PART ONE

GENERAL PROVISIONS

TITLE I

SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1

Scope

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, settlement risk and leverage;

(b) requirements limiting large exposures;

(c) liquidity requirements relating to entirely quantifiable, uniform and standardised elements of liquidity risk;

(d) reporting requirements related to points (a), (b) and (c);

(e) public disclosure requirements.

This Regulation lays down uniform rules concerning the own funds and eligible liabilities requirements that resolution entities that are global systemically important institutions (G-SIIs) or part of G-SIIs and material subsidiaries of non-EU G-SIIs 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 Directive 2013/36/EU.

Article 2

Supervisory powers

Article 3

Application of stricter requirements by institutions

This Regulation shall not prevent institutions from holding own funds and their components in excess of, or applying measures that are stricter than those required by this Regulation.

Article 4

Definitions

For the purposes of this Regulation, the following definitions shall apply:

(1) ‘credit institution’ means an undertaking the business of which consists of any of the following: (a) to take deposits or other repayable funds from the public and to grant credits for its own account; (b) to carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU of the European Parliament and of the Council (⁶), where one of the following applies, but the undertaking is not a commodity and emission allowance dealer, a collective investment undertaking, an insurance undertaking, or an investment firm for which the authorisation as a credit institution is waived in accordance with Article 8a of Directive 2013/36/EU: (i) the total value of the consolidated assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is equal to or exceeds EUR 30 billion; (ii) the total value of the assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in that group that are established in the Union, including any of their branches and subsidiaries established in a third country, that individually have total assets of less than EUR 30 billion and that carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU is equal to or exceeds EUR 30 billion; (iii) the total value of the assets of the undertaking established in the Union, including any of its branches and subsidiaries established in a third country, is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in the group that carry out any of the activities referred to in Annex I, Section A, points (3) and (6), to Directive 2014/65/EU, is equal to or exceeds EUR 30 billion, where the consolidating supervisor, in consultation with the supervisory college, so decides in order to address potential risks of circumvention or potential risks for financial stability of the Union; for the purposes of points (b)(ii) and (b)(iii), where the undertaking is part of a third‐country group, the total assets of each branch of the third‐country group authorised in the Union shall be included in the combined total value of the assets of all undertakings in the group;

(2) ‘investment firm’ means an investment firm as defined in point (1) of Article 4(1) of Directive 2014/65/EU which is authorised under that Directive but excludes credit institutions;

(3) ‘institution’ means a credit institution authorised under Article 8 of Directive 2013/36/EU or an undertaking as referred to in Article 8a(3) thereof;

(5) ‘insurance undertaking’ means insurance undertaking as defined in point (1) of Article 13 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (⁷);

(6) ‘reinsurance undertaking’ means reinsurance undertaking as defined in point (4) of Article 13 of Directive 2009/138/EC;

(7) ‘collective investment undertaking’ or ‘CIU’ means a UCITS as defined in Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council (⁸) or an alternative investment fund (AIF) as defined in point (a) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council (⁹);

(8) ‘public sector entity’ means a non-commercial administrative body responsible to central governments, regional governments or local authorities, or to authorities that exercise the same responsibilities as regional governments and local authorities, or a non-commercial undertaking that is owned by or set up and sponsored by central governments, regional governments or local authorities, and that has explicit guarantee arrangements, and may include self-administered bodies governed by law that are under public supervision;

(9) ‘management body’ means management body as defined in point (7) of Article 3(1) of Directive 2013/36/EU;

(10) ‘senior management’ means senior management as defined in point (9) of Article 3(1) of Directive 2013/36/EU;

(11) ‘systemic risk’ means systemic risk as defined in point (10) of Article 3(1) of Directive 2013/36/EU;

(13) ‘originator’ means an originator as defined in point (3) of Article 2 of Regulation (EU) 2017/2402 (¹⁰);

(14) ‘sponsor’ means a sponsor as defined in point (5) of Article 2 of Regulation (EU) 2017/2402;

(14a) ‘original lender’ means an original lender as defined in point (20) of Article 2 of Regulation (EU) 2017/2402;

(15) ‘parent undertaking’ means an undertaking that controls, within the meaning of point (37), one or more undertakings;

(16) ‘subsidiary’ means an undertaking that is controlled, within the meaning of point (37), by another undertaking; subsidiaries of subsidiaries shall also be considered to be subsidiaries of the undertaking that is their original parent undertaking;

(17) ‘branch’ means a place of business which forms a legally dependent part of an institution and which carries out directly all or some of the transactions inherent in the business of institutions;

(18) ‘ancillary services undertaking’ means an undertaking the principal activity of which, whether provided to undertakings inside the group or to clients outside the group, consists of any of the following: (a) a direct extension of banking; (b) operational leasing, the ownership or management of property, the provision of data processing services or any other activity insofar as those activities are ancillary to banking; (c) any other activity considered similar by EBA to those referred to in points (a) and (b);

(19) ‘asset management company’ means an asset management company as defined in point (5) of Article 2 of Directive 2002/87/EC or an AIFM as defined in Article 4(1)(b) of Directive 2011/61/EU, including, unless otherwise provided, third-country entities that carry out similar activities and that are subject to the laws of a third country which applies supervisory and regulatory requirements at least equivalent to those applied in the Union;

(20) ‘financial holding company’ means an undertaking that meets all of the following conditions: (a) it is a financial institution; (b) it is not a mixed financial holding company; (c) it has at least one subsidiary that is an institution; (d) more than 50 % of any of the following indicators are associated, on a steady basis, with subsidiaries that are institutions or financial institutions, and with activities carried out by the undertaking itself that are not related to the acquisition or owning of holdings in subsidiaries when those activities are of the same nature as the ones carried out by institutions or financial institutions: (i) the undertaking’s equity based on its consolidated situation; (ii) the undertaking’s assets based on its consolidated situation; (iii) the undertaking’s revenues based on its consolidated situation; (iv) the undertaking’s personnel based on its consolidated situation; (v) other indicators considered relevant by the competent authority. The competent authority may decide that an entity does not qualify as a financial holding company even if one of the indicators referred to in the first paragraph, points (i) to (iv), is met, where the competent authority considers that the relevant indicator does not convey a fair and true view of the main activities and risks of the group. Before making such decision, the competent authority shall consult EBA and provide a substantiated and detailed qualitative and quantitative justification. The competent authority shall have due regard to EBA’s opinion and, where it decides to deviate from it, shall within three months of the date of receipt of EBA’s opinion, provide to EBA the rationale for deviating from the relevant opinion;

(20a) ‘investment holding company’ means an investment holding company as defined in Article 4(1), point (23), of Regulation (EU) 2019/2033;

(21) ‘mixed financial holding company’ means mixed financial holding company as defined in point (15) of Article 2 of Directive 2002/87/EC;

(22) ‘mixed activity holding company’ means a parent undertaking, other than a financial holding company or an institution or a mixed financial holding company, the subsidiaries of which include at least one institution;

(23) ‘third-country insurance undertaking’ means third-country insurance undertaking as defined in point (3) of Article 13 of Directive 2009/138/EC;

(24) ‘third-country reinsurance undertaking’ means third-country reinsurance undertaking as defined in point (6) of Article 13 of Directive 2009/138/EC;

(25) ‘recognised third-country investment firm’ means a firm meeting all of the following conditions: (a) if it were established within the Union, it would be covered by the definition of an investment firm; (b) it is authorised in a third country; (c) it is subject to and complies with prudential rules considered by the competent authorities at least as stringent as those laid down in this Regulation or in Directive 2013/36/EU;

(26) ‘financial institution’ means an undertaking that meets both of the following conditions: (a) it is not an institution, a pure industrial holding company, a securitisation special purpose entity, an insurance holding company as defined in Article 212(1), point (f), of Directive 2009/138/EC or a mixed-activity insurance holding company as defined in Article 212(1), point (g), of that Directive, except where a mixed-activity insurance holding company has a subsidiary institution; (b) it meets one or more of the following conditions: (i) the principal activity of the undertaking is to acquire or own holdings or to pursue one or more of the activities listed in Annex I, points 2 to 12 and points 15, 16 and 17, to Directive 2013/36/EU, or to pursue one or more of the services or activities listed in Annex I, Section A or B, to Directive 2014/65/EU in relation to financial instruments listed in Annex I, Section C, to Directive 2014/65/EU; (ii) the undertaking is an investment firm, a mixed financial holding company, an investment holding company, a payment services provider as categorised under Article 1(1), points (a) to (d), of Directive (EU) 2015/2366 of the European Parliament and of the Council (¹¹), an asset management company or an ancillary services undertaking;

(26a) ‘pure industrial holding company’ means an undertaking that meets all of the following conditions: (a) its principal activity is to acquire or own holdings; (b) it is not referred to in point (27)(a), or point (27)(d) to (l), of this paragraph and is not an investment firm or an asset management company, or a payment service provider as categorised under Article 1(1), points (a) to (d), of Directive (EU) 2015/2366; (c) it does not hold any participations in a financial sector entity;

(27) ‘financial sector entity’ means any of the following: (a) an institution; (b) a financial institution; ————— (d) an insurance undertaking; (e) a third-country insurance undertaking; (f) a reinsurance undertaking; (g) a third-country reinsurance undertaking; (h) an insurance holding company as defined in point (f) of Article 212(1) of Directive 2009/138/EC; (k) an undertaking excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive; (l) a third-country undertaking with a main business comparable to any of the entities referred to in points (a) to (k);

(28) ‘parent institution in a Member State’ means an institution in a Member State which has an institution or a financial institution as a subsidiary, or which holds a participation in an institution or financial institution, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State;

(29) ‘EU parent institution’ means a parent institution in a Member State which is not a subsidiary of another institution authorised in any Member State, or of a financial holding company or mixed financial holding company set up in any Member State;

(29a) ‘parent investment firm in a Member State’ means a parent undertaking in a Member State that is an investment firm;

(29b) ‘EU parent investment firm’ means an EU parent undertaking that is an investment firm;

(29c) ‘parent credit institution in a Member State’ means a parent institution in a Member State that is a credit institution;

(29d) ‘EU parent credit institution’ means an EU parent institution that is a credit institution;

(30) ‘parent financial holding company in a Member State’ means a financial holding company which is not itself a subsidiary of an institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State;

(31) ‘EU parent financial holding company’ means a parent financial holding company in a Member State which is not a subsidiary of an institution authorised in any Member State or of another financial holding company or mixed financial holding company set up in any Member State;

(32) ‘parent mixed financial holding company in a Member State’ means a mixed financial holding company which is not itself a subsidiary of an institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in that same Member State;

(33) ‘EU parent mixed financial holding company’ means a parent mixed financial holding company in a Member State which is not a subsidiary of an institution authorised in any Member State or of another financial holding company or mixed financial holding company set up in any Member State;

(34) ‘central counterparty’ or ‘CCP’ means a CCP as defined in point (1) of Article 2 of Regulation (EU) No 648/2012;

(35) ‘participation’ means a participating interest as defined in Article 2, point (2), of Directive 2013/34/EU of the European Parliament and of the Council (¹²), or the ownership, direct or indirect, of 20 % or more of the voting rights or capital of an undertaking;

(36) ‘qualifying holding’ means a direct or indirect holding in an undertaking which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking;

(37) ‘control’ means the relationship between a parent undertaking and a subsidiary, as described in Article 22 of Directive 2013/34/EU, or in the accounting standards to which an institution is subject under Regulation (EC) No 1606/2002 of the European Parliament and of the Council (¹³), or a similar relationship between any natural or legal person and an undertaking;

(38) ‘close links’ means a situation in which two or more natural or legal persons are linked in any of the following ways: (a) participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking; (b) control; (c) a permanent link of both or all of them to the same third person by a control relationship;

(39) ‘group of connected clients’ means any of the following: (a) two or more natural or legal persons who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others; (b) two or more natural or legal persons between whom there is no relationship of control as described in point (a) but who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, in particular funding or repayment difficulties, the other or all of the others would also be likely to encounter funding or repayment difficulties. Notwithstanding points (a) and (b), where a central government has direct control over or is directly interconnected with more than one natural or legal person, the set consisting of the central government and all of the natural or legal persons directly or indirectly controlled by it in accordance with point (a), or interconnected with it in accordance with point (b), may be considered as not constituting a group of connected clients. Instead the existence of a group of connected clients formed by the central government and other natural or legal persons may be assessed separately for each of the persons directly controlled by it in accordance with point (a), or directly interconnected with it in accordance with point (b), and all of the natural and legal persons which are controlled by that person according to point (a) or interconnected with that person in accordance with point (b), including the central government. The same applies in cases of regional governments or local authorities to which Article 115(2) applies. Two or more natural or legal persons who fulfil the conditions set out in point (a) 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;

(40) ‘competent authority’ means a public authority or body officially recognised by national law, which is empowered by national law to supervise institutions as part of the supervisory system in operation in the Member State concerned;

(41) ‘consolidating supervisor’ means a competent authority responsible for the exercise of supervision on a consolidated basis in accordance with Article 111 of Directive 2013/36/EU;

(42) ‘authorisation’ means an instrument issued in any form by the authorities by which the right to carry out the business is granted;

(43) ‘home Member State’ means the Member State in which an institution has been granted authorisation;

(44) ‘host Member State’ means the Member State in which an institution has a branch or in which it provides services;

(45) ‘ESCB central banks’ means the national central banks that are members of the European System of Central Banks (ESCB), and the European Central Bank (ECB);

(46) ‘central banks’ means the ESCB central banks and the central banks of third countries;

(47) ‘consolidated situation’ means the situation that results from applying the requirements of this Regulation in accordance with Part One, Title II, Chapter 2 to an institution as if that institution formed, together with one or more other entities, a single institution;

(48) ‘consolidated basis’ means on the basis of the consolidated situation;

(49) ‘sub-consolidated basis’ means on the basis of the consolidated situation of a parent institution, financial holding company or mixed financial holding company, excluding a sub-group of entities, or on the basis of the consolidated situation of a parent institution, financial holding company or mixed financial holding company that is not the ultimate parent institution, financial holding company or mixed financial holding company;

(50) ‘financial instrument’ means any of the following: (a) a contract that gives rise to both a financial asset of one party and a financial liability or equity instrument of another party; (b) an instrument specified in Section C of Annex I to Directive 2004/39/EC; (c) a derivative financial instrument; (d) a primary financial instrument; (e) a cash instrument. The instruments referred to in points (a), (b) and (c) are only financial instruments if their value is derived from the price of an underlying financial instrument or another underlying item, a rate, or an index;

(51) ‘initial capital’ means the amounts and types of own funds specified in Article 12 of Directive 2013/36/EU;

(52) ‘operational risk’ means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including, but not limited to, legal risk, model risk or information and communication technology (ICT) risk, but excluding strategic and reputational risk;

(52a) ‘legal risk’ means the risk of loss, including, expenses, fines, penalties or punitive damages, which an institution might incur as a consequence of events that result in legal proceedings, including the following: (a) supervisory actions and private settlements; (b) failure to act where action is necessary to comply with a legal obligation; (c) action taken to avoid compliance with a legal obligation; (d) misconduct events, which are events that arise from wilful or negligent misconduct, including inappropriate supply of financial services or the provision of inadequate or misleading information on the financial risk of products sold by the institution; (e) non-compliance with any requirement derived from national or international statutory or legislative provisions; (f) non-compliance with any requirement derived from contractual arrangements, or with internal rules and codes of conduct established in accordance with national or international rules and practices; (g) non-compliance with rules on ethics;

(52b) ‘model risk’ means the risk of loss resulting from decisions that are principally based on the output of internal models, due to errors in the design, development, parameter estimation, implementation, use or monitoring of such models, including the following: (a) the improper design of a selected internal model and its characteristics; (b) the inadequate verification of a selected internal model’s suitability for the financial instrument to be evaluated or for the product to be priced, or of the selected internal model’s suitability for the applicable market conditions; (c) errors in the implementation of a selected internal model; (d) incorrect mark-to-market valuations and risk measurement as a result of an error when booking a trade into the trading system; (e) the use of a selected internal model or of its outputs for a purpose for which that model was not intended or designed, including manipulation of the modelling parameters; (f) the untimely or ineffective monitoring or validation of model performance or of the predictive ability to assess whether the selected internal model remains fit for purpose;

(52c) ‘ICT risk’ means the risk of loss related to any reasonably identifiable circumstances related to the use of network and information systems which, if materialised, might compromise the security of the network and information systems, of any technology-dependent tool or process, of operations and processes, or of the provision of services, by producing adverse effects in the digital or physical environment;

(52d) ‘environmental, social and governance risk’ or ‘ESG risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of environmental, social or governance (ESG) factors on that institution’s counterparties or invested assets; ESG risks materialise through the traditional categories of financial risks;

(52e) ‘environmental risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of environmental factors on that institution’s counterparties or invested assets, including factors related to the transition towards the objectives set out in Article 9 of Regulation (EU) 2020/852 of the European Parliament and of the Council (¹⁴); environmental risk includes both physical risk and transition risk;

(52f) ‘physical risk’, as part of the environmental risk, means the risk of any negative financial impact on an institution stemming from the current or prospective impact of the physical effects of environmental factors on that institution’s counterparties or invested assets;

(52g) ‘transition risk’, as part of the environmental risk, means the risk of any negative financial impact on an institution stemming from the current or prospective impact of the transition to an environmentally sustainable economy on that institution’s counterparties or invested assets;

(52h) ‘social risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of social factors on its counterparties or invested assets;

(52i) ‘governance risk’ means the risk of any negative financial impact on an institution stemming from the current or prospective impact of governance factors on that institution’s counterparties or invested assets;

(53) ‘dilution risk’ means the risk that an amount receivable is reduced through cash or non-cash credits to the obligor;

(54) ‘probability of default’ or ‘PD’ means the probability of default of an obligor or, where applicable, of a credit facility over a one-year period, and, in the context of dilution risk, the probability of dilution over a one-year period;

(55) ‘loss given default’ or ‘LGD’ means the ratio of the loss on an exposure related to a single facility due to the default of an obligor or, where applicable, of a credit facility to the amount outstanding at default or at a given reference date after the date of default, and, in the context of dilution risk, the loss given dilution meaning the ratio of the loss on an exposure related to a purchased receivable due to dilution, to the amount outstanding of the purchased receivable;

(56) ‘conversion factor’ or ‘credit conversion factor’ or ‘CCF’ means the ratio of the undrawn amount of a commitment from a single facility that could be drawn from that single facility from a certain point in time before default and therefore outstanding at default to the undrawn amount of the commitment from that facility, the extent of the commitment being determined by the advised limit, unless the unadvised limit is higher;

(57) ‘credit risk mitigation’ means a technique used by an institution to reduce the credit risk associated with an exposure or exposures which that institution continues to hold;

(58) ‘funded credit protection’ or ‘FCP’ means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution is derived from the right of that institution, in the event of the default of the obligor or the credit facility, or on the occurrence of other specified credit events relating to the obligor, to liquidate, or to obtain transfer or appropriation of, or to retain certain assets or amounts, or to reduce the amount of the exposure to, or to replace it with, the amount of the difference between the amount of the exposure and the amount of a claim on the institution;

(59) ‘unfunded credit protection’ or ‘UFCP’ means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution is derived from the obligation of a third party to pay an amount in the event of the default of the obligor or the credit facility, or the occurrence of other specified credit events;

(60) ‘cash assimilated instrument’ means a certificate of deposit, a bond, including a covered bond, or any other non-subordinated instrument, which has been issued by a lending institution, for which that lending institution has already received full payment and which shall be unconditionally reimbursed by the institution at its nominal value;

(60a) ‘gold bullion’ means gold in the form of a commodity, including gold bars, ingots and coins, commonly accepted by the bullion market, where liquid markets for bullion exist, and the value of which is determined by the value of the gold content, defined by purity and mass, rather than by its interest to numismatists;

(61) ‘securitisation’ means a securitisation as defined in point (1) of Article 2 of Regulation (EU) 2017/2402;

(62) ‘securitisation position’ means a securitisation position as defined in point (19) of Article 2 of Regulation (EU) 2017/2402;

(63) ‘resecuritisation’ means a resecuritisation as defined in point (4) of Article 2 of Regulation (EU) 2017/2402;

(64) ‘re-securitisation position’ means an exposure to a re-securitisation;

(65) ‘credit enhancement’ means a contractual arrangement whereby the credit quality of a position in a securitisation is improved in relation to what it would have been if the enhancement had not been provided, including the enhancement provided by more junior tranches in the securitisation and other types of credit protection;

(66) ‘securitisation special purpose entity’ or ‘SSPE’ means a securitisation special purpose entity or SSPE as defined in point (2) of Article 2 of Regulation (EU) 2017/2402;

(67) ‘tranche’ means a tranche as defined in point (6) of Article 2 of Regulation (EU) 2017/2402;

(68) ‘marking to market’ means the valuation of positions at readily available close out prices that are sourced independently, including exchange prices, screen prices or quotes from several independent reputable brokers;

(69) ‘marking to model’ means any valuation which has to be benchmarked, extrapolated or otherwise calculated from one or more market inputs;

(70) ‘independent price verification’ means a process by which market prices or marking to model inputs are regularly verified for accuracy and independence;

(71) ‘eligible capital’ means the following: (a) for the purposes of Title III of Part Two it means the sum of the following: (i) Tier 1 capital as referred to in Article 25, without applying the deduction in Article 36(1)(k)(i); (ii) Tier 2 capital as referred to in Article 71 that is equal to or less than one third of Tier 1 capital as calculated pursuant to point (i) of this point; (b) for the purposes of Article 97 it means the sum of the following: (i) Tier 1 capital as referred to in Article 25; (ii) Tier 2 capital as referred to in Article 71 that is equal to or less than one third of Tier 1 capital;

(72) ‘recognised exchange’ means an exchange which meets all of the following conditions: (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 point (a) of Article 25(4) of Directive 2014/65/EU; (b) it has a clearing mechanism whereby contracts listed in Annex II are subject to daily margin requirements which, in the opinion of the competent authorities, provide appropriate protection;

(73) ‘discretionary pension benefits’ means enhanced pension benefits granted on a discretionary basis by an institution to an employee as part of that employee's variable remuneration package, which do not include accrued benefits granted to an employee under the terms of the company pension scheme;

(74) ‘mortgage lending value’ means the value of immovable property as determined by a prudent assessment of the future marketability of the property taking into account long-term sustainable aspects of the property, the normal and local market conditions, the current use and alternative appropriate uses of the property;

(74a) ‘property value’ means the value of a residential property or commercial immovable property determined in accordance with Article 229(1);

(75) ‘residential property’ means any of the following: (a) an immovable property which has the nature of a dwelling and satisfies all applicable laws and regulations enabling the property to be occupied for housing purposes; (b) an immovable property which has the nature of a dwelling and is still under construction, provided that there is the expectation that the property will satisfy all applicable laws and regulations enabling the property to be occupied for housing purposes; (c) the right to inhabit an apartment in housing cooperatives located in Sweden; (d) land accessory to a property referred to in point (a), (b) or (c);

(75a) ‘commercial immovable property’ means any immovable property that is not residential property;

(75b) ‘income producing real estate exposure’ or ‘IPRE exposure’ means an exposure secured by one or more residential properties or commercial immovable properties where the fulfilment of the credit obligations related to the exposure materially depends on the cash flows generated by those immovable properties securing that exposure, rather than on the capacity of the obligor to fulfil the credit obligations from other sources; the primary source of such cash flows being lease or rental payments, or proceeds from the sale of the residential property or commercial immovable property;

(75c) ‘non-income-producing real estate exposure’ or ‘non-IPRE exposure’ means any exposure secured by one or more residential properties or commercial immovable properties that is not an IPRE exposure;

(75d) ‘exposure secured by residential property’ or ‘exposure secured by a mortgage on residential property’ means an exposure secured by residential property or an exposure regarded as such in accordance with Article 108(4);

(75e) ‘exposure secured by commercial immovable property’ or ‘exposure secured by a mortgage on commercial immovable property’ means an exposure secured by a commercial immovable property;

(75f) ‘exposure secured by immovable property’ or ‘exposure secured by a mortgage on immovable property’, or ‘exposure secured by immovable property collateral’ means an exposure secured by a residential property or commercial immovable property or an exposure regarded as such in accordance with Article 108(4);

(76) ‘market value’ means, for the purposes of immovable property, the estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion;

(77) ‘applicable accounting framework’ means the accounting standards to which the institution is subject under Regulation (EC) No 1606/2002 or Directive 86/635/EEC;

(78) ‘one-year default rate’ means the ratio between the number of obligors or, where the definition of default is applied at credit facility level pursuant to Article 178(1), second subparagraph, credit facilities in respect of which a default is considered to have occurred during a period that starts from one year prior to a date of observation T, and the number of obligors, or where the definition of default is applied at credit facility level pursuant to Article 178(1), second subparagraph, credit facilities assigned to this grade or pool one year prior to that date of observation T;

(78a) ‘land acquisition, development and construction exposures’, or ‘ADC exposures’, means exposures to corporates or special purpose entities financing any land acquisition for development and construction purposes, or financing the development and construction of any residential property or commercial immovable property;

(78b) ‘non-ADC exposure’ means any exposure secured by one or more residential properties or commercial immovable properties that is not an ADC exposure;

(80) ‘trade finance’ means financing, including guarantees, connected to the exchange of goods and services through financial products of fixed short-term maturity, generally of less than one year, without automatic rollover;

(81) ‘officially supported export credits’ means loans or credits to finance the export of goods and services for which an official export credit agency provides guarantees, insurance or direct financing;

(82) ‘repurchase agreement’ and ‘reverse repurchase agreement’ mean any agreement in which an institution or its counterparty transfers securities or commodities or guaranteed rights relating to title to securities or commodities where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities and the agreement does not allow an institution to transfer or pledge a particular security or commodity to more than one counterparty at one time, subject to a commitment to repurchase them, or substituted securities or commodities of the same description at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the institution selling the securities or commodities and a reverse repurchase agreement for the institution buying them;

(83) ‘repurchase transaction’ means any transaction governed by a repurchase agreement or a reverse repurchase agreement;

(84) ‘simple repurchase agreement’ means a repurchase transaction of a single asset, or of similar, non-complex assets, as opposed to a basket of assets;

(85) ‘positions held with trading intent’ means any of the following: (a) proprietary positions and positions arising from client servicing and market making; (b) positions intended to be resold short term; (c) positions intended to benefit from actual or expected short-term price differences between buying and selling prices or from other price or interest rate variations;

(86) ‘trading book’ means all positions in financial instruments and commodities held by an institution either with trading intent or to hedge positions held with trading intent in accordance with Article 104;

(87) ‘multilateral trading facility’ means multilateral trading facility as defined in point 15 of Article 4 of Directive 2004/39/EC;

(88) ‘qualifying central counterparty’ or ‘QCCP’ means a central counterparty that has been either authorised in accordance with Article 14 of Regulation (EU) No 648/2012 or recognised in accordance with Article 25 of that Regulation;

(89) ‘default fund’ means a fund established by a CCP in accordance with Article 42 of Regulation (EU) No 648/2012 and used in accordance with Article 45 of that Regulation;

(90) ‘pre-funded contribution to the default fund of a CCP’ means a contribution to the default fund of a CCP that is paid in by an institution;

(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 arising from contracts and transactions listed in points (a), (b) and (c) of Article 301(1), as well as initial margin;

(92) ‘regulated market’ means regulated market as defined in point (14) of Article 4 of Directive 2004/39/EC;

(93) ‘leverage’ means the relative size of an institution's assets, off-balance sheet obligations and contingent obligations to pay or to deliver or to provide collateral, including obligations from received funding, made commitments, derivatives or repurchase agreements, but excluding obligations which can only be enforced during the liquidation of an institution, compared to that institution's own funds;

(94) ‘risk of excessive leverage’ means the risk resulting from an institution's vulnerability due to leverage or contingent leverage that may require unintended corrective measures to its business plan, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets;

(95) ‘credit risk adjustment’ means the amount of specific and general loan loss provision for credit risks that has been recognised in the financial statements of the institution in accordance with the applicable accounting framework;

(96) ‘internal hedge’ means a position that materially offsets the component risk elements between a trading book position and one or more non-trading book positions or between two trading desks;

(97) ‘reference obligation’ means an obligation used for the purposes of determining the cash settlement value of a credit derivative;

(98) ‘external credit assessment institution’ or ‘ECAI’ means a credit rating agency that is registered or certified in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (¹⁵) or a central bank issuing credit ratings which are exempt from the application of Regulation (EC) No 1060/2009;

(99) ‘nominated ECAI’ means an ECAI nominated by an institution;

(100) ‘accumulated other comprehensive income’ has the same meaning as under International Accounting Standard (IAS) 1, as applicable under Regulation (EC) No 1606/2002;

(101) ‘basic own funds’ means basic own funds within the meaning of Article 88 of Directive 2009/138/EC;

(102) ‘Tier 1 own-fund insurance items’ means basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 1 within the meaning of Directive 2009/138/EC in accordance with Article 94(1) of that Directive;

(103) ‘additional Tier 1 own-fund insurance items’ means basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 1 within the meaning of Directive 2009/138/EC in accordance with Article 94(1) of that Directive and the inclusion of those items is limited by the delegated acts adopted in accordance with Article 99 of that Directive;

(104) ‘Tier 2 own-fund insurance items’ means basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 2 within the meaning of Directive 2009/138/EC in accordance with Article 94(2) of that Directive;

(105) ‘Tier 3 own-fund insurance items’ means basic own-fund insurance items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified in Tier 3 within the meaning of Directive 2009/138/EC in accordance with Article 94(3) of that Directive;

(106) ‘deferred tax assets’ has the same meaning as under the applicable accounting framework;

(107) ‘deferred tax assets that rely on future profitability’ means deferred tax assets the future value of which may be realised only in the event the institution generates taxable profit in the future;

(108) ‘deferred tax liabilities’ has the same meaning as under the applicable accounting framework;

(109) ‘defined benefit pension fund assets’ means the assets of a defined pension fund or plan, as applicable, calculated after they have been reduced by the amount of obligations under the same fund or plan;

(110) ‘distributions’ means the payment of dividends or interest in any form;

(111) ‘financial undertaking’ has the same meaning as under points (25)(b) and (d) of Article 13 of Directive 2009/138/EC;

