Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 Text with EEA relevance

Where losses from dilution and credit risks are treated in an aggregate manner in the securitisation, institutions shall combine the respective KIRB for dilution and credit risk into a single KIRB for the purposes of Subsection 3. The presence of a single reserve fund or overcollateralisation available to cover losses from either credit or dilution risk may be regarded as an indication that these risks are treated in an aggregate manner.

Where dilution and credit risk are not treated in an aggregate manner in the securitisation, institutions shall modify the treatment set out in the second subparagraph to combine the respective KIRB for dilution and credit risk in a prudent manner.

For the purposes of this paragraph, institutions shall calculate the exposure value of the underlying exposures without netting any specific credit risk adjustments and additional value adjustments in accordance with Articles 34 and 110 and other own funds reductions.

In the case of funded synthetic securitisations, any material proceeds from the issuance of credit-linked notes or other funded obligations of the SSPE that serve as collateral for the repayment of the securitisation positions shall be included in the calculation of KIRB or KSA if the credit risk of the collateral is subject to the tranched loss allocation.

• (a) internal credit policy and models for calculating KIRB for securitisations;

• (b) use of different risk factors relating to the pool of underlying exposures and, where sufficient accurate or reliable data on that pool are not available, of proxy data to estimate PD and LGD; and

• (c) due diligence requirements to monitor the actions and policies of sellers of receivables or other originators.

The EBA shall submit those draft regulatory technical standards to the Commission by 18 January 2019.

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the second subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 256

Determination of attachment point (A) and detachment point (D)

The attachment point (A) shall be expressed as a decimal value between zero and one and shall be equal to the greater of zero and the ratio of the outstanding balance of the pool of underlying exposures in the securitisation minus the outstanding balance of all tranches that rank senior or pari passu to the tranche containing the relevant securitisation position including the exposure itself to the outstanding balance of all the underlying exposures in the securitisation.

The detachment point (D) shall be expressed as a decimal value between zero and one and shall be equal to the greater of zero and the ratio of the outstanding balance of the pool of underlying exposures in the securitisation minus the outstanding balance of all tranches that rank senior to the tranche containing the relevant securitisation position to the outstanding balance of all the underlying exposures in the securitisation.

Article 257

Determination of tranche maturity (MT)

• (a) the weighted average maturity of the contractual payments due under the tranche in accordance with the following formula: Image omitted; see official source where CFt denotes all contractual payments (principal, interests and fees) payable by the borrower during period t; or

• (b) the final legal maturity of the tranche in accordance with the following formula: Image omitted; see official source where ML is the final legal maturity of the tranche.

Subsection 3 Methods to calculate risk-weighted exposure amounts

Article 258

Conditions for the use of the Internal Ratings Based Approach (SEC-IRBA)

• (a) the position is backed by an IRB pool or a mixed pool, provided that, in the latter case, the institution is able to calculate KIRB in accordance with Section 3 on a minimum of 95 % of the underlying exposure amount;

• (b) there is sufficient information available in relation to the underlying exposures of the securitisation for the institution to be able to calculate KIRB; and

• (c) the institution has not been precluded from using the SEC-IRBA in relation to a specified securitisation position in accordance with paragraph 2.

• (a) credit enhancement that can be eroded for reasons other than portfolio losses;

• (b) pools of underlying exposures with a high degree of internal correlation as a result of concentrated exposures to single sectors or geographical areas;

• (c) transactions where the repayment of the securitisation positions is highly dependent on risk drivers not reflected in KIRB; or

• (d) highly complex loss allocations between tranches.

Article 259

Calculation of risk-weighted exposure amounts under the SEC-IRBA

RW = 1 250 %	when D ≤ KIRB
Image omitted; see official source	when A ≥ KIRB
Image omitted; see official source	when A < KIRB < D

where:

• KIRB is the capital charge of the pool of underlying exposures as defined in Article 255

• D is the detachment point as determined in accordance with Article 256

• A is the attachment point as determined in accordance with Article 256

Image omitted; see official source

where:

a	=	– (1/(p * KIRB))
---	---	---
u	=	D – KIRB
---	---	---
l	=	max (A – KIRB; 0)

where:

Image omitted; see official source

where:

• N is the effective number of exposures in the pool of underlying exposures, calculated in accordance with paragraph 4;

• LGD is the exposure-weighted average loss-given-default of the pool of underlying exposures, calculated in accordance with paragraph 5;

• MT is the maturity of the tranche as determined in accordance with Article 257.

