units in ClUs e, i g i b I e f o r a 30% haircut for the calculation of the liquidi ty coverage ratio in accordance with point (e) of Artie,e 15(2) of Delegated Regulation (EU) 2015/61, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Articles 8 and 17 of that LJelegated Keg u I ati o n ,
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Article 428a a 35% required stable funding factor
The following assets shall be subject to a 35% required stable funding factor.
(a) unencumbered Level 2B s e c u r i t i sat i o n s referred to in point (b) of Artie,e 13(14) of Delegated Regulation (EU) 2015/61, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Articles 8 and 17 of that LJelegated Kegulation,
(b) unencumbered shares or units in ClUs e, i g i b I e f o r a 35% haircut for the calculation of the liquidity coverage ratio in application of point (f) of Article 15(2) of De, e g ate d Regulation (EU) 201 5/61 , regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Artie I es 8 and 17 of that LJelegated Keg u I ati o n ,
Article 428a b 40% required stable funding factor
Unencumbered shares or units in ClUs el i g i bIe for a 40% haircut for the calculation of the liquidi ty coverage ratio in application of point (g) of Artie, e 15(2) or De, egated Kegulation (EU) 2015/61 shall be subject to a 40% required stable funding factor, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in Articles 8 and 17 of that LJelegated Kegulation,
Article 428a c 50% required stable funding factor
The following assets shall be subject to a 50% required stable funding factor.
(a) unencumbered assets eligible as Level 2 B assets in accordance with Art i c I e 12 of Delegated Regulation (EU) 2015/61, excluding Level 2B se c u r i t i sat i o n s and high q u a I i ty covered bonds referred to in points (a) and (e) of Artie,e 12(1) of that Delegated Regulation, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquidi ty b u f f e r as set out in Artie I es 8 and 17 of that LJelegated Kegulation,
(b) deposits held by the institution at another financial institution that fulfil the criteria for operational deposits as set out in Arti cle 27 of Delegated Regulation (E U)
2015/61;
(c) assets with a residual maturity of less than one year resulting from transactions with.
(i) the central government of a M ember State or a third country,
(ii) regional governments or local authorities in a M ember State or a third c o u ntry,
(iii) public sector entities of a M ember State or a third country,
(iv) multilateral development banks referred to in Article 117(2) and international organisations referred to in Article 118,
(v) credit institutions referred to in point (e) of Article 10(1) or De, e g ate d Regu,at,on (EU) 2015/61;
non_f i nancial corporates, retail customers a
nd SME,
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l^viij credit unions authorised by a competent authority, personal investment companies and clients that are deposit brokers to the extent that those assets do not fall under point (b) of this paragraph,
assets with a residual maturi ty of minimum six months and less than one year resulting from transactions with .
(i) the E uropean Central Bank or the central bank of a M ember State,
(ii) the central bank of a third country,
(iii) financial customers,
trade finance on~balance sheet related products with a residual maturi ty of minimum six months and less than one year,
assets encumbered for a residual maturi ty of minimum six months and less than one year, except where those assets would be assigned a higher required stable funding factor in accordance with Articles 428ad to 428 ag of this Keg u I ati o n if they were held unencumbered, in which case the higher required stable funding factor to be applied to the unencumbered asset shall apply,
any other assets with a residual maturi ty of less than one year, unless otherwise specified in /Articles 428rto 428 ab of this Keg u I ati o n ,
Article 428a d required stable funding factor
55%
Unencumbered shares or units in CILJs el i g i bIe for a 55% haircut for the calculation of the I i q u i d i ty coverage ratio in accordance with point (h) of Article 15(2) of De, egated Kegulation (EU) 2015/61 shall be subject to a 55% required stable funding factor, regardless of their compliance with the operational requirements and with the requirements on the composition of the liquid ity buffer as set out in Arti c I es 8 and 17 of that LJelegated Keg u I ati o n ,
Article 428a e 65% required stable funding factor
The following assets shall be subject to a 65% required stable funding factor.
(a) unencumbered loans secured by mo rt gages on residential prope rty or unencumbered residential loans fully guaranteed by an eligible protection provider as referred to in point (e) of Article 129(1) with a residual maturity of one year or more, provided that those loans are assigned a risk weight of 35% or less in accordance with Uhapter L. of Title I I of Part T h re e,
(b) unencumbered loans with a residual maturi ty of one year or more, excluding loans to financial customers and loans referred to in Articles 428r to 428ac, provided that those loans are assigned a risk weight of 35% or less in accordance with Uhapter L. of Title I I of Part T h re e.
Article 428af 85% required stable funding factor
The following assets shall be subject to a 85% required stable funding factor.
(a) any assets, including cash, posted as initial margin for derivatives contracts, unless
those assets would be assigned a higher required stable funding factor in accordance
226
with Artie,e 428 ag if held unencumbered, in which case the higher required stable funding factor to be applied to the unencumbered asset shall apply,
any assets, including cash, posted as contribution to the default fund of a CCP, unless those would be assigned a higher required stable funding factor in accordance with Artie,e 428 ag if held unencumbered, in which case the higher required stable funding factorto be applied to the unencumbered asset shall apply,
unencumbered loans with a residual maturity of one year or more, excluding loans to financial customers and loans referred to in Artie,e 428rto 428ae, which are not past due for more than 90 days and which are assigned a risk weight of more than 35% i n accordance with Uhapter 2 or T itl e II of PartT h re e,
trade finance on~balance sheet related products, with a residual maturi ty of one year or more,
unencumbered securities with a residual maturity of one year or more that are not in default in accordance with Art i cle 178 and that are not eligible as liquid assets in accordance with Articles 10 to 13 of Delegated Regulation (EU) 2015/61;
(f) unencumbered exchange-traded equities that are not eligible as Level 2 B
accordance with Article 12 of Delegated Regulation (EU) 2015/61;
assets i n
physical traded commodities, including gold but excluding com modi ty derivatives.
Article 428a g 100% required stable funding factor
The following assets shall be subject to a 100% required stable funding factor.
(a) any assets encumbered for a residual maturity of one year or more,
(b) any assets other than those referred to in Artie,es 428rto 428 af, including loans to financial customers having a residual contractual maturi ty of one year or more, non~performing loans, items deducted from regulatory capital, fixed assets, non~exchange traded equities, retained interest, insurance assets, defaulted securities.
By the way of a derogation from point (a) of paragraph 1, assets that are encumbered for one year or more for nonstandard, temporary operations conducted by the ECB or the central bank of a Member State in order to achieve its mandate in a period of market"wide financial stress or exceptional macroeconomic challenges, may receive a reduced required stable funding factor.
Competent authorities shall determine, with the approval of the relevant central bank, the appropriate required stable funding factor to be applied to those encumbered assets, which shall not be lower than the required stable funding factor that would apply to those assets if they were held unencumbered under this Section.
Institutions shall apply a 100% required stable funding factor to the difference, if positive, b etw een the sum of market values across all netting sets with positive market value and the sum of market values across all netting sets with negative
227
market value calculated in accordance with Article 428d.
The following rules shall apply to the calculation referred to in the first subparagraph.
(a) variation margins received by institutions from their counterparties shall be deducted from the market value of a netting set with positive market value where the collateral received as variation margins qualifies as Level 1 assets in accordance with Title II of Delegated Regulation (EU) 2015/61, excluding extremely high quality covered bonds referred to in point (f) of Artie,e 10(1) Of that Delegated Regulation, and that institutions would be legally entitled and operationally able to reuse,
(b) all variation margins posted by institutions to their counterparties shall be deducted from the market value of a netting setwith negative market value. .
(115) PartS even is replaced by the following.
228
"PARTSEVEN LEVERAGE
At,-c/e 429
Cs Iculation of the leverage ratio
Institutions shall calculate their leverage ratio in accordance with the methodology set out in paragraphs 2 to 4 of th i s Artie,e.
The leverage ratio shall be calculated as an institutions capital measure divided by that institution s total exposure measure and shall be expressed as a percentage. Institutions shall calculate the leverage ratio at the reporting reference date.
For the purposes of paragraph 2, the capital measure shall be the Tier 1 capital.
For the purposes of paragraph 2, the total exposure measure shall be the sum of the
exposure values of.
(a) assets, excluding contracts listed in A nnex II, credit derivatives and the positions defined in Artie,e 429e, ea, culated in accordance with Artie, e
429b(1);
contracts listed
i n A nnex II and credit derivatives, including those contracts
and credit derivatives that are off "balance sheet, calculated in accordance with Articles 429c and 429dj
\c) add_ons for counterpa rty credit risk of SFTs, including those that are off" balance sheet, calculated in accordance with Art,e,e 429e;
(d) off "balance sheet items, excluding contracts listed in A nnex II, credit derivatives, SFTs and positions defined in Artie, es 429 d and 429 g, c a Ic u I ate d
in accordance with Art,e,e 429r;
(e) regular_way purchases or sales awaiting settlement, calculated in accordance with Article 429g.
Institutions shall treat long settlement transactions in accordance with points (a) to (d) of the first subparagraph, as applicable.
Institutions may reduce the sum referred to in the first subparagraph by the total amount of general credit risk adjustments to on- and off "balance sheet items, subject to a floor of 0.
By way of derogation from point (d) of paragraph 4, the following shall apply.
(a) a derivative instrument that is considered an off "balance sheet item in accordance with point (d) of paragraph 4 but is treated as a derivative in accordance with the applicable accounting framework, shall be subject to the treatment set out in point (b) of paragraph 4,
(b) where a client of an institution acting as a clearing member enters directly into a derivative transaction with a CCP and the institution guarantees the
performance of its client's trade exposures to the CCP cirising from that
229
transaction, the institution shall calculate its exposure resulting from the guarantee in accordance with point (b) of paragraph 4, as if that institution had entered directly into the transaction with the client, including with regard to the receipt or provision of cash variation margin,
The treatment set out in point (b) of the first subparagraph shall also apply to an institution acting as a higher~level client that guarantees the performance of its clients trade exposures.
For the purposes of point (b) of the first subparagraph and of the second subparagraph, institutions may consider an affiliated entity as a client only where that e n t i ty is outside the scope of regulatory consolidation at the level at which the requirement set out in Artie,e 92(3)( d) is applied.
For the purposes of paragraph 4(e) of this Art i c I e and Arti cle 429 g, regular~way purchase or sale means a purchase or a sale of a security under contracts for which the terms require delivery of the securi ty within the time frame established generally by law or convention in the marketplace concerned.
/W/c/e 429a
Exposures excluded from the exposure measure
By way of derogation from point (a) of Artie,e 429(4), an institution may exclude any of the following exposures from its exposure measure .
the amounts deducted from L/ o m m o n Lquity Tier 1 items in accordance with Artie,e 36(1)(d);
' the assets deducted in the calculation of the capital measure referred to in
Art,e,e 429(3);
exposures that are assigned a risk weight of 0% in accordance with Artie,e
113(6);
' where the institution is a public development credit institution, the exposures arising from assets that constitute claims on regional governments, local authorities or public sector entities in relation to public sector investments,
exposures arising from passing~through promotional loans to other credit institutions granting the promotional loan,
the guaranteed parts of exposures arising from export credits that meet both of the following conditions.
(i) ,the guarantee is provided by an export credit agency or by a central govern ment,
(,,) a 0% r, sk weight applies to the guaranteed part of the exposure in accordance with Artie,e 114(4) o r Art i e , e 1 1 6 (4) ;
' where the institution is a clearing member of a QCCP , the trade exposures of that institution, provided that they are cleared with that QCCP and meet the conditions laid down in point (c) of Artie,e 306(1).
230
(.)
G)
(■)
where the institution is a higher~level client within a multilevel client structure, the trade exposures to the clearing member or to an e n t i ty that serves as a highei— level client to that institution, provided that the conditions laid down in Artie,e 305(2) are met and provided that the institution is not obligated to reimburse its client for any losses suffered in the event of default of either the clearing member orthe QCCP.
fiduciary assets which meet all of the following conditions.
(i) they are recognised on the institutions balance sheet by national generally accepted accounting principles, in accordance with Art i c I e 10
of Directive 86/635/EEC;
(ii) they meet the criteria for non~recognition set out in International Accounti ng Standard (IAS) 39, as appli ed in accordance with
Regu,at,on (EC) No 1606/2002;
(iii) they meet the criteria for non~consolidation set out in International Financial Reporting Standard (I F RS) 10, as appli ed in accordance with Regulation (EC) No 1606/2002, where applicable.
exposures that meet all of the following conditions, (i) they are exposures to a public sector entity,
they are treated in accordance w
ith Artie,e 116(4);
(jiij they arise from deposits that the institution is legally obliged to transfer to the public sector e n ti ty referred to in point (i) for the purposes of funding general interest investments,
the excess collateral deposited attripa rty agents that has not been lent out,
where under the applicable accounting framework an institution recognises the variation margin paid in cash to its counterpa rty as a receivable asset, the receivable asset provided that the conditions in points (a) to (e) of Artie,e 429e(3) are m et,
(m) the securitised exposures from traditional securitisations that meet the conditions for significant risk transfer laid down in Artie,e 243.
For the purposes of point (d) of paragraph 1, public development credit institution means a credit institution that meets all of the following conditions.