(112) ‘funds for general banking risk’ has the same meaning as under Article 38 of Directive 86/635/EEC;

(113) ‘goodwill’ has the same meaning as under the applicable accounting framework;

(114) ‘indirect holding’ means any exposure to an intermediate entity that has an exposure to capital instruments issued by a financial sector entity or to liabilities issued by an institution where, in the event the capital instruments issued by the financial sector entity or the liabilities issued by the institution were permanently written off, the loss that the institution would incur as a result would not be materially different from the loss the institution would incur from a direct holding of those capital instruments issued by the financial sector entity or of those liabilities issued by the institution;

(115) ‘intangible assets’ has the same meaning as under the applicable accounting framework and includes goodwill;

(116) ‘other capital instruments’ means capital instruments issued by financial sector entities that do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments or Tier 1 own-fund insurance items, additional Tier 1 own-fund insurance items, Tier 2 own-fund insurance items or Tier 3 own-fund insurance items;

(117) ‘other reserves’ means reserves within the meaning of the applicable accounting framework that are required to be disclosed under the applicable accounting standard, excluding any amounts already included in accumulated other comprehensive income or retained earnings;

(118) ‘own funds’ means the sum of Tier 1 capital and Tier 2 capital;

(119) ‘own funds instruments’ means capital instruments issued by the institution that qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments;

(120) ‘minority interest’ means the amount of Common Equity Tier 1 capital of a subsidiary of an institution that is attributable to natural or legal persons other than those included in the prudential scope of consolidation of the institution;

(121) ‘profit’ has the same meaning as under the applicable accounting framework;

(122) ‘reciprocal cross holding’ means a holding by an institution of the own funds instruments or other capital instruments issued by financial sector entities where those entities also hold own funds instruments issued by the institution;

(123) ‘retained earnings’ means profits and losses brought forward as a result of the final application of profit or loss under the applicable accounting framework;

(124) ‘share premium account’ has the same meaning as under the applicable accounting framework;

(125) ‘temporary differences’ has the same meaning as under the applicable accounting framework;

(126) ‘synthetic holding’ means an investment by an institution in a financial instrument the value of which is directly linked to the value of the capital instruments issued by a financial sector entity or to the value of the liabilities issued by an institution;

(127) ‘cross-guarantee scheme’ means a scheme that meets all the following conditions: (a) the institutions fall within the same institutional protection scheme as referred to in Article 113(7) or are permanently affiliated with a network to a central body; (b) the institutions are fully consolidated in accordance with Article 22 of Directive 2013/34/EU and are included in the supervision on a consolidated basis of an institution which is a parent institution in a Member State in accordance with Part One, Title II, Chapter 2, of this Regulation and subject to own funds requirements; (c) the parent institution in a Member State and the subsidiaries are established in the same Member State and are subject to authorisation and supervision by the same competent authority; (d) the parent institution in a Member State and the subsidiaries have entered into a contractual or statutory liability arrangement which protects those institutions and in particular ensures their liquidity and solvency, in order to avoid bankruptcy in the case that it becomes necessary; (e) arrangements are in place to ensure the prompt provision of financial means in terms of capital and liquidity if required under the contractual or statutory liability arrangement referred to in point (d); (f) the adequacy of the arrangements referred to in points (d) and (e) is monitored on a regular basis by the competent authority; (g) the minimum period of notice for a voluntary exit of a subsidiary from the liability arrangement is 10 years; (h) the competent authority is empowered to prohibit a voluntary exit of a subsidiary from the liability arrangement;

(128) ‘distributable items’ means the amount of the profits at the end of the last financial year plus any profits brought forward and reserves available for that purpose, before distributions to holders of own funds instruments, less any losses brought forward, any profits which are non-distributable pursuant to Union or national law or the institution's by-laws and any sums placed in non-distributable reserves in accordance with national law or the statutes of the institution, in each case with respect to the specific category of own funds instruments to which Union or national law, institutions' by-laws, or statutes relate; such profits, losses and reserves being determined on the basis of the individual accounts of the institution and not on the basis of the consolidated accounts;

(129) ‘servicer’ means a servicer as defined in point (13) of Article 2 of Regulation (EU) 2017/2402;

(130) ‘resolution authority’ means a resolution authority as defined in point (18) of Article 2(1) of Directive 2014/59/EU;

(130a) ‘relevant third-country authority’ means a third-country authority as defined in Article 2(1), point (90), of Directive 2014/59/EU;

(131) ‘resolution entity’ means a resolution entity as defined in point (83a) of Article 2(1) of Directive 2014/59/EU;

(132) ‘resolution group’ means a resolution group as defined in point (83b) of Article 2(1) of Directive 2014/59/EU;

(133) ‘global systemically important institution’ or ‘G-SII’ means a G-SII that has been identified in accordance with Article 131(1) and (2) of Directive 2013/36/EU;

(134) ‘non-EU global systemically important institution’ or ‘non-EU G-SII’ means a global systemically important banking group or a bank (G-SIBs) that is not a G-SII and that is included in the list of G-SIBs published by the Financial Stability Board, as regularly updated;

(135) ‘material subsidiary’ means a subsidiary that on an individual or consolidated basis meets any of the following conditions: (a) the subsidiary holds more than 5 % of the consolidated risk-weighted assets of its original parent undertaking; (b) the subsidiary generates more than 5 % of the total operating income of its original parent undertaking; (c) the total exposure measure, referred to in Article 429(4) of this Regulation, of the subsidiary is more than 5 % of the consolidated total exposure measure of its original parent undertaking; for the purpose of determining the material subsidiary, where Article 21b(2) of Directive 2013/36/EU applies, the two intermediate EU parent undertakings shall count as a single subsidiary on the basis of their consolidated situation;

(136) ‘G-SII entity’ means an entity with legal personality that is a G-SII or is part of a G-SII or of a non-EU G-SII;

(137) ‘bail-in tool’ means a bail-in tool as defined in point (57) of Article 2(1) of Directive 2014/59/EU;

(138) ‘group’ means a group of undertakings of which at least one is an institution and which consists of a parent undertaking and its subsidiaries, or of undertakings that are related to each other as set out in Article 22 of Directive 2013/34/EU of the European Parliament and of the Council (¹⁶);

(139) ‘securities financing transaction’ means a repurchase transaction, a securities or commodities lending or borrowing transaction, or a margin lending transaction;

(140) ‘initial margin’ or ‘IM’ means any collateral, other than variation margin, collected from or posted to an entity to cover the current and potential future exposure of a transaction or of a portfolio of transactions in the period needed to liquidate those transactions, or to re-hedge their market risk, following the default of the counterparty to the transaction or portfolio of transactions;

(141) ‘market risk’ means the risk of losses arising from movements in market prices, including in foreign exchange rates or commodity prices;

(142) ‘foreign exchange risk’ means the risk of losses arising from movements in foreign exchange rates;

(143) ‘commodity risk’ means the risk of losses arising from movements in commodity prices;

(144) ‘trading desk’ means a well-identified group of dealers established by the institution in accordance with Article 104b(1) to jointly manage a portfolio of trading book positions, or the non-trading book positions referred to in paragraphs (5) and (6) of that Article, in accordance with a well-defined and consistent business strategy and operating under the same risk management structure;

(145) ‘small and non-complex institution’ means an institution that meets all the following conditions: (a) it is not a large institution; (b) the total value of its assets on an individual basis or, where applicable, on a consolidated basis in accordance with this Regulation and Directive 2013/36/EU is on average equal to or less than the threshold of EUR 5 billion over the four-year period immediately preceding the current annual reporting period; Member States may lower that threshold; (c) it is not subject to any obligations, or is subject to simplified obligations, in relation to recovery and resolution planning in accordance with Article 4 of Directive 2014/59/EU; (d) its trading book business is classified as small within the meaning of Article 94(1); (e) the total value of its derivative positions held with trading intent does not exceed 2 % of its total on- and off-balance-sheet assets and the total value of its overall derivative positions does not exceed 5 %, both calculated in accordance with Article 273a(3); (f) the institution’s consolidated assets or liabilities relating to activities with counterparties located in the European Economic Area, excluding intragroup exposures in the European Economic Area, exceed 75 % of both the institution’s consolidated total assets and liabilities, excluding in both cases the intragroup exposures; (g) the institution does not use internal models to meet the prudential requirements in accordance with this Regulation except for subsidiaries using internal models developed at the group level, provided that the group is subject to the disclosure requirements laid down in Article 433a or 433c on a consolidated basis; (h) the institution has not communicated to the competent authority an objection to being classified as a small and non-complex institution; (i) the competent authority has not decided that the institution is not to be considered a small and non-complex institution on the basis of an analysis of its size, interconnectedness, complexity or risk profile;

(146) ‘large institution’ means an institution that meets any of the following conditions: (a) it is a G-SII; (b) it has been identified as an other systemically important institution (O-SII) in accordance with Article 131(1) and (3) of Directive 2013/36/EU; (c) it is, in the Member State in which it is established, one of the three largest institutions in terms of total value of assets; (d) the total value of its assets on an individual basis or, where applicable, on the basis of its consolidated situation in accordance with this Regulation and Directive 2013/36/EU is equal to or greater than EUR 30 billion;

(147) ‘large subsidiary’ means a subsidiary that qualifies as a large institution;

(148) ‘non-listed institution’ means an institution that has not issued securities that are admitted to trading on a regulated market of any Member State, within the meaning of point (21) of Article 4(1) of Directive 2014/65/EU;

(149) ‘financial report’ means, for the purposes of Part Eight, a financial report within the meaning of Articles 4 and 5 of Directive 2004/109/EC of the European Parliament and of the Council (¹⁷);

(150) ‘commodity and emission allowance dealer’ means an undertaking the main business of which consists exclusively of the provision of investment services or activities in relation to commodity derivatives or commodity derivative contracts referred to in points (5), (6), (7), (9) and (10), derivatives of emission allowances referred to in point (4), or emission allowances referred to in point (11) of Section C of Annex I to Directive 2014/65/EU.

(151) ‘revolving exposure’ means any exposure whereby the borrower’s outstanding balance is permitted to fluctuate based on its decisions to borrow and repay, up to an agreed limit;

(152) ‘transactor exposure’ means any revolving exposure that has at least 12 months of repayment history and that is one of the following: (a) an exposure for which, on a regular basis of at least every 12 months, the balance to be repaid at the next scheduled repayment date is determined as the drawn amount at a predefined reference date, with a scheduled repayment date not later than after 12 months, provided that the balance has been repaid in full at each scheduled repayment date for the previous 12 months; (b) an overdraft facility where there have been no drawdowns over the previous 12 months;

(153) ‘fossil fuel sector entity’ means a company, enterprise or undertaking statistically classified as having its principal economic activity in the coal, oil or gas sector of economic activities, as set out in Annex XXXIX, Template 3, to Commission Implementing Regulation (EU) 2021/637 (¹⁸) and as identified by reference to the statistical classification of economic activities (NACE Revision 2) codes listed in Annex I, Sections B, C, D and G, to Regulation (EC) No 1893/2006 of the European Parliament and of the Council (¹⁹); where the principal economic activity of a company, enterprise or undertaking is not classified using the NACE Revision 2 codes set out in Regulation (EC) No 1893/2006, or a national classification derived therefrom, institutions shall conservatively determine whether such company, enterprise or undertaking has its principal activity in one of those sectors;

(154) ‘exposures subject to the impact of environmental or social factors’ means exposures hindering the ambition of the Union to achieve its regulatory objectives relating to ESG factors, in a way that could have a negative financial impact on institutions in the Union;

(155) ‘shadow banking entity’ means an entity that carries out banking activities outside the regulated framework.

For the purposes of the first subparagraph, points (1)(b)(ii) and (iii), where the undertaking is part of a third-country group, the total assets of each branch of the third-country group authorised in the Union shall be included in the combined total value of the assets of all undertakings in the group.

For the purposes of the first subparagraph, point (1)(b)(iii), the consolidating supervisor may request all relevant information from the undertaking in order to take its decision.

For the purposes of the first subparagraph, point (52a), legal risk shall not comprise refunds to third parties or employees and goodwill payments due to business opportunities, where no breach of any rules or ethical conduct has occurred and where the institution has fulfilled its obligations on a timely basis. Nor shall legal risk comprise external legal costs where the event giving rise to those external costs is not an operational risk event.

For the purposes of the first subparagraph, point (145)(e), of this paragraph, an institution may exclude derivative positions it entered with its non-financial clients and the derivative positions it uses to hedge those positions, provided that the combined value of the excluded positions calculated in accordance with Article 273a(3) does not exceed 10 % of the institution’s total on- and off-balance-sheet assets.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.

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

Article 5

Definitions specific to capital requirements for credit risk

For the purposes of Part Three, Title II, the following definitions shall apply:

(1) ‘exposure’ means an asset or off-balance sheet item;

(2) ‘loss’ means economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument;

(3) ‘expected loss’ or ‘EL’ means the ratio, related to a single facility, of the amount expected to be lost on an exposure from any of the following: (a) a potential default of an obligor over a one-year period to the amount outstanding at default; (b) a potential dilution event over a one-year period to the amount outstanding at the date of occurrence of the dilution event;

(4) ‘credit obligation’ means any obligation arising from a credit contract, including principal, accrued interest and fees, owed by an obligor;

(5) ‘credit exposure’ means any on- or off -balance-sheet item, that results, or may result, in a credit obligation;

(6) ‘facility’ or ‘credit facility’ means a credit exposure arising from a contract or a set of contracts between an obligor and an institution;

(7) ‘margin of conservatism’ means an add-on incorporated in risk parameter estimates to account for the expected range of estimation errors stemming from identified deficiencies in data, methods, models, and changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, as well as from general estimation error;

(8) ‘appropriate adjustment’ means the impact on risk parameter estimates resulting from the application of methodologies within the estimation of risk parameters to correct the identified deficiencies in data and in estimation methods, and to account for changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, to the extent possible in order to avoid biases in risk parameter estimates;

(9) ‘small and medium-sized enterprise’ or ‘SME’ means a company, enterprise or undertaking which, according to its most recent consolidated accounts, has an annual turnover not exceeding EUR 50 000 000 ;

(10) ‘commitment’ means any contractual arrangement that an institution offers to a client, and is accepted by that client, to extend credit, purchase assets or issue credit substitutes; and any such arrangement that can be unconditionally cancelled by an institution at any time without prior notice to an obligor or any arrangement that can be cancelled by an institution where an obligor fails to meet the conditions set out in the facility documentation, including conditions that are required to be met by the obligor prior to any initial or subsequent drawdown under the arrangement, unless contractual arrangements meet all of the following conditions: (a) contractual arrangements where the institution receives no fees or commissions to establish or maintain those contractual arrangements; (b) contractual arrangements where the client is required to apply to the institution for the initial and each subsequent drawdown under those contractual arrangements; (c) contractual arrangements where the institution has full authority, regardless of the fulfilment by the client of the conditions set out in the contractual arrangement documentation, over the execution of each drawdown; (d) the contractual arrangements allow the institution to assess the creditworthiness of the client immediately prior to deciding on the execution of each drawdown and the institution has implemented and applies internal procedures that ensure that such an assessment is being made before the execution of each drawdown; (e) contractual arrangements that are offered to a corporate entity, including an SME, that is closely monitored on an ongoing basis;

(11) ‘unconditionally cancellable commitment’ means any commitment the terms of which permit the institution to cancel that commitment to the full extent allowable under consumer protection and related legal acts, where applicable, at any time without prior notice to the obligor or that effectively provide for automatic cancellation due to a deterioration in a borrower’s creditworthiness.

Article 5a

Definitions specific to crypto-assets

For the purposes of this Regulation, the following definitions apply:

(1) ‘crypto-asset’ means a crypto-asset as defined in Article 3(1), point (5), of Regulation (EU) 2023/1114 of the European Parliament and of the Council (²⁰) that is not a central bank digital currency;

(2) ‘electronic money token’ or ‘e-money token’ means an electronic money token or e-money token as defined in Article 3(1), point (7), of Regulation (EU) 2023/1114;

(3) ‘crypto-asset exposure’ means an asset or an off-balance-sheet item related to a crypto-asset that gives rise to credit risk, counterparty credit risk, market risk, operational risk or liquidity risk;

(4) ‘traditional asset’ means any asset other than a crypto-asset, including: (a) financial instruments as defined in Article 4(1), point (50), of this Regulation; (b) funds as defined in Article 4, point (25), of Directive (EU) 2015/2366; (c) deposits as defined in Article 2(1), point (3), of Directive 2014/49/EU of the European Parliament and of the Council (²¹), including structured deposits; (d) securitisation positions in the context of a securitisation as defined in Article 2, point (1), of Regulation (EU) 2017/2402; (e) non-life or life insurance products falling within the classes of insurance listed in Annexes I and II to Directive 2009/138/EC or reinsurance and retrocession contracts referred to in that Directive; (f) pension products that, under national law, are recognised as having the primary purpose of providing the investor with an income in retirement and that entitle the investor to certain benefits; (g) officially recognised occupational pension schemes within the scope of Directive (EU) 2016/2341 of the European Parliament and of the Council (²²) or Directive 2009/138/EC; (h) individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider; (i) a pan-European Personal Pension Product as defined in Article 2, point (2), of Regulation (EU) 2019/1238 of the European Parliament and of the Council (²³); (j) social security schemes covered by Regulation (EC) No 883/2004 of the European Parliament and of the Council (²⁴) and Regulation (EC) No 987/2009 of the European Parliament and of the Council (²⁵);

(5) ‘tokenised traditional asset’ means a type of crypto-asset that represents a traditional asset, including an e-money token;

(6) ‘asset-referenced token’ means an asset-referenced token as defined in Article 3(1), point (6), of Regulation (EU) 2023/1114;

(7) ‘crypto-asset service’ means a crypto-asset service as defined in Article 3(1), point (16), of Regulation (EU) 2023/1114.

TITLE II

LEVEL OF APPLICATION OF REQUIREMENTS

CHAPTER 1

Application of requirements on an individual basis

Article 6

General principles

Material subsidiaries of a non-EU G-SII shall comply with Article 92b on an individual basis, where they meet all the following conditions:

(a) they are not resolution entities;

(b) they do not have subsidiaries;

(c) they are not the subsidiaries of an EU parent institution.

By way of derogation from the first subparagraph of this paragraph, the institutions referred to in paragraph 1a of this Article shall comply with Article 437a and point (h) of Article 447 on an individual basis.

Institutions shall comply with the obligations laid down in Part Six and in point (d) of Article 430(1) of this Regulation on an individual basis.

The following institutions shall not be required to comply with Article 413(1) and the associated liquidity reporting requirements laid down in Part Seven A of this Regulation:

(a) institutions which are also authorised in accordance with Article 14 of Regulation (EU) No 648/2012;

(b) institutions which are also authorised in accordance with Article 16 and point (a) of Article 54(2) of Regulation (EU) No 909/2014 of the European Parliament and of the Council (²⁶), provided that they do not perform any significant maturity transformations; and

(c) institutions which are designated in accordance with point (b) of Article 54(2) of Regulation (EU) No 909/2014, provided that: (i) their activities are limited to offering banking‐type services, as referred to in Section C of the Annex to that Regulation, to central securities depositories authorised in accordance with Article 16 of that Regulation; and (ii) they do not perform any significant maturity transformations.

Article 7

Derogation from the application of prudential requirements on an individual basis

Competent authorities may waive the application of Article 6(1) to any subsidiary of an institution, where both the subsidiary and the institution are subject to authorisation and supervision by the Member State concerned, and the subsidiary is included in the supervision on a consolidated basis of the institution which is the parent undertaking, 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 foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities by its parent undertaking;

(b) either the parent undertaking satisfies the competent authority regarding the prudent management of the subsidiary and has declared, with the permission of the competent authority, 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.

Competent authorities may waive the application of Article 6(1) to a parent institution in a Member State where that institution is subject to authorisation and supervision by the Member State concerned, and it is included in the supervision on a consolidated basis, and all the following conditions are satisfied, in order to ensure that own funds are distributed adequately among the parent undertaking and the subsidiaries:

(a) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities to the parent institution in a Member State;

(b) the risk evaluation, measurement and control procedures relevant for consolidated supervision cover the parent institution in a Member State.

The competent authority which makes use of this paragraph shall inform the competent authorities of all other Member States.

Article 8

Derogation from the application of liquidity requirements on an individual basis

The competent authorities may waive in full or in part the application of Part Six to an institution and to all or some of its subsidiaries in the Union and supervise them as a single liquidity sub-group so long as they fulfil all of the following conditions:

(a) the parent institution on a consolidated basis or a subsidiary institution on a sub-consolidated basis complies with the obligations laid down in Part Six;

(b) the parent institution on a consolidated basis or the subsidiary institution on a sub-consolidated basis monitors and has oversight at all times over the liquidity positions of all institutions within the group or sub-group, that are subject to the waiver, monitors and has oversight at all times over the funding positions of all institutions within the group or sub-group where the net stable funding ratio (NSFR) requirement set out in Title IV of Part Six is waived, and ensures a sufficient level of liquidity, and of stable funding where the NSFR requirement set out in Title IV of Part Six is waived, for all of those institutions;

(c) the institutions have entered into contracts that, to the satisfaction of the competent authorities, provide for the free movement of funds between them to enable them to meet their individual and joint obligations as they become due;

(d) there is no current or foreseen material practical or legal impediment to the fulfilment of the contracts referred to in (c).

By 1 January 2014, the Commission shall report to the European Parliament and the Council on any legal obstacles which are capable of rendering impossible the application of point (c) of the first subparagraph and is invited to make a legislative proposal, if appropriate, by 31 December 2015, on which of those obstacles should be removed.

Where institutions of the single liquidity sub-group are authorised in several Member States, paragraph 1 shall only be applied after following the procedure laid down in Article 21 and only to the institutions whose competent authorities agree about the following elements:

(a) their assessment of the compliance of the organisation and of the treatment of liquidity risk with the conditions set out in Article 86 of Directive 2013/36/EU across the single liquidity sub-group;

(b) the distribution of amounts, location and ownership of the required liquid assets to be held within the single liquidity sub-group, where the liquidity coverage ratio (LCR) requirement as laid down in the delegated act referred to in Article 460(1) is waived, and the distribution of amounts and location of available stable funding within the single liquidity sub-group, where the NSFR requirement set out in Title IV of Part Six is waived;

(c) the determination of minimum amounts of liquid assets to be held by institutions for which the application of the LCR requirement as laid down in the delegated act referred to in Article 460(1) is waived and the determination of minimum amounts of available stable funding to be held by institutions for which the application of the NSFR requirement set out in Title IV of Part Six is waived;

(d) the need for stricter parameters than those set out in Part Six;

(e) unrestricted sharing of complete information between the competent authorities;

(f) a full understanding of the implications of such a waiver.

Article 9

Individual consolidation method

Article 10

Waiver for credit institutions permanently affiliated to a central body

Competent authorities may, in accordance with national law, partially or fully waive the application of the requirements set out in Parts Two to Eight of this Regulation and Chapter 2 of Regulation (EU) 2017/2402 to one or more credit institutions situated in the same Member State and which are permanently affiliated to a central body which supervises them and which is established in the same Member State, if the following conditions are met:

(a) the commitments of the central body and affiliated institutions are joint and several liabilities or the commitments of its affiliated institutions are entirely guaranteed by the central body;

(b) the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts of these institutions;

(c) the management of the central body is empowered to issue instructions to the management of the affiliated institutions.

Member States may maintain and make use of existing national legislation regarding the application of the waiver referred to in the first subparagraph as long as it does not conflict with this Regulation or Directive 2013/36/EU.

CHAPTER 2

Prudential consolidation

Section 1

Application of requirements on a consolidated basis

Article 10a

Application of prudential requirements on a consolidated basis where investment firms are parent undertakings

For the purposes of this Chapter, investment firms and investment holding companies shall be considered to be parent financial holding companies in a Member State or EU parent financial holding companies where such investment firms or investment holding companies are parent undertakings of an institution or of an investment firm subject to this Regulation that is referred to in Article 1(2) or (5) of Regulation (EU) 2019/2033.

Article 11

General treatment

For the purpose of ensuring that the requirements of this Regulation are applied on a consolidated basis, the terms ‘institution’, ‘parent institution in a Member State’, ‘EU parent institution’ and ‘parent undertaking’, as the case may be, shall also refer to:

(a) a financial holding company or mixed financial holding company approved in accordance with Article 21a of Directive 2013/36/EU;

(b) a designated institution controlled by a parent financial holding company or parent mixed financial holding company where such a parent is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU;

(c) a financial holding company, mixed financial holding company or institution designated in accordance with point (d) of Article 21a(6) of Directive 2013/36/EU.

The consolidated situation of an undertaking referred to in point (b) of the first subparagraph of this paragraph shall be the consolidated situation of the parent financial holding company or the parent mixed financial holding company that is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU. The consolidated situation of an undertaking referred to in point (c) of the first subparagraph of this paragraph shall be the consolidated situation of its parent financial holding company or parent mixed financial holding company.

Only EU parent undertakings that are a material subsidiary of a non-EU G-SII and are not resolution entities shall comply with Article 92b of this Regulation on a consolidated basis to the extent and in the manner set out in Article 18 of this Regulation. Where Article 21b(2) of Directive 2013/36/EU applies, the two intermediate EU parent undertakings jointly identified as a material subsidiary shall each comply with Article 92b of this Regulation on the basis of their consolidated situation.

EU parent institutions shall comply with Part Six and point (d) of Article 430(1) of this Regulation 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 Annex I to Directive 2014/65/EU.

Where a waiver has been granted under Article 8(1) to (5), 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 Part Six and point (d) of Article 430(1) of this Regulation on a consolidated basis or on the sub‐consolidated basis of the liquidity sub‐group.

The application of 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 parts of the financial system in other Member States or in the Union as a whole nor form or create an obstacle to the functioning of the internal market.

Article 12a

Consolidated calculation for G-SIIs with multiple resolution entities

Where at least two G-SII entities that are part of the same G-SII are resolution entities or third-country entities that would be resolution entities if they were established in the Union, the EU parent institution of that G-SII shall calculate the amount of own funds and eligible liabilities referred to in Article 92a(1), point (a):

(a) for each resolution entity or third-country entity that would be a resolution entity if it were established in the Union;

(b) for the EU parent institution as if it were the only resolution entity of the G-SII.

The calculation referred to in point (b) of the first subparagraph shall be undertaken on the basis of the consolidated situation of the EU parent institution.

Resolution authorities shall act in accordance with Article 45d(4) and Article 45h(2) of Directive 2014/59/EU.

Article 13

Application of disclosure requirements on a consolidated basis

Large subsidiaries of EU parent institutions shall disclose the information specified in Articles 437, 438, 440, 442, 449a, 449b, 450, 451, 451a and 453 on an individual basis or, where applicable in accordance with this Regulation and Directive 2013/36/EU, on a sub-consolidated basis.

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.

Article 14

Application of requirements of Article 5 of Regulation (EU) 2017/2402 on a consolidated basis

Section 2

Methods for prudential consolidation

Article 18

Methods of prudential consolidation

For the purposes of Article 11(3a), institutions that are required to comply with the requirements referred to in Article 92a or 92b 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.

Competent authorities shall determine whether and how consolidation is to be 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 those institutions; and

(b) where two or more institutions or financial institutions are placed under single management other than pursuant to a contract, clauses of their memoranda or articles of association.

In particular, competent authorities may permit or require the use of the method provided for in Article 22(7), (8) and (9) of Directive 2013/34/EU.

By way of derogation from the first subparagraph, competent authorities may allow or require institutions to apply a different method to such subsidiaries or participations, including the method required by the applicable accounting framework, provided that:

(a) the institution does not already apply the equity method on 28 December 2020;

(b) it would be unduly burdensome to apply the equity method or the equity method does not adequately reflect the risks that the undertaking referred to in the first subparagraph poses to the institution; and

(c) the method applied does not result in full or proportional consolidation of that undertaking.

Competent authorities may require full or proportional consolidation of a subsidiary or an undertaking in which an institution holds a participation where that subsidiary or undertaking is not an institution or a financial institution and where all of the following conditions are met:

(a) the undertaking is not an insurance undertaking, a third-country insurance undertaking, a reinsurance undertaking, a third-country reinsurance undertaking, an insurance holding company or an undertaking excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive;

(b) there is a substantial risk that the institution decides to provide financial support to that undertaking in stressed conditions, in the absence of, or in excess of any contractual obligations to provide such support.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2020.

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

In light of EBA’s findings, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal to make adjustments to the relevant definitions or the scope of prudential consolidation.

Section 3

Scope of prudential consolidation

Article 19

Entities excluded from the scope of prudential consolidation

An institution or a financial institution which is a subsidiary or an undertaking in which a participation is held, need not to be included in the consolidation where the total amount of assets and off-balance-sheet items of the undertaking concerned is less than the smaller of the following two amounts:

(a) EUR 10 million;

(b) 1 % of the total amount of assets and off-balance sheet items of the parent undertaking or the undertaking that holds the participation.

The competent authorities responsible for exercising supervision on a consolidated basis pursuant to Article 111 of Directive 2013/36/EU may on a case-by-case basis decide in the following cases that an institution, or a financial institution which is a subsidiary or in which a participation is held need not be included in the consolidation:

(a) where the undertaking concerned is situated in a third country where there are legal impediments to the transfer of the necessary information;

(b) where the undertaking concerned is of negligible interest only with respect to the objectives of monitoring institutions;

(c) where, in the opinion of the competent authorities responsible for exercising supervision on a consolidated basis, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of institutions are concerned.

Article 20

Joint decisions on prudential requirements

The competent authorities shall work together, in full consultation:

(a) in the case of applications for the permissions referred to in Article 143(1), Article 151(9), Article 283 and Article 325az submitted by an EU parent institution and its subsidiaries, or jointly by the subsidiaries of an EU parent financial holding company or EU parent mixed financial holding company, to decide whether or not to grant the permission sought and to determine the terms and conditions, if any, to which such permission should be subject;

(b) for the purposes of determining whether the criteria for a specific intragroup treatment as referred to in Article 422(9) and Article 425(5) complemented by the EBA regulatory technical standards referred to in Article 422(10) and Article 425(6) are met.

Applications shall be submitted only to the consolidating supervisor.