The parameters A, B, C, D, and E shall be determined according to the following look-up table:

		A	B	C	D	E
Non-retail	Senior, granular (N ≥ 25)	0	3,56	-1,85	0,55	0,07
Non-retail	Senior, non-granular (N < 25)	0,11	2,61	-2,91	0,68	0,07
Non-retail	Non-senior, granular (N ≥ 25)	0,16	2,87	-1,03	0,21	0,07
Non-retail	Non-senior, non-granular (N < 25)	0,22	2,35	-2,46	0,48	0,07
Retail	Senior	0	0	-7,48	0,71	0,24
Retail	Non-senior	0	0	-5,78	0,55	0,27

Image omitted; see official source

where EADi represents the exposure value associated with the ith exposure in the pool.

Multiple exposures to the same obligor shall be consolidated and treated as a single exposure.

Image omitted; see official source

where LGDi represents the average LGD associated with all exposures to the ith obligor.

Where credit and dilution risks for purchased receivables are managed in an aggregate manner in a securitisation, the LGD input shall be construed as a weighted average of the LGD for credit risk and 100 % LGD for dilution risk. The weights shall be the stand-alone IRB Approach capital requirements for credit risk and dilution risk, respectively. For these purposes, the presence of a single reserve fund or overcollateralisation available to cover losses from either credit or dilution risk may be regarded as an indication that these risks are managed in an aggregate manner.

Image omitted; see official source

LGD = 0,50

where

• Cm denotes the share of the pool corresponding to the sum of the largest m exposures; and

• m is set by the institution.

If only C1 is available and this amount is no more than 0,03, then the institution may set LGD as 0,50 and N as 1/C1.

Image omitted; see official source

where

d is the share of the exposure amount of underlying exposures for which the institution can calculate KIRB over the exposure amount of all underlying exposures.

For the purposes of the first subparagraph, the reference position shall be the position that is pari passu in all respects to the derivative or, in the absence of such pari passu position, the position that is immediately subordinate to the derivative.

Article 260

Treatment of STS securitisations under the SEC-IRBA

Under the SEC-IRBA, the risk weight for a position in an STS securitisation shall be calculated in accordance with Article 259, subject to the following modifications:

risk-weight floor for senior securitisation positions = 10 %

Image omitted; see official source

Article 261

Calculation of risk-weighted exposure amounts under the Standardised Approach (SEC-SA)

RW = 1 250 %	when D ≤ KA
Image omitted; see official source	when A ≥ KA
Image omitted; see official source	when A < KA < D

where:

• D is the detachment point as determined in accordance with Article 256;

• A is the attachment point as determined in accordance with Article 256;

• KA is a parameter calculated in accordance with paragraph 2;

Image omitted; see official source

where:

a	=	– (1/(p · KA))
---	---	---
u	=	D – KA
---	---	---
l	=	max (A – KA; 0)
---	---	---
p	=	1 for a securitisation exposure that is not a re-securitisation exposure

Image omitted; see official source

where:

KSA is the capital charge of the underlying pool as defined in Article 255;

W = ratio of:

• (a) the sum of the nominal amount of underlying exposures in default, to

• (b) the sum of the nominal amount of all underlying exposures.

For these purposes, an exposure in default shall mean an underlying exposure which is either: (i) 90 days or more past due; (ii) subject to bankruptcy or insolvency proceedings; (iii) subject to foreclosure or similar proceeding; or (iv) in default in accordance with the securitisation documentation.

Where an institution does not know the delinquency status for 5 % or less of underlying exposures in the pool, the institution may use the SEC-SA subject to the following adjustment in the calculation KA:

Image omitted; see official source

Where the institution does not know the delinquency status for more than 5 % of underlying exposures in the pool, the position in the securitisation must be risk-weighted at 1 250 %.

For the purposes of this paragraph, the reference position shall be the position that is pari passu in all respects to the derivative or, in the absence of such pari passu position, the position that is immediately subordinate to the derivative.