(a) it has been established under public law by a M ember State s central government, regional government or local author i ty ,
(b) its activity is limited to advancing specified objectives of financial, social or economic public policy in accordance with the laws and provisions governing that institution, on a non_co m petitivebasis, For these purposes, public policy objectives may include the provision of financing for promotional or development purposes to specified economic sectors or geographical areas of
231
the relevant M ember State,
(c) its goal is not to maximise profit or market share,
(d) subjectto state aid rules, the central government, regional government or local authority has an obligation to protect the credit institution s viabil i ty or directly or indirectly guarantees at least 90% of the credit institution s own funds requirements, funding requirements or exposures,
(e) it is precluded from accepting covered deposits as defined in point (5) of Artie,e 2(1) of D i re cti v e 2014/49/EU or in the national law of M ember States implementing that Directive.
Institutions shall not apply the treatmentset out in points (g) and (h) of paragraph 1, where the condition in the last subparagraph of Artie,e 429(5) ,s n ot m et.
/W/c/e 429b Ca Ic u I atio n of the exposure value of a ssets
Institutions shall calculate the exposure value of assets, excluding contracts listed in Annex II, credit derivatives and the positions defined in Article 429e in accordance with the following principles.
(a) the exposure values of assets means exposure values as defined in the first se nte nee of Artie,e 111(1);
(b) physical or financial collateral, guarantees or credit risk mitigation purchased shall not be used to reduce exposure values of assets,
(c) assets shall not be netted with liabilities,
(c) SFTs shall not be netted.
For the purposes of point (c) of paragraph 1, a cash pooling arrangement offered by an institution does not violate the condition set out in that point only where the arrangement meets both of the following conditions.
(a) the institution offering the cash pooling arrangement transfers the credit and debit balances of several individual accounts of a group of entities included in the arrangement ( original accounts) into a separate, single account and thereby sets the balances of the original accounts to zero,
(b) the institution carries out the actions referred to in point (a) of this paragraph on a daily basis.
By way of derogation from paragraph 2, a cash pooling arrangement that does not meet the condition laid down in point (b) of that paragraph, but meets the condition laid down in point (a) of that paragraph, does not violate the condition laid down in point (c) of paragraph 1, provided that the arrangement meets all of the following additional conditions.
(a) the institution has a legally enforceable right to set" off the balances of the
232
original accounts through the transfer into a single account at any point in time,
(b) there are no maturi ty mismatches b etw een the balances of the original a c c o u n ts ,
(c) the institution charges or pays interest based on the combined balance of the original accounts,
(d) the competentauthority of the institution considers that the frequency by which the balances of all original accounts are transferred is adequate for the purpose of including only the combined balance of the cash pooling arrangement in the leverage ratio exposure measure.
By way of derogation from point (d) of paragraph 1, institutions may calculate the exposure value of cash receivable and cash payable under an SFT w ith th e same counterparty on a net basis only where all the following conditions are met.
(a) the transactions have the same explicit final settlement date,
(b) the right to set off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable in all of the following situations.
(■) -n
the normal course of business,
\\'\) in the event of default, insolvency and bankruptcy,
(c) the counterparties intend to settle on a net basis, to settle simultaneously, or the transactions are subjectto a settlement mechanism that results in the functional equivalent of net settlement.
For the purposes of point (c) of paragraph 4, institutions may conclude that a settlement mechanism results in the functional equivalent of net settlement only where, on the settlement date, the net result of the cash flows of the transactions under that mechanism is equal to the single net amount under net settlement and all of the following conditions are met.
(a) the transactions are settled through the same settlement system,
(b) the settlement arrangements are supported by cash or intraday credit facilities intended to ensure that the settlement of the transactions will occur by the end ofthe business day,
\c) any issues arising from the securities legs ofthe SFTs do not interfere with the completion ofthe netsettlement ofthe cash receivables and payables.
The condition in point (c) of the first subparagraph is met only where the failure of any SFT in the settlement mechanism may delay settlement of only the matching cash leg or may create an obligation to the settlement mechanism, supported by an associated credit facility.
W here there is a failure of the securities leg of an SFT in the sett I ement mechanism at the end of the window for settlement in the settlement mechanism, institutions shall split out this transaction and its matching cash leg from the netting set and treat
233
them on a gross basis.
For the purposes of paragraphs 2 and 3, cash pooling arrangement means an arrangement whereby the credit or debit balances of several individual accounts are combined for the purpose of cash or liquidi ty manage ment.
At/c/e 429a Ca Ic u I ati o n of the exposure value of der ivatives
Institutions shall calculate the exposure value of contracts listed in Annex II and of credit derivatives, including those that are off "balance sheet, in accordance with the method set out in PartT hree, Title II, Chapter 6, Section 3.
W hen determining the exposure value institutions may take into account the effects of contracts for novation and other netting agreements in accordance with Article 295. I nstitutions shall not take into account cross_product netting, but may net within the product category as referred to in point (25)(c) of Article 272 and credit derivatives when they are subject to a contractual cross~product netting agreement as referred to in point (c) of Article 295.
Institutions shall include in the exposure measure sold options even where their exposure value can be set to zero in accordance with the treatment laid down in Article 274(5).
Where the provision of collateral related to derivatives contracts reduces the amount of assets under the applicable accounting framework, institutions shall reverse that r e d u ct i o n .
For the purposes of paragraph 1 of this Article, institutions calculating the replacement cost of derivative contracts in accordance with Article 275 may recognise only collateral received in cash from their counterparties as the variation margin referred to in Article 275, where the applicable accounting framework has not already recognised the variation margin as a reduction of the exposure value and where all of the following conditions are met.
for trades not cleared through a QCCP, the cash received by the recipient counterparty is not segregated,
(b) the variation margin is calculated and exchanged at least daily based on a mark"to_market valuation of derivatives positions,
(c) the variation margin received is in a currency specified in the derivative contract, governing master netting agreement, credit support annex to the qualifying master netting agreement or as defined by any netting agreement
with a QCCP;
(d) the variation margin received is the full amount that would be necessary to extinguish the mark"to_market exposure of the derivative contractsubjectto the threshold and minimum transfer amounts that are applicable to the counterpa rty,
234
ye) the derivative contract and the variation margin b etw een the institution and the counterpa rty to that contractare covered by a single netting agreement that the institution may treat as risk~reducing in accordance with Article 295.
For the purposes of the first subparagraph, where an institution provides cash collateral to a counterpa rty and that collateral meets the conditions laid down in points (a) to (e) of that subparagraph, the institution shall consider that collateral as the variation margin posted to the counterpa rty and shall include it in the calculation of replacement cost.
For the purposes of point (b) of the first subparagraph, an institution shall be considered to have met the condition therein where the variation margin is exchanged on the morning of the trading day following thetrading day on which the derivative contract was stipulated, provided that the exchange is based on the value ofthe contractatthe end ofthetrading day on whichthe contractwasstipulated.
For the purposes of point (d) ofthe fir st subparagraph, where a margin dispute arises, institutions may recognise the amount of non~disputed collateral that has been exchanged.
For the purposes of paragraph 1 of this Article, institutions shall not include collateral received in the calculation of NICA as defined in point 12a ofArticle 272, except in the case of derivatives contracts with clients where those contracts are
cleared by a QCCP.
For the purposes of paragraph 1 of this Article, institutions shall set the value of the multiplier used in the calculation ofthe potential future exposure in accordance with Artie,e 278(1) to one, except in the case of derivatives contracts with clients where those contracts are cleared by a QCCP.
Dy way of derogation from paragraph I of this Artie,e, institutions may use the method set out in Jection 4 or S e cti o n 5 or C h a pte r 6 or T itl e II of Part T h re e to determine the exposure value of contracts listed in points 1 and 2 of A n n e x II , but only where they also use that method for determining the exposure value of those contracts for the purposes of meeting the own funds requirements set out in Art i c I e
92.
W here institutions apply one of the methods referred to in the first subparagraph, they shall not reduce the exposure measure by the amount of margin they received.
/W/c/e 429c,
dditionai provisions on the calculation ofthe exposure value of written credit derivatives
In addition to the treatment laid down in Artie,e 429e, institutions shall include in the calculation of the exposure value of written credit derivatives the effective notional amounts referenced in the written credit derivatives reduced by any negative fair value changes that have been incorporated in Tier 1 ea pital with respect to those written credit derivatives.
235
Institutions shall calculate the effective notional amount of written credit derivatives by adjusting the notional amount of those derivatives to reflect the true exposure of the contracts that are leveraged or otherwise enhanced by the structure of the tr a n s a ct i o n .
Institutions may fully or partly reduce the exposure value calculated in accordance with paragraph 1 by the effective notional amount of purchased credit derivatives provided that all of the following conditions are met.
(a) the remaining maturity of the purchased credit derivative is equal to or greater than the remaining maturi ty of the written credit derivative,
(b) the purchased credit derivative is otherwise subject to the same or more conservative material terms as those in the corresponding written credit derivative,
(c) the purchased credit derivative is not purchased from a counterparty that would expose the institution to specific wrong~way risk, as defined in point (b) of
Artiee 291(1);
(d) where the effective notional amount of the written credit derivative is reduced by any negative change in fair value incorporated in the institution's Tier 1
capital, the effective notional amount of the purchased credit derivative is reduced by any positive fair value change that has been incorporated in Tier 1 c a p i taI,
(e) the purchased credit derivative is not included in a transaction that has been cleared by the institution on behalf of a client or that has been cleared by the institution in its role as a higher~level client in a multilevel client services structure and for which the effective notional amount referenced by the corresponding written credit derivative is excluded from the exposure measure in accordance with point (g) or (h) of Article 429a, as applicable.
For the purposes of the PFE cal culation in accordance with Article 429c(1), institutions may exclude from the netting set the portion of a written credit derivative which is not offset in accordance with the first subparagraph of this paragraph and for which the effective notional amount is included in the exposure measure.
For the purposes of point (b) of paragraph 2, material term means any characteristic of the credit derivative that is relevant to the valuation thereof, including the level of subordination, the optionali ty, the credit events, the underlying reference e n t i ty o r pool of entities, and the underlying reference obligation or pool of obligations, with the exception of the notional amount and the residual maturi ty of the credit derivative.
For the purposes of the first subparagraph, tw o reference names shall be the same only where they refer to the same legal e n t i ty .
By way of derogation from point (b) of paragraph 2, institutions may use purchased credit derivatives on a pool of reference names to offset written credit derivatives on
236
individual reference names within that pool where the pool of reference entities and the level of subordination in both transactions are the same.
Institutions shall not reduce the effective notional amount of written credit derivatives where they buy credit protection through a total return swap and record the net payments received as net income, but do not record any offsetting deterioration in the value of the written credit derivative in Tier 1 ca p ita I . In case of purchased credit derivatives on a pool of reference obligations, institutions may reduce the effective notional amount of wr i tte n credit derivatives on individual reference obligations by the effective notional amount of purchased credit derivatives in accordance with paragraph 2 only where the protection purchased is economically equivalent to buying protection separately on each of the individual obligations in the pool.
For the purposes of this Article, written credit derivative means any financial instrument through which an institution effectively provides credit protection including credit default swaps, total return swaps and options where the institution has the obligation to provide credit protection under conditions specified in the options contract.
At/c/e 42% Counterparty credit risk add~on for SFJs
In addition to the calculation of the exposure value of SFTs, including those that are off" balance sheet in accordance with Artie,e 429b(1), institutions shall include in the exposure measure an add_on for counterpa rty credit risk determined in accordance with paragraphs 2 er3 of th i s Article, as applicable.
Institutions shall calculate the add_on fortransactions with a counterpa rty which are not subject to a master netting agreement that meets the conditions laid down in Article 206 (E, ) on a transaction~by~transaction basis in accordance with the following formula.
E- = max{0, Et — CJ
where.
i — the index that denotes the transaction,
E
— the fair value of securities or cash lent to the counterparty under transaction i,
C,
— the fair value of cash or securities received from the counterparty under tr a n s a ct i o n /.
Institutions may set E, equal to zero where E, is the cash lent to a counterparty and the associated cash receivable is not eligible for the netting treatment set out in Article 429b(4).
237
Institutions shall calculate the add_on for transactions with a counterpa rty that are subjectto a master netting agreement that mee ts the conditions laid down in Art i c I e 206 (Ej ) on an agreement" byagreement basis in accordance with the following formula.
E- = max{0, y E; — } C,
i — the index that denotes the netting agreement,
E, — the fair value of securities or cash lentto the counterpa rty for the transactions
subjectto master netting agreement /,
C, = the fair value of cash or securities received from the counterpa rty subject to
master netting agreement /.
For the purposes of paragraphs 2 and 3, the term counterpa rty includes also tripa rty agents that receive collateral in deposit and manage the collateral in the case of triparty transactions.
By way of derogation from paragraph 1 of this Art i cle, institutions may use the method set out in Article 222, subject to a 20% floor for the applicable risk weight, to determine the add_on for SFTs including those that are off "balance sheet. Institutions may use this method only where they also use it for calculating the exposure value of those transactions for the purpose of meeting the own funds requirements as set out in points (a) to (c) of Artie,e 92(1).
W here sale accounting is achieved for a repurchase transaction under the applicable accounting framework, the institution shall reverse all sales_related accounting e n tr i es .
W here an institution acts as an agent b etw een tw o parties in an SFT, including an off" balance sheet SFT, the following shall apply to the calculation of the institution s exposure measure.
(a) where the institution provides an indemnity or guaranteeto one of the parties in the SFT and the indemn i ty or guarantee is limited to any difference b etw een the value of the securi ty or cash the pa rty has lent and the value of collateral the borrower has provided, the institution shall only include the add_on determined in accordance with paragraph 2 or 3, as applicable, in the exposure measure,
(b) where the institution does not provide an indemnity or guarantee to any of the involved parties, the transaction shall not be included in the exposure measure,
(c) where the institution is economically exposed to the underlying security or the cash in the transaction to an amount greater than the exposure covered by the add"on, it shall include in the exposure measure also the full amount of the
238
security or the cash to which it is exposed,
(d) where the institution acting as agent provides an indemnity or guarantee to both parties involved in an SFT, the institution shall calculate its exposure measure in accordance with points (a) to (c) separately for each pa rty involved in the tra n sa cti o n .