The competent authorities shall do everything within their power to reach a joint decision within six months on:

(a) the application referred to in point (a) of paragraph 1;

(b) the assessment of the criteria and the determination of the specific treatment referred to in point (b) of paragraph 1.

This joint decision shall be set out in a document containing the fully reasoned decision which shall be provided to the applicant by the competent authority referred to in paragraph 1.

The period referred to in paragraph 2 shall begin:

(a) on the date of receipt of the complete application referred to in point (a) of paragraph 1 by the consolidating supervisor. The consolidating supervisor shall forward the complete application to the other competent authorities without delay;

(b) on the date of receipt by competent authorities of a report prepared by the consolidating supervisor analysing intragroup commitments within the group.

The decision shall be set out in a document containing the fully reasoned decision and shall take into account the views and reservations of the other competent authorities expressed during the six months period.

The decision shall be provided to the EU parent institution, the EU parent financial holding company or to the EU parent mixed financial holding company and the other competent authorities by the consolidating supervisor.

If, at the end of the six-month period, any of the competent authorities concerned has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the consolidating supervisor shall defer its decision on point (a) of paragraph 1 of this Article and await any decision that EBA may take in accordance with Article 19(3) of that Regulation on its decision, and shall take its decision in conformity with the decision of EBA. The six-month period shall be deemed the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the six-month period or after a joint decision has been reached.

The decision shall be set out in a document containing the fully reasoned decision and shall take into account the views and reservations of the other competent authorities expressed during the six-month period.

The decision shall be provided to the consolidating supervisor that informs the EU parent institution, the EU parent financial holding company or the EU parent mixed financial holding company.

If, at the end of the six-month period, the consolidating supervisor has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the competent authority responsible for the supervision of the subsidiary on an individual basis shall defer its decision on point (b) of paragraph 1 of this Article and await any decision that EBA may take in accordance with Article 19(3) of that Regulation on its decision, and shall take its decision in conformity with the decision of EBA. The six-month period shall be deemed the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the six-month period or after a joint decision has been reached.

EBA shall submit those draft implementing technical standards to the Commission by 10 July 2025.

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.

Article 21

Joint decisions on the level of application of liquidity requirements

The joint decision shall be reached within six months after submission by the consolidating supervisor of a report identifying single liquidity sub-groups on the basis of the criteria laid down in Article 8. In the event of disagreement during the six-month period, the consolidating supervisor shall consult EBA at the request of any of the other competent authorities concerned. The consolidating supervisor may consult EBA on its own initiative.

The joint decision may also impose constraints on the location and ownership of liquid assets and require minimum amounts of liquid assets to be held by institutions that are exempt from the application of Part Six.

The joint decision shall be set out in a document containing the fully reasoned decision which shall be submitted to the parent institution of the liquidity subgroup by the consolidating supervisor.

However, any competent authority may during the six-month period refer to EBA the question whether the conditions in points (a) to (d) of Article 8(1) are met. In that case, EBA may carry out its non-binding mediation in accordance with Article 31(c) of Regulation (EU) No 1093/2010 and all the competent authorities involved shall defer their decisions pending the conclusion of the non-binding mediation. Where, during the mediation, no agreement has been reached by the competent authorities within three months, each competent authority responsible for supervision on an individual basis shall take its own decision taking into account the proportionality of benefits and risks at the level of the Member State of the parent institution and the proportionality of benefits and risks at the level of the Member State of the subsidiary. The matter shall not be referred to EBA after the end of the six-month period or after a joint decision has been reached.

The joint decision referred to in paragraph 1 and the decisions referred to in the second subparagraph of this paragraph shall be binding.

Article 22

Sub-consolidation in the case of entities in third countries

Article 23

Undertakings in third countries

For the purposes of applying supervision on a consolidated basis in accordance with this Chapter, the terms ‘investment firm’, ‘credit institution’, financial institution', and ‘institution’ shall also apply to undertakings established in third countries, which, were they established in the Union, would fulfil the definitions of those terms in Article 4.

Article 24

Valuation of assets and off-balance sheet items

PART TWO

OWN FUNDS AND ELIGIBLE LIABILITIES

TITLE I

ELEMENTS OF OWN FUNDS

CHAPTER 1

Tier 1 capital

Article 25

Tier 1 capital

The Tier 1 capital of an institution consists of the sum of the Common Equity Tier 1 capital and Additional Tier 1 capital of the institution.

CHAPTER 2

Common Equity Tier 1 capital

Section 1

Common Equity Tier 1 items and instruments

Article 26

Common Equity Tier 1 items

Common Equity Tier 1 items of institutions consist of the following:

(a) capital instruments, provided that the conditions laid down in Article 28 or, where applicable, Article 29 are met;

(b) share premium accounts related to the instruments referred to in point (a);

(c) retained earnings;

(d) accumulated other comprehensive income;

(e) other reserves;

(f) funds for general banking risk.

The items referred to in points (c) to (f) shall be recognised as Common Equity Tier 1 only where they are available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur.

For the purposes of point (c) of paragraph 1, institutions may include interim or year-end profits in Common Equity Tier 1 capital before the institution has taken a formal decision confirming the final profit or loss of the institution for the year only with the prior permission of the competent authority. The competent authority shall grant permission where the following conditions are met:

(a) those profits have been verified by persons independent of the institution that are responsible for the auditing of the accounts of that institution;

(b) the institution has demonstrated to the satisfaction of the competent authority that any foreseeable charge or dividend has been deducted from the amount of those profits.

A verification of the interim or year-end profits of the institution shall provide an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the applicable accounting framework.

By way of derogation from the first subparagraph, institutions may classify as Common Equity Tier 1 instruments subsequent issuances of a form of Common Equity Tier 1 instruments for which they have already received that permission, provided that both of the following conditions are met:

(a) the provisions governing those subsequent issuances are substantially the same as the provisions governing those issuances for which the institutions have already received permission;

(b) institutions have notified those subsequent issuances to the competent authorities sufficiently in advance of their classification as Common Equity Tier 1 instruments.

Competent authorities shall consult EBA before granting permission for new forms of capital instruments to be classified as Common Equity Tier 1 instruments. Competent authorities shall have due regard to EBA's opinion and, where they decide to deviate from it, shall write to EBA within three months from the date of receipt of EBA's opinion setting out the rationale for deviating from the relevant opinion. This subparagraph does not apply to the capital instruments referred to in Article 31.

On the basis of information collected from competent authorities, EBA shall establish, maintain and publish a list of all forms of capital instruments in each Member State that qualify as Common Equity Tier 1 instruments. In accordance with Article 35 of Regulation (EU) No 1093/2010, EBA may collect any information in connection with Common Equity Tier 1 instruments that it considers necessary to establish compliance with the criteria set out in Article 28 or, where applicable, Article 29 of this Regulation and for the purpose of maintaining and updating the list referred to in this subparagraph.

Following the review process set out in Article 80 and where there is sufficient evidence that the relevant capital instruments do not meet or have ceased to meet the criteria set out in Article 28 or, where applicable, Article 29, EBA may decide not to add those instruments to the list referred to in the fourth subparagraph or remove them from that list, as the case may be. EBA shall make an announcement to that effect that shall also refer to the relevant competent authority's position on the matter. This subparagraph does not apply to the capital instruments referred to in Article 31.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 27

Capital instruments of mutuals, cooperative societies, savings institutions or similar institutions in Common Equity Tier 1 items

Common Equity Tier 1 items shall include any capital instrument issued by an institution under its statutory terms provided that the following conditions are met:

(a) the institution is of a type that is defined under applicable national law and which competent authorities consider to qualify as any of the following: (i) a mutual; (ii) a cooperative society; (iii) a savings institution; (iv) a similar institution; —————

(b) the conditions laid down in Articles 28 or, where applicable, Article 29, are met.

Those mutuals, cooperative societies or savings institutions recognised as such under applicable national law prior to 31 December 2012 shall continue to be classified as such for the purposes of this Part, provided that they continue to meet the criteria that determined such recognition.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 28

Common Equity Tier 1 instruments

Capital instruments shall qualify as Common Equity Tier 1 instruments only if all the following conditions are met:

(a) the instruments are issued directly by the institution with the prior approval of the owners of the institution or, where permitted under applicable national law, the management body of the institution;

(b) the instruments are fully paid up and the acquisition of ownership of those instruments is not funded directly or indirectly by the institution;

(c) the instruments meet all the following conditions as regards their classification: (i) they qualify as capital within the meaning of Article 22 of Directive 86/635/EEC; (ii) they are classified as equity within the meaning of the applicable accounting framework; (iii) they are classified as equity capital for the purposes of determining balance sheet insolvency, where applicable under national insolvency law;

(d) the instruments are clearly and separately disclosed on the balance sheet in the financial statements of the institution;

(e) the instruments are perpetual;

(f) the principal amount of the instruments may not be reduced or repaid, except in either of the following cases: (i) the liquidation of the institution; (ii) discretionary repurchases of the instruments or other discretionary means of reducing capital, where the institution has received the prior permission of the competent authority in accordance with Article 77;

(g) the provisions governing the instruments do not indicate expressly or implicitly that the principal amount of the instruments would or might be reduced or repaid other than in the liquidation of the institution, and the institution does not otherwise provide such an indication prior to or at issuance of the instruments, except in the case of instruments referred to in Article 27 where the refusal by the institution to redeem such instruments is prohibited under applicable national law;

(h) the instruments meet the following conditions as regards distributions: (i) there is no preferential distribution treatment regarding the order of distribution payments, including in relation to other Common Equity Tier 1 instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions; (ii) distributions to holders of the instruments may be paid only out of distributable items; (iii) the conditions governing the instruments do not include a cap or other restriction on the maximum level of distributions, except in the case of the instruments referred to in Article 27; (iv) the level of distributions is not determined on the basis of the amount for which the instruments were purchased at issuance, except in the case of the instruments referred to in Article 27; (v) the conditions governing the instruments do not include any obligation for the institution to make distributions to their holders and the institution is not otherwise subject to such an obligation; (vi) non-payment of distributions does not constitute an event of default of the institution; (vii) the cancellation of distributions imposes no restrictions on the institution;

(i) compared to all the capital instruments issued by the institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments;

(j) the instruments rank below all other claims in the event of insolvency or liquidation of the institution;

(k) the instruments entitle their owners to a claim on the residual assets of the institution, which, in the event of its liquidation and after the payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap, except in the case of the capital instruments referred to in Article 27;

(l) the instruments are neither secured nor subject to a guarantee that enhances the seniority of the claim by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the mixed activity holding company or its subsidiaries; (v) the mixed financial holding company and its subsidiaries; (vi) any undertaking that has close links with the entities referred to in points (i) to (v);

(m) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation.

The condition set out in point (j) of the first subparagraph shall be deemed to be met, notwithstanding the instruments are included in Additional Tier 1 or Tier 2 by virtue of Article 484(3), provided that they rank pari passu.

For the purposes of point (b) of the first subparagraph, only the part of a capital instrument that is fully paid up shall be eligible to qualify as a Common Equity Tier 1 instrument.

The condition laid down in point (f) of paragraph 1 shall be deemed to be met notwithstanding the reduction of the principal amount of the capital instrument within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution.

The condition laid down in point (g) of paragraph 1 shall be deemed to be met notwithstanding the provisions governing the capital instrument indicating expressly or implicitly that the principal amount of the instrument would or might be reduced within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution.

The condition set out in point (h)(v) of the first subparagraph of paragraph 1 shall be considered to be met notwithstanding a subsidiary being subject to a profit and loss transfer agreement with its parent undertaking, according to which the subsidiary is obliged to transfer, following the preparation of its annual financial statements, its annual result to the parent undertaking, where all the following conditions are met:

(a) the parent undertaking owns 90 % or more of the voting rights and capital of the subsidiary;

(b) the parent undertaking and the subsidiary are located in the same Member State;

(c) the agreement was concluded for legitimate taxation purposes;

(d) in preparing the annual financial statement, the subsidiary has discretion to decrease the amount of distributions by allocating a part or all of its profits to its own reserves or funds for general banking risk before making any payment to its parent undertaking;

(e) the parent undertaking is obliged under the agreement to fully compensate the subsidiary for all losses of the subsidiary;

(f) the agreement is subject to a notice period according to which the agreement can be terminated only by the end of an accounting year, with such termination taking effect no earlier than the beginning of the following accounting year, leaving the parent undertaking's obligation to fully compensate the subsidiary for all losses incurred during the current accounting year unchanged.

Where an institution has entered into a profit and loss transfer agreement, it shall notify the competent authority without delay and provide the competent authority with a copy of the agreement. The institution shall also notify the competent authority without delay of any changes to the profit and loss transfer agreement and the termination thereof. An institution shall not enter into more than one profit and loss transfer agreement.

EBA shall develop draft regulatory technical standards to specify the following:

(a) the applicable forms and nature of indirect funding of own funds instruments;

(b) whether and when multiple distributions would constitute a disproportionate drag on own funds;

(c) the meaning of preferential distributions.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 29

Capital instruments issued by mutuals, cooperative societies, savings institutions and similar institutions

The following conditions shall be met as regards redemption of the capital instruments:

(a) except where prohibited under applicable national law, the institution shall be able to refuse the redemption of the instruments;

(b) where the refusal by the institution of the redemption of instruments is prohibited under applicable national law, the provisions governing the instruments shall give the institution the ability to limit their redemption;

(c) refusal to redeem the instruments, or the limitation of the redemption of the instruments where applicable, may not constitute an event of default of the institution.

The condition laid down in the first subparagraph is without prejudice to the possibility for a mutual, cooperative society, savings institution or a similar institution to recognise within Common Equity Tier 1 instruments that do not afford voting rights to the holder and that meet all the following conditions:

(a) the claim of the holders of the non-voting instruments in the insolvency or liquidation of the institution is proportionate to the share of the total Common Equity Tier 1 instruments that those non-voting instruments represent;

(b) the instruments otherwise qualify as Common Equity Tier 1 instruments.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 30

Consequences of the conditions for Common Equity Tier 1 instruments ceasing to be met

The following shall apply where, in the case of a Common Equity Tier 1 instrument, the conditions laid down in Article 28 or, where applicable, Article 29 cease to be met:

(a) that instrument shall immediately cease to qualify as a Common Equity Tier 1 instrument;

(b) the share premium accounts that relate to that instrument shall immediately cease to qualify as Common Equity Tier 1 items.

Article 31

Capital instruments subscribed by public authorities in emergency situations

In emergency situations, competent authorities may permit institutions to include in Common Equity Tier 1 capital instruments that comply at least with the conditions laid down in points (b) to (e) of Article 28(1) where all the following conditions are met:

(a) the capital instruments are issued after 1 January 2014;

(b) the capital instruments are considered State aid by the Commission;

(c) the capital instruments are issued within the context of recapitalisation measures pursuant to State aid- rules existing at the time;

(d) the capital instruments are fully subscribed and held by the State or a relevant public authority or public-owned entity;

(e) the capital instruments are able to absorb losses;

(f) except for the capital instruments referred to in Article 27, in the event of liquidation, the capital instruments entitle their owners to a claim on the residual assets of the institution after the payment of all senior claims;

(g) there are adequate exit mechanisms of the State or, where applicable, a relevant public authority or public-owned entity;

(h) the competent authority has granted its prior permission and has published its decision together with an explanation of that decision.

Section 2

Prudential filters

Article 32

Securitised assets

An institution shall exclude from any element of own funds any increase in its equity under the applicable accounting framework that results from securitised assets, including the following:

(a) such an increase associated with future margin income that results in a gain on sale for the institution;

(b) where the institution is the originator of a securitisation, net gains that arise from the capitalisation of future income from the securitised assets that provide credit enhancement to positions in the securitisation.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 33

Cash flow hedges and changes in the value of own liabilities

Institutions shall not include the following items in any element of own funds:

(a) the fair value reserves related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value, including projected cash flows;

(b) gains or losses on liabilities of the institution that are valued at fair value that result from changes in the own credit standing of the institution;

(c) fair value gains and losses on derivative liabilities of the institution that result from changes in the own credit risk of the institution.

Without prejudice to point (b) of paragraph 1, institutions may include the amount of gains and losses on their liabilities in own funds where all the following conditions are met:

(a) the liabilities are in the form of bonds as referred to in Article 52(4) of Directive 2009/65/EC;

(b) the changes in the value of the institution's assets and liabilities are due to the same changes in the institution's own credit standing;

(c) there is a close correspondence between the value of the bonds referred to in point (a) and the value of the institution's assets;

(d) it is possible to redeem the mortgage loans by buying back the bonds financing the mortgage loans at market or nominal value.

EBA shall submit those draft regulatory technical standards to the Commission by 30 September 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 34

Additional value adjustments

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 35

Unrealised gains and losses measured at fair value

Except in the case of the items referred to in Article 33, institutions shall not make adjustments to remove from their own funds unrealised gains or losses on their assets or liabilities measured at fair value.

Section 3

Deductions from Common Equity Tier 1 items, exemptions and alternatives

Sub-Section 1

Deductions from Common Equity Tier 1 items

Article 36

Deductions from Common Equity Tier 1 items

Institutions shall deduct the following from Common Equity Tier 1 items:

(a) losses for the current financial year;

(b) intangible assets with the exception of prudently valued software assets the value of which is not negatively affected by resolution, insolvency or liquidation of the institution;

(c) deferred tax assets that rely on future profitability;

(d) for institutions calculating risk-weighted exposure amounts using the Internal Ratings Based Approach (the IRB Approach), the IRB shortfall, where applicable, calculated in accordance with Article 159;

(e) defined benefit pension fund assets on the balance sheet of the institution;

(f) direct, indirect and synthetic holdings by an institution of own Common Equity Tier 1 instruments, including own Common Equity Tier 1 instruments that an institution is under an actual or contingent obligation to purchase by virtue of an existing contractual obligation;

(g) direct, indirect and synthetic holdings of the Common Equity Tier 1 instruments of financial sector entities where those entities have a reciprocal cross holding with the institution that the competent authority considers to have been designed to inflate artificially the own funds of the institution;

(h) the applicable amount of direct, indirect and synthetic holdings by the institution of Common Equity Tier 1 instruments of financial sector entities where the institution does not have a significant investment in those entities;

(i) the applicable amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities;

(j) the amount of items required to be deducted from Additional Tier 1 items pursuant to Article 56 that exceeds the Additional Tier 1 items of the institution;

(k) the exposure amount of the following items which qualify for a risk weight of 1 250 %, where the institution deducts that exposure amount from the amount of Common Equity Tier 1 items as an alternative to applying a risk weight of 1 250 %: (i) qualifying holdings outside the financial sector; (ii) securitisation positions, in accordance with point (b) of Article 244(1), point (b) of Article 245(1) and Article 253; (iii) free deliveries, in accordance with Article 379(3); (iv) positions in a basket for which an institution cannot determine the risk weight under the IRB Approach, in accordance with Article 153(8); ————— (vi) exposures in the form of units or shares in a CIU that are assigned a risk weight of 1 250 % in accordance with Article 132(2), second subparagraph;

(l) any tax charge relating to Common Equity Tier 1 items foreseeable at the moment of its calculation, except where the institution suitably adjusts the amount of Common Equity Tier 1 items insofar as such tax charges reduce the amount up to which those items may be used to cover risks or losses;

(m) the applicable amount of insufficient coverage for non-performing exposures;

(n) for a minimum value commitment referred to in Article 132c(2), any amount by which the current market value of the units or shares in CIUs underlying the minimum value commitment falls short of the present value of the minimum value commitment and for which the institution has not already recognised a reduction of Common Equity Tier 1 items.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

EBA shall develop draft regulatory technical standards to specify the types of capital instruments of financial institutions and, in consultation with the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA) established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 (²⁷), of third country insurance and reinsurance undertakings, and of undertakings excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive that shall be deducted from the following elements of own funds:

(a) Common Equity Tier 1 items;

(b) Additional Tier 1 items;

(c) Tier 2 items.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.

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

For the purposes of this paragraph, ‘specialised debt restructurer’ means an institution that, during the preceding financial year, complied with all of the following conditions on both an individual and on a consolidated basis:

(a) the main activity of the institution is the purchase, management and restructuring of non-performing exposures in accordance with a clear and effective internal decision process implemented by its management body;

(b) the accounting value measured without taking into account any credit risk adjustments of its own originated loans does not exceed 15 % of its total assets;

(c) at least 5 % of the accounting value measured without taking into account any credit risk adjustments’ of its own originated loans constitutes a total or partial refinancing, or the adjustment of relevant terms, of the purchased non-performing exposures that qualifies as a forbearance measure in accordance with Article 47b;

(d) the total value of the assets of the institution does not exceed EUR 20 billion;

(e) the institution maintains, on an ongoing basis, a net stable funding ratio of at least 130 %;

(f) the sight deposits of the institution do not exceed 5 % of the total liabilities of the institution.

The specialised debt restructurer shall notify the competent authority, without delay, if one or more of the conditions set out in the second subparagraph are no longer met. Competent authorities shall notify EBA at least on an annual basis of the application of this paragraph by institutions under their supervision.

EBA shall establish, maintain, and publish a list of specialised debt restructurers. EBA shall monitor the activity of specialised debt restructurers and shall report by 31 December 2028 to the Commission on the results of such monitoring and, where appropriate, shall advise the Commission as to whether the conditions to qualify as ‘specialised debt restructurer’ are sufficiently risk-based and appropriate in view of favouring the secondary market for non-performing loans, and assess if additional conditions are necessary.

Article 37

Deduction of intangible assets

Institutions shall determine the amount of intangible assets to be deducted in accordance with the following:

(a) the amount to be deducted shall be reduced by the amount of associated deferred tax liabilities that would be extinguished if the intangible assets became impaired or were derecognised under the applicable accounting framework;

(b) the amount to be deducted shall include goodwill included in the valuation of significant investments of the institution;

(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 pursuant to Chapter 2 of Title II of Part One.

Article 38

Deduction of deferred tax assets that rely on future profitability

The amount of deferred tax assets that rely on future profitability may be reduced by the amount of the associated deferred tax liabilities of the institution, provided the following conditions are met:

(a) the entity has a legally enforceable right under applicable national law to set off those current tax assets against current tax liabilities;

(b) the deferred tax assets and the deferred tax liabilities relate to taxes levied by the same tax authority and on the same taxable entity.

The amount of associated deferred tax liabilities referred to in paragraph 4 shall be allocated between the following:

(a) deferred tax assets that rely on future profitability and arise from temporary differences that are not deducted in accordance with Article 48(1);

(b) all other deferred tax assets that rely on future profitability.

Institutions shall allocate the associated deferred tax liabilities according to the proportion of deferred tax assets that rely on future profitability that the items referred to in points (a) and (b) represent.

Article 39

Tax overpayments, tax loss carry backs and deferred tax assets that do not rely on future profitability

The following items shall not be deducted from own funds and shall be subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three, as applicable:

(a) overpayments of tax by the institution for the current year;

(b) current year tax losses of the institution carried back to previous years that give rise to a claim on, or a receivable from, a central government, regional government or local tax authority.

Deferred tax assets that do not rely on future profitability shall be limited to deferred tax assets which were created before 23 November 2016 and which arise from temporary differences, where all the following conditions are met:

(a) they are automatically and mandatorily replaced without delay with a tax credit in the event that the institution reports a loss when the annual financial statements of the institution are formally approved, or in the event of liquidation or insolvency of the institution;

(b) an institution is able under the applicable national tax law to offset a tax credit referred to in point (a) against any tax liability of the institution or any other undertaking included in the same consolidation as the institution for tax purposes under that law or any other undertaking subject to the supervision on a consolidated basis in accordance with Chapter 2 of Title II of Part One;

(c) where the amount of tax credits referred to in point (b) exceeds the tax liabilities referred to in that point, any such excess is replaced without delay with a direct claim on the central government of the Member State in which the institution is incorporated.

Institutions shall apply a risk weight of 100 % to deferred tax assets where the conditions laid down in points (a), (b) and (c) are met.

Article 40

Deduction of negative amounts resulting from the calculation of expected loss amounts

The amount to be deducted in accordance with point (d) of Article 36(1) shall not be reduced by a rise in the level of deferred tax assets that rely on future profitability, or other additional tax effects, that could occur if provisions were to rise to the level of expected losses referred to in Section 3 of Chapter 3 of Title II of Part Three.

Article 41

Deduction of defined benefit pension fund assets

For the purposes of point (e) of Article 36(1), the amount of defined benefit pension fund assets to be deducted shall be reduced by the following:

(a) the amount of any associated deferred tax liability which could be extinguished if the assets became impaired or were derecognised under the applicable accounting framework;

(b) the amount of assets in the defined benefit pension fund which the institution has an unrestricted ability to use, provided that the institution has received the prior permission of the competent authority.

Those assets used to reduce the amount to be deducted shall receive a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three, as applicable.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 42

Deduction of holdings of own Common Equity Tier 1 instruments

For the purposes of point (f) of Article 36(1), institutions shall calculate holdings of own Common Equity Tier 1 instruments on the basis of gross long positions subject to the following exceptions:

(a) institutions may calculate the amount of holdings of own Common Equity Tier 1 instruments on the basis of the net long position provided that both the following conditions are met: (i) 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;

(b) institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own Common Equity Tier 1 instruments included in those indices;

(c) institutions may net gross long positions in own Common Equity Tier 1 instruments resulting from holdings of index securities against short positions in own Common Equity Tier 1 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met: (i) the long and short positions are in the same underlying indices; (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book.

Article 43

Significant investment in a financial sector entity

For the purposes of deduction, a significant investment of an institution in a financial sector entity shall arise where any of the following conditions is met:

(a) the institution owns more than 10 % of the Common Equity Tier 1 instruments issued by that entity;

(b) the institution has close links with that entity and owns Common Equity Tier 1 instruments issued by that entity;

(c) the institution owns Common Equity Tier 1 instruments issued by that entity and the entity is not included in consolidation pursuant to Chapter 2 of Title II of Part One but is included in the same accounting consolidation as the institution for the purposes of financial reporting under the applicable accounting framework.

Article 44

Deduction of holdings of Common Equity Tier 1 instruments of financial sector entities and where an institution has a reciprocal cross holding designed artificially to inflate own funds

Institutions shall make the deductions referred to in points (g), (h) and (i) of Article 36(1) in accordance with the following:

(a) holdings of Common Equity Tier 1 instruments and other capital instruments of financial sector entities shall be calculated on the basis of the gross long positions;

(b) Tier 1 own-fund insurance items shall be treated as holdings of Common Equity Tier 1 instruments for the purposes of deduction.

Article 45

Deduction of holdings of Common Equity Tier 1 instruments of financial sector entities

Institutions shall make the deductions required by points (h) and (i) of Article 36(1) in accordance with the following provisions:

(a) they may calculate direct, indirect and synthetic holdings of Common Equity Tier 1 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met: (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 short position is at least one year; (ii) either both the long position and the short position are held in the trading book or both are held in the non-trading book;

(b) they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to the capital instruments of the financial sector entities in those indices.

Article 46

Deduction of holdings of Common Equity Tier 1 instruments where an institution does not have a significant investment in a financial sector entity

For the purposes of point (h) of Article 36(1), 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 Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10 % of the aggregate amount of Common Equity Tier 1 items of the institution calculated after applying the following to Common Equity Tier 1 items: (i) Articles 32 to 35; (ii) the deductions referred to in Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45;

(b) the amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of those financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across all Common Equity Tier 1 instruments held. Institutions shall determine the amount of each Common Equity Tier 1 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:

(a) the amount of holdings required to be deducted pursuant to paragraph 1;

(b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment represented by each Common Equity Tier 1 instrument held.

Institutions shall determine the amount of each Common Equity Tier 1 instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

(a) the amount of holdings required to be risk weighted pursuant to paragraph 4;

(b) the proportion resulting from the calculation in point (b) of paragraph 3.

Article 47

Deduction of holdings of Common Equity Tier 1 instruments where an institution has a significant investment in a financial sector entity

For the purposes of point (i) of Article 36(1), the applicable amount to be deducted from Common Equity Tier 1 items shall exclude underwriting positions held for five working days or fewer and shall be determined in accordance with Articles 44 and 45 and Sub-section 2.

Article 47a

Non-performing exposures

For the purposes of point (m) of Article 36(1), exposure shall include any of the following items, provided they are not included in the trading book of the institution:

(a) a debt instrument, including a debt security, a loan, an advance and a demand deposit;

(b) a loan commitment given, a financial guarantee given or any other commitment given, irrespective of whether it is revocable or irrevocable, with the exception of undrawn credit facilities that may be cancelled unconditionally at any time and without notice, or that effectively provide for automatic cancellation due to deterioration in the borrower's creditworthiness.

For the purposes of point (m) of Article 36(1), the exposure value of a debt instrument that was purchased at a price lower than the amount owed by the debtor shall include the difference between the purchase price and the amount owed by the debtor.

For the purposes of point (m) of Article 36(1), the exposure value of a loan commitment given, a financial guarantee given or any other commitment given as referred to in point (b) of paragraph 1 of this Article shall be its nominal value, which shall represent the institution's maximum exposure to credit risk without taking account of any funded or unfunded credit protection. The nominal value of a loan commitment given shall be the undrawn amount that the institution has committed to lend and the nominal value of a financial guarantee given shall be the maximum amount the entity could have to pay if the guarantee is called on.

The nominal value referred to in the third subparagraph of this paragraph shall not take into account any specific credit risk adjustment, additional value adjustments in accordance with Articles 34 and 105, amounts deducted in accordance with point (m) of Article 36(1) or other own funds reductions related to the exposure.

For the purposes of point (m) of Article 36(1), the following exposures shall be classified as non-performing:

(a) an exposure in respect of which a default is considered to have occurred in accordance with Article 178;

(b) an exposure which is considered to be impaired in accordance with the applicable accounting framework;

(c) an exposure under probation pursuant to paragraph 7, where additional forbearance measures are granted or where the exposure becomes more than 30 days past due;

(d) an exposure in the form of a commitment that, were it drawn down or otherwise used, would likely not be paid back in full without realisation of collateral;

(e) an exposure in form of a financial guarantee that is likely to be called by the guaranteed party, including where the underlying guaranteed exposure meets the criteria to be considered as non-performing.

For the purposes of point (a), where an institution has on-balance-sheet exposures to an obligor that are past due by more than 90 days and that represent more than 20 % of all on-balance-sheet exposures to that obligor, all on- and off-balance-sheet exposures to that obligor shall be considered to be non-performing.