Article 262

Treatment of STS securitisations under the SEC-SA

Under the SEC-SA the risk weight for a position in an STS securitisation shall be calculated in accordance with Article 261, subject to the following modifications:

risk-weight floor for senior securitisation positions = 10 %

p = 0,5

Article 263

Calculation of risk-weighted exposure amounts under the External Ratings Based Approach (SEC-ERBA)

Table 1

Credit Quality Step	1	2	3	All other ratings
Risk weight	15 %	50 %	100 %	1 250 %

Table 2

Credit Quality Step	Senior tranche	Senior tranche	Non-senior (thin) tranche	Non-senior (thin) tranche
Credit Quality Step	Tranche maturity (MT)	Tranche maturity (MT)	Tranche maturity (MT)	Tranche maturity (MT)
Credit Quality Step	1 year	5 years	1 year	5 years
1	15 %	20 %	15 %	70 %
2	15 %	30 %	15 %	90 %
3	25 %	40 %	30 %	120 %
4	30 %	45 %	40 %	140 %
5	40 %	50 %	60 %	160 %
6	50 %	65 %	80 %	180 %
7	60 %	70 %	120 %	210 %
8	75 %	90 %	170 %	260 %
9	90 %	105 %	220 %	310 %
10	120 %	140 %	330 %	420 %
11	140 %	160 %	470 %	580 %
12	160 %	180 %	620 %	760 %
13	200 %	225 %	750 %	860 %
14	250 %	280 %	900 %	950 %
15	310 %	340 %	1 050 %	1 050 %
16	380 %	420 %	1 130 %	1 130 %
17	460 %	505 %	1 250 %	1 250 %
All other	1 250 %	1 250 %	1 250 %	1 250 %

Image omitted; see official source

where

T = tranche thickness measured as D – A

where

• D is the detachment point as determined in accordance with Article 256

• A is the attachment point as determined in accordance with Article 256

• (a) the reference position ranks pari passu in all respects to the unrated securitisation position or, in the absence of a pari passu ranking position, the reference position is immediately subordinate to the unrated position;

• (b) the reference position does not benefit from any third-party guarantees or other credit enhancements that are not available to the unrated position;

• (c) the maturity of the reference position shall be equal to or longer than that of the unrated position in question;

• (d) on an ongoing basis, any inferred rating shall be updated to reflect any changes in the credit assessment of the reference position.

For the purposes of the first subparagraph, the reference position shall be the position that is pari passu in all respects to the derivative or, in the absence of such pari passu position, the position that is immediately subordinate to the derivative.

Article 264

Treatment of STS securitisations under the SEC-ERBA

Table 3

Credit Quality Step	1	2	3	All other ratings
Risk weight	10 %	30 %	60 %	1 250 %

Table 4

Credit Quality Step	Senior tranche	Senior tranche	Non-senior (thin) tranche	Non-senior (thin) tranche
Credit Quality Step	Tranche maturity (MT)	Tranche maturity (MT)	Tranche maturity (MT)	Tranche maturity (MT)
Credit Quality Step	1 year	5 years	1 year	5 years
1	10 %	10 %	15 %	40 %
2	10 %	15 %	15 %	55 %
3	15 %	20 %	15 %	70 %
4	15 %	25 %	25 %	80 %
5	20 %	30 %	35 %	95 %
6	30 %	40 %	60 %	135 %
7	35 %	40 %	95 %	170 %
8	45 %	55 %	150 %	225 %
9	55 %	65 %	180 %	255 %
10	70 %	85 %	270 %	345 %
11	120 %	135 %	405 %	500 %
12	135 %	155 %	535 %	655 %
13	170 %	195 %	645 %	740 %
14	225 %	250 %	810 %	855 %
15	280 %	305 %	945 %	945 %
16	340 %	380 %	1 015 %	1 015 %
17	415 %	455 %	1 250 %	1 250 %
All other	1 250 %	1 250 %	1 250 %	1 250 %

Article 265

Scope and operational requirements for the Internal Assessment Approach

Where an institution has received permission to apply the Internal Assessment Approach in accordance with paragraph 2 of this Article, and a specific position in an ABCP programme or ABCP transaction falls within the scope of application covered by such permission, the institution shall apply that approach to calculate the risk-weighted exposure amount of that position.