At,-c/e 429r
Iculation of the exposure value of off~ b a I a n ce sheet items
Institutions shall calculate the exposure value of off~balance~sheet items, excluding contracts listed in Annex II, credit derivatives, SFTs and positions defined in Article 429 d, in accordance with Article 111(1).
In accordance with Article 166(9), where a commitment refers to the extension of another commitment, institutions shall use the lower of the tw o conversion factors associated with the individual com mitment.
By way of derogation from paragraph 1, institutions may reduce the credit exposure equivalent amount of an off" balance sheet item by the corresponding amount of specific credit risk adjustments. The calculation shall be subjectto a floor of zero. By way of derogation from paragraph 1, institutions shall apply a conversion factor of 10% to low risk off"balance sheet items referred to in point (d) of Article 111(1).
/W/c/e 429g
aicuiation of the exposure value of reg u I a r~wa y purchases and sales awaiting settlement
Institutions shall treat cash related to regular~way sales and securities related to regular_way purchases which remain on the balance sheet until the settlement date as assets in accordance with point (a) of Article 429(4).
Institutions that, in accordance with the applicable accounting framework, apply trade date accounting to regular~way purchases and sales which are awaiting settlement shall reverse out any offsetting b etw een cash receivables for regular~way sales awaiting settlement and cash payables for regular~way purchase awaiting settlement allowed under that framework. After institutions have reversed out the accounting of f s etting, they may offset b etw een those cash receivables and cash payables where both the related regular~way sales and purchases are sett led on a d e I i v e ry ' v e rs u s' p a y m e n t basis.
Institutions that, in accordance with the applicable accounting framework, apply settlement date accounting to regular~way purchases and sales which are awaiting s ett I ement shall include in the exposure measure the full nominal value of commitmentsto pay related to regular~way purchases.
For the purposes of the first subparagraph, institutions may offset the full nominal value of the commitments related to regular~way purchases by the full nominal value
239
of cash receivables related to regular~way sales awaiting settlement only where both the regular~way purchases and sales are settled on a d e I i v e ry ~ v e rs u s~ p a y m e n t basis.
At/c/e 430
Reporting requirement
Institutions shall reportto their competent authorities on the leverage ratio as set out in this Part. Re porting on the leverage ratio shall be submitted on an annual basis by small institutions as defined in Artie,e 430a and, s u bj e ct to paragraph c_, on an annual basis or more frequently by other institutions.
For the purposes of the reporting requirement laid down in paragraph 1, E BA shall develop dra ft implementing technical standards to specify the uniform reporting templates, the instructions on how to use those templates, the frequency and dates of reporting and the IT solutions.
The reporting requirements specified in the dra ft implementing technical standards shall be proportionate, having regard to the institutions size and complexity and the nature and level of risk of their activities.
EBA shall submit those dra ft implementing technical standards to the Uom mission by [12 months after entry into force].
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Art i cle 15 of Regulation (EU)
No 1093/2010.".
(116) PartE ight is replaced by the following.
240
"PART EIGHT DISCLOSURE BY INSTITUTIONS TITLE I GENERAL PRINCIPLES
/W/c/e 430a n iti o ns
the purposes of this Part and Artie,es 13, 99, 100, 394 and 430 the following definitions I apply!
large institution means an institution that meets any of the following conditions.
the institution has been identified as a global Systemically important institution CG-sir) in accordance with Artie,e 131(1) and (2) of Directive 2013/36/EU ;
the institution has been identified as other systemically important institution ("O-SI I') in accordance with Artie,e 131(1) and (3) of Directive 2013/36/EU;
the institution is, in the M ember State where it is established, one of the three largest institutions by total value of assets,
the total value of the institutions assets on the basis of its consolidation
situation is equal to or largerthan EUR 30 billion,
thetotal value of the institutions assets is equal to or largerthan EUR 5 billion and the ratio of its total assets relative to the GDP of t h e \\A ember State where it is established is on average equal to or larger than 20 % over the four~year period immediately preceding the current annual disclosure period.
large subsidiary means a subsidiary that qualifies as a large institution as defined in paragraph 1.
non_listed institution means an institution that has not issued securities that are admitted to trading on a regulated market of any M ember State, as defined in point (21) of artieie 4 (1) of Directive 2014/65/EU.
small institution means an institution the value of the assets of which is on average equal to o r I ess than EUR 1.5 billion over the four_year period immediately preceding the current annual disclosure period.
At/c/e 431 Disclosure requirements and policies
Institutions shall publicly disclose the information referred to in Titles II and III in accordance with the provisions laid down in this Title, subject to the exceptions referre d to i n Artie,e 432.
Institutions shall publicly disclose any permission for the instruments and methodologies referred to in Title III granted by the competent authorities under Part Three.
The management body or senior management of institutions shall adopt formal policies to comply with the disclosure requirements laid down in this Part and put in
241
place internal processes, systems and controls to veri f y that the institutions disclosures are appropriate and in compliance with the requirements laid down in this Part. At ,e ast one member of the management body or senior management of institutions shall attest in writing that the relevant institution has made the disclosures required under this Part in accordance with the policies and internal processes, systems and controls referred to in this paragraph. The written attestation referred to in this paragraph shall be included in institutions disclosures.
Institutions shall also have policies in place to verify that their disclosures convey their risk profile comprehensively to market participants. W here institutions find that the disclosures required under this Part do not convey the risk profile comprehensively to market participants, they shall publicly disclose information in addition to the information required to be disclosed under this Part. N otw ithstanding the foregoing, institutions shall only be required to disclose information that is material and not proprietary or confidential as referred to in Artie,e 432.
AII quantitative disclosures shall be accompanied by a qualitative narrative and any other supplementary information that may be necessary in order for the users of that information to under st and the quantitative disclosures, noting in particular any significant change in any given disclosure compared to the information contained in the previous disclosure.
Institutions shall, if requested, explain their rating decisions to SMEs and oth e r corporate applicants for loans, providing an explanation in writing when asked. The administrative costs of that explanation shall be proportionatetothe size of the loan.
At,-c/e 432
No
n~material, proprietary or confidential information
Institutions may omit one or more of the disclosures listed in Titles II and III where the information provided by those disclosures is not regarded as material, except for the disclosures laid down in Artie,e 435(2)(e), Artie,e 437 and Artie,e 450.
Information in disclosures shall be regarded as material where its omission or misstatement could change or influence the assessment or decision of a user of that information relying on it for the purpose of making economic decisions.
EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue
guidelines on how institutions have to apply materiality in relation to the disclosure requirements of Title II and III.
Institutions may also omit one or more items of information referred to in Titles II and III where those items include information that is regarded as proprietary or confidential in accordance with this paragraph, except for the disclosures laid down
i n Articles 437 and 450.
242
Information shall be regarded as proprietary to institutions where disclosing it publicly would undermine their competitive position. Proprietary information may include information on products or systems that, if shared with competitors, would render the investments of institutions therein less valuable.
Information shall be regarded as confidential where the institutions are obliged by customers or other counterpa rty relationships to keep that information confidential or where, in exceptional cases and subject to the competent authority s prior consent, that information may significantly affectthe institutions competitive position.
EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue
guidelines on how institutions have to apply proprietary and confidentiali ty i n relation to the disclosure requirements of Titles II and III.
3. In the exceptional cases referred to in paragraph 2, the institution concerned shall
state in its disclosures the fact that the specific items of information are not disclosed and the reason for not disclosing it, and publish more general information about the subject matter of the disclosure requirement, except where that subject matter is, in itself, proprietary or confidential.
Article 433 F~req uen cy and scope of disclosures
I nstitutions shall publish the disclosures required under Title II and III in the manner set out in Articles 433a to 433c.
Annual disclosures shall be published on the same date as the date institutions publish their financial statements or as soon as possible thereafter.
Semiannual and qua rte rly disclosures shall be published on the same date asthe date the institutions publish their financial repo rts for the corresponding period where applicable or as soon as possible thereafter.
A n y delay b etw een the date of publication of the disclosures required under this Part and the relevant financial statements shall be reasonable and, in any event, shall not exceed the timeframe set by competent authorities pursuant to Article 1 06 of D i recti v e 2013/36/EU.
Article 433a Disclosures by large institutions
1. La rge institutions shall disclose the information outlined below and, at least, with the
following frequency.
(a) all the information required under this Part on an annual basis,
(b) the disclosures referred to in points (e) and (f) of Arti cles 439, point (1) of point (e) and point (3) of Artie,e 442, point (e) of Article 444, p o i nt (a) and ( b) of Article 448, point (k) to (m) of Article 449, point (a) and (b) of Article 451, Article 451 a(2) and (3), point (f) of Article 452, point (f) of Article 453 and point (a) of Article 455(2) on a semiannual basis,
(c) the disclosures referred in point (a) of Article 437, point (c) of Article 438, point (c) of Article 442 and the key metrics referred to in Article 447 on a
243
quarterly basis.
Dy way of derogation from paragraph I, large institutions other than G-SII s th at are non_l isted institutions shall disclose the information outlined below and, at least, with the following frequency.
(d) all the information required under this Part on an annual basis, \e) the key metrics referred to in Article 447 on a semiannual basis.
Large institutions subject to Articles 92a or 92 b shall disclose the information required under Artie,e 437a on a semiannual basis, except for the key metrics referred to in point (h) of Article 447.
Article 433b Disclosures by small institutions
Small institutions shall disclose the information outlined below and, at least, with the
following frequency.
(a) on an annual basis.
(i) the information referred to in points (a), (e) and (f) of Article 435(1),
(ii) the information referred to in points (a), (b) and (c) of Artie,e 435(2); UiiJ the information referred to in Art,eie 450;
(iv) the information referred to in point (a) of Artie,e437 (a), point (c) of Article 438, points (e) and (f) of Article 439, point (c) and points (1 ) and (3) of point (e) of Artie,e 442, point (e) of Article 444, p o i n ts I a J and (b) of Article 448, points (k) to (m) of Article 449, p o i nts (a) and (b) of Article 451, Article 451 a(2) and (3), point (f) of Article 452, point (f) of Article 453 and p o i nt (a) of Article 455(2), where a p p I i c a b I e.
(b) the key metrics referred to in Article 447 o n
a semiannual basis,
By way of derogation from paragraph 1, small institutions that are non~listed institutions shall disclose the following information at least on an annual basis.
(a) the information referred to in points (a), (e) and (t) or Artice 435(1);
(b) the information referred to in points (a), (b) and (c) of Artice 435(2); IcJ the information referred to in Article 450;
(d) the key metrics referred to in Article 447.
Article 433c Disclosures by other institutions
Institutions that are not subject to Art i cles 433a or 433b shall disclose the
244
information outlined below and, at least, with the following frequency.
(a) all the information laid down in this Parton an annual basis,
(b) the key metrics referred to in Article 447 on a semiannual] basis.
By way of derogation from paragraph 1, other institutions that are non_l isted institutions shall disclose the information outlined below and, at least, with the following frequency.
I a J the information referred to in Articles 435 and 450, in p o i nt (a) of Article 437, point (c) of Article 438, points (e) and (f) of Article 439 , point (c) and (e) of point (1) and point (3) of Article 442, point (e) of Article 444, points (a) and (b) of Arti c I e 448, points(k) to ( m) of Article 449, points(a) and (b) of Article 451 , Article 451 a (2) and (3), point (f) of Article 452, point IfJ of Article 453 and p o i nt (a) of Article 455 (2) on an annual basis,
(b) the key metrics referred to in Article 447 on a semiannual basis.
At,-c/e 434
ns of disol osu res
under T i
Institutions shall disclose all the information required under litles II and III in electronic format and in a single medium or location. The single medium or location shall be a standalone documentthat provides a readily accessible source of prudential information for users of that information or a distinctive section included in or appended to the institutions financial statements or financial repo rts containing the required disclosures and being easily identifiable to those users.
Institutions shall make available on their website or, in the absence of a website, in any other appropriate location an archive of the information required to be disclosed in accordance with this Part. T hat archive shall be kept accessible for a period of time that shall be no less than the storage period set by national law for information included in the institutions financial repo rts.
For the purposes of this Article financial report shall be under stood within the meaning of r\ rt i c I e s 4 and 5 in D i re cti v e 2004/109/ECJU of the Luropean Parliament and of the Council.
Article 434a Uniform disclosure formats
EBA shall develop dra ft implementing technical standards specifying uniform
Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on th e harmonisation of transparency requirements in relation to information about issuers whose securities are
a d m itte d to trading on a regulated market and amending LJirective 2001/34/EC (OJ L 390, 31.12.2004,
p. 38).
245
disclosure formats, and associated in st ructions in accordance with which the disclosures required under Titles II and III shall be made.
Those uniform disclosure forma ts shall convey sufficiently comprehensive and comparable information for users of that information to assess the risk profiles of institutions and their degree of compliance with the requirements laid down in Part One to Part S even. I o facilitate the comparability of information, the implementing technical standards shall seek to maintain consistency of disclosure forma ts with international standards on disclosures.
Disclosure forma ts shall be in tabular format where appropriate.