Exposures that have not been subject to a forbearance measure shall cease to be classified as non-performing for the purposes of point (m) of Article 36(1) where all the following conditions are met:

(a) the exposure meets the exit criteria applied by the institution for the discontinuation of the classification as impaired in accordance with the applicable accounting framework and of the classification as defaulted in accordance with Article 178;

(b) the situation of the obligor has improved to the extent that the institution is satisfied that full and timely repayment is likely to be made;

(c) the obligor does not have any amount past due by more than 90 days.

Non-performing exposures subject to forbearance measures shall cease to be classified as non-performing for the purposes of point (m) of Article 36(1) where all the following conditions are met:

(a) the exposures have ceased to be in a situation that would lead to their classification as non-performing under paragraph 3;

(b) at least one year has passed since the date on which the forbearance measures were granted and the date on which the exposures were classified as non-performing, whichever is later;

(c) there is no past-due amount following the forbearance measures and the institution, on the basis of the analysis of the obligor's financial situation, is satisfied about the likelihood of the full and timely repayment of the exposure.

Full and timely repayment may be considered likely where the obligor has executed regular and timely payments of amounts equal to either of the following:

(a) the amount that was past due before the forbearance measure was granted, where there were amounts past due;

(b) the amount that has been written-off under the forbearance measures granted, where there were no amounts past due.

Where a non-performing exposure has ceased to be classified as non-performing pursuant to paragraph 6, such exposure shall be under probation until all the following conditions are met:

(a) at least two years have passed since the date on which the exposure subject to forbearance measures was re-classified as performing;

(b) regular and timely payments have been made during at least half of the period that the exposure would be under probation, leading to the payment of a substantial aggregate amount of principal or interest;

(c) none of the exposures to the obligor is more than 30 days past due.

Article 47b

Forbearance measures

Forbearance measure is a concession by an institution towards an obligor that is experiencing or is likely to experience difficulties in meeting its financial commitments. A concession may entail a loss for the lender and shall refer to either of the following actions:

(a) a modification of the terms and conditions of a debt obligation, where such modification would not have been granted had the obligor not experienced difficulties in meeting its financial commitments;

(b) a total or partial refinancing of a debt obligation, where such refinancing would not have been granted had the obligor not experienced difficulties in meeting its financial commitments.

At least the following situations shall be considered forbearance measures:

(a) new contract terms are more favourable to the obligor than the previous contract terms, where the obligor is experiencing or is likely to experience difficulties in meeting its financial commitments;

(b) new contract terms are more favourable to the obligor than contract terms offered by the same institution to obligors with a similar risk profile at that time, where the obligor is experiencing or is likely to experience difficulties in meeting its financial commitments;

(c) the exposure under the initial contract terms was classified as non-performing before the modification to the contract terms or would have been classified as non-performing in the absence of modification to the contract terms;

(d) the measure results in a total or partial cancellation of the debt obligation;

(e) the institution approves the exercise of clauses that enable the obligor to modify the terms of the contract and the exposure was classified as non-performing before the exercise of those clauses, or would be classified as non-performing were those clauses not exercised;

(f) at or close to the time of the granting of debt, the obligor made payments of principal or interest on another debt obligation with the same institution, which was classified as a non-performing exposure or would have been classified as non-performing in the absence of those payments;

(g) the modification to the contract terms involves repayments made by taking possession of collateral, where such modification constitutes a concession.

The following circumstances are indicators that forbearance measures may have been adopted:

(a) the initial contract was past due by more than 30 days at least once during the three months prior to its modification or would be more than 30 days past due without modification;

(b) at or close to the time of concluding the credit agreement, the obligor made payments of principal or interest on another debt obligation with the same institution that was past due by 30 days at least once during the three months prior to the granting of new debt;

(c) the institution approves the exercise of clauses that enable the obligor to change the terms of the contract, and the exposure is 30 days past due or would be 30 days past due were those clauses not exercised.

Article 47c

Deduction for non-performing exposures

For the purposes of point (m) of Article 36(1), institutions shall determine the applicable amount of insufficient coverage separately for each non-performing exposure to be deducted from Common Equity Tier 1 items by subtracting the amount determined in point (b) of this paragraph from the amount determined in point (a) of this paragraph, where the amount referred to in point (a) exceeds the amount referred to in point (b):

(a) the sum of: (i) the unsecured part of each non-performing exposure, if any, multiplied by the applicable factor referred to in paragraph 2; (ii) the secured part of each non-performing exposure, if any, multiplied by the applicable factor referred to in paragraph 3;

(b) the sum of the following items provided they relate to the same non-performing exposure: (i) specific credit risk adjustments; (ii) additional value adjustments in accordance with Articles 34 and 105; (iii) other own funds reductions; (iv) for institutions calculating risk-weighted exposure amounts using the Internal Ratings Based Approach, the absolute value of the amounts deducted pursuant to point (d) of Article 36(1) which relate to non-performing exposures, where the absolute value attributable to each non-performing exposure is determined by multiplying the amounts deducted pursuant to point (d) of Article 36(1) by the contribution of the expected loss amount for the non-performing exposure to total expected loss amounts for defaulted or non-defaulted exposures, as applicable; (v) where a non-performing exposure is purchased at a price lower than the amount owed by the debtor, the difference between the purchase price and the amount owed by the debtor; (vi) amounts written-off by the institution since the exposure was classified as non-performing.

The secured part of a non-performing exposure is that part of the exposure which, for the purpose of calculating own funds requirements pursuant to Title II of Part Three, is considered to be covered by a funded credit protection or unfunded credit protection or fully and completely secured by mortgages.

The unsecured part of a non-performing exposure corresponds to the difference, if any, between the value of the exposure as referred to in Article 47a(1) and the secured part of the exposure, if any.

For the purposes of point (a)(i) of paragraph 1, the following factors shall apply:

(a) 0,35 for the unsecured part of a non-performing exposure to be applied during the period between the first and the last day of the third year following its classification as non-performing;

(b) 1 for the unsecured part of a non-performing exposure to be applied as of the first day of the fourth year following its classification as non-performing.

For the purposes of point (a)(ii) of paragraph 1, the following factors shall apply:

(a) 0,25 for the secured part of a non-performing exposure to be applied during the period between the first and the last day of the fourth year following its classification as non-performing;

(b) 0,35 for the secured part of a non-performing exposure to be applied during the period between the first and the last day of the fifth year following its classification as non-performing;

(c) 0,55 for the secured part of a non-performing exposure to be applied during the period between the first and the last day of the sixth year following its classification as non-performing;

(d) 0,70 for the part of a non-performing exposure secured by immovable property pursuant to Title II of Part Three or that is a residential loan guaranteed by an eligible protection provider as referred to in Article 201, to be applied during the period between the first and the last day of the seventh year following its classification as non-performing;

(e) 0,80 for the part of a non-performing exposure secured by other funded or unfunded credit protection pursuant to Title II of Part Three to be applied during the period between the first and the last day of the seventh year following its classification as non-performing;

(f) 0,80 for the part of a non-performing exposure secured by immovable property pursuant to Title II of Part Three or that is a residential loan guaranteed by an eligible protection provider as referred to in Article 201, to be applied during the period between the first and the last day of the eighth year following its classification as non-performing;

(g) 1 for the part of a non-performing exposure secured by other funded or unfunded credit protection pursuant to Title II of Part Three to be applied as of the first day of the eighth year following its classification as non-performing;

(h) 0,85 for the part of a non-performing exposure secured by immovable property pursuant to Title II of Part Three or that is a residential loan guaranteed by an eligible protection provider as referred to in Article 201, to be applied during the period between the first and the last day of the ninth year following its classification as non-performing;

(i) 1 for the part of a non-performing exposure secured by immovable property pursuant to Title II of Part Three or that is a residential loan guaranteed by an eligible protection provider as referred to in Article 201, to be applied as of the first day of the tenth year following its classification as non-performing.

By way of derogation from paragraph 3 of this Article, the following factors shall apply to the part of the non-performing exposure guaranteed or counter-guaranteed by an eligible protection provider referred to in Article 201(1), points (a) to (e), the unsecured exposures to which would be assigned a risk weight of 0 % under Part Three, Title II, Chapter 2:

(a) 0 for the secured part of the non-performing exposure to be applied during the period between one year and seven years following its classification as non-performing; and

(b) 1 for the secured part of the non-performing exposure to be applied as of the first day of the eighth year following its classification as non-performing, unless the eligible protection provider agreed to fulfil all payment obligations of the obligor towards the institution in full and in accordance with the original contractual payment schedule, in which case a factor of 0 for the secured part of the non-performing exposure shall apply.

Those guidelines shall be issued in accordance with Article 16 of Regulation (EU) No 1093/2010.

By way of derogation from paragraph 3, where an exposure has, between two and six years following its classification as non-performing, been granted a forbearance measure, the factor applicable in accordance with paragraph 3 on the date on which the forbearance measure is granted shall be applicable for an additional period of one year.

This paragraph shall only apply in relation to the first forbearance measure that has been granted since the classification of the exposure as non-performing.

Sub-Section 2

Exemptions from and alternatives to deduction from Common Equity Tier 1 items

Article 48

Threshold exemptions from deduction from Common Equity Tier 1 items

In making the deductions required pursuant to points (c) and (i) of Article 36(1), institutions are not required to deduct the amounts of the items listed in points (a) and (b) of this paragraph which in aggregate are equal to or less than the threshold amount referred to in paragraph 2:

(a) deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: (i) Articles 32 to 35; (ii) Article 36(1), points (a) to (h), points (k)(ii) to (vi) and points (l), (m) and (n), excluding deferred tax assets that rely on future profitability and arise from temporary differences;

(b) where an institution has a significant investment in a financial sector entity, the direct, indirect and synthetic holdings of that institution of the Common Equity Tier 1 instruments of those entities that in aggregate are equal to or less than 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: (i) Article 32 to 35; (ii) Article 36(1), points (a) to (h), points (k)(ii) to (vi) and points (l), (m) and (n), excluding deferred tax assets that rely on future profitability and arise from temporary differences.

For the purposes of paragraph 1, the threshold amount shall be equal to the amount referred to in point (a) of this paragraph multiplied by the percentage referred to in point (b) of this paragraph:

(a) the residual amount of Common Equity Tier 1 items after applying the adjustments and deductions in Articles 32 to 36 in full and without applying the threshold exemptions specified in this Article;

(b) 17,65 %.

For the purposes of paragraph 1, an institution shall determine the portion of deferred tax assets in the total amount of items that is not required to be deducted by dividing the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

(a) the amount of deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10 % of the Common Equity Tier 1 items of the institution;

(b) the sum of the following: (i) the amount referred to in point (a); (ii) the amount of direct, indirect and synthetic holdings by the institution of the own funds instruments of financial sector entities in which the institution has a significant investment, and in aggregate are equal to or less than 10 % of the Common Equity Tier 1 items of the institution.

The proportion of significant investments in the total amount of items that is not required to be deducted is equal to one minus the proportion referred to in the first subparagraph.

Article 49

Requirement for deduction where consolidation, supplementary supervision or institutional protection schemes are applied

For the purposes of calculating own funds on an individual basis, a sub-consolidated basis and a consolidated basis, where the competent authorities require or permit institutions to apply method 1, 2 or 3 of Annex I to Directive 2002/87/EC, the competent authorities may permit institutions not to deduct the holdings of own funds instruments of a financial sector entity in which the parent institution, parent financial holding company or parent mixed financial holding company or institution has a significant investment, provided that the conditions laid down in points (a) to (e) of this paragraph are met:

(a) the financial sector entity is an insurance undertaking, a re-insurance undertaking or an insurance holding company;

(b) that insurance undertaking, re-insurance undertaking or insurance holding company is included in the same supplementary supervision under Directive 2002/87/EC as the parent institution, parent financial holding company or parent mixed financial holding company or institution that has the holding;

(c) the institution has received the prior permission of the competent authorities;

(d) prior to granting the permission referred to in point (c), and on a continuing basis, the competent authorities are satisfied that the level of integrated management, risk management and internal control regarding the entities that would be included in the scope of consolidation under method 1, 2 or 3 is adequate;

(e) the holdings in the entity belong to one of the following: (i) the parent credit institution; (ii) the parent financial holding company; (iii) the parent mixed financial holding company; (iv) the institution; (v) a subsidiary of one of the entities referred to in points (i) to (iv) that is included in the scope of consolidation pursuant to Chapter 2 of Title II of Part One.

The method chosen shall be applied in a consistent manner over time.

Applying the approach referred to in the first subparagraph shall not entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole forming or creating an obstacle to the functioning of the internal market.

This paragraph shall not apply when calculating own funds for the purposes of the requirements laid down in Articles 92a and 92b, which shall be calculated in accordance with the deduction framework set out in Article 72e(4).

This paragraph shall not apply with regard to the deductions set out in Article 72e(5).

Competent authorities may, for the purposes of calculating own funds on an individual or sub-consolidated basis permit institutions not to deduct holdings of own funds instruments in the following cases:

(a) where an institution has a holding in another institution and the conditions referred to in points (i) to (v) are met: (i) the institutions fall within the same institutional protection scheme referred to in Article 113(7); (ii) the competent authorities have granted the permission referred to in Article 113(7); (iii) the conditions laid down in Article 113(7) are satisfied; (iv) the institutional protection scheme draws up a consolidated balance sheet referred to in point (e) of Article 113(7) or, where it is not required to draw up consolidated accounts, an extended aggregated calculation that is, to the satisfaction of the competent authorities, equivalent to the provisions of Directive 86/635/EEC, which incorporates certain adaptations of the provisions of Directive 83/349/EEC or of Regulation (EC) No 1606/2002, governing the consolidated accounts of groups of credit institutions. The equivalence of that extended aggregated calculation shall be verified by an external auditor and in particular that the multiple use of elements eligible for the calculation of own funds as well as any inappropriate creation of own funds between the members of the institutional protection scheme is eliminated in the calculation.  The consolidated balance sheet or the extended aggregated calculation shall be reported to the competent authorities with the frequency set out in the implementing technical standards referred to in Article 430(7); (v) the institutions included in an institutional protection scheme meet together on a consolidated or extended aggregated basis the requirements laid down in Article 92 and carry out reporting of compliance with those requirements in accordance with Article 430. Within an institutional protection scheme the deduction of the interest owned by co-operative members or legal entities, which are not members of the institutional protection scheme, is not required, provided that the multiple use of elements eligible for the calculation of own funds as well as any inappropriate creation of own funds between the members of the institutional protection scheme and the minority shareholder, when it is an institution, is eliminated.

(b) where a regional credit institution has a holding in its central or another regional credit institution and the conditions laid down in points (a)(i) to (v) are met.

The holdings in respect of which deduction is not made in accordance with paragraph 2 or 3 shall qualify as exposures and shall be risk weighted at 100 %.

EBA, EIOPA and ESMA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010 and of Regulation (EU) No 1095/2010 respectively.

Section 4

Common Equity Tier 1 capital

Article 50

Common Equity Tier 1 capital

The Common Equity Tier 1 capital of an institution shall consist of Common Equity Tier 1 items after the application of the adjustments required by Articles 32 to 35, the deductions pursuant to Article 36 and the exemptions and alternatives laid down in Articles 48, 49 and 79.

CHAPTER 3

Additional Tier 1 capital

Section 1

Additional Tier 1 items and instruments

Article 51

Additional Tier 1 items

Additional Tier 1 items shall consist of the following:

(a) capital instruments, where the conditions laid down in Article 52(1) are met;

(b) the share premium accounts related to the instruments referred to in point (a).

Instruments included under point (a) shall not qualify as Common Equity Tier 1 or Tier 2 items.

Article 52

Additional Tier 1 instruments

Capital instruments shall qualify as Additional Tier 1 instruments only if the following conditions are met:

(a) the instruments are directly issued by an institution and fully paid up;

(b) the instruments are not owned by any of the following: (i) the institution or its subsidiaries; (ii) an undertaking in which the institution has a participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking;

(c) the acquisition of ownership of the instruments is not funded directly or indirectly by the institution;

(d) the instruments rank below Tier 2 instruments in the event of the insolvency of the institution;

(e) the instruments are neither secured nor subject to a guarantee that enhances the seniority of the claims by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the mixed activity holding company or its subsidiaries; (v) the mixed financial holding company or its subsidiaries; (vi) any undertaking that has close links with entities referred to in points (i) to (v);

(f) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of the claim under the instruments in insolvency or liquidation;

(g) the instruments are perpetual and the provisions governing them include no incentive for the institution to redeem them;

(h) where the instruments include one or more early redemption options including call options, the options are exercisable at the sole discretion of the issuer;

(i) the instruments may be called, redeemed or repurchased only where the conditions laid down in Article 77 are met, and not before five years after the date of issuance except where the conditions laid down in Article 78(4) are met;

(j) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would be called, redeemed or repurchased, as applicable, by the institution other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;

(k) the institution does not indicate explicitly or implicitly that the competent authority would consent to a request to call, redeem or repurchase the instruments;

(l) distributions under the instruments meet the following conditions: (i) they are paid out of distributable items; (ii) the level of distributions made on the instruments will not be amended on the basis of the credit standing of the institution or its parent undertaking; (iii) the provisions governing the instruments give the institution full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and the institution may use such cancelled payments without restriction to meet its obligations as they fall due; (iv) cancellation of distributions does not constitute an event of default of the institution; (v) the cancellation of distributions imposes no restrictions on the institution;

(m) the instruments do not contribute to a determination that the liabilities of an institution exceed its assets, where such a determination constitutes a test of insolvency under applicable national law;

(n) the provisions governing the instruments require that, upon the occurrence of a trigger event, the principal amount of the instruments be written down on a permanent or temporary basis or the instruments be converted to Common Equity Tier 1 instruments;

(o) the provisions governing the instruments include no feature that could hinder the recapitalisation of the institution;

(p) where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in Article 59 of that Directive, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments; where the issuer is established in a third country and has not been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union, the law or contractual provisions governing the instruments require that, upon a decision by the relevant third-country authority, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted into Common Equity Tier 1 instruments;

(q) where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the instruments 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 powers referred to in Article 59 of that Directive is effective and enforceable on the basis of statutory provisions or legally enforceable contractual provisions that recognise resolution or other write-down or conversion actions;

(r) the instruments are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses.

The condition set out in point (d) of the first subparagraph shall be deemed to be met notwithstanding the fact that the instruments are included in Additional Tier 1 or Tier 2 by virtue of Article 484(3), provided that they rank pari passu.

For the purposes of point (a) of the first subparagraph, only the part of a capital instrument that is fully paid up shall be eligible to qualify as an Additional Tier 1 instrument.

EBA shall develop draft regulatory technical standards to specify all the following:

(a) the form and nature of incentives to redeem;

(b) the nature of any write up of the principal amount of an Additional Tier 1 instrument following a write down of its principal amount on a temporary basis;

(c) the procedures and timing for the following: (i) determining that a trigger event has occurred; (ii) writing up the principal amount of an Additional Tier 1 instrument following a write down of its principal amount on a temporary basis;

(d) features of instruments that could hinder the recapitalisation of the institution;

(e) the use of special purpose entities for indirect issuance of own funds instruments.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 53

Restrictions on the cancellation of distributions on Additional Tier 1 instruments and features that could hinder the recapitalisation of the institution

For the purposes of points (l)(v) and (o) of Article 52(1), the provisions governing Additional Tier 1 instruments shall, in particular, not include the following:

(a) a requirement for distributions on the instruments to be made in the event of a distribution being made on an instrument issued by the institution that ranks to the same degree as, or more junior than, an Additional Tier 1 instrument, including a Common Equity Tier 1 instrument;

(b) a requirement for the payment of distributions on Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments to be cancelled in the event that distributions are not made on those Additional Tier 1 instruments;

(c) an obligation to substitute the payment of interest or dividend by a payment in any other form. The institution shall not otherwise be subject to such an obligation.

Article 54

Write down or conversion of Additional Tier 1 instruments

For the purposes of point (n) of Article 52(1), the following provisions shall apply to Additional Tier 1 instruments:

(a) a trigger event occurs when the Common Equity Tier 1 capital ratio of the institution referred to in point (a) of Article 92(1) falls below either of the following: (i) 5,125 %; (ii) a level higher than 5,125 %, where determined by the institution and specified in the provisions governing the instrument;

(b) institutions may specify in the provisions governing the instrument one or more trigger events in addition to that referred to in point (a);

(c) where the provisions governing the instruments require them to be converted into Common Equity Tier 1 instruments upon the occurrence of a trigger event, those provisions shall specify either of the following: (i) the rate of such conversion and a limit on the permitted amount of conversion; (ii) a range within which the instruments will convert into Common Equity Tier 1 instruments;

(d) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down shall reduce all the following: (i) the claim of the holder of the instrument in the insolvency or liquidation of the institution; (ii) the amount required to be paid in the event of the call or redemption of the instrument; (iii) the distributions made on the instrument;

(e) where the Additional Tier 1 instruments have been issued by a subsidiary undertaking established in a third country, the 5,125 % or higher trigger referred to in point (a) shall be calculated in accordance with the national law of that third country or contractual provisions governing the instruments, provided that the competent authority, after consulting EBA, is satisfied that those provisions are at least equivalent to the requirements set out in this Article.

The aggregate amount of Additional Tier 1 instruments that is required to be written down or converted upon the occurrence of a trigger event shall be no less than the lower of the following:

(a) the amount required to restore fully the Common Equity Tier 1 ratio of the institution to 5,125 %;

(b) the full principal amount of the instrument.

When a trigger event occurs institutions shall do the following:

(a) immediately inform the competent authorities;

(b) inform the holders of the Additional Tier 1 instruments;

(c) write down the principal amount of the instruments, or convert the instruments into Common Equity Tier 1 instruments without delay, but no later than within one month, in accordance with the requirement laid down in this Article.

Article 55

Consequences of the conditions for Additional Tier 1 instruments ceasing to be met

The following shall apply where, in the case of an Additional Tier 1 instrument, the conditions laid down in Article 52(1) cease to be met:

(a) that instrument shall immediately cease to qualify as an Additional Tier 1 instrument;

(b) the part of the share premium accounts that relates to that instrument shall immediately cease to qualify as an Additional Tier 1 item.

Section 2

Deductions from Additional Tier 1 items

Article 56

Deductions from Additional Tier 1 items

Institutions shall deduct the following from Additional Tier 1 items:

(a) direct, indirect and synthetic holdings by an institution of own Additional Tier 1 instruments, including own Additional Tier 1 instruments that an institution could be obliged to purchase as a result of existing contractual obligations;

(b) direct, indirect and synthetic holdings of the Additional Tier 1 instruments of financial sector entities with which the institution has reciprocal cross holdings that the competent authority considers to have been designed to inflate artificially the own funds of the institution;

(c) the applicable amount determined in accordance with Article 60 of direct, indirect and synthetic holdings of the Additional Tier 1 instruments of financial sector entities, where an institution does not have a significant investment in those entities;

(d) direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities, excluding underwriting positions held for five working days or fewer;

(e) the amount of items required to be deducted from Tier 2 items pursuant to Article 66 that exceeds the Tier 2 items of the institution;

(f) any tax charge relating to Additional Tier 1 items foreseeable at the moment of its calculation, except where the institution suitably adjusts the amount of Additional Tier 1 items insofar as such tax charges reduce the amount up to which those items may be applied to cover risks or losses.

Article 57

Deductions of holdings of own Additional Tier 1 instruments

For the purposes of point (a) of Article 56, institutions shall calculate holdings of own Additional Tier 1 instruments on the basis of gross long positions subject to the following exceptions:

(a) institutions may calculate the amount of holdings of own Additional Tier 1 instruments on the basis of the net long position provided that both the following conditions are met: (i) 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;

(b) institutions shall determine the amount to be deducted for direct, indirect or synthetic holdings of index securities by calculating the underlying exposure to own Additional Tier 1 instruments in those indices;

(c) institutions may net gross long positions in own Additional Tier 1 instruments resulting from holdings of index securities against short positions in own Additional Tier 1 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met: (i) the long and short positions are in the same underlying indices; (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book;

Article 58

Deduction of holdings of Additional Tier 1 instruments of financial sector entities and where an institution has a reciprocal cross holding designed artificially to inflate own funds

Institutions shall make the deductions required by points (b), (c) and (d) of Article 56 in accordance with the following:

(a) holdings of Additional Tier 1 instruments shall be calculated on the basis of the gross long positions;

(b) Additional Tier 1 own-fund insurance items shall be treated as holdings of Additional Tier 1 instruments for the purposes of deduction.

Article 59

Deduction of holdings of Additional Tier 1 instruments of financial sector entities

Institutions shall make the deductions required by points (c) and (d) of Article 56 in accordance with the following:

(a) they may calculate direct, indirect and synthetic holdings of Additional Tier 1 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met: (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 short position is at least one year; (ii) either both the short position and the long position are held in the trading book or both are held in the non-trading book.

(b) they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to the capital instruments of the financial sector entities in those indices.

Article 60

Deduction of holdings of Additional Tier 1 instruments where an institution does not have a significant investment in a financial sector entity

For the purposes of point (c) of Article 56, 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 Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: (i) Article 32 to 35; (ii) Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45;

(b) the amount of direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of those financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across all Additional Tier 1 instruments held. Institutions shall determine the amount of each Additional Tier 1 instrument to be 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:

(a) the amount of holdings required to be deducted pursuant to paragraph 1;

(b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of financial sector entities in which the institution does not have a significant investment represented by each Additional Tier 1 instrument held.

Institutions shall determine the amount of each Additional Tier 1 instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

(a) the amount of holdings required to be risk weighted pursuant to paragraph 4;

(b) the proportion resulting from the calculation in point (b) of paragraph 3.

Section 3

Additional Tier 1 capital

Article 61

Additional Tier 1 capital

The Additional Tier 1 capital of an institution shall consist of Additional Tier 1 items after the deduction of the items referred to in Article 56 and the application of Article 79.

CHAPTER 4

Tier 2 capital

Section 1

Tier 2 items and instruments

Article 62

Tier 2 items

Tier 2 items shall consist of the following:

(a) capital instruments where the conditions set out in Article 63 are met, and to the extent specified in Article 64;

(b) the share premium accounts related to instruments referred to in point (a);

(c) for institutions calculating risk-weighted exposure amounts in accordance with Chapter 2 of Title II of Part Three, general credit risk adjustments, gross of tax effects, of up to 1,25 % of risk-weighted exposure amounts calculated in accordance with Chapter 2 of Title II of Part Three;

(d) for institutions calculating risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 3, the IRB excess, where applicable, gross of tax effects, calculated in accordance with Article 159, of up to 0,6 % of risk-weighted exposure amounts calculated in accordance with Part Three, Title II, Chapter 3.

Items included under point (a) shall not qualify as Common Equity Tier 1 or Additional Tier 1 items.

Article 63

Tier 2 instruments

Capital instruments shall qualify as Tier 2 instruments, provided that the following conditions are met:

(a) the instruments are directly issued by an institution and fully paid up;

(b) the instruments are not owned by any of the following: (i) the institution or its subsidiaries; (ii) an undertaking in which the institution has participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking;

(c) the acquisition of ownership of the instruments is not funded directly or indirectly by the institution;

(d) the claim on the principal amount of the instruments under the provisions governing the instruments ranks below any claim from eligible liabilities instruments;

(e) the instruments are not secured or are not subject to a guarantee that enhances the seniority of the claim by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the mixed activity holding company or its subsidiaries; (v) the mixed financial holding company or its subsidiaries; (vi) any undertaking that has close links with entities referred to in points (i) to (v);

(f) the instruments are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments;

(g) the instruments have an original maturity of at least five years;

(h) the provisions governing the instruments do not include any incentive for their principal amount to be redeemed or repaid, as applicable by the institution prior to their maturity;

(i) where the instruments include one or more early repayment options, including call options, the options are exercisable at the sole discretion of the issuer;

(j) the instruments may be called, redeemed, repaid or repurchased early only where the conditions set out in Article 77 are met, and not before five years after the date of issuance, except where the conditions set out in Article 78(4) are met;

(k) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would be called, redeemed, repaid or repurchased early, as applicable, by the institution other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;

(l) the provisions governing the instruments do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the institution;

(m) the level of interest or dividends payments, as applicable, due on the instruments will not be amended on the basis of the credit standing of the institution or its parent undertaking;

(n) where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in Article 59 of that Directive, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments; where the issuer is established in a third country and has not been designated in accordance with Article 12 of Directive 2014/59/EU as a part of a resolution group the resolution entity of which is established in the Union, the law or contractual provisions governing the instruments require that, upon a decision by the relevant third-country authority, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted into Common Equity Tier 1 instruments;

(o) where the issuer is established in a third country and has been designated in accordance with Article 12 of Directive 2014/59/EU as part of a resolution group the resolution entity of which is established in the Union or where the issuer is established in a Member State, the instruments 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 powers referred to in Article 59 of that Directive is effective and enforceable on the basis of statutory provisions or legally enforceable contractual provisions that recognise resolution or other write-down or conversion actions;

(p) the instruments are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses.

For the purposes of point (a) of the first paragraph, only the part of the capital instrument that is fully paid up shall be eligible to qualify as a Tier 2 instrument.

Article 64

Amortisation of Tier 2 instruments

The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of maturity of the instruments is calculated by multiplying the result derived from the calculation referred to in point (a) by the amount referred to in point (b) as follows:

(a) the carrying amount of the instruments on the first day of the final five-year period of their contractual maturity divided by the number of days in that period;

(b) the number of remaining days of contractual maturity of the instruments.

Article 65

Consequences of the conditions for Tier 2 instruments ceasing to be met

Where in the case of a Tier 2 instrument the conditions laid down in Article 63 cease to be met, the following shall apply:

(a) that instrument shall immediately cease to qualify as a Tier 2 instrument;

(b) the part of the share premium accounts that relate to that instrument shall immediately cease to qualify as Tier 2 items.