• (a) all positions in the commercial paper issued from the ABCP programme are rated positions;

• (b) the internal assessment of the credit quality of the position reflects the publicly available assessment methodology of one or more ECAIs for the rating of securitisation positions backed by underlying exposures of the type securitised;

• (c) the commercial paper issued from the ABCP programme is predominantly issued to third-party investors;

• (d) the institution’s internal assessment process is at least as conservative as the publicly available assessments of those ECAIs which have provided an external rating for the commercial paper issued from the ABCP programme, in particular with regard to stress factors and other relevant quantitative elements;

• (e) the institution’s internal assessment methodology takes into account all relevant publicly available rating methodologies of the ECAIs that rate the commercial paper of the ABCP programme and includes rating grades corresponding to the credit assessments of ECAIs. The institution shall document in its internal records an explanatory statement describing how the requirements set out in this point have been met and shall update such statement on a regular basis;

• (f) the institution uses the internal assessment methodology for internal risk management purposes, including in its decision-making, management information and internal capital allocation processes;

• (g) internal or external auditors, an ECAI, or the institution’s internal credit review or risk management function perform regular reviews of the internal assessment process and the quality of the internal assessments of the credit quality of the institution’s exposures to an ABCP programme or ABCP transaction;

• (h) the institution tracks the performance of its internal ratings over time to evaluate the performance of its internal assessment methodology and makes adjustments, as necessary, to that methodology when the performance of the exposures routinely diverges from that indicated by the internal ratings;

• (i) the ABCP programme includes underwriting and liability management standards in the form of guidelines to the programme administrator on, at least:
• (i) the asset eligibility criteria, subject to point (j);
• (ii) the types and monetary value of the exposures arising from the provision of liquidity facilities and credit enhancements;
• (iii) the loss distribution between the securitisation positions in the ABCP programme or ABCP transaction;
• (iv) the legal and economic isolation of the transferred assets from the entity selling the assets;

• (j) the asset eligibility criteria in the ABCP programme provide for, at least:
• (i) exclusion of the purchase of assets that are significantly past due or defaulted;
• (ii) limitation of excessive concentration to individual obligor or geographic area; and
• (iii) limitation of the tenor of the assets to be purchased;

• (k) an analysis of the asset seller’s credit risk and business profile is performed including, at least, an assessment of the seller’s:
• (i) past and expected future financial performance;
• (ii) current market position and expected future competitiveness;
• (iii) leverage, cash flow, interest coverage and debt rating; and
• (iv) underwriting standards, servicing capabilities, and collection processes;

• (l) the ABCP programme has collection policies and processes that take into account the operational capability and credit quality of the servicer and comprises features that mitigate performance-related risks of the seller and the servicer. For the purposes of this point, performance-related risks may be mitigated through triggers based on the seller or servicer’s current credit quality to prevent commingling of funds in the event of the seller’s or servicer’s default;

• (m) the aggregated estimate of loss on an asset pool that may be purchased under the ABCP programme takes into account all sources of potential risk, such as credit and dilution risk;

• (n) where the seller-provided credit enhancement is sized based only on credit-related losses and dilution risk is material for the particular asset pool, the ABCP programme comprises a separate reserve for dilution risk;

• (o) the size of the required enhancement level in the ABCP programme is calculated taking into account several years of historical information, including losses, delinquencies, dilutions, and the turnover rate of the receivables;

• (p) the ABCP programme comprises structural features in the purchase of exposures in order to mitigate potential credit deterioration of the underlying portfolio. Such features may include wind-down triggers specific to a pool of exposures;

• (q) the institution evaluates the characteristics of the underlying asset pool, such as its weighted-average credit score, and identifies any concentrations to an individual obligor or geographic area and the granularity of the asset pool.

• (a) the institution has demonstrated to the satisfaction of the competent authority that the institution has good cause to do so;

• (b) the institution has received the prior permission of the competent authority.

Article 266

Calculation of risk-weighted exposure amounts under the Internal Assessment Approach

Subsection 4 Caps for securitisation positions

Article 267

Maximum risk weight for senior securitisation positions: look-through approach

In the case of mixed pools the maximum risk weight shall be calculated as follows:

• (a) where the institution applies the SEC-IRBA, the Standardised Approach portion and the IRB Approach portion of the underlying pool shall each be assigned the corresponding Standardised Approach risk weight and IRB Approach risk weight respectively;

• (b) where the institution applies the SEC-SA or the SEC-ERBA, the maximum risk weight for senior securitisation positions shall be equal to the Standardised Approach weighted-average risk weight of the underlying exposures.