EBA shall submit to the Uom mission the dra ft implementing technical standards referred to in paragraph 1 by [30 June 2019],
Power is conferrred on the Commission to adopt those implementing technical
standards in accordance w
ith Artie,e 15 of Regulation (EU) No 1093/2010
TITLE II
TECHNICAL CRITERIA ON TRANSPARENCY AND DISCLOSURE
Article 435
Disclosure of risk management objectives and policies
Institutions shall disclose their risk management objectives and policies for each separate category of risk, including the risks referred to in this Title, in the manner laid down in Artie.es 433a, 433 band 433e. T hose disclosures shall include.
(a) the strategies and processes to manage those categories of risks,
(b) the structure and organisation of the relevant risk management function including information on the basis of its authori ty, its powers and accountability in accordance with the institutions incorporation and governing docu ments,
(c) the scope and nature of risk reporting and measurement systems,
(d) the policies for hedging and mitigating risk, and the strategies and processes for monitoring the continuing effectiveness of hedges and mitigants,
(e) a declaration approved by the management body on the adequacy of the risk management arrangements of the relevant institution providing assurance that the risk management systems put in place are adequate with regard to the institution s profile and strategy,
(f) a concise risk statement approved by the management body succinctly describing the relevant institutions overall risk profile associated with the business strategy. That statement shall include.
(i) key ratios and figures providing external stakeholders a comprehensive view of the institutions management of risk, including how the risk
246
profile of the institution interacts with the risk tolerance set by the management body,
(ii) information on intra~group transactions and transactions with related parties that may have a material impact of the risk profile of the consolidated group.
) I
Institutions shall disclose the following information regarding governance arrangements, including regular updates on at least an annual basis, in the manner laid down in Artie,es 433a, 433 band 433c:
(a) the number of directorships held by members of the management body,
(b) the recruitment policy for the selection of members of the management body and their actual knowledge, skills and expertise,
(c) the policy on diversity with regard to selection of members of the management body, its objectives and any relevant targets set out in that policy, and the extentto which those objectives and targets have been achieved,
(d) whether or not the institution has set up a separate risk committee and the number oftimesthe risk committee has met,
(e) the description of the information flow on risk to the management body.
Article 436 D i sc I os u re of the scope of a p p I i cati o n
nstitutions shalld isclose the following information regarding the scope of application of the equirements of this Regulation as follows.
the name of the institution to which the requirements of this Regulation applies,
a reconciliation b etw een the consolidated financial statements prepared in accordance with the applicable accounting framework and the consolidated financial statements prepared in accordance with the requirements on regulatory consolidation pursuant to PartOne, Title II, Sections 2 and 3. That reconciliation shall outline the differences b etw een the accounting and regulatory scopes of consolidation and the legal entities included within each perimeter. The outline of the legal entities included within the scope of the regulatory consolidation shall describe whether those entities are fully or proportionally consolidated and whether the holdings in those legal entities were deducted from own funds,
any current or expected material practical or legal im pediment to the prompt transfer of own funds or to the repayment of liabilities b etw een the parent undertaking and its subsidiaries,
the aggregate amount by which the actual own funds are less than required in all subsidiaries that are not included in the consolidation, and the name or names of those subsidiaries,
where applicable, the circumstances under which use is made of the derogation referred to in Art i cle 7 or the individual consolidation method laid down in Art i c I e 9.
247
At/c/e 437
Disclosure of own funds I nstitutions shall disclose the following information regarding their own funds.
i^aj a full reconciliation between L/ommon Lquity Tier 1 ite m s, /Ad d iti o n a I Tier 1 ite m s,
of Tier 2 items and the filters and deductions applied to own funds of the institution
pursuant to Articles 32 to 35, 36, 56, 66, and the balance sheet in the audited
financial statements of the institution,
i^b) a description of the main features of the Common Equity Tier 1 and Additional Tier
1 instruments and Tier 2 instruments issued by the institution,
yc) the full terms and conditions of all L/ommon Lquity Tier 1, A dditional Tier 1 and
Tier2 i n str u m e n ts ,
' \
yd J a separate disclosure ofthe nature and amounts ofthe following.
(i) each prudential filter applied pursuantto Articles 32 to 35,
\\'\) each deduction made pursuantto Articles 36, 56 and 66;
UiiJ items not deducted in accordance with /Articles 47, 48, 56, 66 and 79;
yQj a description of all restrictions applied to the calculation of own funds in accordance
with this Regulation and the in st rumen ts, prudential filters and deductions to which those restrictions apply,
a comprehensive explanation of the basis on which capital ratios are calculated where those capital ratios are calculated by using elements of own funds determined on a basis other than the basis laid down in this Regulation,
Article 437a
Disclosure of on own funds and eligible liabilities requirements
Institutions subject to Articles 92 a o r 92 b shall disclose the f o Mowing in f o rmation regarding their own funds and eligible liabilities.
(a) the composition of their own funds and eligible liabilities, their maturity and their main f e a tu r es ,
(b) the ranking of eligible liabilities in the creditor hierarchy,
(c) the total amount of each issuance of eligible liabilities referred to in Art i cle 72b and the amount of those issuances that is included in eligible liabilities items within the limits specified in Article 72b(3),
(d) the total amount of excluded liabilities referred to in Artie,e 72a(2).
Article 438
Disclosure of capital own funds requirements and risk weighted exposure amounts
Institutions shall disclose the following in f o rmation regarding their compliance with Art i cle 92 of this Regulation and in Article 73 of Directive 2013/36/EU:
(a) a summary of their approach to assessing the adequacy of their internal capital to support current and future activities,
(b) the composition of the additional common equi ty Tier 1 own funds requirements
248
r)
based on the supervisory review process as referred to in point (a) of Artie,e 104(1)
of Directive 2013/36/EU;
upon demand from the relevant competent authority, the result of the institutions internal capital adequacy assessment process,
the total risk weighted exposure amount and the corresponding total own funds requirement determined in accordance with Arti c I e 92, to be broken down by the different risk categories set out in Part T hree and, where applicable, an explanation of the effect on the calculation of own funds and risk weighted exposure amounts that results from applying capital floors and not deducting items from own funds.
the r i s k " w e i g h te d exposure amounts for each category of specialised lending referred to in Table 1 of Article 153(5) and for the categories of equity exposures set out in
Artie,e 155(2);
the exposure value and the risk_weighted exposure amount of own fund instruments held in any insurance undertaking, re- insurance undertaking or insurance holding company that the institutions do not deductfrom their own funds in accordance with Article 49 when calculating their capital requirements on an individual, sub" consolidated and consolidated basis,
the supplementary own fund requirement and the capital adequacy ratio of the financial conglomerate calculated in accordance with Arti cle 6 of the Directive 2002/87/EC and A nnex I to that Directive where methods 1 or 2 set out in that A nnex are applied,
the variations in the risk weighted exposure amounts of the current reporting period compared to the immediately preceding reporting period that result from the use of internal models, including an outline of the key drivers explaining those variations,
for institutions authorised to use internal models, the hypothetical risk~weighted exposure amounts that would result if the applicable standardised approach was used for the relevant exposures.
At,-c/e 439
Disclosure of exposures to counterparty credit risk
nstitutions shall disclose the f o Mowing in f o rmation regarding the their exposure to counterparty credit isk as referred to in Part Three, Title I I, Chapter 6.
a) a description of the methodology used to assign internal capital and credit limits for counterpa rty credit exposures , including the methods to assign those limits to exposures to central counterparties,
b) a description of policies related to guarantees and other credit risk mitigants, such as the policies for securing collateral and establishing credit reserves,
c) a description of policies with respectto W rong- w ay risk as defined in Artie, e 291;
d) the amount of segregated and unsegregated collateral received and posted per ty p e of collateral, further broken down b etw een collateral used for derivatives and securities financing transactions, and the amount of collateral the institution would have to provide if its credit rating was downgraded,
e) the gross positive fair value of derivatives and securities financing transactions
0
249
contracts, netting benefits, netted current credit exposure, collateral held and net derivatives credit exposure per ty pe of derivative and securities financing transaction. For the purposes of this point, netted current credit exposure is the credit exposure on derivatives and securities financing transactions after considering both the benefits from legally enforceable netting agreements and collateral arrangements,
(f) measures for derivative transactions, the exposure values before and after the effect of credit risk mitigation as determined under the methods set out in PartT h r e e, I i 11 e II, Chapter 6, S ecti ons 3 to 6, whichever method is applicable, broken down between the replacement cost and potential future components under the methods set out in PartT hree, Title II, Chapter 6, S e ct i o n s 3, 4 and 5;
(g) for securities financing transactions, the exposure values before and after the effect of credit risk mitigation as determined under the methods set out in PartT hree, I i 11 e II, Chapter4 and ChapterG, whichever method is used.
(h) the notional value of credit derivative hedges, and the distribution of current credit exposure by ty pes of credit exposure,
(i) the notional amounts and fair value of credit derivative transactions. Credit derivative transactions shall be broken down into credit derivatives used for institutions own credit po rtf o Mo purposes and credit derivatives used for intermediation purposes, and by product ty p e. W ithin each product ty p e, credit derivative transactions shall be broken down further by credit protection bought and credit protection sold,
G)
the estimate of alpha where the institution has received the permission of the competent authorities to use their own estimate alpha in accordance with Artie,e
284(9);
(k) for institutions using the methods set out in PartT hree, Title II, Chapter 6, Sections 4
to 5, the size of their on- and off" balance sheet derivative business as calculated under Article 2 7 3 a (1 ) and (2), as applicable.
At/c/e 440
Disci os u re of co u n ter eye I i c a I capital b uffers
Institutions shall disclose the following information in relation to their compliance with the requirement for a countercyclical capital buffer as referred to in Title VII, C h a pter \ of
Direetive 2013/36/EU:
(a) the geographical distribution of the risk_weighted exposure amounts of its credit exposures used as a basis for the calculation of their countercyclical capital buffer,
(b) the amount of their institution specific countercyclical capital buffer.
At/c/e 441
Disclosure of indicators of global systemic importance
Institutions identified as G-Slls in accordance with Article 131 of Directive 2013/36/EU shaii disclose, on an annual basis, the values of the indicators used for determining their score in accordance with the identification methodology referred to in that Artie,e.
250
At/c/e 442
Disclosure of exposures to credit risk and dilution risk
Institutions shall disclose the following information regarding their exposure to credit risk and dilution risk.
(a) the definitions that they use for accounting purposes of 'past due' and 'impaired';
(b) a description of the approaches and methods adopted for determining specific and general credit risk adjustments,
(c) information on the amount and quality of performing, non~performing and forborne exposures, including their related accumulated impairment, provisions and negative fair value changes due to credit risk and amounts of collateral and financial guarantees received.
(d) an ageing analysis of accounting pastdue exposures,
(e) the gross and net carrying amounts of both defaulted and non~defaulted exposures, the accumulated specific and general credit risk adjustments and accumulated write-of f s taken again st those exposures and their distribution by geographical area and i n d u stry ty p e ,
any changes in the gross amount of defaulted exposures, debt securities and off" balance sheet exposures, including, as a minimum, information on the opening and closing balances of those exposures, the gross amount of any of those exposures reverted to non~defaulted status or subject to a w r i te ~ of f, and the residual maturity breakdown of loans and debt securities.
At/c/e 443
Disci osu re of encumbered and unencumbered a s sets
Institutions shall disclose information concerning their encumbered and unencumbered assets. For those purposes, institutions shall use the carrying amount per exposure class broken down by asset quali ty and the total amount of the carrying amount that is encumbered and unencumbered. Disclosure of information on encumbered and unencumbered assets shall not reveal emergency liquidity assistance provided by the ESCB central banks.
At/c/e 444
Disci os u re of use of the sta n d a r d I se d approach
Institutions calculating their risk_weighted exposure amounts in accordance with Part Three, Title II, Chapter 2, shall disclose the following information for each of the exposure classes set o uti n Arti c I e 112.
I a J the names of the nominated ECAIs and ECAs and the reasons for any changes in
those nominations over the disclosure period,
(b) the exposure classes for which each ECAI or ECA is used,
(c) a description of the process used to transfer the issuer and issue credit assessments onto items not included in the trading book,
(d) the association of the external rating of each nominated ECAI or ECA with the risk weights that correspond with the credit quality steps as set out in PartT hree, I itle II, Chapter 2, taking into account that this information needs not be disclosed where the
251
institutions comply with the standard association published by
EBA;
yej the exposure values and the exposure values after credit risk mitigation associated
with each credit quality step as set out in Part T hree, Title II, Chapter 2, as well as the exposure values deducted from own funds.
Article 445
Disclosure of exposures to market risk under the standardised approach
The institutions calculating their own funds requirements in accordance with PartT hree, I i 11 e IV, C hapter la shall disclose the total capital charge, the capital charges for the measures of the s e n s i ti v i ti es_ based methods, the default risk charge and the own funds requirements for residual risks f o r th e f o Mowing in str u merits,
(a) financial in st rumen ts other than securitisation instruments held in the trading book, with a breakdown of the type of risks and a separate identification of the default risk charge,
(b) securitisation in st rumen ts not held in the CTP, with a separate identification of the credit spread risk charge and of the default risk charge,
IcJ securitisation instruments held in the CTP, with a separate identification of the credit
spread risk charge and of the default risk charge.
Article 446
D i sc I os u re of operational risk management
In stitutions shall disclose information about their operational risk management including.
(a) thetotal losses incurred from operational risk over the lastten years, with historical losses broken down by year and a separate identification of the amounts of losses exceeding EUR 1 million,
(b) the number of losses exceeding EUR 1 million, the total amounts related to those losses overthe lastthreeyears, aswell asthetotal amounts ofthefive largest losses,
(c) the indicators and components for the calculation of the own fund requirements, broken down per relevant business indicator.