Section 2

Deductions from Tier 2 items

Article 66

Deductions from Tier 2 items

The following shall be deducted from Tier 2 items:

(a) direct, indirect and synthetic holdings by an institution of own Tier 2 instruments, including own Tier 2 instruments that an institution could be obliged to purchase as a result of existing contractual obligations;

(b) direct, indirect and synthetic holdings of the Tier 2 instruments of financial sector entities with which the institution has reciprocal cross holdings that the competent authority considers to have been designed to inflate artificially the own funds of the institution;

(c) the applicable amount determined in accordance with Article 70 of direct, indirect and synthetic holdings of the Tier 2 instruments of financial sector entities, where an institution does not have a significant investment in those entities;

(d) direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities where the institution has a significant investment in those entities, excluding underwriting positions held for fewer than five working days;

(e) the amount of items required to be deducted from eligible liabilities items pursuant to Article 72e that exceeds the eligible liabilities items of the institution.

Article 67

Deductions of holdings of own Tier 2 instruments

For the purposes of point (a) of Article 66, 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: (i) 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;

(b) institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own Tier 2 instruments in those indices;

(c) institutions may net gross long positions in own Tier 2 instruments resulting from holdings of index securities against short positions in own Tier 2 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met: (i) the long and short positions are in the same underlying indices; (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book.

Article 68

Deduction of holdings of Tier 2 instruments of financial sector entities and where an institution has a reciprocal cross holding designed artificially to inflate own funds

Institutions shall make the deductions required by points (b), (c) and (d) of Article 66 in accordance with the following provisions:

(a) holdings of Tier 2 instruments shall be calculated on the basis of the gross long positions;

(b) holdings of Tier 2 own-fund insurance items and Tier 3 own-fund insurance items shall be treated as holdings of Tier 2 instruments for the purposes of deduction.

Article 69

Deduction of holdings of Tier 2 instruments of financial sector entities

Institutions shall make the deductions required by points (c) and (d) of Article 66 in accordance with the following:

(a) they may calculate direct, indirect and synthetic holdings of Tier 2 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met: (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 short position is at least one year; (ii) either both the long position and the short position are held in the trading book or both are held in the non-trading book;

(b) 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 capital instruments of the financial sector entities in those indices.

Article 70

Deduction of Tier 2 instruments where an institution does not have a significant investment in a relevant entity

For the purposes of point (c) of Article 66, 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 Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: (i) Articles 32 to 35; (ii) Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45;

(b) the amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across each Tier 2 instrument held. Institutions shall determine the amount to be deducted from each Tier 2 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:

(a) the total amount of holdings required to be deducted pursuant to paragraph 1;

(b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment represented by each Tier 2 instrument held.

Institutions shall determine the amount of each Tier 2 instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

(a) the amount of holdings required to be risk weighted pursuant to paragraph 4;

(b) the proportion resulting from the calculation in point (b) of paragraph 3.

Section 3

Tier 2 capital

Article 71

Tier 2 capital

The Tier 2 capital of an institution shall consist of the Tier 2 items of the institution after the deductions referred to in Article 66 and the application of Article 79.

CHAPTER 5

Own funds

Article 72

Own funds

The own funds of an institution shall consist of the sum of its Tier 1 capital and Tier 2 capital.

CHAPTER 5a

Eligible liabilities

Section 1

Eligible liabilities items and instruments

Article 72a

Eligible 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 of this Article, and to the extent specified in Article 72c:

(a) eligible liabilities instruments where the conditions set out in Article 72b are met, to the extent that they do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 items;

(b) Tier 2 instruments with a residual maturity of at least one year, to the extent that they do not qualify as Tier 2 items in accordance with Article 64.

The following liabilities shall be excluded from eligible liabilities items:

(a) covered deposits;

(b) sight deposits and short term deposits with an original maturity 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 Article 6 of Directive 2014/49/EU of the European Parliament and of the Council (²⁹);

(d) deposits that would be eligible deposits from natural persons, micro, small and medium–sized enterprises if they were not made through branches located outside the Union of institutions established in the Union;

(e) 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 in accordance with national law are secured in a manner 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 liability or a liability for which collateral has been pledged that exceeds the value of the assets, pledge, lien or collateral against which it is secured;

(f) any liability 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;

(g) any liability that arises by virtue of a fiduciary relationship between the resolution entity 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;

(h) liabilities to institutions, excluding liabilities to entities that are part of the same group, with an original maturity of less than seven days;

(i) liabilities with a remaining maturity of less than seven days, owed to: (i) systems or system operators designated in accordance with Directive 98/26/EC of the European Parliament and of the Council (³⁰); (ii) participants in a system designated in accordance with Directive 98/26/EC and arising from the participation in such a system; or (iii) third-country CCPs recognised in accordance with Article 25 of Regulation (EU) No 648/2012;

(j) a liability to any of the following: (i) an employee in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of the 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 Article 92(2) of Directive 2013/36/EU; (ii) a commercial or trade creditor where the liability 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 undertaking's 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 Directive 2014/49/EU;

(k) liabilities arising from derivatives;

(l) liabilities arising from debt instruments with embedded derivatives.

For the purposes of point (l) of the first subparagraph, debt instruments containing early redemption options exercisable at the discretion of the issuer or of the holder, and debt instruments with variable interests derived from a broadly used reference rate such as Euribor or Libor, shall not be considered as debt instruments with embedded derivatives solely because of such features.

Article 72b

Eligible liabilities instruments

Liabilities shall qualify as eligible liabilities instruments, provided that all 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 owned by any of the following: (i) the institution or an entity included in the same resolution group; (ii) 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 or capital of that undertaking;

(c) the acquisition of ownership of the liabilities is not funded directly or indirectly by the resolution entity;

(d) 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 Article 72a(2); that 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 Article 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 Article 72a(2) of this Regulation; (ii) the applicable law specifies that in the event of normal insolvency proceedings as defined in point (47) of Article 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 Article 72a(2) of this Regulation; (iii) the instruments are issued by a resolution entity which does not have on its balance sheet any excluded liabilities as referred to in Article 72a(2) of this Regulation that rank pari passu or junior to eligible liabilities instruments;

(e) the liabilities are neither secured, nor subject to a guarantee or any other arrangement that enhances the seniority of the claim by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) any undertaking that has close links with entities referred to in points (i) and (ii);

(f) the liabilities are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses in resolution;

(g) the provisions governing the liabilities do not include any incentive for their principal amount to be called, redeemed or repurchased prior to their maturity or repaid early by the institution, as applicable, except in the cases referred to in Article 72c(3);

(h) the liabilities are not redeemable by the holders of the instruments prior to their maturity, except in the cases referred to in Article 72c(2);

(i) subject to Article 72c(3) and (4), where the liabilities include one or more early repayment options, including call options, the options are exercisable at the sole discretion of the issuer, except in the cases referred to in Article 72c(2);

(j) the liabilities may only be called, redeemed, repaid or repurchased early where the conditions set out in Articles 77 and 78a are met;

(k) the provisions governing the liabilities do not indicate explicitly or implicitly that the liabilities would be called, redeemed, repaid or repurchased early, as applicable by the resolution entity other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;

(l) 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 the case of the insolvency or liquidation of the resolution entity;

(m) the level of interest or dividend payments, as applicable, due on the liabilities is not amended on the basis of the credit standing of the resolution entity or its parent undertaking;

(n) for instruments issued after 28 June 2021 the relevant contractual documentation and, where applicable, the prospectus related to the issuance explicitly refer to the possible exercise of the write-down and conversion powers in accordance with Article 48 of Directive 2014/59/EU.

For the purposes of point (a) of the first subparagraph, only the parts of liabilities that are fully paid up shall be eligible to qualify as eligible liabilities instruments.

For the purposes of point (d) of the first subparagraph of this Article, where some of the excluded liabilities referred to in Article 72a(2) are subordinated to ordinary unsecured claims under national insolvency law, inter alia, due to being held by a creditor who has close links with the debtor, by being or having been a shareholder, in a control or group relationship, a member of the management body or related to any of those persons, subordination shall not be assessed by reference to claims arising from such excluded liabilities.

For the purposes of Article 92b, references to the resolution entity in points (c), (k), (l) and (m) of the first subparagraph of this paragraph shall also be understood as references to an institution that is a material subsidiary of a non-EU G-SII.

In addition to the liabilities referred to in paragraph 2 of this Article, the resolution authority may permit liabilities to qualify as eligible liabilities instruments up to an aggregate amount that does not exceed 3,5 % of the total risk exposure amount calculated in accordance with Article 92(3), provided that:

(a) all the conditions set out in paragraph 2 except for the condition set out in point (d) of the first subparagraph of paragraph 2 are met;

(b) the liabilities rank pari passu with the lowest ranking excluded liabilities referred to in Article 72a(2) with the exception of the excluded liabilities that are subordinated to ordinary unsecured claims under national insolvency law referred to in the third subparagraph of paragraph 2 of this Article; and

(c) the inclusion of those liabilities in eligible liabilities items would not give rise to a material risk of a successful legal challenge or of valid compensation claims as assessed by the resolution authority in relation to the principles referred to in point (g) of Article 34(1) and Article 75 of Directive 2014/59/EU.

The resolution authority may permit liabilities to qualify as eligible liabilities instruments in addition to the liabilities referred to in paragraph 2, provided that:

(a) the institution is not permitted to include in eligible liabilities items liabilities referred to in paragraph 3;

(b) all the conditions set out in paragraph 2, except for the condition set out in point (d) of the first subparagraph of paragraph 2, are met;

(c) the liabilities rank pari passu or are senior to the lowest ranking excluded liabilities referred to in Article 72a(2), with the exception of the excluded liabilities subordinated to ordinary unsecured claims under national insolvency law referred to in the third subparagraph of paragraph 2 of this Article;

(d) on the balance sheet of the institution, the amount of the excluded liabilities referred to in Article 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 would not give rise to a material risk of a successful legal challenge or of valid compensation claims as assessed by the resolution authority in relation to the principles referred to in point (g) of Article 34(1) and Article 75 of Directive 2014/59/EU.

EBA shall develop draft regulatory technical standards to specify:

(a) the applicable forms and nature of indirect funding of eligible liabilities instruments;

(b) the form and nature of incentives to redeem for the purposes of the condition set out in point (g) of the first subparagraph of paragraph 2 of this Article and Article 72c(3).

Those draft regulatory technical standards shall be fully aligned with the delegated act referred to in point (a) of Article 28(5) and in point (a) of Article 52(2).

EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.

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

Article 72c

Amortisation of eligible liabilities instruments

Eligible liabilities instruments with a residual maturity of less than one year shall not qualify as eligible liabilities items.

Article 72d

Consequences of the eligibility conditions ceasing to be met

Where, in the case of an eligible liabilities instrument, the applicable conditions set out in Article 72b cease to be met, the liabilities shall immediately cease to qualify as eligible liabilities instruments.

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 (4).

Section 2

Deductions from eligible liabilities items

Article 72e

Deductions from eligible liabilities items

Institutions that are subject to Article 92a shall deduct the following from eligible liabilities items:

(a) direct, indirect and synthetic holdings by the institution of own eligible liabilities instruments, 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 authority considers to have been designed to artificially inflate the loss absorption and recapitalisation capacity of the resolution entity;

(c) the applicable amount determined in accordance with Article 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 instruments of G-SII entities, where the institution has a significant investment in those entities, excluding underwriting positions held for five business days or fewer.

For the purposes of this Section, institutions may calculate the amount of holdings of the eligible liabilities instruments referred to in Article 72b(3) as follows:

where:

Where an EU parent institution or a parent institution in a Member State that is subject to Article 92a has direct, indirect or synthetic holdings of own funds instruments or eligible liabilities instruments of one or more subsidiaries which do not belong to the same resolution group as that parent institution, the resolution authority of that parent institution, after duly considering the opinion of the resolution authorities or relevant third-country authorities of any subsidiaries concerned, may permit the parent institution to deduct such holdings by deducting a lower amount specified by the resolution authority of that parent institution. That adjusted amount shall be at least equal to the amount (m) calculated as follows:

where:

Where the parent institution is allowed to deduct the adjusted amount in accordance with the first subparagraph, the difference between the amount of holdings of own funds instruments and eligible liabilities instruments referred to in the first subparagraph and that adjusted amount shall be deducted by the subsidiary.

Institutions and entities referred to in Article 1(1), points (b), (c) and (d), of Directive 2014/59/EU shall deduct from eligible liabilities items their holdings of own funds instruments and eligible liabilities instruments where all of the following conditions are met:

(a) the own funds instruments and eligible liabilities instruments are held by an institution or entity that is not itself a resolution entity but that is a subsidiary of a resolution entity or of a third-country entity that would be a resolution entity if it were established in the Union;

(b) the institution or entity referred to in point (a) is required to comply with the requirements laid down in Article 92b of this Regulation or in Article 45f of Directive 2014/59/EU;

(c) the own funds instruments and eligible liabilities instruments held by the institution or entity referred to in point (a) were issued by an institution or entity referred to in Article 92b(1) of this Regulation or in Article 45f(1) of Directive 2014/59/EU that is not itself a resolution entity and that belongs to the same resolution group as the institution or entity referred to in point (a).

By way of derogation from the first subparagraph, holdings of own funds instruments and eligible liabilities instruments shall not be deducted where the institution or entity referred to in point (a) of the first subparagraph is required to comply with the requirement referred to in point (b) of the first subparagraph on a consolidated basis and the institution or entity referred to in point (c) of the first subparagraph is included in the consolidation of the institution or entity referred to in point (a) of the first subparagraph in accordance with Part One, Title II, Chapter 2.

For the purposes of this paragraph, the reference to eligible liabilities items shall be understood as a reference to any of the following:

(a) eligible liabilities items taken into account for the purposes of complying with the requirement laid down in Article 92b;

(b) liabilities that meet the conditions set out in Article 45f(2), point (a), of Directive 2014/59/EU.

For the purposes of this paragraph, the reference to own funds instruments and eligible liabilities instruments shall be understood as a reference to any of the following:

(a) own funds instruments and eligible liabilities instruments that meet the conditions set out in Article 92b(2) and (3);

(b) own funds and liabilities that meet the conditions set out in Article 45f(2) of Directive 2014/59/EU.

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: (i) 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;

(b) 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;

(c) institutions may net gross long positions in own eligible liabilities instruments resulting from holdings of index securities against short positions in own eligible liabilities instruments resulting from short positions in underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met: (i) the long and short positions are in the same underlying indices; (ii) 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 Article 72e(1), institutions shall deduct the gross long positions subject to the exceptions laid down in Articles 72h and 72i.

Article 72h

Deduction of holdings of eligible liabilities of other G-SII entities

Institutions not making use of the exception set out in Article 72j shall make the deductions referred to in points (c) and (d) of Article 72e(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 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 short position is at least one year; (ii) either both the long position and the short position are held in the trading book or both are held in the non-trading book;

(b) 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

Deduction 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(1), 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 Common Equity Tier 1, Additional Tier 1, Tier 2 instruments of financial sector entities and eligible liabilities instruments of G-SII entities in none of which the institution has a significant investment exceeds 10 % of the Common Equity Tier 1 items of the institution after applying the following: (i) Articles 32 to 35; (ii) Article 36(1), points (a) to (g), points (k)(ii) to (vi) and points (l), (m) and (n), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45;

(b) the amount of direct, indirect and synthetic holdings by the institution of the eligible liabilities instruments of G-SII entities in which the institution does not have a significant investment divided by the aggregate amount of the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1, Tier 2 instruments of financial sector entities and eligible liabilities instruments of G-SII entities in none of which the resolution entity has a significant investment.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across each eligible liabilities instrument of a G-SII entity 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:

(a) the amount of holdings required to be deducted pursuant to paragraph 1;

(b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the eligible liabilities instruments of G-SII entities in which the institution does not have a significant investment represented by each eligible liabilities instrument held by the institution.

Article 72j

Trading book exception from deductions from eligible liabilities items

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 Common Equity Tier 1 items of the institution after applying Articles 32 to 36, provided that all the following conditions are met:

(a) the holdings are in the trading book;

(b) the eligible liabilities instruments are held for no longer than 30 business days.

Section 3

Own funds and eligible liabilities

Article 72k

Eligible 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.

Article 72l

Own funds and eligible liabilities

The own funds and eligible liabilities of an institution shall consist of the sum of its own funds and its eligible liabilities.

CHAPTER 6

General requirements for own funds and eligible liabilities

Article 73

Distributions on instruments

Competent authorities shall grant the prior permission referred to in paragraph 1 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 ability of the capital instrument or of the liability 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 quality of the capital instrument or liability 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 authority regarding an institution's compliance with those conditions before granting the prior permission referred to in paragraph 1.

Paragraph 4 shall not apply where the institution is a reference entity in that broad market index unless both the following conditions are met:

(a) the institution considers movements in that broad market index not to be significantly correlated to the credit standing of the institution, its parent institution or parent financial holding company or parent mixed financial holding company or parent mixed activity holding company;

(b) the competent authority has not reached a different determination from that referred to in point (a).

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 74

Holdings of capital instruments issued by regulated financial sector entities that do not qualify as regulatory capital

Institutions shall not deduct from any element of own funds direct, indirect or synthetic holdings of capital instruments issued by a regulated financial sector entity that do not qualify as regulatory capital of that entity. Institutions shall apply risk weights to such holdings in accordance with Part Three, Title II, Chapter 2.

Article 75

Deduction and maturity requirements for short positions

The maturity requirements for short positions referred to in point (a) of Article 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 the following conditions are met:

(a) the institution has the contractual right to sell on a specific future date to the counterparty providing the hedge the long position that is being hedged;

(b) the counterparty providing the hedge to the institution is contractually obliged to purchase from the institution on that specific future date the long position referred to in point (a).

Article 76

Index holdings of capital instruments and of liabilities

For 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, point (a) of Article 72f and point (a) of Article 72h, institutions may reduce the amount of a long position in a capital instrument or in a liability by the portion of an index that is made up of the same underlying exposure that is being hedged, provided that all 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;

(c) the short position referred to in point (a) qualifies as an effective hedge under the internal control processes of the institution;

(d) the competent authorities assess the adequacy of the internal control processes referred to in point (c) on at least an annual basis and are satisfied with their continuing appropriateness.

Where the competent authority has granted its prior permission, an institution may use a conservative estimate of the underlying exposure of the institution to capital instruments or to liabilities included in indices as an alternative to an institution calculating its exposure to the items referred to in one or more of the following points:

(a) own Common Equity Tier 1, Additional Tier 1, Tier 2 and eligible liabilities instruments included in indices;

(b) Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities, included in indices;

(c) eligible liabilities instruments of institutions, included in indices.

EBA shall develop draft regulatory technical standards to specify:

(a) when an estimate used as an alternative to the calculation of underlying exposure referred to in paragraph 2 is sufficiently conservative;

(b) the meaning of operationally burdensome for the purposes of paragraph 3.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 77

Conditions for reducing own funds and eligible liabilities

An institution shall obtain the prior permission of the competent authority to do any of the following:

(a) reduce, redeem or repurchase Common Equity Tier 1 instruments issued by the institution in a manner that is permitted under applicable national law;

(b) reduce, distribute or reclassify as another own funds item the share premium accounts related to own funds instruments;

(c) effect the call, redemption, repayment or repurchase of Additional Tier 1 or Tier 2 instruments prior to the date of their contractual maturity.

Article 78

Supervisory permission to reduce own funds

The competent authority shall grant permission for an institution to reduce, call, redeem, repay or repurchase Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments, or to reduce, distribute or reclassify related share premium accounts, where either of the following conditions is met:

(a) before or at the same time as any of the actions referred to in Article 77(1), the institution replaces the instruments or the related share premium accounts referred to in Article 77(1) with own funds instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution;

(b) the institution has demonstrated to the satisfaction of the competent authority that the own funds and eligible liabilities of the institution would, following the action referred to in Article 77(1) of this Regulation, exceed the requirements laid down in this Regulation and in Directives 2013/36/EU and 2014/59/EU by a margin that the competent authority considers necessary.

Where an institution provides sufficient safeguards as to its capacity to operate with own funds above the amounts required in this Regulation and in Directive 2013/36/EU, the competent authority may grant that institution a general prior permission to take any of the actions set out in Article 77(1) of this Regulation, subject to criteria that ensure that any such future action will be in accordance with the conditions set out in points (a) and (b) of this paragraph. That general prior permission shall be granted only for a specified 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 the case of Common Equity Tier 1 instruments, that predetermined amount shall not exceed 3 % of the relevant issue and shall not exceed 10 % of the amount by which Common Equity Tier 1 capital exceeds the sum of the Common Equity Tier 1 capital requirements laid down in this Regulation, in Directives 2013/36/EU and 2014/59/EU and a margin that the competent authority considers necessary. In the case of Additional Tier 1 or Tier 2 instruments, that predetermined amount shall not exceed 10 % of the relevant issue and shall not exceed 3 % of the total amount of outstanding Additional Tier 1 or Tier 2 instruments, as applicable.

Competent authorities shall withdraw the general prior permission where an institution breaches any of the criteria provided for the purposes of that permission.

Competent authorities may permit institutions to call, redeem, repay or repurchase Additional Tier 1 or Tier 2 instruments or related share premium accounts during the five years following their date of issuance where the conditions set out in paragraph 1 and one of the following conditions is met:

(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 own funds of lower quality, and both the following conditions are met: (i) the competent authority considers such a change to be sufficiently certain; (ii) the institution demonstrates to the satisfaction of the competent authority 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 instruments which the institution demonstrates to the satisfaction of the competent authority is material and was not reasonably foreseeable at the time of their issuance;

(c) the instruments and related share premium accounts are grandfathered under Article 494b;

(d) before or at the same time as the action referred to in Article 77(1), the institution replaces the instruments or related share premium accounts referred to in Article 77(1) with own funds instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution and the competent authority has permitted that action on the basis of the determination that it would be beneficial from a prudential point of view and justified by exceptional circumstances;

(e) the Additional Tier 1 or Tier 2 instruments are repurchased for market making purposes.

EBA shall develop draft regulatory technical standards to specify the following:

(a) the meaning of ‘sustainable for the income capacity 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 Article 77(1), and data requirements for an application by an institution for the permission of the competent authority to carry out an action listed therein, 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.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 78a

Permission to reduce eligible liabilities instruments

The resolution authority shall grant permission for an institution to call, redeem, repay or repurchase eligible liabilities instruments where one of the following conditions is met:

(a) before or at the same time as any of the actions referred to in Article 77(2), the institution replaces the eligible liabilities instruments with own funds or eligible liabilities instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution;

(b) the institution has demonstrated to the satisfaction of the resolution authority that the own funds and eligible liabilities of the institution would, following the action referred to in Article 77(2) of this Regulation, exceed the requirements for own funds and eligible liabilities laid down in this Regulation and in Directives 2013/36/EU and 2014/59/EU by a margin that the resolution authority, in agreement with the competent authority, considers necessary;

(c) the institution has demonstrated to the satisfaction of the resolution authority that the partial or full replacement of the eligible liabilities with own funds instruments is necessary to ensure compliance with the own funds requirements laid down in this Regulation and in Directive 2013/36/EU for continuing authorisation.

Where an institution provides sufficient safeguards as to its capacity to operate with own funds and eligible liabilities above the amount of the requirements laid down in this Regulation and in Directives 2013/36/EU and 2014/59/EU, the resolution authority, after consulting the competent authority, may grant that institution a general prior permission to effect calls, redemptions, repayments or repurchases of eligible liabilities instruments, subject to criteria that ensure that any such future action will be in accordance with the conditions set out in points (a) and (b) of this paragraph. That general prior permission shall be granted only for a specified 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 resolution authority. Resolution authorities shall inform the competent authorities about any general prior permission granted.

The resolution authority shall withdraw the general prior permission where an institution breaches any of the criteria provided for the purposes of that permission.

EBA shall develop draft regulatory technical standards to specify the following:

(a) the process of cooperation between the competent authority and the resolution authority;

(b) the procedure, including the time limits and information requirements, for granting the permission in accordance with the first subparagraph of paragraph 1;

(c) the procedure, including the time limits and information requirements, for granting the general prior permission in accordance with the second subparagraph of paragraph 1;

(d) the meaning of ‘sustainable for the income capacity of the institution’.

For the purposes of point (d) of the first subparagraph of this paragraph, the draft regulatory technical standards shall be fully aligned with the delegated act referred to in Article 78.

EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.

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

Article 79

Temporary waiver from deduction from own funds and eligible liabilities

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 79a

Assessment of compliance with the conditions for own funds and eligible liabilities instruments

Institutions shall have regard to the substantial features of instruments and not only their legal form when assessing compliance with the requirements laid down in Part Two. The assessment of the substantial features of an instrument shall take into account all arrangements related to the instruments, even where those are not explicitly set out in the terms and conditions of the instruments themselves, for the purpose of determining that the combined economic effects of such arrangements are compliant with the objective of the relevant provisions.

Article 80

Continuing review of the quality of own funds and eligible liabilities instruments

Competent authorities shall, without delay and upon request by EBA, forward all information to EBA that EBA considers relevant concerning new capital instruments or new types of liabilities issued in order to enable EBA to monitor the quality of own funds and eligible liabilities instruments issued by institutions across the Union.

A notification shall include the following:

(a) a detailed explanation of the nature and extent of the shortfall identified;

(b) technical advice on the action by the Commission that EBA considers to be necessary;

(c) significant developments in the methodology of EBA for stress testing the solvency of institutions.

EBA shall provide technical advice to the Commission 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:

(a) relevant developments in market standards or practice;

(b) changes in relevant legal or accounting standards;

(c) significant developments in the methodology of EBA for stress testing the solvency of institutions.

TITLE II

MINORITY INTEREST AND ADDITIONAL TIER 1 AND TIER 2 INSTRUMENTS ISSUED BY SUBSIDIARIES

Article 81

Minority interests that qualify for inclusion in consolidated Common Equity Tier 1 capital

Minority interests shall comprise the sum of Common Equity Tier 1 items of a subsidiary where the following conditions are met:

(a) the subsidiary is one of the following: (i) an institution; (ii) an undertaking that is subject by virtue of applicable national law to the requirements of this Regulation and of Directive 2013/36/EU; (iii) an intermediate financial holding company or intermediate mixed financial holding company that is subject to the requirements of this Regulation on a sub‐consolidated basis, or an intermediate investment holding company that is subject to the requirements of Regulation (EU) 2019/2033 on a consolidated basis; (iv) an investment firm; (v) an intermediate financial holding company in a third country, provided that that intermediate financial holding company is subject to prudential requirements as stringent as those applied to credit institutions of that third country and provided that the Commission has adopted a decision in accordance with Article 107(4) determining that those prudential requirements 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) the Common Equity Tier 1 items, referred to in the introductory part of this paragraph, are owned by persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One.

Article 82

Qualifying Additional Tier 1, Tier 1, Tier 2 capital and qualifying own funds

Qualifying Additional 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 share premium accounts, of a subsidiary where the following conditions are met:

(a) the subsidiary is one of the following: (i) an institution; (ii) an undertaking that is subject by virtue of applicable national law to the requirements of this Regulation and of Directive 2013/36/EU; (iii) an intermediate financial holding company or intermediate mixed financial holding company that is subject to the requirements of this Regulation on a sub‐consolidated basis, or an intermediate investment holding company that is subject to the requirements of Regulation (EU) 2019/2033 on a consolidated basis; (iv) an investment firm; (v) an intermediate financial holding company in a third country, provided that that intermediate financial holding company is subject to prudential requirements as stringent as those applied to credit institutions of that third country and provided that the Commission has adopted a decision in accordance with Article 107(4) determining that those prudential requirements are at least equivalent to those of this Regulation;

(b) the subsidiary is included fully in the scope of consolidation pursuant to Chapter 2 of Title II of Part One;

(c) the Common Equity Tier 1 items, Additional Tier 1 items and Tier 2 items referred to in the introductory part of this paragraph, are owned by persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One.

Article 83

Qualifying Additional Tier 1 and Tier 2 capital issued by a special purpose entity

Additional Tier 1 and Tier 2 instruments issued by a special purpose entity, and the related share premium accounts, are included until 31 December 2021 in qualifying Additional Tier 1, Tier 1 or Tier 2 capital or qualifying own funds, as applicable, only where the following conditions are met:

(a) the special purpose entity issuing those instruments is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One;

(b) the instruments, and the related share premium accounts, are included in qualifying Additional Tier 1 capital only where the conditions laid down in Article 52(1) are satisfied;

(c) the instruments, and the related share premium accounts, are included in qualifying Tier 2 capital only where the conditions laid down in Article 63 are satisfied;

(d) the only asset of the special purpose entity is its investment in the own funds of the parent undertaking or a subsidiary thereof that is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One, the form of which satisfies the relevant conditions laid down in Articles 52(1) or 63, as applicable.

Where the competent authority considers the assets of a special purpose entity other than its investment in the own funds of the parent undertaking or a subsidiary thereof that is included in the scope of consolidation pursuant to Chapter 2 of Title II of Part One, to be minimal and insignificant for such an entity, the competent authority may waive the condition specified in point (d) of the first subparagraph.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 84

Minority interests included in consolidated Common Equity Tier 1 capital

Institutions shall determine the amount of minority interests of a subsidiary that is included in consolidated Common Equity Tier 1 capital by subtracting from the minority interests of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b) as follows:

(a) the Common Equity Tier 1 capital of the subsidiary minus the lower of the following: (i) the amount of Common Equity Tier 1 capital of that subsidiary required to meet the following: (1) where the subsidiary is one of those listed in Article 81(1), point (a), of this Regulation but not an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 92(1), point (a), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital; (2) where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Common Equity Tier 1 capital; (ii) the amount of consolidated Common Equity Tier 1 capital that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (a), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Common Equity Tier 1 capital;

(b) the minority interests of the subsidiary expressed as a percentage of all Common Equity Tier 1 items of that undertaking.

By way of derogation from the first subparagraph, point (a), the competent authority may allow an institution to subtract either of the amounts referred to in point (a)(i) or (ii), once that institution has demonstrated to the satisfaction of the competent authority that the additional amount of minority interest is available to absorb losses at consolidated level.

An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the minority interest of that subsidiary may not be included in consolidated Common Equity Tier 1 capital.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Competent authorities may grant a waiver from the application of this Article to a parent financial holding company that satisfies all the following conditions:

(a) its principal activity is to acquire holdings;

(b) it is subject to prudential supervision on a consolidated basis;

(c) it consolidates a subsidiary institution in which it has only a minority holding by virtue of the control relationship within the meaning of Article 4(1), point (37);

(d) more than 90 % of the consolidated required Common Equity Tier 1 capital arises from the subsidiary institution referred to in point c) calculated on a sub-consolidated basis.