• (a) expected losses multiplied by 12,5 to

• (b) the exposure value of the underlying exposures.

Article 268

Maximum capital requirements

• (a) for an institution that has one or more securitisation positions in a single tranche, V shall be equal to the ratio of the nominal amount of the securitisation positions that the institution holds in that given tranche to the nominal amount of the tranche;

• (b) for an institution that has securitisation positions in different tranches, V shall be equal to the maximum proportion of interest across tranches. For these purposes, the proportion of interest for each of the different tranches shall be calculated as set out in point (a).

Subsection 5 Miscellaneous provisions

Article 269

Re-securitisations

• (a) W = 0 for any exposure to a securitisation tranche within the pool of underlying exposures;

• (b) p = 1,5;

• (c) the resulting risk weight shall be subject to a risk-weight floor of 100 %.

Article 269a

Treatment of non-performing exposures (NPE) securitisations

• (a) ‘NPE securitisation’ means an NPE securitisation as defined in point (25) of Article 2 of Regulation (EU) 2017/2402;

• (b) ‘qualifying traditional NPE securitisation’ means a traditional NPE securitisation where the non-refundable purchase price discount is at least 50 % of the outstanding amount of the underlying exposures at the time they were transferred to the SSPE.

Institutions shall perform the calculation in accordance with the following formula:

Image omitted; see official source

where:

CRmax	=	the maximum capital requirement in the case of a qualifying traditional NPE securitisation;
---	---	---
RWEAIRB	=	the sum of risk-weighted exposure amounts of the underlying exposures subject to the IRB Approach;
---	---	---
ELIRB	=	the sum of expected loss amounts of the underlying exposures subject to the IRB Approach;
---	---	---
NRPPD	=	the non-refundable purchase price discount;
---	---	---
EVIRB	=	the sum of exposure values of the underlying exposures that are subject to the IRB Approach;
---	---	---
EVPool	=	the sum of exposure values of all underlying exposures in the pool;
---	---	---
SCRAIRB	=	for originator institutions, the specific credit risk adjustments made by the institution with respect to those underlying exposures subject to the IRB Approach only if and to the extent these adjustments exceed the NRPPD; for investor institutions the amount is zero;
---	---	---
RWEASA	=	the sum of risk-weighted exposure amounts of the underlying exposures subject to the Standardised Approach.

For the purposes of the first subparagraph, originator institutions that apply the SEC-IRBA to a position and that are permitted to use own estimates of LGD and conversion factors for all underlying exposures subject to the IRB Approach in accordance with Chapter 3, shall deduct the non-refundable purchase price discount and, where applicable, any additional specific credit risk adjustments from the expected losses and exposure values of the underlying exposures associated with a senior position in a qualifying traditional NPE securitisation, in accordance with the following formula:

Image omitted; see official source

where:

RWmax	=	the risk weight, before applying the floor, applicable to a senior position in a qualifying traditional NPE securitisation when the look-through approach is used;
---	---	---
RWEAIRB	=	the sum of risk-weighted exposure amounts of the underlying exposures subject to the IRB Approach;
---	---	---
RWEASA	=	the sum of risk-weighted exposure amounts of the underlying exposures subject to the Standardised Approach;
---	---	---
ELIRB	=	the sum of expected loss amounts of the underlying exposures subject to the IRB Approach;
---	---	---
NRPPD	=	the non-refundable purchase price discount;
---	---	---
EVIRB	=	the sum of exposure values of the underlying exposures that are subject to the IRB Approach;
---	---	---
EVpool	=	the sum of exposure values of all underlying exposures in the pool;
---	---	---
EVSA	=	the sum of exposure values of the underlying exposures that are subject to the Standardised Approach;
---	---	---
SCRAIRB	=	the specific credit risk adjustments made by the originator institution with respect to the underlying exposures subject to the IRB Approach only if and to the extent these adjustments exceed the NRPPD.

• (a) the outstanding amount of the underlying exposures of the NPE securitisation at the time those exposures were transferred to the SSPE;

• (b) the sum of the following:
• (i) the initial sale price of the tranches or, where applicable, parts of the tranches of the NPE securitisation sold to third party investors; and
• (ii) the outstanding amount, at the time the underlying exposures were transferred to the SSPE, of the tranches or, where applicable, parts of tranches of that securitisation held by the originator.