Article 447
Disclosure of key metrics
I nstitutions shall disclose the following key metricsinatabularformat.
(a) the composition of their own funds and their own fund requirements as calculated in
accordance with Article 92,
the total risk exposure amount as calculated in accordance w
ith Artiee 92(3);
where applicable, the amount of common equ i ty Tier 1 which the institutions are required to hold in accordance with Artie,e 104(1)(a) of Directive 2013/36/EU;
their combined buffer requirement which the institutions are required to hold in accordance with Uhapter 4 or Title VII or D i re cti v e 2013/36/EU;
their leverage ratio as calculated in accordance with Artie,e 429;
the average or averages, as applicable, for each quarter of the relevant disclosure
252
period of their liquidity coverage ratio as calculated in accordance with Delegated Regulation (EU) 2015/61, based on monthly figures,
their netstable funding requirement as calculated in accordance w
ith Article 428b;
their own funds and eligible liabilities requirement as calculated in accordance with Art i cles 92a and 92b and broken down at the level of each resolution group where applicable.
At,-c/e 448
isciosure of exposures to i interest rate risk on positions not held in the trading book
As from [two years after the entry into force of the CRR A mending IxegulationJ, institutions shall disclose the following quantitative and qualitative information on the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of their non~trading activities referred to in Artie,e 84 and Artie,e 98(5) of Direetive 2013/36/EU:
(a) the changes in the economic value of equi ty calculated under the six supervisory shock scenarios referred to in Artie,e 98(5) of D i recti v e 2013/36/EU for the current and previous disclosure periods
(b) the changes in the net interest income calculated under the six supervisory shock scenarios referred to in Artie, e 98(5) of D i re cti v e 2013/36/EU for the current and previous disclosure periods,
(c) a description of key modelling and parametric assumptions, other than those referred to in paragraph L. of this Article and in Artie,e 98(5a)( b) of Directive 2013/36/EU used to calculate changes in the economic value of equity and in the net interest income required under points (a) and (b) of this paragraph,
(d) an explanation of the significance of the risk measures disclosed under point (a) and (b) of this paragraph and of any significant variations of those risks measures since the previous reporting date,
(e) the description of how institutions define, measure, mitigate and control the interest rate risks of their non~trading book activities for the purposes of the competent authorities review in accordance with Article 84 of D i re cti v e 2013/36/EU, including:
(i) a description of the specific risk measures that the institutions use to evaluate changes in their economic value of equi ty and in their net interest income,
(ii) a description of the key modelling and parametric assumptions used in the institutions internal measurement systems that would differ from the common modelling and parametric assumptions referred to in Article 98(5a) of D i recti v e 2013/36/EU and paragraph L. of this Article for the purpose of calculating changes to the economic value of equity and to the net interest income under the six supervisory scenarios, including the rationale for those differences,
253
^ i i i J a description of the interest rate shock scenarios that institutions use to estimate those interestrate risks,
(iv) the recognition of the effect of hedges against those interest rate risks, including internal hedges that meet the requirements laid down in Artie,e 106(3) of this Ixegulation,
(v) an outline of how oft en the evaluation of those interest rate risks occurs,
the description of the overall risk management and mitigation strategies for these risks.
2. By the way of derogation from paragraph 1, the requirements set out in points (c) and (e)(i) to (e)(iv) of paragraph 1 shall not apply to institutions that use the standardised methodology referred to in Artie,e 84(1) of D i re cti v e 2013/36/EU.
3. EBA shall develop dra ft regulatory technical standards to speci f y the common modelling and parametric assumptions that institutions shall reflect in their calculation of the net interest income referred to in point (b) of paragraph 1.
EBA shall submit those dra ft regulatory technical standards to the Vvom mission by [two years after entry into force of amending Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to the first subparagraph in accordance with Articles 10 to 14 of Regulation
(EU) No 1093/2010.
At,-c/e 449
Disclosure of exposures to sec u r iti sati o n positions
Institutions calculating risk~weighted exposure amounts in accordance with Part T h re e, I i11e II, Chapter 5 or own funds requirements in accordance with Articles 337 or 338 shall disci ose the following information separately for their trading and non~trading book activities.
(a) a description of their securitisation and re~securitisation activities, including their risk management and investment objectives in connection with those activities, their role in securitisation and re~securitisation transactions and the extent to which they use these transactions to transfer the credit risk of the securitised exposures to third p a rt i es ,
(b) the ty pe of risks they are exposed to in their securitisation and re~securitisation activities by level of seniority of the relevant securitisation positions, providing a disti notion b etw een.
(0
risk retained in own_ori gi nated transactions,
\'\'\) risk incurred in relation to transactions originated by third parties.
a description of their policy governing the use of hedging and unfunded protection to mitigate the risks of retained securitisation and re~securitisation positions, including identification of material hedge counterparties by relevant ty pe of risk exposure,
254
their approaches to calculating the risk_weighted exposure amounts thatthey apply to their securitisation activities, including the types of securitisation positions to which each approach applies,
a i i st of SSPE stalling into any of the following categories, with a description of their types of on- and off"balance sheet exposures to those SSPEs:
(0 SSPEs which acquire exposures originated by the institutions, (ii) SSPEs s ponsored by the institutions,
(mi) SSPEs and other legal entities for which the institutions provide securitisation~related services, such as advisory, asset servicing or management services,
SSPEs included in
the institutions regulatory scope of consolidation,
a list of any legal entities in relation to which the institutions have disclosed thatthey have provided support in accordance with Part Three, Title I I, Chapter 5;
a list of legal entities affiliated with the institutions and that invest in securitisations originated by the institutions or in securitisation positions issued by SSPEs s ponsored by the institutions,
a summary of the their accounting policies for securitisation activ i ty, including where relevant a distinction b etw een securitisation and re~securitisation positions,
the names of the ECAIs used for securitisations and the types of exposure for which each agency is used,
where applicable, a description of the Internal Ass ess ment A pproach as set out in Part T hree, Title II, Chapter 5, including the structure of the internal assessment process and the relation b etw een internal assessment and external ratings of the relevant ECAI disclosed in accordance with point the control mechanisms for the
internal assessment process including discussion of independence, accountabili ty, and internal assessment process review, the exposure ty pes to which the internal assessment process is applied and the stress factors used for determining credit enhancement levels,
separately for the trading and the non~trading book, the following information.
(■)
the carrying amount of o u tsta nding exposures securitised by the institutions, separately for traditional and synthetic securitisations and securitisations for which the institutions act only as sponsors. For the avoidance of doubt, the reference to securitised exposures in this point shall only include those securitised exposures in relation to which the institutions have transferred significant credit risk associated in accordance with Part Three, Title II, Chapter 5;
the aggregate amount of assets awaiting securitisation,
the amount of exposures securitised and recognised gain or loss on sale for the current period,
255
separately for the trading and the non~trading book activities, the following information.
(■)
the aggregate amount of securitisation positions retained or purchased and the associated risk_wei g hted assets and capital requirements, broken down b etw een traditional and synthetic securitisations and b etw een securitisation and re~securitisation exposures and further broken down into a meaningful number of risk_weight or capital requirement bands, for each capital requirements approach used,
the amount of retained or purchased securitisation positions, broken down b etw een traditional and synthetic transactions and b etw een securitisation and re securitisation exposures that are deducted from own funds or risk_wei g hted at 1 250 %;
for non_trading book exposures securitised by the institutions, the amount of impaired or past due assets securitised and the losses recognised by the institutions during the current period, both broken down by exposure ty p e.
Article 450
D i so I o s u re of remuneration poli cy
In the manner laid down in Artie,es 433a, 433 b and 433c institutions shall disclose the following information regarding their remuneration policy and practices for those categories of staff whose professional activities have a material impact on institutions risk profile.
(a) information concerning the decision~making process used for determining the remuneration policy, as well as the number of meetings held by the main body overseeing remuneration during the financial year, including, where applicable, information about the composition and the mandate of a remuneration committee, the external consul tant whose services have been used for the determination of the remuneration policy and the role of the relevant sta k e h o I d e rs ,
' information about link b etw een pay of the staff and their performance,
the most important design characteristics ofthe remuneration system, including information on the criteria used for performance measurement and risk adjustment, deferral policy and vesting criteria,
' the ratios between fixed and variable remuneration set in accordance with point (g) of Artie,e 94(1) of Directive 2013/36/EU;
information on the performance criteria on which the entitlement to shares, options or variable components of remuneration is based,
the main parameters and rationale for any variable component scheme and any other non_cash benefits,
' aggregate quantitative information on remuneration, broken down by business
256
aggregate quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impactonthe risk profile of the institutions, indicating the following.
(■)
the amounts of remuneration awarded for the financial year, split into fixed remuneration including a description of the fixed components, and variable remuneration, and the number of beneficiaries,
(ii) the amounts and forms of awarded variable remuneration, split into cash, shares, share-! i n ked instruments and other ty pes separately for the part paid upfront and the deferred part,
(iii) the amounts of deferred remuneration awarded for previous performance periods, split into the amount due to vest in the financial year and the amount due to vest in subsequent years,
(iv) the amount of deferred remuneration due to vest in the financial year that is paid out during the financial year, and that is reduced through performance adjustments,
(v) the guaranteed variable remuneration awards during the financial year, and the number of beneficiaries of those awards,
(vi) The severance payments awarded in previous periods, that have been paid out during the financial year,
(vii) the amounts of severance payments awarded during the financial year, split into paid upfront and deferred, the number of beneficiaries ofthose payments and highest payment that has been awarded to a single person,
(i) the number of individuals that have been remunerated EUR 1 million or more per financial year, with the remuneration b etw een EUR 1 million and EUR 5 million broken down into pay bands of EUR 500000 and with the remuneration of EUR 5 million and above broken down into pay bands of EUR 1 million,
(j) upon demand from the relevant Member State or competent authority, the total
remuneration for each member of the management body or senior management.
(k) information on whether the institution benefits from a derogation laid down in Artie,e 94(3) of Directive 2013/36/EU.
For the purposes of point (k), institutions that benefit from such a derogation shall indicate whether this is on the basis of point (a) and/or point (b) of Artie,e 94(3) of Directive 2013/36/EU. T hey shall also indicate for which of the remuneration principles they apply the derogation(s), the number of staff members that benefit from the derogation(s) and their total remuneration, split into fixed and variable re m u n erati o n .
For
large institutions, the quantitative information on the remuneration of institutions
257
collective management body referred to in this Article shall also be made available to the public, differentiating b etw een executive and nonexecutive members.
Institutions shall comply with the requirements set out in this Art i cle in a manner that is appropriate to their size, internal organisation and the nature, scope and c o m p I e x i ty of their activities and without prejudice to LJirective 95/46/EC.
Article 451
Disclosure of the leverage ratio
1. Institutions shall disclose the following information regarding their leverage ratio as calculated in accordance with Article 429 and their management of excessive leverage risk.
the leverage ratio and how the institutions apply Article 499(2) and (3);
(b) a breakdown of the total exposure measure, as well as a reconciliation of the total exposure measure with the relevant information disclosed in published financial statements,
(c) where applicable, the amount of derecognised fiduciary items in accordance with Article 429a(1)(h);
(d) a description of the processes used to manage the risk of excessive leverage,
(e) a description of the factors that had an impact on the leverage ratio during the period to which the disclosed leverage ratio refers.
2. P ublic development credit institutions as defined in Article 429a(2) shall disclose the leverage ratio without the adjustment to the leverage ratio exposure measure determined in accordance with article 429(8).
Article 451 a
Disclosure of liquidity requirements for credit I n stituti o n s and systemic I nvestm e nt firms
1. Credit institutions and systemic investment firms shall disclose information on their I i q u i d i ty coverage ratio, net stable funding ratio and liquidi ty risk management in accordance with this Article.
2. C redit institutions and systemic investment firms shall disclose the following information in relation to their liquidi ty coverage ratio as calculated in accordance with Uom mission LJelegated Kegulation (EU) 2015/61":
(a) the average or averages, as applicable, of their liquidi ty coverage ratio based on monthly figures for each quarter of the relevant disclosure period,
(b) the total amount, after applying the relevant haircuts, of high quality liquid
31
Commission Delegated Regulation (EU) 2015/61 of 10 0 cto b er 2014 to supplement hCegulation (EU) No 575/2013 or the European Parliament and of the Council with regard to the liquidi ty coverage requirement for credit institutions (OJ L 11.17.1.2015. p.1)
258
assets included in the liquidity buffer in accordance with Title II of Delegated Regulation (EU) 2015/61 and a description of the composition of that liquidi ty b u f f e r,
(c) an overview of the liquidi ty outflows, inflows and net liquidi ty outflows as calculated in accordance with Title III of Delegated Regulation (EU) 2015/61.
Credit institutions and system ic investment firms shall disclose the following information in relation to their net stable funding ratio as calculated in accordance with Title IV of Pa rt Six of this Regulation.
(a) quarter~end figures of their net stable funding ratio calculated in accordance with Chapter 2 of Title IV of PartSix of this Regulation for each qua rte r of t h e relevant disclosure period,
(b) an overivew of the required stable funding calculated in accordance with Chapter 4 of Title IV of Part S ix of this Ixegulation,
(c) an overview of the available stable funding calculated in accordance with Chapter 3 of Title I V of Pa rt Six of this Regulation.
Credit institutions and systemic investment firms shall disclose the arrangements, systems, processes and strategies put in place to identi f y, measure, manage and monitor liquidi ty risk in accordance with Article 86 of D i re cti v e 2013/36/EU.