Where, after 28 June 2013, a parent financial holding company that meets the conditions laid down in the first subparagraph becomes a parent mixed financial holding company, competent authorities may grant the waiver referred to in the first subparagraph to that parent mixed financial holding company provided that it meets the conditions laid down in that subparagraph.

Article 85

Qualifying Tier 1 instruments included in consolidated Tier 1 capital

Institutions shall determine the amount of qualifying Tier 1 capital of a subsidiary that is included in consolidated own funds by subtracting from the qualifying Tier 1 capital of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b) as follows:

(a) the Tier 1 capital of the subsidiary minus the lower of the following: (i) the amount of Tier 1 capital of the subsidiary required to meet the following: (1) where the subsidiary is one of those listed in Article 81(1), point (a), of this Regulation but not an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 92(1), point (b), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital; (2) where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital; (ii) the amount of consolidated Tier 1 capital that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (b), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries, insofar as those requirements are to be met by Tier 1 capital;

(b) the qualifying Tier 1 capital of the subsidiary expressed as a percentage of all Common Equity Tier 1 and Additional Tier 1 items of that undertaking.

By way of derogation from the first subparagraph, point (a), the competent authority may allow an institution to subtract either of the amounts referred to in point (a)(i) or (ii), once that institution has demonstrated to the satisfaction of the competent authority that the additional amount of Tier 1 capital is available to absorb losses at consolidated level.

An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the qualifying Tier 1 capital of that subsidiary may not be included in consolidated Tier 1 capital.

Article 86

Qualifying Tier 1 capital included in consolidated Additional Tier 1 capital

Without prejudice to Article 84 (5) or (6), institutions shall determine the amount of qualifying Tier 1 capital of a subsidiary that is included in consolidated Additional Tier 1 capital by subtracting from the qualifying Tier 1 capital of that undertaking included in consolidated Tier 1 capital the minority interests of that undertaking that are included in consolidated Common Equity Tier 1 capital.

Article 87

Qualifying own funds included in consolidated own funds

Institutions shall determine the amount of qualifying own funds of a subsidiary that is included in consolidated own funds by subtracting from the qualifying own funds of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b) as follows:

(a) the own funds of the subsidiary minus the lower of the following: (i) the amount of own funds of the subsidiary required to meet the following: (1) where the subsidiary is one of those listed in Article 81(1), point (a), of this Regulation but not an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 92(1), point (c), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries insofar as those requirements are to be met by own funds; (2) where the subsidiary is an investment firm or an intermediate investment holding company, the sum of the requirement laid down in Article 11 of Regulation (EU) 2019/2033, the specific own funds requirements referred to in Article 39(2), point (a), of Directive (EU) 2019/2034, or any local supervisory regulations in third countries insofar as those requirements are to be met by own funds; (ii) the amount of own funds that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in Article 92(1), point (c), of this Regulation, the requirements referred to in Articles 458 and 459 of this Regulation, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU and the combined buffer requirement defined in Article 128, point (6), of that Directive, or any local supervisory regulations in third countries, insofar as those requirements are to be met by own funds;

(b) the qualifying own funds of the undertaking, expressed as a percentage of the sum of all the Common Equity Tier 1 items, Additional Tier 1 items and Tier 2 items, excluding the amounts referred to in points (c) and (d) of Article 62, of that undertaking.

By way of derogation from the first subparagraph, point (a), the competent authority may allow an institution to subtract either of the amounts referred to in point (a)(i) or (ii), once that institution has demonstrated to the satisfaction of the competent authority that the additional amount of own funds is available to absorb losses at consolidated level.

An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the qualifying own funds of that subsidiary may not be included in consolidated own funds.

Article 88

Qualifying own funds instruments included in consolidated Tier 2 capital

Without prejudice to Article 84(5) or (6), institutions shall determine the amount of qualifying own funds of a subsidiary that is included in consolidated Tier 2 capital by subtracting from the qualifying own funds of that undertaking that are included in consolidated own funds the qualifying Tier 1 capital of that undertaking that is included in consolidated Tier 1 capital.

Article 88a

Qualifying eligible liabilities instruments

Liabilities issued by a subsidiary established in the Union that belongs to the same resolution group as the resolution entity shall qualify for inclusion in the consolidated eligible liabilities instruments of an institution subject to Article 92a, provided that all the following conditions are met:

(a) they are issued in accordance with point (a) of Article 45f(2) of Directive 2014/59/EU;

(b) they are bought by an existing shareholder that is not part of the same resolution group as long as the exercise of the write-down or conversion powers in accordance with Articles 59 to 62 of Directive 2014/59/EU does not affect the control of the subsidiary by the resolution entity;

(c) they do not exceed the amount determined by subtracting the amount referred to in point (i) from the amount referred to in point (ii): (i) the sum of the liabilities issued to and bought by the resolution entity either directly or indirectly through other entities in the same resolution group and the amount of own funds instruments issued in accordance with point (b) of Article 45f(2) of Directive 2014/59/EU; (ii) the amount required in accordance with Article 45f(1) of Directive 2014/59/EU.

Article 88b

Undertakings in third countries

For the purposes of this Title, the terms ‘investment firm’ and ‘institution’ shall be understood to include undertakings established in third countries, which would, if established in the Union, fall under the definitions of those terms in this Regulation.

TITLE III

QUALIFYING HOLDINGS OUTSIDE THE FINANCIAL SECTOR

Article 89

Risk weighting and prohibition of qualifying holdings outside the financial sector

Competent authorities shall apply the requirements laid down in point (a) or (b) to qualifying holdings of institutions referred to in paragraphs 1 and 2:

(a) for the purpose of calculating the capital requirement in accordance with Part Three, institutions shall apply a risk weight of 1 250 % to the greater of the following: (i) the amount of qualifying holdings referred to in paragraph 1 in excess of 15 % of eligible capital; (ii) the total amount of qualifying holdings referred to in paragraph 2 that exceed 60 % of the eligible capital of the institution;

(b) the competent authorities shall prohibit institutions from having qualifying holdings referred to in paragraphs 1 and 2 the amount of which exceeds the percentages of eligible capital laid down in those paragraphs.

Competent authorities shall publish their choice of (a) or (b).

Article 90

Alternative to 1 250 % risk weight

As an alternative to applying a 1 250 % risk weight to the amounts in excess of the limits specified in Article 89(1) and (2), institutions may deduct those amounts from Common Equity Tier 1 items in accordance with point (k) of Article 36(1).

Article 91

Exceptions

Shares of undertakings not referred to in points (a) and (b) of Article 89(1) shall not be included in calculating the eligible capital limits specified in that Article where any of the following conditions is met:

(a) those shares are held temporarily during a financial assistance operation as referred to in Article 79;

(b) the holding of those shares is an underwriting position held for five working days or fewer;

(c) those shares are held in the own name of the institution and on behalf of others.

PART THREE

CAPITAL REQUIREMENTS

TITLE I

GENERAL REQUIREMENTS, VALUATION AND REPORTING

CHAPTER 1

Required level of own funds

Section 1

Own funds requirements for institutions

Article 92

Own funds requirements

Subject to Articles 93 and 94, institutions shall at all times satisfy the following own funds requirements:

(a) a Common Equity Tier 1 capital ratio of 4,5 %;

(b) a Tier 1 capital ratio of 6 %;

(c) a total capital ratio of 8 %;

(d) a leverage ratio of 3 %.

A G-SII shall meet the leverage ratio buffer requirement with Tier 1 capital only. Tier 1 capital that is used to meet the leverage ratio buffer requirement shall not be used towards meeting any of the leverage based requirements set out in this Regulation and in Directive 2013/36/EU, unless explicitly otherwise provided therein.

Where a G-SII does not meet the leverage ratio buffer requirement, it shall be subject to the capital conservation requirement in accordance with Article 141b of Directive 2013/36/EU.

Where a G-SII does not meet at the same time the leverage ratio buffer requirement and the combined buffer requirement as defined in point (6) of Article 128 of Directive 2013/36/EU, it shall be subject to the higher of the capital conservation requirements in accordance with Articles 141 and 141b of that Directive.

Institutions shall calculate their capital ratios as follows:

(a) the Common Equity Tier 1 capital ratio is the Common Equity Tier 1 capital of the institution expressed as a percentage of the total risk exposure amount;

(b) the Tier 1 capital ratio is the Tier 1 capital of the institution expressed as a percentage of the total risk exposure amount;

(c) the total capital ratio is the own funds of the institution expressed as a percentage of the total risk exposure amount.

Institutions shall calculate the total risk exposure amount as follows:

TREA = max{U-TREA; x ‏‏‏· S-TREA}

where:

TREA = the total risk exposure amount of the entity;

U-TREA = the un-floored total risk exposure amount of the entity calculated in accordance with paragraph 4;

S-TREA = the standardised total risk exposure amount of the entity calculated in accordance with paragraph 5;

x = 72,5 %.

By way of derogation from the first subparagraph of this paragraph, a Member State may decide that the total risk exposure amount shall be the un-floored total risk exposure amount, calculated in accordance with paragraph 4, for institutions which are part of a group with a parent institution in the same Member State, provided that that parent institution or, in the case of groups composed of a central body and permanently affiliated institutions, the whole as constituted by the central body together with its affiliated institutions, calculates its total risk exposure amount in accordance with the first subparagraph of this paragraph on a consolidated basis.

The un-floored total risk exposure amount shall be calculated as the sum of points (a) to (g) of this paragraph after having taken into account paragraph 6 of this Article:

(a) the risk-weighted exposure amounts for credit risk, including counterparty credit risk, and dilution risk, calculated in accordance with Title II of this Part and Article 379, in respect of all business activities of an institution, excluding risk-weighted exposure amounts from the trading-book business of the institution;

(b) the own funds requirements for the trading-book business of an institution for the following: (i) market risk, calculated in accordance with Title IV of this Part; (ii) 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 Four;

(c) the own funds requirements for market risk, calculated in accordance with Title IV of this Part for all non-trading book business activities that are subject to foreign exchange risk or commodity risk;

(d) the own funds requirements for settlement risk, calculated in accordance with Articles 378 and 380;

(e) the own funds requirements for credit valuation adjustment risk, calculated in accordance with Title VI of this Part;

(f) the own funds requirements for operational risk, calculated in accordance with Title III of this Part;

(g) the risk-weighted exposure amounts for counterparty credit risk arising from the trading book business of the institution for the following types of transactions and agreements, calculated in accordance with Title II of this Part: (i) contracts listed in Annex II and credit derivatives; (ii) repurchase transactions, securities or commodities lending or borrowing transactions based on securities or commodities; (iii) margin lending transactions based on securities or commodities; (iv) long settlement transactions.

The standardised total risk exposure amount shall be calculated as the sum of paragraph 4, points (a) to (g), after having taken into account paragraph 6 and the following requirements:

(a) the risk-weighted exposure amounts for credit risk, including counterparty credit risk, and dilution risk, referred to in paragraph 4, point (a), and for counterparty credit risk arising from the trading book business of the institution as referred to in point (g) of that paragraph shall be calculated without using any of the following approaches: (i) the internal model approach for master netting agreements set out in Article 221; (ii) the Internal Ratings Based Approach set out in Title II, Chapter 3; (iii) the Securitisation Internal Ratings Based Approach set out in Articles 258, 259 and 260 and the Internal Assessment Approach set out in Article 265; (iv) the Internal Model Method set out in Title II, Chapter 6, Section 6;

(b) the own funds requirements for market risk for the trading book business referred to in paragraph 4, point (b)(i), shall be calculated without using: (i) the alternative internal model approach set out in Title IV, Chapter 1b; or (ii) any approach listed under point (a) of this paragraph, where applicable;

(c) the own funds requirements for all non-trading book business activities of an institution that are subject to foreign exchange risk or commodity risk referred to in paragraph 4, point (c), of this Article shall be calculated without using the alternative internal model approach set out in Title IV, Chapter 1b.

The following provisions shall apply to the calculations of the un-floored total risk exposure amount referred to in paragraph 4 and of the standardised total risk exposure amount referred to in paragraph 5:

(a) the own funds requirements referred to in paragraph 4, points (d), (e) and (f), shall include those arising from all business activities of an institution;

(b) institutions shall multiply the own funds requirements set out in paragraph 4, points (b) to (f), by 12,5 .

Article 92a

Requirements for own funds and eligible liabilities for G-SIIs

Subject to Articles 93 and 94 and to the exceptions set out in paragraph 2 of this Article, institutions identified as resolution entities and that are G-SII entities shall at all times satisfy the following requirements for own funds and eligible liabilities:

(a) a risk-based ratio of 18 %, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total risk exposure amount calculated in accordance with Article 92(3);

(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 measure referred to in Article 429(4).

The requirements 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 two years following the date on which the resolution authority has applied the bail-in tool in accordance with Directive 2014/59/EU;

(c) within the two years following the date on which the resolution entity has put in place an alternative private sector measure referred to in point (b) of Article 32(1) of Directive 2014/59/EU by which capital instruments and other liabilities have been written down or converted into Common Equity Tier 1 items in order to recapitalise the resolution entity without the application of resolution tools.

Article 92b

Requirement for own funds and eligible liabilities for non-EU G-SIIs

An eligible liabilities instrument shall only be taken into account for the purpose of complying with paragraph 1 where it fulfils all the following additional conditions:

(a) in the event of normal insolvency proceedings as defined in point (47) of Article 2(1) of Directive 2014/59/EU, the claim resulting from the liability ranks below claims resulting from liabilities that do not fulfil the conditions set out in paragraph 2 of this Article and that do not qualify as own funds;

(b) it is subject to the write-down or conversion powers in accordance with Articles 59 to 62 of Directive 2014/59/EU.

Article 93

Initial capital requirement on going concern

Article 94

Derogation for small trading book business

By way of derogation from Article 92(4), point (b), and Article 92(5), point (b), institutions may calculate the own funds requirement for their trading-book business in accordance with paragraph 2 of this Article, provided that the size of the institutions’ on- and off-balance-sheet trading-book business is equal to or less than both of the following thresholds on the basis of an assessment carried out on a monthly basis using the data as of the last day of the month:

(a) 5 % of the institution's total assets;

(b) EUR 50 million.

Where both conditions set out in points (a) and (b) of paragraph 1 are met, institutions may calculate the own funds requirement for their trading-book business as follows:

(a) for the contracts listed in Annex II, point 1, contracts relating to equities which are referred to in point 3 of that Annex and credit derivatives, institutions may exempt those positions from the own funds requirement referred to in Article 92(4), point (b), and Article 92(5), point (b);

(b) for trading book positions other than those referred to in point (a) of this paragraph, institutions may replace the own funds requirement referred to in Article 92(4), point (b), and Article 92(5), point (b), with the requirement calculated in accordance with Article 92(4), point (a), and Article 92(5), point (a).

Institutions shall calculate the size of their on- and off-balance-sheet trading book business on the basis of data as of the last day of each month for the purposes of paragraph 1 in accordance with the following requirements:

(a) all the positions assigned to the trading book in accordance with Article 104 shall be included in the calculation except for the following: (i) positions concerning foreign exchange and commodities; (ii) positions in credit derivatives that are recognised as internal hedges against non-trading book credit risk exposures or counterparty risk exposures and the credit derivate transactions that perfectly offset the market risk of those internal hedges as referred to in Article 106(3);

(b) all positions included in the calculation in accordance with point (a) shall be valued at their market value on that given date; where the market value of a position is not available on a given date, institutions shall take a fair value for the position on that date; where the market value and fair value of a position are not available on a given date, institutions shall take the most recent of the market value or fair value for that position;

(c) the absolute value of the aggregated long position shall be summed with the absolute value of the aggregated short position.

For the purposes of the first subparagraph, a long position is one where the market value of the position increases when the value of its main risk driver increases, and a short position is one where the market value of the position decreases when the value of its main risk driver increases.

For the purposes of the first subparagraph, the value of the aggregated long (short) position shall be equal to the sum of the values of the individual long (short) positions included in the calculation in accordance with point (a).

An institution shall cease to calculate the own funds requirements of its trading-book business in accordance with paragraph 2 within three months of one of the following occurring:

(a) the institution does not meet the conditions set out in point (a) or (b) of paragraph 1 for three consecutive months;

(b) the institution does not meet the conditions set out in point (a) or (b) of paragraph 1 during more than 6 out of the last 12 months.

In developing those draft regulatory technical standards, EBA shall take into consideration the method developed for the regulatory technical standards mandated in accordance with Article 279a(3), point (b).

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Section 2

Own funds requirements for investment firms with limited authorisation to provide investment services

Article 95

Own funds requirements for investment firms with limited authorisation to provide investment services

Investment firms referred to in paragraph 1 of this Article and firms referred to in point (2)(c) of Article 4(1) that provide the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC shall calculate the total risk exposure amount as the higher of the following:

(a) the sum of the items referred to in Article 92(4), points (a) to (e) and point (g), after applying Article 92(6);

(b) 12,5 multiplied by the amount specified in Article 97.

Firms referred to in point (2)(c) of Article 4(1) that provide the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC shall meet the requirements in Article 92(1) and (2) based on the total risk exposure amount referred to in the first subparagraph.

Competent authorities may set the own funds requirements for firms referred to in point (2)(c) of Article 4(1) that provide the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC as the own funds requirements that would be binding on those firms according to the national transposition measures in force on 31 December 2013 for Directives 2006/49/EC and 2006/48/EC.

Article 96

Own funds requirements for investment firms which hold initial capital as laid down in Article 28(2) of Directive 2013/36/EU

For the purposes of Article 92(3), the following categories of investment firm which hold initial capital in accordance with Article 28(2) of Directive 2013/36/EU shall use the calculation of the total risk exposure amount specified in paragraph 2 of this Article:

(a) investment firms that deal on own account only for the purpose of fulfilling or executing a client order or for the purpose of gaining entrance to a clearing and settlement system or a recognised exchange when acting in an agency capacity or executing a client order;

(b) investment firms that meet all the following conditions: (i) they do not hold client money or securities; (ii) they undertake only dealing on own account; (iii) they have no external customers; (iv) their execution and settlement transactions take place under the responsibility of a clearing institution and are guaranteed by that clearing institution.

For investment firms referred to in paragraph 1, total risk exposure amount shall be calculated as the sum of the following:

(a) Article 92(4), points (a) to (e) and point (g), after applying Article 92(6);

(b) the amount referred to in Article 97 multiplied by 12,5.

Article 97

Own Funds based on Fixed Overheads

EBA in consultation with ESMA shall develop draft regulatory technical standards to specify in greater detail the following:

(a) the calculation of the requirement to hold eligible capital of at least one quarter of the fixed overheads of the previous year;

(b) the conditions for the adjustment by the competent authority of the requirement to hold eligible capital of at least one quarter of the fixed overheads of the previous year;

(c) the calculation of projected fixed overheads in the case of an investment firm that has not completed business for one year.

EBA shall submit those draft regulatory technical standards to the Commission by 1 March 2014.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 98

Own funds for investment firms on a consolidated basis

In the case of the investment firms referred to in Article 95(1) in a group, where that group does not include credit institutions, a parent investment firm in a Member State shall apply Article 92 at a consolidated level as follows:

(a) using the calculation of total risk exposure amount specified in Article 95(2);

(b) own funds calculated on the basis of the consolidated situation of the parent investment firm or that of the financial holding company or mixed financial holding company, as applicable.

In the case of investment firms referred to in Article 96(1) in a group, where that group does not include credit institutions, a parent investment firm in a Member State and an investment firm controlled by a financial holding company or mixed financial holding company shall apply Article 92 on a consolidated basis as follows:

(a) it shall use the calculation of total risk exposure amount specified in Article 96(2);

(b) it shall use own funds calculated on the basis of the consolidated situation of the parent investment firm or that of the financial holding company or mixed financial holding company, as applicable, and in compliance with Chapter 2 of Title II of Part One.

CHAPTER 3

Trading book

Article 102

Requirements for the trading book

Article 103

Management of the trading book

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 address:

(a) the activities which 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: (i) identify all material risks of the position; (ii) hedge all material risks of the position with instruments for which an active, liquid two-way market exists; (iii) derive reliable estimates for the key assumptions and parameters used in the model;

(d) 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;

(e) the extent to which legal restrictions or other operational requirements would impede the institution's ability to effect a liquidation or hedge of the position in the short term;

(f) 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 reclassify risk or positions between the non-trading and trading books and the requirements for such reclassifications as referred to in Article 104a.

In managing its positions or portfolios of positions in the trading book, the institution shall comply with all the following requirements:

(a) the institution shall have in place a clearly documented trading strategy for the position or portfolios in the trading book, which shall be approved by senior management and include the expected holding period;

(b) the institution shall have in place clearly defined policies and procedures for the active management of positions or portfolios in the trading book; those policies and procedures shall include the following: (i) which positions or portfolios of positions may be entered into by each trading desk or, as the case may be, by designated dealers; (ii) the setting of position limits and monitoring them for appropriateness; (iii) ensuring that dealers have the autonomy to enter into and manage the position within agreed limits and according to the approved strategy; (iv) ensuring that positions are reported to senior management as an integral part of the institution's risk management process; (v) ensuring that positions are actively monitored with reference to market information sources and an assessment is made of the marketability or hedgeability of the position or its component risks, including the assessment, the quality and availability of market inputs to the valuation process, level of market turnover, sizes of positions traded in the market; (vi) active anti-fraud procedures and controls;

(c) the institution shall have in place clearly defined policies and procedures to monitor the positions against the institution's trading strategy, including the monitoring of turnover and positions for which the originally intended holding period has been exceeded.

Article 104

Inclusion in the trading book

An institution shall have in place an independent risk control function which shall evaluate, on an ongoing basis, whether its instruments are being properly assigned to the trading book or the non-trading book.

Institutions shall assign positions in the following instruments to the trading book:

(a) instruments that meet the criteria set out in Article 325(6), (7) and (8), for the inclusion in the alternative correlation trading portfolio (ACTP);

(b) instruments that would give rise to a net short credit or net short equity position in the non-trading book, with the exception of the own liabilities of the institution, unless such positions meet the criteria referred to in point (e);

(c) instruments resulting from securities underwriting commitments, where those underwriting commitments relate only to securities that are expected to be purchased by the institution on the settlement date;

(d) instruments classified unambiguously as having a trading purpose under the accounting framework applicable to the institution;

(e) instruments resulting from market-making activities;

(f) positions held with trading intent in CIUs, provided that those CIUs meet at least one of the conditions set out in paragraph 8;

(g) listed equities;

(h) trading-related securities financing transactions;

(i) options, or other derivatives, embedded in the own liabilities of the institution in the non-trading book that relate to credit risk or equity risk.

For the purposes of the first subparagraph, point (b), an institution shall have a net short equity position where a decrease in the equity’s price results in a profit for the institution. An institution shall have a net short credit position where the credit spread increase, or the deterioration in the creditworthiness of the issuer or group of issuers, results in a profit for the institution. Institutions shall continuously monitor whether instruments give rise to a net short credit or net short equity position in the non-trading book.

For the purposes of the first subparagraph, point (i), an institution shall split the embedded option, or other derivative, from its own liability in the non-trading book that relates to credit risk or equity risk. It shall assign the embedded option, or other derivative, to the trading book and shall leave the own liability in the non-trading book. Where, due to its nature, it is not possible to split the instrument, an institution shall assign the whole instrument to the trading book. In such a case, it shall duly document the reason for applying that treatment.

Institutions shall not assign positions in the following instruments to the trading book:

(a) instruments designated for securitisation warehousing;

(b) real estate holdings-related instruments;

(c) unlisted equities;

(d) instruments related to retail and SME credit;

(e) positions in other CIUs than those referred to in paragraph 2, point (f);

(f) derivative contracts and CIUs with one or more of the underlying instruments referred to in points (a) to (d) of this paragraph;

(g) instruments held for hedging a particular risk of one or more positions in an instrument referred to in points (a) to (f), (h) and (i) of this paragraph;

(h) own liabilities of the institution, unless such instruments meet the criteria referred to in paragraph 2, point (e), or the criteria referred to in paragraph 2, third subparagraph;

(i) instruments in hedge funds.

An institution shall assign to the trading book a position in a CIU, other than the positions referred to in paragraph 3, point (f), that is held with trading intent, where the institution meets any of the following conditions:

(a) the institution is able to obtain sufficient information about the individual underlying exposures of the CIU;

(b) the institution is not able to obtain sufficient information about the individual underlying exposures of the CIU, but the institution has knowledge of the content of the mandate of the CIU and is able to obtain daily price quotes for the CIU.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.

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

Article 104a

Reclassification of a position

EBA shall monitor the range of supervisory practices and shall issue by 10 July 2027 guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on what exceptional circumstances entail for the purposes of the first subparagraph of this paragraph and of paragraph 5 of this Article. Until EBA issues those guidelines, competent authorities shall notify EBA of, and shall provide a rationale for, their decisions on whether or not to permit an institution to reclassify a position as referred to in paragraph 2 of this Article.

The decision referred to in the first subparagraph shall be approved by the management body.

Where the competent authority has granted permission for the reclassification of a position in accordance with paragraph 2, the institution which received that permission shall:

(a) publicly disclose, without delay, (i) information that its position has been reclassified, and (ii) where the effect of that reclassification is a reduction in the institution's own funds requirements, the size of that reduction; and

(b) where the effect of that reclassification is a reduction in the institution's own funds requirements, not recognise that effect until the position matures, unless the institution's competent authority permits it to recognise that effect at an earlier date.

Article 104b

Requirements for trading desk

Institutions' trading desks shall at all times meet all 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; each dealer shall be assigned to one trading desk only;

(c) position limits shall be set within each trading desk according to the business strategy of that trading desk;

(d) reports on the activities, profitability, 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 on a regular basis;

(e) each trading desk shall have a clear annual business plan including a well-defined remuneration policy on the basis of sound criteria used for performance measurement;

(f) reports on maturing positions, intra-day trading limit breaches, daily trading limit breaches and actions taken by the institution to address those breaches, as well as assessments of market liquidity, shall be prepared for each trading desk on a monthly basis and made available to the competent authorities.

Article 104c

Treatment of foreign exchange risk hedges of capital ratios

An institution which has deliberately taken a risk position in order to hedge, at least partially, against adverse movements in foreign exchange rates on any of its capital ratios as referred to in Article 92(1), points (a), (b) and (c), may, subject to the permission of its competent authority, exclude that risk position from the own funds requirements for foreign exchange risk referred to in Article 325(1), provided that all of the following conditions are met:

(a) the maximum amount of the risk position that is excluded from the own funds requirements for market risk is limited to the amount of the risk position that neutralises the sensitivity of any of the capital ratios to the adverse movements in foreign exchange rates;

(b) the risk position is excluded from the own funds requirements for market risk for at least six months;

(c) the institution has established an appropriate risk management framework for hedging the adverse movements in foreign exchange rates on any of its capital ratios, including a clear hedging strategy and governance structure;

(d) the institution has provided to the competent authority a justification for excluding a risk position from the own funds requirements for market risk, the details of that risk position and the amount to be excluded.

EBA shall develop draft regulatory technical standards to specify:

(a) the risk positions that an institution can deliberately take in order to hedge, at least partially, against the adverse movements of foreign exchange rates on any of its capital ratios referred to in paragraph 1;

(b) how to determine the maximum amount referred to in paragraph 1, point (a), of this Article and the manner in which an institution is to exclude that amount for each of the approaches referred to in Article 325(1);

(c) the criteria to be met by an institution’s risk management framework referred to in paragraph 1, point (c), in order to be considered appropriate for the purposes of this Article.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 105

Requirements for prudent valuation

Institutions shall establish and maintain systems and controls sufficient to provide prudent and reliable valuation estimates. Those systems and controls shall include at least the following elements:

(a) documented policies and procedures for the process of valuation, including clearly defined responsibilities of the various areas involved in the determination of the valuation, sources of market information and review of their appropriateness, guidelines for the use of unobservable inputs reflecting the institution's assumptions of what market participants would use in pricing the position, frequency of independent valuation, timing of closing prices, procedures for adjusting valuations, month end and ad-hoc verification procedures;

(b) reporting lines for the department accountable for the valuation process that are clear and independent of the front office, which shall ultimately be to the management body.

Institutions shall comply with the following requirements when marking to model:

(a) senior management shall be aware of the elements of the trading book or of other fair-valued positions which are subject to mark to model and shall understand the materiality of the uncertainty thereby created in the reporting of the risk/performance of the business;

(b) institutions shall source market inputs, where possible, in line with market prices, and shall assess the appropriateness of the market inputs of the particular position being valued and the parameters of the model on a frequent basis;

(c) where available, institutions shall use valuation methodologies which are accepted market practice for particular financial instruments or commodities;

(d) where the model is developed by the institution itself, it shall be based on appropriate assumptions, which have been assessed and challenged by suitably qualified parties independent of the development process;

(e) institutions shall have in place formal change control procedures and shall hold a secure copy of the model and use it periodically to check valuations;

(f) risk management shall be aware of the weaknesses of the models used and how best to reflect those in the valuation output; and

(g) institutions' models shall be subject to periodic review to determine the accuracy of their performance, which shall include assessing the continued appropriateness of assumptions, analysis of profit and loss versus risk factors, and comparison of actual close out values to model outputs.

For the purposes of point (d) of the first subparagraph, the model shall be developed or approved independently of the trading desks and shall be independently tested, including validation of the mathematics, assumptions and software implementation.

Institutions shall establish and maintain procedures for calculating an adjustment to the current valuation of any less liquid positions, which can in particular arise from market events or institution-related situations such as concentrated positions and/or positions for which the originally intended holding period has been exceeded. Institutions shall, where necessary, make such adjustments in addition to any changes to the value of the position required for financial reporting purposes and shall design such adjustments to reflect the illiquidity of the position. Under those procedures, institutions shall consider several factors when determining whether a valuation adjustment is necessary for less liquid positions. Those factors include 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 of the position in accordance with Article 325bd;

(b) the volatility and average of bid/offer spreads;

(c) the availability of market quotes (number and identity of market makers) and the volatility and average of trading volumes including trading volumes during periods of market stress;

(d) market concentrations;

(e) the ageing of positions;

(f) the extent to which valuation relies on marking-to-model;

(g) the impact of other model risks.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 106

Internal Hedges

An internal hedge shall in particular meet the following requirements:

(a) it shall not be primarily intended to avoid or reduce own funds requirements;

(b) it shall be properly documented and subject to particular internal approval and audit procedures;

(c) it shall be dealt with at market conditions;

(d) the market risk that is generated by the internal hedge shall be dynamically managed in the trading book within the authorised limits;

(e) it shall be carefully monitored in accordance with adequate procedures.