For the purposes of paragraphs 5 and 6, throughout the life of the transaction, the calculation of the non-refundable purchase price discount shall be adjusted downwards taking into account the realised losses. Any reduction in the outstanding amount of the underlying exposures resulting from realised losses shall reduce the non-refundable purchase price discount, subject to a floor of zero.

Where a discount is structured in such a way that it can be refunded in whole or in part to the originator, such discount shall not count as a non-refundable purchase price discount for the purposes of this Article.

Article 270

Senior positions in STS on-balance sheet securitisations

• (a) the securitisation meets the requirements set out in Article 243(2);

• (b) the position qualifies as the senior securitisation position.

• (a) the market volume and market share of STS on-balance sheet securitisations in respect of which the originator institution applies paragraph 1, across different asset classes;

• (b) the observed allocation of losses to the senior tranche and to other tranches of STS on-balance sheet securitisations, where the originator institution applies paragraph 1 in respect of the senior position held in such securitisations;

• (c) the impact of the application of paragraph 1 on the leverage of institutions;

• (d) the impact of the use of STS on-balance sheet securitisations in respect of which the originator institution applies paragraph 1 on the issuance of capital instruments by the respective originator institutions.

Article 270a

Additional risk weight

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

Section 4 External credit assessments

Article 270b

Use of credit assessments by ECAIs

Institutions may use only credit assessments to determine the risk weight of a securitisation position in accordance with this Chapter where the credit assessment has been issued or has been endorsed by an ECAI in accordance with Regulation (EC) No 1060/2009.

Article 270c

Requirements to be met by the credit assessments of ECAIs

For the purposes of calculating risk-weighted exposure amounts in accordance with Section 3, institutions shall only use a credit assessment of an ECAI where all of the following conditions are met:

• (a) there is no mismatch between the types of payments reflected in the credit assessment and the types of payments to which the institution is entitled under the contract giving rise to the securitisation position in question;

• (b) the ECAI publishes the credit assessments and information on loss and cash-flow analysis, sensitivity of ratings to changes in the underlying ratings assumptions, including the performance of underlying exposures, and on the procedures, methodologies, assumptions, and key elements underpinning the credit assessments in accordance with Regulation (EC) No 1060/2009. For the purposes of this point, information shall be considered as publicly available where it is published in accessible format. Information that is made available only to a limited number of entities shall not be considered as publicly available;

• (c) the credit assessments are included in the ECAI’s transition matrix;

• (d) the credit assessments are not based or partly based on unfunded support provided by the institution itself. Where a position is based or partly based on unfunded support, the institution shall consider that position as if it were unrated for the purposes of calculating risk-weighted exposure amounts for this position in accordance with Section 3;

• (e) the ECAI has committed to publishing explanations on how the performance of underlying exposures affects the credit assessment.

Article 270d

Use of credit assessments

• (a) an institution shall not use an ECAI’s credit assessments for its positions in some tranches and another ECAI’s credit assessments for its positions in other tranches within the same securitisation that may or may not be rated by the first ECAI;

• (b) where a position has two credit assessments by nominated ECAIs, the institution shall use the less favourable credit assessment;

• (c) where a position has three or more credit assessments by nominated ECAIs, the two most favourable credit assessments shall be used. Where the two most favourable assessments are different, the less favourable of the two shall be used;

• (d) an institution shall not actively solicit the withdrawal of less favourable ratings.

Article 270e

Securitisation mapping

The EBA shall develop draft implementing technical standards to map in an objective and consistent manner the credit quality steps set out in this Chapter relative to the relevant credit assessments of all ECAIs. For the purposes of this Article, the EBA shall in particular:

• (a) differentiate between the relative degrees of risk expressed by each assessment;

• (b) consider quantitative factors, such as default or loss rates and the historical performance of credit assessments of each ECAI across different asset classes;

• (c) consider qualitative factors such as the range of transactions assessed by the ECAI, its methodology and the meaning of its credit assessments in particular whether such assessments take into account expected loss or first Euro loss, and timely payment of interests or ultimate payment of interests;

• (d) seek to ensure that securitisation positions to which the same risk weight is applied on the basis of the credit assessments of ECAIs are subject to equivalent degrees of credit risk.