259
TITLE III - ALIFYING REQUIREMENTS FORTHE USE OF PARTICULAR INSTRUMENTS OR METHODOLOGIES
At,-c/e 452
Disclosure of the use of the IRBAPP roach to or eel it risk
Institutions calculating the risk_weighted exposure amounts under the internal ratings based (IRB) AP proach to credit risk shall disclose the following information.
(a) thecompetentauthority s permission of the approach or approved transition,
(b) for each exposure class referred to in Article 147, the percentage of the total exposure value of each exposure class subjectto the standardised approach laid down in PartT hree, Title II, chapter 2 or to the IRB app roach laid down in Tart Three, Title II, chapter 3, as well as the part of each exposure class subjectto a rol hout plan. W here institutions have received permission to use own LCDs and conversation factors for the calculation of risk~weighted exposure amounts, they shall disclose separately the percentage of the total exposure value of each exposure class subject to that permission. For the purposes of this point, institutions shall use the exposure value as defined in Article 166;
(c) an explanation and review of.
(i) the structure and process of internal rating systems, the main features of the approved models and the relation b etw een internal and external rati n g s ,
(ii) institutions use of internal estimatesfor other purposes than calculating risk_weig hted exposure amounts in accordance with PartT h ree, I itl e II, C h a pte r 3 ,
(iii) the process for managing and recognising credit risk mitigation sy ste m s ,
(iv) the role of the functions involved in the development, approval and subsequent changes of the credit risk models,
(v) the scope and main content of the reporting related to credit risk models.
(d) as applicable, the following information in relation to each exposure class
ref e rre d to i n Article 147:
(i) their on~balan
ce sheet exposure values,
their off" balance sheet exposure values prior to and after applying the relevant conversion factor,
260
l^iiij their on- and off "balance sheet exposure values after applying the relevant credit risk mitigation,
(iv) where institutions have received permission to use own LCDs and conversation factors for the calculation of risk_weighted exposure amounts, the exposure values referred in points (i), (ii) and (iii) subject to that permission.
a description of any model parameter or input that is relevant for understanding the r i s k " w e i g h t i n g for a sufficiently representative number of obligor grades,
a description of the factors that impacted on the loss experience in the preceding disclosure period,
institutions estimates again st actual outcomes over a longer period, with separate disclosure of the following.
(■)
estimates of losses again st actual losses in each exposure class separately for defaulted and non~defaulted exposures, with appropriate information on the observation period used for back"testing and the metrics used to determine actual losses. The information referred to in this point shall be disclosed for each of the categories of retail exposures referred to in paragraph 2(d) over a sufficient period to allow for a meaningful assessment of the performance of the internal rating processes for each category,
{ i i) esti m ates of PD again st the actual default rate for each exposure class, with separate disclosure of the PD range, the average PD , the number of obligors at the end of the previous disclosure period and at the disclosure period, the number of defaulted obligors including the new defaulted obligors, and the annual average historical default rate,
l^iiij for the institutions using their own estimates of LCDs or conversion fa cto rs, LGD and conversion factor outcomes against estimates provided in the quantitative risk assessment disclosures set out in this Arti c I e.
The disclosure referred to in paragraph 1(c) shall be provided separately for the following exposure classes.
(a) central governments and central banks,
(b) institutions,
\c) corporate, including SMEs, specia, ised lending and purchased corporate receivables,
(d) retail exposures, for each of the categories of exposures to which the different correlations in Artie,e 154(1) to (4) correspond, and
(e) equities.
Article 453
261
Disclosure of the use of credit risk mitigation techniques Institutions using credit risk mitigation techniques shall disclose the following information.
(a) the policies and processes for on- and off "balance sheet netting and an indication of the extentto which institutions make use of balance sheet netting,
(b) eligible collateral evaluation and management,
(c) a description ofthe main ty pes of collateral taken by the institution,
(d) for guarantees and credit derivatives used as credit protection, the main ty pes of guarantor and credit derivative counterparty and their creditworthiness,
(e) credit protection used and an analysis of any concentration that may prevent credit protection from being effective,
(f) for institutions calculating risk_weighted exposure amounts under the Sta ndardised Approach or the I RB App roach, the total exposure value not covered by any eligible credit protection and the total exposure value covered by eligible credit protection after applying volatility adjustments. The disclosure set out in this point shall be made separately for each exposure class and for each of the approaches for the equity exposure class set out in Article 155,
(g) for institutions calculating risk_weighted exposure amounts under the Sta ndardised Approach orthe IRBApp roach, the secured amount of exposures that are covered by eligible credit protection. The disclosure set out in this point shall be made separately for each exposure class,
(h) the corresponding conversion factor and the credit risk mitigation associated with the exposure and the incidence of credit mitigation techniques with and without substitution effect,
(i) for institutions calculating risk_weighted exposure amounts under the Sta ndardised A pproach, the risk~weighted exposure amount and the ratio b etw een that risk" weighted exposure amount and the exposure value after applying the corresponding conversion factor and the credit risk mitigation associated with the exposure. The disclosure set out in this point shall be made separately for each exposure class,
(j) for institutions calculating risk_weighted exposure amounts under the I R B A pproach,
the risk_wei g hted exposure amount before and after recognition of the credit risk mitigation impact of credit derivatives. Where institutions have received permission to use own LCDs and conversation factors for the calculation of risk_wei g hted exposure amounts, they shall made the disclosure set out in this point separately for the exposure classes subjectto that permission.
Article 454
D i sc I os u re ofthe use ofthe /Advanced hAea sure ment /Approaches to operational risk
The institutions using the A d v a n c e d M easure m ent A pproaches set out in Arti cles 321 to 324 for the calculation of their own funds requirements for operational risk shall disclose a description of their use of insurance and other risk transfer mechanisms for the purpose of mitigating that risk.
Article 455
262
Use of Inte r n a I hAarket Risk Models
Institutions that, in accordance with Art i cle 325 ba, are permitted by their competent a u t h o r i ty to use their internal models to calculate their own funds requirements for market risk shall disclose the scope, the main characteristics and the key modelling choices of the different internal models used to calculate the risk exposure amounts for the main models used at the consolidated level in accordance with Part One, T itl e II. Those institutions shall explain to what extent these internal models represent all the models used at the consolidated level.
W here applicable in accordance with Artie,e 104 b, institutions shall disclose individually for the main trading desks and on an aggregate basis for the remaining trading desks the following.
(a) the highest, lowest and mean value over the reporting period of the following i te m s .
(i) uncon st rained expected sho rtf a II measure as determined in Art i cle 325
ba(2)(a) ;
(ii) the own funds requirements for market risks that would be calculated in accordance with Chapter 1a of this Title had the institutions not been granted the permission to use their internal models for the relevant trading desk as determined in Article 325 ba(2)(b).
(b) for the expected shortfall models.
(i) the number of backtesting o v e rs h o ot i n g s over the last 250 b u s i n ess days,
UiJ the number of P&L attribution breaches over the last 12 m o n t h s,
Institutions shall disclose separately the following elements of the own funds requirement as specified in Article 325bb. .
(a) the uncon st rained expected sho rtf a II measure for the most recent risk measures, and
(b) the average ofthe previous 12 weeks risk measures for each ofthe following.
(i) the expected sho rtf a II risk measure,
(ii) the stress scenario risk measure for risk factors that cannot be modelled,
(iii) the own funds requirement for defaultrisk,
(iv) the subtotal of the measures listed in points (i)/ ('') and (iii) for the 12 week average, the subtotal including the applicable multiplier,
263
l^vj the total capital charge.
(117) In Artie,e 456, the following point (k) is added.
(k) amendments to the disclosure requirements laid down in Titles II and III of Part E ight to take account of developments or amendments of the international standards on disclosure .
(118) Artic,e 460is amended as follows.
(a) paragraph 1 is replaced by the following.
"1. The C om mission is empowered to adopt a delegated act in accordance with Artie,e 462 to specify in detail the general requirement set out in Artie,e 412(1). The delegated act adopted in accordance with this paragraph shall be based on the items to be reported in accordance with PartSix, T i 11 e II and A nnex III, shall speci f y under which circumstances competent authorities have to impose specific in- and outflow levels on institutions in order to capture specific risks to which they are exposed and shall respectthe thresholds set out in paragraph 2.
The Commission is empowered to adopt a delegated act in accordance with Artie,e 462 to amend or replace LJelegated Kegulation (EU) 2015/61 for the purposes of the application of Articles 8(3), 411, 412, 413, 416, 419, 422, 425, 428a, 428f, 428g,
428k to 428n, 428P, 428r, 428s, 428t, 428v to 428ad, 428af, 428ag and 451a of this
Regulation. .
(b) the following paragraph 3 is added.
3. The Commission is empowered to adopt a delegated act in accordance with Article 462 to amend the list of products or services set out in Article 428f(2) if it deems that assets and liabilities directly linked to other products or services meetthe conditions set out in Article 428f(1).
The Commission shall adopt the delegated act referred to in the fir st subparagraph by [three years after the date of application of the net stable funding ratio as set out in Title IV of Pa rt Six]. .
(119) T he following new Article 473a is i n se rte d afte r Article 473:
Article 473a I' ntr o ducti on of IFRS9
Until [date of application of this Art i cle + 5 years] institutions that prepare their accounts in conformi ty with the international accounting standards adopted in accordance with the procedure laid down in Art i cle 6(2) of Regulation (EC) No 1606/2002 may add to their L/ommon Lquity Tier 1 ca pital the amount calculated in accordance with paragraph L. of this Article multiplied by the applicable factor laid down in paragraph 3.
The amount referred to in paragraph 1 shall be calculated as the tw elve month expected credit losses determined in accordance with paragraph 5.5.5 or C o m mission
264
Regulation (EU) No .... / 2016 O and the amount of the loss allowance for
financial instruments equal to the lifetime expected losses determined in accordance
with paragraph 5.5.3 of Commisison Regulation (EU) No .... / 2016 (1).
). In calculating the amount referred to in paragraph 1, thefollowing factors apply.
(a) 1 in the period from [date of a p p I i cati o n of this Article] to [ date of application of this Article + 1 year - 1 day],
(b) 0,8 in the period from [date of application of this Art i cle + 1 year] to [date of application of this Art i cle + 2 years ~ 1 day],
(c) 0,6 in the period from [date of application of this Article + 2 years] to [date of application of this Art i cle +3 years ~ 1 day],
(ci) 0,4 in the period from [date of application of this Article +3 years] to [date of application of this Article + 4 years - I dayj,
(e) 0,2 in the period from [date of application of this Article +4 years] to [date of application of this Art i cle +5 years ~ 1 day].
Institutions shall include in their own funds disclosures the amount added to their Common Equity Tierl capital in accordance with paragraph 1. .
(120) Article 493 is amended as follows.
(a) in paragraph 1, the firstsentence is replaced by the following.
"The provisions on large exposures as laid down in Articles 387 to 403 shall not
apply to investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9, 10 and 1 1 of Section C of A nnex I to Directive 2014/65/EU and to whom Uouncil LJirective 93/22/EEC or 10 May 1993 on investment services in the
securities field (1) did not apply on 31 December 2006.".
(b) the following paragraphs 4 and 5 are added.
"4. By way of derogation fro m Article 395, competent authorities may allow institutions to incur one of the exposures provided for in points (a) (c) (d) (e) of Article 400(1) denominated and funded in the currency of any M ember States up to the following values, after taking into account the effect of the credit risk mitigation
in accordance with Articles 399 to 403:
(a) 100% of the institutions Tier 1 ca pital until 31 December 2018,
(b) 75% of the institutions Tier 1 ca pital until 31 December 2019i
(c) 50% of the institutions Tier 1 ca pital until 31 December 2020.
5. E xposures referred to in points (a) (c) (d) (e) of Article 400(1) denominated and funded in the currency of any M ember State and incurred by institutions before 22
32
Commission Regulation (EU) No ...72016 of........ 2016 adopting certain international accounting
standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the
Council (OJL,......, p.).
265
November 2016 shall be exempted from the application of Article 395." (121) Artie,e 494 i s replaced by the following.
"Art,a,e 494
Transitional provisions ~ requirement for own funds and eligible liabilities
By way of derogation from Article 92a, as from 1 J a n u a ry 2019 u nti I 31 Dee ember 2021, institutions identified as resolution entities that are a G-SII or part of a G-SII shall at all times sati sf y the following requirements for own funds and eligible
I iabi I ities.
y&J a risk"based ratio of 16%, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total risk exposure amount calculated in accordance with paragraphs 3 and 4 of Article 92,
(b) a non~risk~based ratio of 6%, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total exposure measure ref e rre d to i n Artie,e 429(4).
By way of derogation from Article 72 b (3), as from 1 J a n u a ry 2019 u nti I 31
December 2021 ,the extent to which eligible liabilities in st rumen ts referred to in
Article 72b(3) may be included in eligible liabilities items shall be 2.5% of th e tota I
risk exposure amount calculated in accordance with paragraphs 3 and 4 of Art i c I e 92.
(122) T he following article 494a ,s inserted after article 494:
"Article 494a Cjrandfathering of issuances through SPEs
By way of derogation from Art i cle 52 capital instruments not issued directly by an institution shall qualify as r\ d d i t i o n a I Tier 1 i nstru ments until 31 December 2021 only where all of the following conditions are met.