Both an internal hedge recognised in accordance with the first subparagraph and the credit derivative entered into with the eligible third party protection provider shall be included in the trading book for calculating the own funds requirements for market risk. For calculating the own funds requirements for market risk using the approach referred to in Article 325(1), point (b), both positions shall be assigned to the same trading desk that manages similar risks.

Both an internal hedge recognised in accordance with the first subparagraph of this paragraph and the equity derivative entered into with the eligible third party protection provider shall be included in the trading book for calculating the own funds requirements for market risk. For calculating the own funds requirements for market risk using the approach referred to in Article 325(1), point (b), both positions shall be assigned to the same trading desk that manages similar risks.

Where an institution hedges non-trading book interest rate risk exposures using an interest rate risk position booked in its trading book, that interest rate risk position shall be considered to be an internal hedge to assess the interest rate risk arising from non-trading book positions in accordance with Articles 84 and 98 of Directive 2013/36/EU where the following conditions are met:

(a) for calculating the own funds requirements for market risk using the approaches referred to in Article 325(1), points (a), (b) and (c), the position has been assigned to a separate portfolio from the other trading book positions, the business strategy of which is solely dedicated to managing and mitigating the market risk of internal hedges of interest rate risk exposure;

(b) for calculating the own funds requirements for market risk using the approach referred to in Article 325(1), point (b), the position has been assigned to a trading desk the business strategy of which is solely dedicated to managing and mitigating the market risk of internal hedges of interest rate risk exposure;

(c) the institution has fully documented how the position mitigates the interest rate risk arising from non-trading book positions for the purposes of the requirements laid down in Articles 84 and 98 of Directive 2013/36/EU.

The following requirements shall apply to the trading desk referred to in paragraph 5, point (b), of this Article:

(a) that trading desk may enter into other interest rate risk positions with third parties or with other trading desks of the institution, as long as those positions meet the requirements for inclusion in the trading book referred to in Article 104 and 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) no trading book positions other than those referred to in point (a) of this paragraph are assigned to that trading desk;

(c) by way of derogation from Article 104b, that trading desk shall not be subject to the requirements set out in paragraphs 1, 2 and 3 of that Article.

Where an institution hedges a credit valuation adjustment (CVA) risk exposure using a derivative instrument entered into with its trading book, the position in that derivative instrument shall be recognised as an internal hedge for the CVA risk exposure for the purpose of calculating the own funds requirements for CVA risk in accordance with the approaches set out in Article 383 or 384, where the following conditions are met:

(a) the derivative position is recognised as an eligible hedge in accordance with Article 386;

(b) where the derivative position is subject to any of the requirements set out in Article 325c(2), point (b) or (c), or in Article 325e(1), point (c), the institution perfectly offsets the market risk of that derivative position by entering into opposite positions with third parties.

The opposite trading book position of the internal hedge recognised in accordance with the first subparagraph shall be included in the institution’s trading book to calculate the own funds requirements for market risk.

TITLE II

CAPITAL REQUIREMENTS FOR CREDIT RISK

CHAPTER 1

General principles

Article 107

Approaches to credit risk

For trade exposures and for default fund contributions to a central counterparty, institutions shall apply the treatment set out in Chapter 6, Section 9, to calculate their risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g). For all other types of exposures to a central counterparty, institutions shall treat those exposures as follows:

(a) as exposures to an institution for other types of exposures to a qualifying CCP;

(b) as exposures to a corporate for other types of exposures to a non-qualifying CCP.

Article 108

Use of credit risk mitigation techniques under the Standardised Approach and the IRB Approach for credit risk and dilution risk

Subject to the conditions set out in paragraph 5, institutions may regard loans to natural persons as exposures secured by a mortgage on residential property, instead of being treated as guaranteed exposures, for the purposes of Title II, Chapters 2, 3 and 4, as applicable, where in a Member State the following conditions for those loans have been fulfilled:

(a) the majority of loans to natural persons for the purchase of residential properties in that Member State are not provided as mortgages in legal form;

(b) the majority of loans to natural persons for the purchase of residential properties in that Member State are guaranteed by a protection provider with a credit assessment by a nominated ECAI corresponding to credit quality step 1 or 2, that is required to repay the institution in full where the original borrower defaults;

(c) the institution has the legal right to take a mortgage on the residential property in the event that the protection provider referred to in point (b) does not meet or becomes unable to meet its obligations under the guarantee provided.

Competent authorities shall inform EBA where the conditions set out in the first subparagraph, points (a), (b) and (c), of this paragraph are met in the national territories of their jurisdictions, and shall provide the names of protection providers eligible for that treatment that fulfil the conditions of this paragraph and paragraph 5.

EBA shall publish the list of all such eligible protection providers on its website and update that list yearly.

For the purposes of paragraph 4, loans referred to in that paragraph may be treated as exposures secured by a mortgage on residential property, instead of being treated as guaranteed exposures, where all of the following conditions are met:

(a) for an exposure that is treated under the Standardised Approach, the exposure meets all of the requirements to be assigned to the Standardised Approach ‘exposures secured by mortgages on immovable property’ exposure class pursuant to Articles 124 and 125 with the exception that the institution granting the loan does not hold a mortgage over the residential property;

(b) for an exposure that is treated under the IRB Approach, the exposure meets all of the requirements to be assigned to the IRB exposure class ‘retail exposures secured by residential property’ referred to in Article 147(2), point (d)(ii), with the exception that the institution granting the loan does not hold a mortgage over the residential property;

(c) there is no mortgage lien on the residential property when the loan is granted and for the loans granted from 1 January 2014 the borrower is contractually committed not to grant any mortgage lien without the consent of the institution that originally granted the loan;

(d) the protection provider is an eligible protection provider as referred to in Article 201, and has a credit assessment by a nominated ECAI corresponding to credit quality step 1 or 2;

(e) the protection provider is an institution or a financial sector entity subject to own funds requirements comparable to those applicable to institutions or insurance undertakings;

(f) the protection provider has established a fully-funded mutual guarantee fund or equivalent protection for insurance undertakings to absorb credit risk losses, the calibration of which is periodically reviewed by its competent authority and is subject to periodic stress testing, at least every two years;

(g) the institution is contractually and legally empowered to take a mortgage on the residential property in the event that the protection provider does not meet or becomes unable to meet its obligations under the guarantee provided.

Article 109

Treatment of securitisation positions

Institutions shall calculate the risk-weighted exposure amount for a position they hold in a securitisation in accordance with Chapter 5.

Article 110

Treatment of credit risk adjustment

For the purposes of this Article and Chapters 2 and 3, general and specific credit risk adjustments shall exclude funds for general banking risk.

Institutions using the IRB Approach that apply the Standardised Approach for a part of their exposures on consolidated or individual basis, in accordance with Articles 148 and 150 shall determine the part of general credit risk adjustment that shall be assigned to the treatment of general credit risk adjustment under the Standardised Approach and to the treatment of general credit risk adjustment under the IRB Approach as follows:

(a) where applicable, when an institution included in the consolidation exclusively applies the IRB Approach, general credit risk adjustments of this institution shall be assigned to the treatment set out in paragraph 2;

(b) where applicable, when an institution included in the consolidation exclusively applies the Standardised Approach, general credit risk adjustment of this institution shall be assigned to the treatment set out in paragraph 1;

(c) the remainder of credit risk adjustment shall be assigned on a pro rata basis according to the proportion of risk weighted exposure amounts subject to the Standardised Approach and subject to the IRB Approach.

EBA shall develop draft regulatory technical standards to specify the calculation of specific credit risk adjustments and general credit risk adjustments under the applicable accounting framework for the following:

(a) exposure value under the Standardised Approach referred to in Article 111;

(b) exposure value under the IRB Approach referred to in Articles 166 to 168;

(c) treatment of expected loss amounts referred to in Article 159;

(d) exposure value for the calculation of the risk-weighted exposure amounts for securitisation position referred to in Articles 246 and 266;

(e) the determination of default under Article 178.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 110a

Monitoring of contractual arrangements that are not commitments

Institutions shall monitor contractual arrangements that meet all of the conditions set out in Article 5, points (10)(a) to (e), and shall document to the satisfaction of their competent authorities their compliance with all those conditions.

CHAPTER 2

Standardised approach

Section 1

General principles

Article 111

Exposure value

The exposure value of an off-balance-sheet item listed in Annex I shall be the following percentage of the item’s nominal value after the deduction of specific credit risk adjustments in accordance with Article 110 and amounts deducted in accordance with Article 36(1), point (m):

(a) 100 % for items in bucket 1;

(b) 50 % for items in bucket 2;

(c) 40 % for items in bucket 3;

(d) 20 % for items in bucket 4;

(e) 10 % for items in bucket 5.

The exposure value of a commitment on an off-balance-sheet item as referred to in paragraph 2 of this Article shall be the lower of the following percentages of the commitment’s nominal value after the deduction of specific credit risk adjustments and amounts deducted in accordance with Article 36(1), point (m):

(a) the percentage referred to in paragraph 2 of this Article that is applicable to the item on which the commitment is made;

(b) the percentage referred to in paragraph 2 of this Article that is applicable to the type of commitment.

For contractual arrangements that meet the conditions set out in Article 5, points (10)(a) to (e), the applicable percentage shall be 0 %.

EBA shall develop draft regulatory technical standards to specify:

(a) the criteria that institutions are to use to assign off-balance-sheet items, with the exception of items already included in Annex I, to the buckets 1 to 5 referred to in Annex I;

(b) the factors that might constrain institutions’ ability to cancel the unconditionally cancellable commitments referred to in Annex I;

(c) the process for notifying EBA about institutions’ classification of other off-balance-sheet items carrying similar risks as those referred to in Annex I.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 112

Exposure classes

Each exposure shall be assigned to one of the following exposure classes:

(a) exposures to central governments or central banks;

(b) exposures to regional governments or local authorities;

(c) exposures to public sector entities;

(d) exposures to multilateral development banks;

(e) exposures to international organisations;

(f) exposures to institutions;

(g) exposures to corporates;

(h) retail exposures;

(i) exposures secured by mortgages on immovable property and ADC exposures;

(j) exposures in default;

(k) subordinated debt exposures;

(l) exposures in the form of covered bonds;

(m) items representing securitisation positions;

(n) exposures to institutions and corporates with a short-term credit assessment;

(o) exposures in the form of units or shares in collective investment undertakings (‘CIUs’);

(p) equity exposures;

(q) other items.

Article 113

Calculation of risk-weighted exposure amounts

With the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 or Tier 2 items, an institution may, subject to the prior approval of the competent authorities, decide not to apply the requirements of paragraph 1 of this Article to the exposures of that institution to a counterparty which is its parent undertaking, its subsidiary, a subsidiary of its parent undertaking, or an undertaking linked to the institution by a relationship within the meaning of Article 22(7) of Directive 2013/34/EU. Competent authorities are empowered to grant approval if the following conditions are fulfilled:

(a) the counterparty is an institution or a financial institution subject to appropriate prudential requirements;

(b) the counterparty is included in the same consolidation as the institution on a full basis;

(c) the counterparty is subject to the same risk evaluation, measurement and control procedures as the institution;

(d) the counterparty is established in the same Member State as the institution;

(e) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the institution.

Where the institution, in accordance with this paragraph, is authorised not to apply the requirements of paragraph 1, it may assign a risk weight of 0 %.

With the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 and Tier 2 items, institutions may, subject to the prior permission of the competent authorities, not apply the requirements of paragraph 1 of this Article to exposures to counterparties with which the institution has entered into an institutional protection scheme that is a contractual or statutory liability arrangement which protects those institutions and in particular ensures their liquidity and solvency to avoid bankruptcy where necessary. Competent authorities are empowered to grant permission if the following conditions are fulfilled:

(a) the requirements set out in points (a), (d) and (e) of paragraph 6 are met;

(b) the arrangements ensure that the institutional protection scheme is able to grant support necessary under its commitment from funds readily available to it;

(c) the institutional protection scheme disposes of suitable and uniformly stipulated systems for the monitoring and classification of risk, which gives a complete overview of the risk situations of all the individual members and the institutional protection scheme as a whole, with corresponding possibilities to take influence; those systems shall suitably monitor defaulted exposures in accordance with Article 178(1);

(d) the institutional protection scheme conducts its own risk review which is communicated to the individual members;

(e) the institutional protection scheme draws up and publishes on an annual basis, a consolidated report comprising the balance sheet, the profit-and-loss account, the situation report and the risk report, concerning the institutional protection scheme as a whole, or a report comprising the aggregated balance sheet, the aggregated profit-and-loss account, the situation report and the risk report, concerning the institutional protection scheme as a whole;

(f) members of the institutional protection scheme are obliged to give advance notice of at least 24 months if they wish to end the institutional protection scheme;

(g) the multiple use of elements eligible for the calculation of own funds (hereinafter referred to as ‘multiple gearing’) as well as any inappropriate creation of own funds between the members of the institutional protection scheme shall be eliminated;

(h) the institutional protection scheme shall be based on a broad membership of credit institutions of a predominantly homogeneous business profile;

(i) the adequacy of the systems referred to in points (c) and (d) is approved and monitored at regular intervals by the relevant competent authorities.

Where the institution, in accordance with this paragraph, decides not to apply the requirements of paragraph 1, it may assign a risk weight of 0 %.

Section 2

Risk weights

Article 114

Exposures to central governments or central banks

Exposures to central governments and central banks for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit quality step	1	2	3	4	5	6
Risk weight	0 %	20 %	50 %	100 %	100 %	150 %

For the purposes of this paragraph, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to apply the treatment set out in this paragraph to the exposures to the central government or central bank of the third country where the relevant competent authorities had approved the third country as eligible for that treatment before 1 January 2014.

Article 115

Exposures to regional governments or local authorities

Exposures to regional governments or local authorities for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	50 %	50 %	100 %	100 %	150 %

Exposures to regional governments or local authorities for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight in accordance with the credit quality step to which exposures to the central government of the jurisdiction in which regional governments or local authorities are incorporated are assigned in accordance with Table 2.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	50 %	100 %	100 %	100 %	150 %

For exposures referred to in the first subparagraph, a risk weight of 100 % shall be assigned where the central government of the jurisdiction in which regional governments or local authorities are incorporated is unrated.

EBA shall maintain a publicly available database of all regional governments and local authorities within the Union which relevant competent authorities treat as exposures to their central governments.

For the purposes of this paragraph, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to apply the treatment set out in this paragraph to the third country where the relevant competent authorities had approved the third country as eligible for that treatment before 1 January 2014.

Article 116

Exposures to public sector entities

Exposures to public sector entities for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight in accordance with the credit quality step to which exposures to the central government of the jurisdiction in which the public sector entity is incorporated are assigned in accordance with the following Table 2:

Credit quality step to which central government is assigned	1	2	3	4	5	6
Risk weight	20 %	50 %	100 %	100 %	100 %	150 %

For exposures to public sector entities incorporated in countries where the central government is unrated, the risk weight shall be 100 %.

EBA shall maintain a publicly available database of all public sector entities within the Union referred to in the first subparagraph.

For the purposes of this paragraph, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to apply the treatment set out in this paragraph to the third country where the relevant competent authorities had approved the third country as eligible for that treatment before 1 January 2014.

Article 117

Exposures to multilateral development banks

Exposures to multilateral development banks that are not referred to in paragraph 2 and for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1. Exposures to multilateral development banks that are not referred to in paragraph 2 for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight of 50 %.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	30 %	50 %	100 %	100 %	150 %

The Inter-American Investment Corporation, the Black Sea Trade and Development Bank, the Central American Bank for Economic Integration and the CAF-Development Bank of Latin America shall be considered multilateral development banks.

Exposures to the following multilateral development banks shall be assigned a 0 % risk weight:

(a) the International Bank for Reconstruction and Development;

(b) the International Finance Corporation;

(c) the Inter-American Development Bank;

(d) the Asian Development Bank;

(e) the African Development Bank;

(f) the Council of Europe Development Bank;

(g) the Nordic Investment Bank;

(h) the Caribbean Development Bank;

(i) the European Bank for Reconstruction and Development;

(j) the European Investment Bank;

(k) the European Investment Fund;

(l) the Multilateral Investment Guarantee Agency;

(m) the International Finance Facility for Immunisation;

(n) the Islamic Development Bank;

(o) the International Development Association;

(p) the Asian Infrastructure Investment Bank.

The Commission is empowered to amend this Regulation by adopting delegated acts in accordance with Article 462 amending, in accordance with international standards, the list of multilateral development banks referred to in the first subparagraph.

Article 118

Exposures to international organisations

Exposures to the following international organisations shall be assigned a 0 % risk weight:

(a) the European Union and the European Atomic Energy Community;

(b) the International Monetary Fund;

(c) the Bank for International Settlements;

(d) the European Financial Stability Facility;

(e) the European Stability Mechanism;

(f) an international financial institution established by two or more Member States, which has the purpose to mobilise funding and provide financial assistance to the benefit of its members that are experiencing or threatened by severe financing problems.

Article 119

Exposures to institutions

Exposure to an institution in the form of minimum reserves required by the ECB or by the central bank of a Member State to be held by an institution may be risk-weighted as exposures to the central bank of the Member State in question provided:

(a) the reserves are held in accordance with Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves (³¹) or in accordance with national requirements in all material respects equivalent to that Regulation;

(b) in the event of the bankruptcy or insolvency of the institution where the reserves are held, the reserves are fully repaid to the institution in a timely manner and are not made available to meet other liabilities of the institution.

Exposures to financial institutions authorised and supervised by the competent authorities and subject to prudential requirements comparable to those applied to institutions in terms of robustness shall be treated as exposures to institutions.

For the purposes of this paragraph, the prudential requirements laid down in Regulation (EU) 2019/2033 shall be considered to be comparable to those applied to institutions in terms of robustness.

Article 120

Exposures to rated institutions

Exposures to institutions for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	30 %	50 %	100 %	100 %	150 %

Exposures to institutions with an original maturity of three months or less for which a credit assessment by a nominated ECAI is available and exposures which arise from the movement of goods across national borders with an original maturity of six months or less and for which a credit assessment by a nominated ECAI is available, shall be assigned a risk weight in accordance with Table 2 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	20 %	20 %	50 %	50 %	150 %

The interaction between the treatment of short term credit assessment under Article 131 and the general preferential treatment for short term exposures set out in paragraph 2 shall be as follows:

(a) If there is no short-term exposure assessment, the general preferential treatment for short-term exposures as specified in paragraph 2 shall apply to all exposures to institutions of up to three months residual maturity;

(b) If there is a short-term assessment and such an assessment determines the application of a more favourable or identical risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the short-term assessment shall be used for that specific exposure only. Other short-term exposures shall follow the general preferential treatment for short-term exposures, as specified in paragraph 2;

(c) If there is a short-term assessment and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the general preferential treatment for short-term exposures shall not be used and all unrated short-term claims shall be assigned the same risk weight as that applied by the specific short-term assessment.

Article 121

Exposures to unrated institutions

Exposures to institutions for which a credit assessment by a nominated ECAI is not available shall be assigned to one of the following grades:

(a) where all of the following conditions are met, exposures to institutions shall be assigned to Grade A: (i) the institution has adequate capacity to meet its financial commitments, including repayments of principal and interest, in a timely manner, for the projected life of the assets or exposures and irrespective of economic cycles and business conditions; (ii) the institution meets or exceeds the requirement laid down in Article 92(1) of this Regulation, taking into account Article 458(2), points (d)(i) and (vi), and Article 459, point (a), of this Regulation where applicable, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in Article 128, point (6), of Directive 2013/36/EU, or any equivalent and additional local supervisory or regulatory requirements in third countries insofar as those requirements are published and are to be met by Common Equity Tier 1 capital, Tier 1 capital or own funds, as applicable; (iii) information about whether the requirements referred to in point (ii) of this point are met or exceeded by the institution is publicly disclosed or otherwise made available to the lending institution; (iv) the assessment performed by the lending institution in accordance with Article 79 of Directive 2013/36/EU has not revealed that the institution does not meet the conditions set out in points (i) and (ii) of this point;

(b) where all of the following conditions are met and at least one of the conditions in point (a) of this paragraph is not met, exposures to institutions shall be assigned to Grade B: (i) the institution is subject to substantial credit risk, including repayment capacities that are dependent on stable or favourable economic or business conditions; (ii) the institution meets or exceeds the requirement laid down in Article 92(1) of this Regulation, taking into account Article 458(2), point (d)(i), and Article 459, point (a), of this Regulation, where applicable, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, or any equivalent and additional local supervisory or regulatory requirements in third countries insofar as those requirements are published and are to be met by Common Equity Tier 1 capital, Tier 1 capital or own funds, as applicable; (iii) information about whether the requirements referred to in point (ii) of this point are met or exceeded by the institution is publicly disclosed or otherwise made available to the lending institution; (iv) the assessment performed by the lending institution in accordance with Article 79 of Directive 2013/36/EU has not revealed that the institution does not meet the conditions set out in points (i) and (ii) of this point.

(c) where exposures to institutions are not assigned to Grade A or B, or where any of the following conditions is met, exposures to institutions shall be assigned to Grade C: (i) the institution has material default risks and limited margins of safety; (ii) adverse business, financial or economic conditions are very likely to lead, or have led, to the institution’s inability to meet its financial commitments; (iii) where audited financial statements are required by law for the institution, the external auditor has issued an adverse audit opinion or has expressed substantial doubt about the institution’s ability to continue as a going concern in its audited financial statements or audited reports within the previous 12 months.

For the purposes of the first subparagraph, point (b)(ii), of this paragraph, equivalent and additional local supervisory or regulatory requirements shall not include capital buffers equivalent to those defined in Article 128 of Directive 2013/36/EU.

Exposures assigned to Grade A, B or C in accordance with paragraph 1 shall be assigned a risk weight as follows:

(a) exposures assigned to Grade A, B or C which meet any of the following conditions shall be assigned a risk weight for short-term exposures in accordance with Table 1: (i) the exposure has an original maturity of three months or less; (ii) the exposure has an original maturity of six months or less and arises from the movement of goods across national borders;

(b) exposures assigned to Grade A which are not short term shall be assigned a risk weight of 30 % where all of the following conditions are met: (i) the exposure does not meet any of the conditions set out in point (a); (ii) the institution’s Common Equity Tier 1 capital ratio is equal to or higher than 14 %; (iii) the institution’s leverage ratio is equal to or higher than 5 %;

(c) exposures assigned to Grade A, B or C that do not meet the conditions set out in point (a) or (b) shall be assigned a risk weight in accordance with Table 1.

Where an exposure to an institution is not denominated in the domestic currency of the jurisdiction of incorporation of that institution, or where that institution has booked the credit obligation in a branch in a different jurisdiction and the exposure is not in the domestic currency of the jurisdiction in which the branch operates, the risk weight assigned in accordance with point (a), (b) or (c), to exposures other than those with a maturity of one year or less stemming from self-liquidating, trade-related contingent items that arise from the movement of goods across national borders shall not be lower than the risk weight of an exposure to the central government of the country where the institution is incorporated.

Credit risk assessment	Grade A	Grade B	Grade C
Risk weight for short-term exposures	20 %	50 %	150 %
Risk weight	40 %	75 %	150 %

Article 122

Exposures to corporates

Exposures for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 6 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	50 %	75 %	100 %	150 %	150 %

Article 122a

Specialised lending exposures

Within the corporate exposure class referred to in Article 112, point (g), institutions shall separately identify as specialised lending exposures, exposures with all of the following characteristics:

(a) the exposure is to an entity which was created specifically to finance or operate physical assets or is an exposure that is economically comparable to such an exposure;

(b) the exposure is not related to the financing of residential property or commercial immovable property and is within the definitions of object finance, project finance or commodity finance exposures laid down in paragraph 3;

(c) the contractual arrangements governing the obligation related to the exposure give the institution a substantial degree of control over the assets and the income that they generate;

(d) the primary source of repayment of the obligation related to the exposure is the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise.

Specialised lending exposures for which a directly applicable credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1.

Credit quality step	1	2	3	4	5	6
Risk weight	20 %	50 %	75 %	100 %	150 %	150 %

Specialised lending exposures for which a directly applicable credit assessment by a nominated ECAI is not available shall be assigned a risk weight as follows:

(a) where the purpose of a specialised lending exposure is to finance the acquisition of physical assets, including ships, aircraft, satellites, railcars, and fleets, and the income to be generated by those assets comes in the form of cash flows generated by the specific physical assets that have been financed and pledged or assigned to the lender (‘object finance exposures’), institutions shall apply a risk weight of 100 %;

(b) where the purpose of a specialised lending exposure is to provide for short-term financing of reserves, inventories or receivables of exchange-traded commodities, including crude oil, metals or crops, and the income to be generated by those reserves, inventories or receivables is to be the proceeds from the sale of the commodity (‘commodity finance exposures’), institutions shall apply a risk weight of 100 %;

(c) where the purpose of a specialised lending exposure is to finance an individual project, either in the form of construction of a new capital installation or refinancing of an existing installation, with or without improvements, for the development or acquisition of large, complex and expensive installations, including power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure, in which the lending institution looks primarily to the revenues generated by the financed project, both as the source of repayment and as security for the loan (‘project finance exposures’), institutions shall apply the following risk weights: (i) 130 % where the project to which the exposure is related is in the pre-operational phase; (ii) provided that the adjustment to own funds requirements for credit risk referred to in Article 501a is not applied, 80 % where the project to which the exposure is related is in the operational phase and the exposure meets all of the following criteria: (1) there are contractual restrictions on the ability of the obligor to perform activities that might be detrimental to lenders, including the restriction that new debt cannot be issued without the consent of existing debt providers; (2) the obligor has sufficient reserve funds fully funded in cash, or other financial arrangements with an entity, to cover the contingency funding and working capital needs over the lifetime of the project being financed, provided that the entity is assigned an ECAI rating by a recognised ECAI with a credit quality step of at least 3 or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the entity does not have a credit assessment by a recognised ECAI, that entity is assigned with an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that that entity is internally rated by the institution in accordance with the provisions of Chapter 3, Section 6; (3) the project to which the exposure is related generates cash flows that are predictable and cover all future loan repayments; (4) where the revenues of the obligor are not funded by payments from a large number of users, the source of repayment of the obligation depends on one main counterparty and that main counterparty is one of the following: — a central bank, a central government, a regional government or a local authority, provided that they are assigned a risk weight of 0 % in accordance with Articles 114 and 115, or are assigned an ECAI rating with a credit quality step of at least 3 by a recognised ECAI; or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the central bank, central government, regional government or local authority do not have a credit assessment by a recognised ECAI, they are assigned with an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that they are internally rated by the institution in accordance with the provisions of Chapter 3, Section 6; — a public sector entity, provided that that entity is assigned a risk weight of 20 % or below in accordance with Article 116, or is assigned an ECAI rating with a credit quality step of at least 3 by a recognised ECAI or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the public sector entity does not have a credit assessment by a recognised ECAI, that public sector entity is assigned with an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that that public sector entity is internally rated by the institution in accordance with Chapter 3, Section 6, — a corporate entity which has been assigned an ECAI rating with a credit quality step of at least 3 by a recognised ECAI, or, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 3, where the corporate entity does not have a credit assessment by a recognised ECAI, that corporate entity is assigned an internal credit rating equivalent to a credit quality step of at least 3 by the institution, provided that that corporate entity is internally rated by the institution in accordance with the provisions of Chapter 3, Section 6; (5) the contractual provisions governing the exposure to the obligor provide for a high degree of protection for the lending institution in the case of a default of the obligor; (6) the main counterparty, or other counterparties which similarly comply with the eligibility criteria for the main counterparty, effectively protect the lending institution against losses resulting from the termination of the project; (7) all assets and contracts necessary to operate the project have been pledged to the lending institution to the extent permitted by applicable law; (8) the lending institution is able to take control of the obligor entity in the case of a default event; (iii) 100 % where the project to which the exposure is related is in the operational phase and the exposure does not meet the conditions set out in point (ii);

(d) for the purposes of point (c)(ii)(3), the cash flows generated shall not be considered predictable unless a substantial part of the revenues satisfies one or more of the following conditions: (i) the revenues are availability-based, meaning that, once construction is completed, the obligor is entitled, as long as the contractual conditions are fulfilled, to payments from its contractual counterparties which cover operating and maintenance costs, debt service costs and equity returns as the obligor operates the project, and those payments are not subject to swings in demand, such as traffic levels, and are adjusted typically only for lack of performance or lack of availability of the asset to the public; (ii) the revenues are subject to a rate-of-return regulation; (iii) the revenues are subject to a take-or-pay contract;

(e) for the purposes of point (c), the operational phase shall mean the phase in which the entity that was specifically created to finance the project, or that is economically comparable, meets both of the following conditions: (i) the entity has a positive net cash flow that is sufficient to cover any remaining contractual obligation; (ii) the entity has a declining long term debt.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 123

Retail exposures

Exposures that comply with all of the following criteria shall be considered retail exposures:

(a) the exposure is to one or more natural persons or to an SME;

(b) the total amount owed to the institution, its parent undertakings and its subsidiaries, by the obligor or group of connected clients, including any exposure in default but excluding exposures secured by residential property, up to the property value shall not, to the knowledge of the institution, which shall take reasonable steps to confirm the situation, exceed EUR 1 million;

(c) the exposure represents one of a significant number of exposures with similar characteristics, such that the risks associated with such exposure are substantially reduced;

(d) the institution concerned treats the exposure in its risk management framework and manages the exposure internally as a retail exposure consistently over time and in a manner that is similar to the treatment by the institution of other retail exposures.

The present value of retail minimum lease payments shall be eligible for the retail exposure class.

Exposures that do not comply with the criteria referred to in points (a) to (c) of the first subparagraph shall not be eligible for the retail exposures class.

By 10 July 2025, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to specify proportionate diversification methods under which an exposure is to be considered as one of a significant number of similar exposures as specified in the first subparagraph, point (c), of this paragraph.