The EBA shall submit those draft implementing technical standards to the Commission by 1 July 2014.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

CHAPTER 6 Counterparty credit risk

Section 1 Definitions

Article 271

Determination of the exposure value

Article 272

Definitions

For the purposes of this Chapter and of Title VI of this Part, the following definitions shall apply:

General terms

• (1) ‘counterparty credit risk’ or ‘CCR’ means the risk that the counterparty to a transaction could default before the final settlement of the transaction's cash flows;

Transaction types

• (2) ‘long settlement transactions’ means transactions where a counterparty undertakes to deliver a security, a commodity, or a foreign exchange amount against cash, other financial instruments, or commodities, or vice versa, at a settlement or delivery date specified by contract that is later than the market standard for this particular type of transaction or five business days after the date on which the institution enters into the transaction, whichever is earlier;

• (3) ‘margin lending transactions’ means transactions in which an institution extends credit in connection with the purchase, sale, carrying or trading of securities. Margin lending transactions do not include other loans that are secured by collateral in the form of securities;

Netting set, hedging sets, and related terms

• (4) ‘netting set’ means a group of transactions between an institution and a single counterparty that is subject to a legally enforceable bilateral netting arrangement that is recognised under Section 7 and Chapter 4. Each transaction that is not subject to a legally enforceable bilateral netting arrangement which is recognised under Section 7 shall be treated as its own netting set for the purposes of this Chapter. Under the Internal Model Method set out in Section 6, all netting sets with a single counterparty may be treated as a single netting set if negative simulated market values of the individual netting sets are set to 0 in the estimation of expected exposure (hereinafter referred to as ‘EE’);

• (5) ‘risk position’ means a risk number that is assigned to a transaction under the Standardised Method set out in Section5 following a predetermined algorithm;

• (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 Section 3 or 4 of this Chapter;

• (7) ‘margin agreement’ means an agreement or provisions of an agreement under which one counterparty must supply collateral to a second counterparty when an exposure of that second counterparty to the first counterparty exceeds a specified level;

• (7a) ‘one way margin agreement’ means a margin agreement under which an institution is required to post variation margin to a counterparty but is not entitled to receive variation margin from that counterparty or vice-versa;

• (8) ‘margin threshold’ means the largest amount of an exposure that remains outstanding before one party has the right to call for collateral;

• (9) ‘margin period of risk’ means the time period from the most recent exchange of collateral covering a netting set of transactions with a defaulting counterparty until the transactions are closed out and the resulting market risk is re-hedged;

• (10) ‘effective maturity’ under the Internal Model Method for a netting set with maturity greater than one year means the ratio of the sum of expected exposure over the life of the transactions in the netting set discounted at the risk-free rate of return, divided by the sum of expected exposure over one year in the netting set discounted at the risk-free rate. This effective maturity may be adjusted to reflect rollover risk by replacing expected exposure with effective expected exposure for forecasting horizons under one year;

• (11) ‘cross-product netting’ means the inclusion of transactions of different product categories within the same netting set pursuant to the cross-product netting rules set out in this Chapter;

• (12) ‘current market value’ or ‘CMV’ means 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;

• (12a) ‘net independent collateral amount’ or ‘NICA’ means the sum of the volatility-adjusted value of net collateral received or posted, as applicable, to the netting set other than variation margin;

Distributions

• (13) ‘distribution of market values’ means the forecast of the probability distribution of net market values of transactions within a netting set for a future date (the forecasting horizon), given the realised market value of those transactions at the date of the forecast;

• (14) ‘distribution of exposures’ means the forecast of the probability distribution of market values that is generated by setting forecast instances of negative net market values equal to zero;

• (15) ‘risk-neutral distribution’ means a distribution of market values or exposures over a future time period where the distribution is calculated using market implied values such as implied volatilities;

• (16) ‘actual distribution’ means a distribution of market values or exposures at a future time period where the distribution is calculated using historic or realised values such as volatilities calculated using past price or rate changes;

Exposure measures and adjustments

• (17) ‘current exposure’ means the larger of zero and the market value of a transaction or portfolio of transactions within a netting set with a counterparty that would be lost upon the default of the counterparty, assuming no recovery on the value of those transactions in insolvency or liquidation;