I a J the conditions laid down in Artie,e 52(1), except for the condition requiring
thatthe instruments are directly issued by the institution,
(b) the in st rumen ts are issued through an e n t i ty within the consolidation pursuant to Uha pter 2 or T itl e II of Part One;
(c) the proceeds are immediately available to the institution without limitation and in a form that satisfies the conditions laid down in this paragraph.
By way of derogation from Art i cle 63 capital instruments not issued directly by an institution or subordinated loans not raised directly by an institution, as applicable shall q u a I i f y a s Tier 2 instruments until 31 December 2021 only where all of the following conditions are met.
I a J the conditions laid down in Artie,e 63(1), except for the condition requiring thatthe instruments are directly issued by the institution,
266
yb) the instruments are issued or subordinated loans are raised, as applicable, through an entity within the consolidation pursuant to Uhapter 2 or T itl e II of P a rt One,
(c) the proceeds are immediately available to the institution without limitation and in a form that satisfies the conditions laid down in this paragraph. .
(123) Artie,e 497 i s replaced by the following.
"Article 497
Own funds requirements for exposures to CCPs
w here a th ird_cou ntry CCP app, ies for recognition in accordance with Article 25 of Regulation (EU) No 648/2012, institutions may consider that CCP as a QCCP starting from the date on which it submitted its application for recognition to ESMA and until one of the following dates.
(a) where the Commission has already adopted an implementing act referred to in Article 25(6) of R e g u I at i o n (EU) No 648/2012 in relation to the third country in which the CCP is established and that act has entered into force, tw o y e a rs a ft e r the date of submission of the application,
(b) where the Commission has not yet adopted an implementing act referred to in Article 25(6) of R e g u I at i o n (EU) No 648/2012 in relation to the third country in which the CCP is established or where that act has not yet entered into force, the earlier of the following two dates.
(■)
tw o years a ft e r the date of entry into force of the implementing act,
five years af te rthe date of submission of the application.
'. Until the expiration of the deadline defined in paragraph 1, where a CCP referred to
in that paragraph neither has a default fund nor has in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre~funded contributions, the institution shall substitute the formula for calculating the own funds requirement (K.,) in Article 308(2) with the following one.
kcm, = ■mx{kccp-df^1m;8%-2%-IM,}
where.
i — the index denoting the clearing member,
MVI, — the initial margin posted to the CCP by clearing member i,
I M — the total amount of initial margin communicated to the institution by the
CCP in accordance with Article 89(5a) of R e g u I at i o n (EU) No 648/2012.".
(124) In Article 498(1) , the first subparagraph is replaced by the following.
"The provisions On OWn fundS requirements as set out in this Regulation shall not
267
apply to investment firms the main business of which consi sts exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9, 10 and 11 of Section C of A nnex I to Directive
2014/65/EU and to which LJirective 93/22/EEC did n ot apply on 31 Dec ember
2006.".
(125) Artiee 499 (3) i s del ete d .
(126) Artie,e 501 i s replaced by the following.
"Article 501 Adjustment to SME ex p os u res
Risk-weighted exposure amounts for exposures to SMEs shall be adju ste d i n accordance with the following formulae.
(iv) if E' <= EUR 1 500 000, RW* = RW ■ 0.7612;
(v) if E' > EUR 1 500 000, RW* = mm {RW; EUR 1 500 000} ■ 0.7612 + max {0; RW-1 500 000} ■ 0.85;
where.
RW* = adjusted risk weighted exposure amount for an exposure to an SME;
E — the total amount owed to the institution and parent undertakings and its
subsidiaries, including any exposure in default, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential p r o p e rty c o I I a te ra I,
RW = risk weighted exposure amount for an exposure to an SME ca, c u I ate d
in accordance with Title II, part II and the present Article.
Forthe purpose ofthis A rt i c I e .
the exposure to an SME shall be included either in the retail or in the corporates or secured by mo rt gages on immovable prope rty classes. Exposures in default shall be excluded,
(b) an SME is defined in accordance with Uom mission Kecom mendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and
medium_sized enterprises . A mong the criteria listed in Art i cle 2 of the A nnex to that Recommendation only the annual turnover shall be taken into account.
(127) T h e f o Mowing Articles 501a, 501 b and 501c are in se rte d .
"Article 501 a
Adjustment to capital requirements for credit risk for exposures to entities that o per ate or finance physical structures or facilities, systems and networks that provide or support
essential public services
Capital requirements for credit risk calculated in accordance with Title II, Part III
oj l 124, 20.5.2003, p. 36.
268
shall be multiplied by a factor of 0.75 provided the exposure complies with all the following criteria.
(a) the exposure is included either in the corporate asset class or in the specialised lending exposures class, with the exclusion of exposures in default,
(b) the exposure is to an entity which was created specifically to finance or operate physical structures or facilities, systems and n etw orks that provide or support essential public services,
(c) the primary source of repayment of the obligation is the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise,
(d) the obligor can meet its financial obligations even under severely stressed conditions that are relevant for the risk of the project,
(e) the cash flows that the obligor generates are predictable and cover all future loan repayments during the duration ofthe loan,
(f) the re_f i nanci ng risk ofthe exposure is low or adequately mitigated,
(g) the contractual arrangements provide lenders with a high degree of protection including the following.
(■)
where the revenues of the obligor are not funded by payments from a large number of users, the contractual arrangements shall include provisions that effectively protect lenders against losses resulting from the termination of the project by the party which agrees to purchase the goods or services provided by the obligor,
the obligor has sufficient reserve funds fully funded in cash or other financial arrangements with highly rated guarantors to cover the contingency funding and working capital requirements over lifetime of the assets referred to in point b) of this paragraph,
the lenders have a substantial degree of control over the assets and the income generated by the obligor,
the lenders have the benefit of securi ty to the extent permitted by applicable law in assets and contracts critical to the infrastructure business or have alternative mechanisms to secure their position,
e q u i ty is pledged to lenders such that they are able to take control ofthe e ntity upon default,
the use of net operating cash flows after mandatory pay ments from the projectfor purposes other than servicing debt obligations is restricted,
there are contractual restrictions on the abili ty ofthe obligor to perform activities that may be detrimental to lenders, including the restriction that new debt cannot be issued without the consent of existing debt
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(.)
providers,
the obligation is senior to all other claims other than statutory claims and claims from derivatives counterparties,
where the obligor is in the construction phase the following criteria shall be fulfilled by the equity investor, or where there is more than one equity investor, the following criteria shall be fulfilled by a group of equi ty investors as a whole.
(i) the equi ty investors have a history of successfully overseeing infrastructure projects, the financial strength and the relevant expertise,
(ii) the equi ty investors have a low risk of default, or there is a low risk of material losses for the obligor as a result of the their default,
(iii) there are adequate mechanisms in place to align the interest of the equity investors with the interests of lenders,
the obligor has adequate safeguards to ensure completion of the project according to the agreed specification, budget or completion date, including strong completion guarantees,
where operating risks are material, they are properly managed, the obligor uses teste d technology and design, ^ m J all necessary permits and authorizations have been obtained, (n) the obligor uses derivatives only for ris k" m iti gati on purposes.
For the purposes of paragraph 1(e), the cash flows generated shall not be considered predictable unless a substantial part of the revenues satisfies the following conditions.
(a) one ofthe following criteria is met.
G)
(■)
(■)
the revenues are a v a i I a b i I i ty ~ b a se d ,
i i J the revenues are subjectto a r ate-of ~ r et u r n regulation,
iii) the revenues are subjectto a take~or~pay contract,
iv) the level of output or the usage and the price shall independently meet one ofthe following criteria.
— it is regulated,
— it is contractually fixed,
— it is sufficiently predictable as a result of low demand risk,
(b) where the revenues of the obligor are not funded by payments from a large number of users, the pa rty which agrees to purchase the goods or services
270
provided by the obligor shall be one of the following.
(■)
a central government, regional government or local author i ty,
(ii) aPSE with an ECAI rating with a credit quality step of at least 3;
l^iiij a corporate e n t i ty with an ECAI rating with a credit quali ty ste p of at I e a st 3 ,
(i v) a n e n t i ty that is replaceable without a significant change in the level and ti ming of revenues.
Institutions shall reportto competent authorities every 6 months on the total amount of exposures to infra structure project entities calculated in accordance with this Arti c I e.
The Commission shall, by [three years a ft e r the entry into force] report on the impact of the own funds requirements laid down in this Regulation on lending to infra st ructure project entities and shall submit that report to the European Parliament and to the Council, together with a legislative proposal, if appropriate.
For the purpose of paragraph 4, EBA shall report on the following to the C o m m i ss ion.
(a) an analysis of the evolution of the trends and conditions in markets for infrastructure lending and project finance over the period referred to in paragraph 4,
(b) an analysis of the effective riskiness of entities referred to in paragraph 1 (b) of paragraph 1 over a full economic cycle,
(c) the consistency of own funds requirements laid down in this Regulation with the outcomes of the analysis under points (a) and (b).
Article 501 b Own funds requirements for market risks
Until [date of application + 3 years], institutions that use the approaches set out in Chapters 1a and 1b, Title IV, Part Three to calculate the own funds requirement for market risks shall multiply their own funds requirements for market risks calculated under these approaches by a factor of 65%.
EBA shall monitor the appropriateness of the level of own funds requirement for market risks calculated in accordance with the approaches set out in Chapters 1a and 1b, Title IV, PartT hree by institutions in the Union and reportto the Uommission on the opportunity to change the calibration of these approaches by [date of application + 2 yearsj. I his report shall at least assess.
(a) for the most common financial in st rumen ts assigned to the trading book of institutions in the Union, whether the level of own funds requirements for
271
market risks calculated by institutions in accordance with the approach set out in Uha pte rs 1a, Title IV, PartT hree is excessive as compared to the own funds requirements for market risks calculated by institutions in accordance with the approach set out in point (a) of paragraph 1 of Art i c I e 325.
(b) for the most common financial in st rumen ts assigned to the trading book of institutions in the Union, whether the level of own funds requirements for market risks calculated by institutions in accordance with the approach set out in Uha pte rs 3, Title IV, PartT hree is excessive as compared to the own funds requirements for market risks calculated by institutions in accordance with the approach set out Uhapters 7, Title IV, Part 3.
(c) for the most common financial in st rumen ts assigned to the trading book of institutions in the Union, whether the level of own funds requirement for market risks calculated by institutions in accordance with the approach set out in Uha pte rs 2, Title IV, Part T hree is excessive as compared to the level of own funds requirement for market risks calculated by institutions in accordance with the approach set out in Uhapters 3, Title IV, Part Three.
3. W ithin the three years after the date of application of the approaches set out in
Chapters 1a and 1b, Title IV, Part Three , the Commission shall be empowered to adopt a delegated act in accordance with Article 462 of this Kegulation to prolong the application of the treatment referred to in paragraph 1 or amend the factor referred to in that paragraph, if considered appropriate and taking into account the report referred to in paragraph 2, international regulatory developments and the specificities of financial and capital markets in the Union.
In the absence of adoption of the delegated act referred to in the previous subparagraph within the specified timeframe, the treatment set out in paragraph 1 shall cease to apply.
Article 501c
Derogation for i nvestm ent firms other than systemic i nvestm ent firms
Investment firms, that are not systemic investment firms as defined in point (139) of Article 4(1), may continue to apply the provisions of this Regulation as they stood on [day before the date of entry into force of the amending regulation] provided that those investment firms notify their intention to apply this Artie, e to the relevant competent authority by no later than [fixed date- before application].
Article 501 d Derogation from reporting requirements
Dy way of derogation from Artices 99, 100, 101, 394, 415 and 430, during the period
b etw een the date of application ofthis Regulation and the date ofthe firstremittance specified in each of the technical standards referred to in those Artie les, institutions may choose not to report information in the format specified in the templates contained in Implementing Regulation (EU) No 680/2014 where those templates have not been updated to reflect the provisions in this Regulation. .
4
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(128) Artie,e 507 i s replaced by the following.
"Article 507 Large exposures
The EBA shall monitor the use of exemptions set out in Artie,e 390 (6) and Art, e , e 400 (1) and Artie,e 400(2) and by [one year after entry into force of the amending Regulation] submit a report to the Commission assessing the quantitative impact that the removal of those exemptions or the setting of a limit on their use would have. The report shall assess, in particular, for each exemption provided for in those Art i c I es .
(a) the number of large exposures exempted in each Member State,
(b) the number of institutionsthat make use ofthe exemption in each M e m ber State,
(c) the aggregate amount of exposures exempted in each M ember State. ,
(129) In Article 510, the following paragraphs 4 to 7 are added.
"4. EBA shall monitor the amount of required stable funding covering the funding risk linked to the derivatives contracts listed in A nnex II and credit derivatives over the one~year horizon of the net stable funding ratio, in particular the future funding risk for these contracts set out in Article 428u(2) and Article 428x(2) to (4), and reportto the Commission on the opportunity to adopt a more risk_sensitive measure by [two years after the date of application of the net stable funding ratio as set out in Title IV of PartSix], T his report shall at least assess.
(a) the adequacy of using the standardised approach for measuring counterpa rty credit risk exposures as set out in Section 3 of Chapter 6 or T itl e II of Part Three, or elements thereof, to calculate the future funding risk for derivatives co n tr a cts,
(b) the opportuni ty to distinguish b etwe en margined and unmargined derivatives co n tr a cts,
\c) the opportunity to remove or replace the requirement set out in Article 428u(2)
and in Artice 428x(2) to (4);
(d) the opportuni ty to change more broadly the treatment of derivatives contracts in the calculation of the net stable funding ratio, as set out under Article 428d, Article 428k(3), Article 428u(2), Article 428x(2) to (4), points (a) and (b) of Article 428 af and Article 428ag(3) , to better capture the funding risk linked to these contracts over the one~year horizon ofthe net stable funding ratio,
(e) the impact of the proposed changes on the amount of stable funding required
for institutions' derivatives contracts.
5. The C om mission is empowered to adopt a delegated act in accordance with
Article 462 to amend the treatment of derivatives contracts listed in A nnex II and credit derivatives for the calculation of the net stable funding ratio as set out in Title IV of Part S ix if it deems it appropriate considering the impact of the existing treatment on institutions net stable funding ratio and to take b ette r account of the funding risk linked to these transactions over the one~year horizon of the net stable funding ratio. For this purpose, the Commission shall take into account the report referred to in paragraph 4, any international standards that may be developed by
273
international fora and the diversity of the banking sector in the Union.
The Commission shall adopt the delegated actreferred to in the fir st subparagraph by [three years after the date of application of the net stable funding ratio as set out in
Title IV of PartSix].
In the absence of adoption ofthe delegated act referred to in the first subparagraph or of a confirmation by the Commission ofthe accuracy ofthe treatment of derivative contracts listed in A nnex II and credit derivatives for the calculation ofthe netstable funding ratio by [three years after the date of application of the net stable funding ratio as set out in Title IV of Part Six], the requirement set out in Artie,e 428x(2) of this Regulation shall apply for all institutions and all derivatives contracts listed in A nnex II and credit derivatives regardless of their characteristics, and the provisions of Article 428u(2) and Article 428x(3) and (4) shall cease to apply.
6. EBA shall monitor the amount of stable funding required to cover the funding
risk linked to secured lending transactions and capital market~driven transactions, including to the assets received or given in these transactions, and to unsecured transactions with a residual maturity of less than six months with financial customers and reportto the Commission on the appropriateness ofthistreatment by [tw o years after the date of application of the net stable funding ratio as set out in Title IV of PartSix], T his report shall at least assess.
(a) the opportuni ty to apply higher or lower stable funding factors to secured lending transactions and capital market~driven transactions with financial customers and to unsecured transactions with a residual matur i ty of less than six months with financial customers to take better account of their funding risk over the one_year horizon of the net stable funding ratio and of the possible contagion effects b etw een financial customers,
(b) the opportuni ty to apply the treatment set out in point (b) of Article 428s to secured lending transactions and capital market" driven transactions col lateral ised by other ty pes of assets,
(c) the opportuni ty to apply stable funding factors to off 'balance sheet items used in secured lending transactions and capital market'driven transactions as an
alternative to the treatment set out in Artice 428q(3);
(d) the adequacy of the asymmetric treatment b etw een liabilities with a residual m a t u r i ty of less than six months provided by financial customers that are subjectto a 0% available stable funding factor in accordance with point (c) of Article 428k(2) and assets resulting from transactions with a residual maturity of less than six months with financial customers that are subject to a 5% o r 10% required stable funding factor in accordance with point (b) of Article 428s and points (a) and (b) of Article 428u;
(e) the impact ofthe introduction of higher or lower required stable funding factors for secured lending transactions and capital market"driven transactions, in particular with a residual maturi ty of less than six months with financial customers, on the market liquidi ty of assets received as collateral in these transactions, in particular of sovereign and corporate bonds,
the impact of the proposed changes on the amount of stable funding required
274
for those institutions' transactions, in particular for secured lending and capital
market"driven transactions with a residual maturi ty of less than six months with financial customers where sovereign bonds are received as collateral in these transactions.
7. The C om mission is empowered to adopt a delegated act in accordance with
Artie,e 462 to amend the treatment of secured lending transactions and capital market" driven transactions, including of the assets received or given in these transactions, and the treatment of unsecured transactions with a residual maturi ty of less than six months with financial customers for the calculation of the net stable funding ratio as set out in Title IV of Part Six if it deems it appropriate regarding the impact of the existing treatment on institutions net stable funding ratio and to take better account of the funding risk linked to these transactions over the one~year horizon of the netstable funding ratio. For this purpose, the Commission shall take into account the report referred to in paragraph 6, any international standards developed by international fora and the diversity of the banking sector in the Union.
The Commission shall adopt the delegated actreferred to in the fir st subparagraph by [three years after the date of application of the net stable funding ratio as set out in Title IV of PartSix].
In the absence of adoption ofthe delegated act referred to in the first subparagraph or of a confirmation by the Commission of the accuracy of the treatment of secured lending transactions and capital market"driven transactions, including of the assets received or given in these transactions, and of unsecured transactions with a residual maturi ty of less than six months with financial customers by [three years after the date of application of the net stable funding ratio as set out in Title IV of Part Six], the required stable funding factors applied to the transactions referred to in Article p o i nt ( b) of 428s and in points (a) and (b) of Article 428 u shall be raised to 10% and 15% re s p e cti v e I y . .
(130) Article 511 I s del ete d .
(131) T h e f o Mowing Article 51 9a is i n se rte d .
"Article 519a Own funds requirements for market risks
EBA shall, by [five years after the entry into force of this Regulation], report to the Commission on the suitability of.
(a) the methodologies used by institutionsto calculate sensitivities for the purposes of calculating the own funds requirements for market risks with the standardised approach set out in Uhapter 1 a, Title IV, Part Three;
(b) the use of the simplified standardised approach referred to in point (c) of Article 325(1), Title IV, PartT hree to calculate the own funds requirements for market risks,
(c) the assessment ofthe modellabili ty of risk factors as set out in Art i c I e 325 bf,
(d) the conditions of Art i cle 325 b g that define compliance with the backtesting re q u i re m e nts .
275
On the basis of this proposal, the Commission may submit a legislative proposal to amend this Regulation.
The report referred to in paragraph 1(a) shall take into account.
(a) the extentto which the use of sensitivities is a source of variability in the own funds requirements for market risks calculated with the standardised approach by institutions,
(b) the extent to which additional specifications in the assumptions of pricing models used for the calculation of sensitivities would be beneficial to ensure the appropriateness of the own funds requirementsfor market risks,
The report referred to in paragraph 1(b) shall take into account.
(a) whether the simplified standardised approach may be kept and recalibrated to achieve a comparable level of own funds requirements as the methods,
(b) whether the simplified standardised approach may be replaced by another new simplified method for the calculation of the own funds requirementsfor market risks, in light of international regulatory developments, while ensuring that any new simplified method for the calculation of the own funds requirements for market risks shall not create additional undue complexity for the institutions eligible to apply it.
The reportreferred to in paragraph 1(c) shall take into account the condition referred to i n Artie,e 325bf(1)( b) and whether it is in line with the liquidity horizon of the risk
The report referred to in paragraph 1 ( d J shall take into account.
l^aj the extentto which the value at risk may be replaced by a more appropriate risk measure for the purpose of backtesting the risk measure calculated in for modellable risk factors, in which case how would be re~defined the multiplication factors based on the more appropriate risk measure,
(b) whether the derogation referred to in Article 325bg(8) is appropriate. .
(132) In part Ten, the following Title Ma is added.
276
I implementation of rules
"Article 519b Co m p I i a nee tool
The EBA shall develop an electronic tool aimed at facilitating institutions compliance with this Keg u lati on and LJirective 36/2013/EU, as well as with regulatory technical standards, implementing technical standards, guidelines and templates adopted to i m p I e m e nt th i s Kegulation and LJirective 36/2013/EU. Thetool referredto in paragraph 1 s h a I I at least enable each institutionto.
(a) rapidly identify the relevant provisions to comply with in relation to the institution s size and business model,
(b) follow the changes made in the legislation and in the related implementing provisions, guidelines and templates. .
(133) Annex II is amended as set out in the Annex to this Regulation.
Article 2
Amendments to Re a u I ati o n (EU) No 648/2012
Regulation (EU) No 648/2012 is amended as follows.
(1) In Artie,e 50a, par agraph c_ is replaced by the following.
"2. A CCP shall calculate the hypothetical capital (Keep) as
f o Mows.
Keep
= YjEADi-RW-capital ratio
i — the index denoting the clearing member,
EAD, — the exposure amount of the CCP to clearing member i, including the clearing
member's own transactions with the CCP, the client transactions guaranteed by the
clearing member, and all values of collateral held by the CCP, including the clearing members prefunded default fund contribution, again st these transactions, relating to the valuation at the end of the regulatory reporting date before the margin called on the final margin call of that day is exchanged,
RW = a ri sk weight of 20 %;
capital ratio = 8 %."
(2) Article 50 b is replaced by the following.
"Article 50b
Ge nerai rules fo r the calculation of KcCP For the purposes of ca I c u I ati n g K(XP
ref e rre d to i n Article 50a(2) , the following shall apply.
277
CCPs shall calculate the value of the exposures they have to their clearing members as follows.
(i) for exposures arising from contracts and transactions listed in points (a) and
{c J of Artie,e 301(1) of R e g u I at i o n (EU) No 575/2013, CCPs shall calculate
the value in accordance with the method set out in Section 3 of Chapter 6 of Title I I of Part T hree of that Kegulation by using a margin period of risk of 10 b u s i n ess days,
(ii) for exposures arising from contracts and transactions listed in point (b) of Artie,e 301(1) of Regulation (EU) No 575/2013, CCPs shall calculate the value (EAD,) in accordance with the following formula.
EADt = max{EBRMi - IMt - DFt; 0}
where.
i — the index denoting the clearing member,
EBRM — the exposure value before risk mitigation that is equal to the
exposure value of the CCP to clearing member / arising from all the contracts
and transactions with that clearing member, calculated without taking into
accountthe collateral posted by that clearing member,
MVI, — the initial margin posted to the CCP by clearing member /,
DF — the prefunded default fund contribution of clearing member /.
AII values in the formula in the first subparagraph of this point shall relate to the valuation at the end of the day before the margin called on the final margin call of that day is exchanged.
(iii) for situations referred to in the last sentence of the second subparagraph of Artie,e 301(1) of Regulation (EU) No 575/2013, CCPs shall calculate the value of the transactions referred to in the first sentence of that subparagraph in accordance with the formula in point (ii) of point (a) of this Artie,e, and shall determine EBRM, in accordance with Part T hree, Title V of that Regulation.
For the purposes of points (i) and (ii) of point (a) of this Article, the exception set out in Article 285(3)(a) of R e g u I a ti o n (EU) No 575/2013 shall n ot apply.
For the purposes of point (ii) of point (a) of this Article, the CCP shall use the method specified in Article 223 of Regulation (EU) No 575/2013 with supervisory v o I a t i I i ty adjustments set out in Article 224 of that Kegulation to calculate the exposure value.
for institutions that fall under the scope of Kegulation (EU) No 575/2013 the n ett i n g sets are the same as those defined in point (4) of Article 272 of that Kegulation,
a CCP that has exposures to one or more CCPs shall treat those exposures as if they were exposures to clearing members and include any margin or pre~funded contributions received from those CCPs in the calculation of K.(~JCP'
a CCP that has in place a binding contractual arrangement with its clearing members that allows that CCP to use all or partofthe initial margin received from its clearing members as if they were pre~funded contributions shall consider that initial margin as
278
prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin,
where collateral is held against an account containing more than one of the types of contracts and transactions referred to in Artie,e 301(1), CCPs shall allocate the initial margin provided by their clearing members or clients, as applicable, in proportion to the EADs of the respective ty pes of contracts and transactions calculated in accordance with point (a)/ without taking into account initial margin in the ca I c u I ati o n ,
CCPs that have more than one default fund shall carry out the calculation for each default fund separately,
where a clearing member provides client clearing services, and the transactions and collateral of the clearing members clients are held in separate subaccounts to the
clearing member's proprietary business, CCPs shall carry outthe calculation of EAD,
for each subaccount separately and shall calculate the clearing members total EAD, as the sum of the EADs of the clients subaccounts and the EAD of the clearing members proprietary business subaccount,
for the purposes of point where DF is not split b etw een the clients subaccounts
and the clearing members proprietary business subaccounts, CCPs shall allocate DF, per subaccount according to the respective fraction the initial margin of that subaccount has in relation to the total initial margin posted by the clearing member or for the account of the clearing member,
CCPs shall not carry outthe calculation in accordance with Artie,e 50a(2) where the default fund covers cash transaction s only.".
I n Article 50c(1 ), points (d) and (e) are deleted.
I n Art i cle 50 d point (c) is deleted.
In Article 89, paragraph 5a is replaced by the following.
"5a. During the transitional period set out in Article 497 of Regulation (EU)
575/2013, a CCP referred to in that Artie, e shall include in the information it shall report in accordance with Artie,e 50e(1) of this Kegulation the total amount of initial margin, as defined in point 140 of Artie,e 4(1) of R e g u I at i o n (EU) 575/2013, it has received from its clearing members where both of the following conditions are met.
lal the CCP does not have a defaultfund,
(b) the CCP does not have in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from those clearing members as ifthey were pre~funded contributions.
Article 3
Entry into force and date of a p p 11c atio n
This R egulation shall enter into force on the tw entieth day following that of its
publication in the Official Journal of the European Union.
This R egulation shall apply from [tw o years after date of entry into force], with the following exceptions.
279
y&J the provisions on the introduction of the new requirements for own funds and
eligible liabilities in points (4) (b), (7) to (9), and (12) to (40), which shall
apply from 1 J a n u a ry 2019;
(b) the provisions in point (119) concerning amendments to Artie,e 473a of Regulation (EU) No 575/2013, which shall apply from the date of entry into force of this Regulation.
This R egulation shall be binding in its enti rety and directly applicable in all M ember States.