• (18) ‘peak exposure’ means a high percentile of the distribution of exposures at particular future date before the maturity date of the longest transaction in the netting set;

• (19) ‘expected exposure’ (hereinafter referred to as ‘EE’) means the average of the distribution of exposures at a particular future date before the longest maturity transaction in the netting set matures;

• (20) ‘effective expected exposure at a specific date’ (hereinafter referred to as ‘Effective EE’) means the maximum expected exposure that occurs at that date or any prior date. Alternatively, it may be defined for a specific date as the greater of the expected exposure at that date or the effective expected exposure at any prior date;

• (21) ‘expected positive exposure’ (hereinafter referred to as ‘EPE’) means the weighted average over time of expected exposures, where the weights are the proportion of the entire time period that an individual expected exposure represents. When calculating the own funds requirement, institutions shall take the average over the first year or, if all the contracts within the netting set mature within less than one year, over the time period until the contract with the longest maturity in the netting set has matured;

• (22) ‘effective expected positive exposure’ (hereinafter referred to as ‘Effective EPE’) means the weighted average of effective expected exposure over the first year of a netting set or, if all the contracts within the netting set mature within less than one year, over the time period of the longest maturity contract in the netting set, where the weights are the proportion of the entire time period that an individual expected exposure represents;

CCR related risks

• (23) ‘rollover risk’ means the amount by which EPE is understated when future transactions with a counterparty are expected to be conducted on an ongoing basis. The additional exposure generated by those future transactions is not included in calculation of EPE;

• (24) ‘counterparty’ for the purposes of Section 7 means any legal or natural person that enters into a netting agreement, and has the contractual capacity to do so;

• (25) ‘contractual cross product netting agreement’ means a bilateral contractual agreement between an institution and a counterparty which creates a single legal obligation (based on netting of covered transactions) covering all bilateral master agreements and transactions belonging to different product categories that are included within the agreement; For the purposes of this definition, ‘different product categories’ means:
• (a) repurchase transactions, securities and commodities lending and borrowing transactions;
• (b) margin lending transactions;
• (c) the contracts listed in Annex II;

• (26) ‘payment leg’ means the payment agreed in an OTC derivative transaction with a linear risk profile which stipulates the exchange of a financial instrument for a payment. In the case of transactions that stipulate the exchange of payment against payment, those two payment legs shall consist of the contractually agreed gross payments, including the notional amount of the transaction.

Section 2 Methods for calculating the exposure value

Article 273

Methods for calculating the exposure value

An institution which does not meet the conditions set out in Article 273a(1) shall not use the method set out in Section 4. An institution which does not meet the conditions set out in Article 273a(2) shall not use the method set out in Section 5.

Institutions may use in combination the methods set out in Sections 3 to 6 on a permanent basis within a group. A single institution shall not use in combination the methods set out in Sections 3 to 6 on a permanent basis.

• (a) the contracts listed in Annex II;

• (b) repurchase transactions;

• (c) securities or commodities lending or borrowing transactions;

• (d) margin lending transactions;

• (e) long settlement transactions.

• (a) Articles 233 to 236;

• (b) in accordance with Article 183, where permission has been granted in accordance with Article 143.

The exposure value for CCR for those credit derivatives shall be zero, unless an institution applies the approach in point (h)(ii) of Article 299(2).

By way of derogation from the first subparagraph, where one margin agreement applies to multiple netting sets with that counterparty and the institution is using one of the methods set out in Sections 3 to 6 to calculate the exposure value of those netting sets, the exposure value shall be calculated in accordance with the relevant Section.

For a given counterparty, 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 between the sum of exposure values across all netting sets with the counterparty and the sum of credit valuation adjustments for that counterparty 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 attributed to the own credit risk of the firm that has been already excluded from own funds in accordance with point (c) of Article 33(1).

For the purposes of the first subparagraph, two OTC derivative contracts are perfectly matching when they meet all the following conditions:

• (a) their risk positions are opposite;

• (b) their features, with the exception of the trade date, are identical;

• (c) their cash flows fully offset each other.

Article 273a

Conditions for using simplified methods for calculating the exposure value

• (a) 10 % of the institution's total assets;

• (b) EUR 300 million.