The following exposures shall not be considered to be retail exposures:

(a) non-debt exposures conveying a subordinated, residual claim on the assets or income of the issuer;

(b) debt exposures and other securities, partnerships, derivatives, or other vehicles, the economic substance of which is similar to the exposures specified in point (a);

(c) all other exposures in the form of securities.

By way of derogation from paragraph 3, exposures due to loans granted by an institution to pensioners or employees with a permanent contract against the unconditional transfer of part of the borrower’s pension or salary to that institution shall be assigned a risk weight of 35 %, provided that all of the following conditions are met:

(a) to repay the loan, the borrower unconditionally authorises the pension fund or employer to make direct payments to the institution by deducting the monthly payments on the loan from the borrower’s monthly pension or salary;

(b) the risks of death, inability to work, unemployment or reduction of the net monthly pension or salary of the borrower are properly covered through an insurance policy to the benefit of the institution;

(c) the monthly payments to be made by the borrower on all loans that meet the conditions set out in points (a) and (b) do not in aggregate exceed 20 % of the borrower’s net monthly pension or salary;

(d) the maximum original maturity of the loan is equal to or less than 10 years.

Article 123a

Exposures with a currency mismatch

For exposures to natural persons that are assigned to the exposure class referred to in Article 112, point (h), or for exposures to natural persons that qualify as exposures secured by mortgages on residential property that are assigned to the exposure class referred to in Article 112, point (i), the risk weight assigned in accordance with this Chapter shall be multiplied by a factor of 1,5 , whereby the resulting risk weight shall not be higher than 150 %, where the following conditions are met:

(a) the exposure is denominated in a currency which is different from the currency of the obligor’s source of income;

(b) the obligor does not have a hedge for its payment risk due to the currency mismatch, either by a financial instrument or foreign currency income that matches the currency of the exposure, or the total of such hedges available to the borrower covers less than 90 % of each instalment for this exposure.

Where an institution is unable to single out those exposures with a currency mismatch, the risk weight multiplier of 1,5 shall apply to all unhedged exposures where the currency of the exposures is different from the domestic currency of the country of residence of the obligor.

Article 124

Exposures secured by mortgages on immovable property

A non-ADC exposure that does not meet all of the conditions set out in paragraph 3, or any part of a non-ADC exposure that exceeds the nominal amount of the lien on the property, shall be treated as follows:

(a) a non-IPRE exposure shall be risk weighted as an exposure to the counterparty that is not secured by the immovable property concerned;

(b) an IPRE exposure shall be assigned a risk weight of 150 %.

A non-ADC exposure, up to the nominal amount of the lien on the property, where all of the conditions set out in paragraph 3 of this Article are met, shall be treated as follows:

(a) where the exposure is secured by a residential property, (i) a non-IPRE exposure shall be treated in accordance with Article 125(1): (ii) an IPRE exposure shall be treated in accordance with Article 125(1) where it meets any of the following conditions: (1) the immovable property securing the exposure is the obligor’s primary residence, either where the immovable property as a whole constitutes a single housing unit or where the immovable property securing the exposure is a housing unit that is a separated part within the immovable property; (2) the exposure is to a natural person and is secured by an income-producing residential housing unit, either where the immovable property as a whole constitutes a single housing unit or where the housing unit is a separated part within the immovable property, and total exposures of the institution to that natural person are not secured by more than four immovable properties, including those which are not residential properties or which do not meet any of the criteria set out in this point, or separate housing units within immovable properties; (3) the exposure is to associations or cooperatives of natural persons that are regulated by national law and exist with the sole purpose of granting their members the use of a primary residence in the property securing the loan; (4) the exposure is to public housing companies or not-for-profit associations that are regulated by law and exist to serve social purposes and to offer tenants long-term housing; (iii) an IPRE exposure which does not meet any of the conditions set out in point (ii) of this point, shall be treated in accordance with Article 125(2);

(b) where the exposure is secured by commercial immovable property, it shall be treated as follows: (i) a non-IPRE exposure shall be treated in accordance with Article 126(1); (ii) an IPRE exposure shall be treated in accordance with Article 126(2).

In order to be eligible for the treatment referred to in paragraph 2, an exposure secured by an immovable property shall fulfil all of the following conditions:

(a) the immovable property securing the exposure meets any of the following conditions: (i) the immovable property has been fully completed; (ii) the immovable property is forest or agricultural land; (iii) the lending is to a natural person and the immovable property is either a residential property under construction or it is land upon which a residential property is planned to be constructed where that plan has been legally approved by all relevant authorities, as applicable, and where any of the following conditions is met: (1) the immovable property does not have more than four residential housing units and will be the primary residence of the obligor and the lending to the natural person is not indirectly financing ADC exposures; (2) a central government, regional government or local authority or a public sector entity is involved, exposures to which are treated in accordance with Article 115(2) or Article 116(4), respectively, and has the legal powers and ability to ensure that the property under construction will be finished within a reasonable time frame and is required, or has committed in a legally binding manner, to ensure completion where the construction would otherwise not be finished within such reasonable time frame; alternatively, there is an equivalent legal mechanism in place to ensure that the property under construction is completed within a reasonable timeframe;

(b) the exposure is secured by a first lien held by the institution on the immovable property, or the institution holds the first lien and any sequentially lower ranking lien on that property;

(c) the property value is not materially dependent upon the credit quality of the obligor;

(d) all information required at origination of the exposure and for monitoring purposes is properly documented, including information on the ability of the obligor to repay and on the valuation of the property;

(e) the requirements set out in Article 208 are met and the valuation rules set out in Article 229(1) are complied with.

For the purposes of the first subparagraph, point (c), institutions may exclude situations where purely macro-economic factors affect both the property value and the performance of the obligor.

For the purposes of the first subparagraph, point (d), institutions shall put in place underwriting policies with respect to the origination of exposures secured by immovable property that include the assessment of the ability of the borrower to repay. The underwriting policies shall include the relevant metrics for that assessment and their respective maximum levels.

For the purposes of the first subparagraph, the rules governing the liens shall ensure all of the following:

(a) each institution holding a lien on a property can initiate the sale of the property independently from other entities holding a lien on the property;

(b) where the sale of the property is not carried out by means of a public auction, entities holding a senior lien take reasonable steps to obtain a fair market value or the best price that may be obtained in the circumstances when exercising any power of sale on their own.

For the purposes of Article 125(2) and Article 126(2), the exposure-to-value (‘ETV’) ratio shall be calculated by dividing the gross exposure amount by the property value subject to the following conditions:

(a) the gross exposure amount shall be calculated as the accounting value of the asset item related to the exposure secured by immovable property and any undrawn but committed amount that, once drawn, would increase the exposure value of the exposure which is secured by immovable property; that gross exposure amount shall be calculated without taking into account: (i) specific credit risk adjustments in accordance with Article 110; (ii) additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution; (iii) amounts deducted in accordance with Article 36(1), point (m); and (iv) other own funds reductions related to the asset item;

(b) the gross exposure amount shall be calculated without taking into account any type of funded or unfunded credit protection, except for pledged deposits accounts with the lending institution that meet all requirements for on-balance-sheet netting, either under master netting agreements in accordance with Articles 196 and 206 or under other on-balance-sheet netting agreements in accordance with Articles 195 and 205 and have been unconditionally and irrevocably pledged for the sole purpose of fulfilling the credit obligation related to the exposure secured by immovable property;

(c) for exposures that are required to be treated in accordance with Article 125(2) or Article 126(2) where a party other than the institution holds a senior lien and a junior lien held by the institution is recognised under paragraph 4 of this Article, the gross exposure amount shall be calculated as the sum of the gross exposure amount of the lien held by the institution and of the gross exposure amounts for all other liens of equal or higher ranking seniority than the lien held by the institution.

For the purposes of the first subparagraph, point (a), where an institution has more than one exposure secured by the same immovable property and those exposures are secured by liens on that immovable property that are sequential in ranking order without any lien held by a third party ranking in-between, the exposures shall be treated as a single combined exposure and the gross exposure amounts for the individual exposures shall be summed up to calculate the gross exposure amount for the single combined exposure.

For the purposes of the first subparagraph, point (c), where there is insufficient information to be able to ascertain the ranking of the other liens, the institution shall treat those liens as ranking pari passu with the junior lien held by the institution. The institution shall first determine the risk weight in accordance with Article 125(2) or Article 126(2) (the ‘base risk weight’), as applicable. It shall then adjust this risk weight by a multiplier of 1,25 , for the purposes of calculating the risk-weighted amounts of junior liens. Where the base risk weight corresponds to the lowest exposure-to-value bucket, the multiplier shall not be applied. The risk weight resulting from multiplying the base risk weight by 1,25 shall be capped at the risk weight that would be applied to the exposure if the requirements in paragraph 3 were not met.

Where the authority designated by the Member State for the application of this Article is the competent authority, it shall ensure that the relevant national bodies and authorities which have a macroprudential mandate are duly informed of the competent authority’s intention to make use of this Article, and are appropriately involved in the assessment of financial stability concerns in its Member State in accordance with paragraph 9.

Where the authority designated by the Member State for the application of this Article is different from the competent authority, the Member State shall adopt the necessary provisions to ensure proper coordination and exchange of information between the competent authority and the designated authority for the proper application of this Article. In particular, authorities shall be required to cooperate closely and to share all information that might be necessary for the adequate performance of the duties imposed upon the designated authority pursuant to this Article. That cooperation shall aim to avoid any form of duplicative or inconsistent action between the competent authority and the designated authority, as well as to ensure that the interaction with other measures, in particular measures taken under Article 458 of this Regulation and Article 133 of Directive 2013/36/EU, is duly taken into account.

Based on the data collected under Article 430a and on any other relevant indicators, the authority designated in accordance with paragraph 8 of this Article shall periodically, and at least annually, assess whether the risk weights laid down in Articles 125 and 126 for exposures secured by immovable property located in the territory of the Member State of that authority are appropriately based on:

(a) the loss experience of exposures secured by immovable property;

(b) forward-looking immovable property market developments.

Where, on the basis of the assessment referred to in the first subparagraph, the authority designated in accordance with paragraph 8 of this Article concludes that the risk weights set out in Article 125 or 126 do not adequately reflect the actual risks related to exposures to one or more property segments secured by mortgages on residential property or on commercial immovable property located in one or more parts of the territory of the Member State of that authority, and if it considers that the inadequacy of the risk weights could adversely affect current or future financial stability in its Member State, it may increase the risk weights applicable to those exposures within the ranges determined in the fourth subparagraph of this paragraph or impose stricter criteria than those set out in paragraph 3 of this Article.

The authority designated in accordance with paragraph 8 of this Article shall notify EBA and the ESRB of any adjustments to risk weights and criteria applied pursuant to this paragraph. Within one month of receipt of that notification, EBA and the ESRB shall provide their opinion to the Member State concerned and may indicate in that opinion, where necessary, whether they consider that the adjustments to risk weights and criteria are also recommended for other Member States. EBA and the ESRB shall publish the risk weights and criteria for exposures referred to in Articles 125 and 126 and Article 199(1), point (a), as implemented by the relevant authority.

For the purposes of the second subparagraph of this paragraph, the authority designated in accordance with paragraph 8 of this Article may increase the risk weights laid down in Article 125(1), first subparagraph, Article 125(2), first subparagraph, Article 126(1), first subparagraph, or Article 126(2), first subparagraph, or impose stricter criteria than those set out in paragraph 3 of this Article for exposures to one or more property segments secured by mortgages on immovable property located in one or more parts of the territory of the Member State of that authority. That authority shall not increase those risk weights to more than 150 %.

For the purposes of the second subparagraph of this paragraph, the authority designated in accordance with paragraph 8 of this Article may also reduce the percentages of the property value referred to in Article 125(1) or Article 126(1) or the exposure-to-value percentages that define the exposure-to-value risk weight bucket set out in in Article 125(2), Table 1, or in Article 126(2), Table 1. The relevant authority shall ensure consistency across all exposure-to-value risk weight buckets, such that the risk weight of a lower exposure-to-value risk weight bucket is always lower or equal to the risk weight of an upper exposure-to-value risk weight bucket.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

The ESRB may, by means of recommendations, in accordance with Article 16 of Regulation (EU) No 1092/2010, and in close cooperation with EBA, give guidance to authorities designated in accordance with paragraph 8 of this Article on both of the following:

(a) factors which could ‘adversely affect current or future financial stability’ referred to in paragraph 9, second subparagraph;

(b) indicative benchmarks that the authority designated in accordance with paragraph 8 is to take into account when determining higher risk weights.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 125

Exposures secured by mortgages on residential property

Where an institution holds a junior lien and there are more senior liens not held by that institution, to determine the part of the institution’s exposure that is eligible for the 20 % risk weight, the amount of 55 % of the property value shall be reduced by the amount of the more senior liens not held by the institution.

Where liens not held by the institution rank pari passu with the lien held by the institution, to determine the part of the institution’s exposure that is eligible for the 20 % risk weight, the amount of 55 % of the property value, reduced by the amount of any more senior liens not held by the institution, shall be reduced by the product of:

(a) 55 % of the property value, reduced by the amount of more senior liens, if any, both held by the institution and held by other institutions; and

(b) the amount of liens not held by the institution that rank pari passu with the lien held by the institution divided by the sum of all pari passu liens.

Where, in accordance with Article 124(9), the competent authority or designated authority has set a higher risk weight or a lower percentage of the property value than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).

The remaining part of the exposure referred to in the first subparagraph, if any, shall be risk weighted as an exposure to the counterparty that is not secured by residential property.

For the purposes of this paragraph, where, in accordance with Article 124(9), the competent authority or designated authority, has set a higher risk weight or a lower exposure-to-value percentage than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).

ETV	ETV ≤ 50 %	50 % < ETV ≤ 60 %	60 % < ETV ≤ 80 %	80 % < ETV ≤ 90 %	90 % < ETV ≤ 100 %	ETV > 100 %
Risk weight	30 %	35 %	45 %	60 %	75 %	105 %

By way of derogation from the first subparagraph of this paragraph, institutions may apply the treatment referred to in paragraph 1 of this Article to exposures secured by residential property which is situated within the territory of a Member State, where the competent authority of that Member State has published in accordance with Article 430a(3) loss rates for such exposures which, based on the aggregate data reported by institutions in that Member State for that national immovable property market, do not exceed any of the following limits for losses aggregated across such exposures existing in the previous year:

(a) the aggregated amount reported by institutions under Article 430a(1), point (a), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,3 %;

(b) the aggregated amount reported by institutions under Article 430a(1), point (b), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,5 %.

Where a competent authority of a third country does not publish corresponding loss rates for exposures secured by residential property situated within the territory of that third country, EBA may publish such information for that third country, provided that valid statistical data, that are statistically representative of the corresponding residential property market, are available.

Article 126

Exposures secured by mortgages on commercial immovable property

Where an institution holds a junior lien and there are more senior liens not held by that institution, to determine the part of the institution’s exposure that is eligible for the 60 % risk weight, the amount of 55 % of the property value shall be reduced by the amount of the more senior liens not held by the institution.

Where liens not held by the institution rank pari passu with the lien held by the institution, to determine the part of the institution’s exposure that is eligible for the 60 % risk weight, the amount of 55 % of the property value, reduced by the amount of any more senior liens not held by the institution, shall be reduced by the product of:

(a) 55 % of the property value, reduced by the amount of more senior liens, if any, both held by the institution and held by other institutions; and

(b) the amount of liens not held by the institution that rank pari passu with the lien held by the institution divided by the sum of all pari passu liens.

Where, in accordance with Article 124(9), the competent authority or designated authority, has set a higher risk weight or a lower percentage of the property value than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).

The remaining part of the exposure referred to in the first subparagraph, if any, shall be risk weighted as an exposure to the counterparty that is not secured by commercial immovable property.

For the purposes of this paragraph, where, in accordance with Article 124(9), the competent authority or designated authority, has set a higher risk weight or a lower exposure-to-value percentage than those referred to in this paragraph, institutions shall use the risk weight or percentage set in accordance with Article 124(9).

	ETV ≤ 60 %	60 % < ETV ≤ 80 %	ETV > 80 %
Risk weight	70 %	90 %	110 %

By way of derogation from the first subparagraph of this paragraph, institutions may apply the treatment referred to in paragraph 1 of this Article to exposures secured by commercial immovable property which is situated within the territory of a Member State, where the competent authority of that Member State has published in accordance with Article 430a(3), loss rates for such exposures which, based on the aggregate data reported by institutions in that Member State for that national immovable property market, do not exceed any of the following limits for losses aggregated across such exposures existing in the previous year:

(a) the aggregated amount reported by institutions under Article 430a(1), point (d), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,3 %;

(b) the aggregated amount reported by institutions under Article 430a(1), point (e), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,5 %.

Where a competent authority of a third country does not publish corresponding loss rates for exposures secured by commercial immovable property situated within the territory of that third country, EBA may publish such information for a third country, provided that valid statistical data, that are statistically representative of the corresponding commercial immovable property market, are available.

On the basis of the report referred to in the first subparagraph and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2028.

Article 126a

Land acquisition, development and construction exposures

ADC exposures to residential property may be assigned a risk weight of 100 %, provided that the institution applies sound origination and monitoring standards which meet the requirements laid down in Articles 74 and 79 of Directive 2013/36/EU and where at least one of the following conditions is met:

(a) legally binding pre-sale or pre-lease contracts for which the purchaser or tenant has made a substantial cash deposit which is subject to forfeiture if the contract is terminated or where the financing is ensured in an equivalent manner, or legally binding sale or lease contracts, including where the payment is made by instalments as the construction works progress, amount to a significant portion of total contracts;

(b) the obligor has substantial equity at risk, which is represented as an appropriate amount of obligor-contributed equity to the residential property value upon completion.

Article 127

Exposures in default

The unsecured part of any item where the obligor has defaulted in accordance with Article 178, or in the case of retail exposures, the unsecured part of any credit facility which has defaulted in accordance with Article 178 shall be assigned a risk weight of:

(a) 150 %, where the sum of specific credit risk adjustments and of the amounts deducted in accordance with point (m) Article 36(1) is less than 20 % of the unsecured part of the exposure value if those specific credit risk adjustments and deductions were not applied;

(b) 100 %, where the sum of the specific credit risk adjustments and of the amounts deducted in accordance with point (m) Article 36(1) is no less than 20 % of the unsecured part of the exposure value if those specific credit risk adjustments and deductions were not applied.

For the purpose of calculating the specific credit risk adjustments referred to in the first subparagraph for an exposure that is purchased when already in default, institutions shall include in the calculation any positive difference between the amount owed by the obligor on that exposure and the sum of the additional own funds reduction if that exposure were fully written off and any already existing own funds reductions related to that exposure.

Article 128

Subordinated debt exposures

The following exposures shall be treated as subordinated debt exposures:

(a) debt exposures which are subordinated to claims of ordinary unsecured creditors;

(b) own funds instruments to the extent that those instruments are not considered to be equity exposures in accordance with Article 133(1); and

(c) exposures arising from the institution’s holding of eligible liabilities instruments that meet the conditions set out in Article 72b.

Article 129

Exposures in the form of covered bonds

To be eligible for the preferential treatment set out in paragraphs 4 and 5 of this Article, covered bonds as defined in point (1) of Article 3 of Directive (EU) 2019/2162 of the European Parliament and of the Council (³²) shall meet the requirements set out in paragraphs 3, 3a and 3b of this Article and shall be collateralised by any of the following eligible assets:

(a) exposures to or guaranteed by central governments, the ESCB central banks, public sector entities, regional governments or local authorities in the Union;

(b) exposures to or guaranteed by third country central governments, third-country central banks, multilateral development banks, international organisations that qualify for the credit quality step 1 as set out in this Chapter, and exposures to or guaranteed by third-country public sector entities, third-country regional governments or third-country local authorities that are risk weighted as exposures to institutions or central governments and central banks in accordance with Article 115(1) or (2), or Article 116(1), (2) or (4) respectively and that qualify for the credit quality step 1 as set out in this Chapter, and exposures within the meaning of this point that qualify as a minimum for the credit quality step 2 as set out in this Chapter, provided that they do not exceed 20 % of the nominal amount of outstanding covered bonds of the issuing institutions;

(c) exposures to credit institutions that qualify for credit quality step 1 or credit quality step 2, or exposures to credit institutions that qualify for credit quality step 3 where those exposures are in the form of: (i) short‐term deposits with an original maturity not exceeding 100 days, where used to meet the cover pool liquidity buffer requirement of Article 16 of Directive (EU) 2019/2162; or (ii) derivative contracts that meet the requirements of Article 11(1) of that Directive, where permitted by the competent authorities;

(d) loans secured by residential property up to the lesser of the principal amount of the liens that are combined with any prior liens and 80 % of the value of the pledged properties;

(e) residential loans fully guaranteed by an eligible protection provider referred to in Article 201 qualifying for the credit quality step 2 or above as set out in this Chapter, where the portion of each of the loans that is used to meet the requirement set out in this paragraph for collateralisation of the covered bond does not represent more than 80 % of the value of the corresponding residential property located in France, and where a loan-to-income ratio respects at most 33 % when the loan has been granted. There shall be no mortgage liens on the residential property when the loan is granted, and for the loans granted from 1 January 2014 the borrower shall be contractually committed not to grant such liens without the consent of the credit institution that granted the loan. The loan-to-income ratio represents the share of the gross income of the borrower that covers the reimbursement of the loan, including the interests. The protection provider shall be either a financial institution authorised and supervised by the competent authorities and subject to prudential requirements comparable to those applied to institutions in terms of robustness or an institution or an insurance undertaking. It shall establish a mutual guarantee fund or equivalent protection for insurance undertakings to absorb credit risk losses, whose calibration shall be periodically reviewed by the competent authorities. Both the credit institution and the protection provider shall carry out a creditworthiness assessment of the borrower;

(f) loans secured by commercial immovable property up to the lesser of the principal amount of the liens that are combined with any prior liens and 60 % of the value of the pledged properties. Loans secured by commercial immovable property are eligible where the loan‐to‐value ratio of 60 % is exceeded up to a maximum level of 70 % if the value of the total assets pledged as collateral for the covered bonds exceed the nominal amount outstanding on the covered bond by at least 10 %, and the bondholders’ claim meets the legal certainty requirements set out in Chapter 4. The bondholders’ claim shall take priority over all other claims on the collateral;

(g) loans secured by maritime liens on ships up to the difference between 60 % of the value of the pledged ship and the value of any prior maritime liens.

For the purposes of paragraph 1a, exposures caused by the transmission and management of the payments of the obligors of loans secured by pledged properties of debt securities or by the transmission and management of liquidation proceeds in respect of such loans shall not be comprised in calculating the limits referred to in that paragraph.

Without prejudice to the first subparagraph, point (c), of this paragraph, until 1 July 2027, indirect exposures to credit institutions without an external rating that guarantee mortgage loans until their registration shall be treated for the purposes of that point as exposures to credit institutions that qualify for credit quality step 1, provided that they are short-term exposures assigned to grade A under Article 121 and that the guaranteed mortgage loans will, once registered, be eligible for the preferential treatment pursuant to the first subparagraph, points (d), (e) and (f), of this paragraph.

For the purposes of point (c) of the first subparagraph of paragraph 1, the following shall apply:

(a) for exposures to credit institutions that qualify for credit quality step 1, the exposure shall not exceed 15 % of the nominal amount of outstanding covered bonds of the issuing credit institution;

(b) for exposures to credit institutions that qualify for credit quality step 2, the exposure shall not exceed 10 % of the nominal amount of outstanding covered bonds of the issuing credit institution;

(c) for exposures to credit institutions that qualify for credit quality step 3 that take the form of short‐term deposits, as referred to in point (c)(i) of the first subparagraph of paragraph 1 of this Article, or the form of derivative contracts, as referred to in point (c)(ii) of the first subparagraph of paragraph 1 of this Article, the total exposure shall not exceed 8 % of the nominal amount of outstanding covered bonds of the issuing credit institution; the competent authorities designated pursuant to Article 18(2) of Directive (EU) 2019/2162 may, after consulting EBA, allow exposures to credit institutions that qualify for credit quality step 3 in the form of derivative contracts, provided that significant potential concentration problems in the Member States concerned due to the application of credit quality step 1 and 2 requirements referred to in this paragraph can be documented;

(d) the total exposure to credit institutions that qualify for credit quality step 1, 2 or 3 shall not exceed 15 % of the nominal amount of outstanding covered bonds of the issuing credit institution and the total exposure to credit institutions that qualify for credit quality step 2 or 3 shall not exceed 10 % of the nominal amount of outstanding covered bonds of the issuing credit institution.

For the purpose of valuing immovable property, the competent authorities designated pursuant to Article 18(2) of Directive (EU) 2019/2162 may allow that property to be valued at or at less than the market value, or in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, at the mortgage lending value of that property, without applying the limits set out in Article 229(1), point (e), of this Regulation.

In addition to being collateralised by the eligible assets listed in paragraph 1 of this Article, covered bonds shall be subject to a minimum level of 5 % of overcollateralisation as defined in point (14) of Article 3 of Directive (EU) 2019/2162.

For the purposes of the first subparagraph of this paragraph, the total nominal amount of all cover assets as defined in point (4) of Article 3 of that Directive shall be at least of the same value as the total nominal amount of outstanding covered bonds (‘nominal principle’), and shall consist of eligible assets as set out in paragraph 1 of this Article.

Member States may set a lower minimum level of overcollateralisation for covered bonds or authorise their competent authorities to set such a level, provided that:

(a) either the calculation of overcollateralisation is based on a formal approach where the underlying risk of the assets is taken into account, or the valuation of the assets is subject to the mortgage lending value; and

(b) the minimum level of overcollateralisation is not lower than 2 %, based on the nominal principle referred to in Article 15(6) and (7) of Directive (EU) 2019/2162.

The assets contributing to a minimum level of overcollateralisation shall not be subject to the limits on exposure size set out in paragraph 1a and shall not count towards those limits.

Covered bonds for which a directly applicable credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit quality step	1	2	3	4	5	6
Risk weight	10 %	20 %	20 %	50 %	50 %	100 %

Covered bonds for which a directly applicable credit assessment by a nominated ECAI is not available shall be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the institution which issues them. The following correspondence between risk weights shall apply:

(a) if the exposures to the institution are assigned a risk weight of 20 %, the covered bond shall be assigned a risk weight of 10 %;

(aa) if the exposures to the institution are assigned a risk weight of 30 %, the covered bond shall be assigned a risk weight of 15 %;

(ab) if the exposures to the institution are assigned a risk weight of 40 %, the covered bond shall be assigned a risk weight of 20 %;

(b) if the exposures to the institution are assigned a risk weight of 50 %, the covered bond shall be assigned a risk weight of 25 %;

(ba) if the exposures to the institution are assigned a risk weight of 75 %, the covered bond shall be assigned a risk weight of 35 %;

(c) if the exposures to the institution are assigned a risk weight of 100 %, the covered bond shall be assigned a risk weight of 50 %;

(d) if the exposures to the institution are assigned a risk weight of 150 %, the covered bond shall be assigned a risk weight of 100 %.

Article 130

Items representing securitisation positions

Risk-weighted exposure amounts for securitisation positions shall be determined in accordance with Chapter 5.

Article 131

Exposures to institutions and corporates with a short-term credit assessment

Exposures to institutions and exposures to corporates for which a short-term credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 7 which corresponds to the credit assessment of the ECAI in accordance with Article 136.

Credit Quality Step	1	2	3	4	5	6
Risk weight	20 %	50 %	100 %	150 %	150 %	150 %

Article 132

Own funds requirements for exposures in the form of units or shares in CIUs

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 met.

Institutions may determine the risk-weighted exposure amount of a CIU's exposures in accordance with the approaches set out in Article 132a where all the following conditions are met:

(a) the CIU is one of the following: (i) an undertaking for collective investment in transferable securities (UCITS), governed by Directive 2009/65/EC; (ii) an AIF managed by an EU AIFM registered under Article 3(3) of Directive 2011/61/EU; (iii) an AIF managed by an EU AIFM authorised under Article 6 of Directive 2011/61/EU; (iv) 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 Directive 2011/61/EU; (vi) a non-EU AIF not marketed in the Union and managed by a non-EU AIFM established in a third country that is covered by a delegated act referred to in Article 67(6) of Directive 2011/61/EU;

(b) the CIU's prospectus or equivalent document includes the following: (i) the categories of assets in which the CIU is authorised to invest; (ii) where investment limits apply, the relative limits and the methodologies to calculate them;

(c) reporting by the CIU or the CIU management company to the institution complies with the following requirements: (i) the exposures of the CIU are reported at least as frequently as those of the institution; (ii) the granularity of the financial information is sufficient to allow the institution to calculate the CIU'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 party.

By way of derogation from point (a) of the first subparagraph of this paragraph, multilateral and bilateral development banks and other institutions that co-invest in a CIU with multilateral or bilateral development banks may determine the risk-weighted exposure amount of that CIU's exposures in accordance with the approaches set out in Article 132a, provided that the conditions set out in points (b) and (c) of the first subparagraph of this paragraph are met and that the CIU's investment mandate limits the types of assets that the CIU can invest in to assets that promote sustainable development in developing countries.

Institutions shall notify their competent authority of the CIUs to which they apply the treatment referred to in the second subparagraph.

By way of derogation from point (c)(i) of the first subparagraph, where the institution determines the risk-weighted exposure amount of a CIU's exposures in accordance with the mandate-based approach, the reporting by the CIU or the CIU management company to the institution may be limited to the investment mandate of the CIU and any changes thereof and may be done only when the institution incurs the exposure to the CIU for the first time and when there is a change in the investment mandate of the CIU.

Institutions that do not have adequate data or information to calculate the risk-weighted exposure amount of a CIU's exposures in accordance with the approaches set out in Article 132a may rely on the calculations of a third party, provided that all the following conditions are met:

(a) the third party 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; (ii) for CIUs not covered by point (i) of this point, the CIU management company, provided that the company meets the condition set out in point (a) of paragraph 3;

(b) the third party carries out the calculation in accordance with the approaches set out in Article 132a(1), (2) or (3), as applicable;

(c) an external auditor has confirmed the correctness of the third party's calculation.

Institutions that rely on third-party calculations shall multiply the risk-weighted exposure amount of a CIU's exposures resulting from those calculations by a factor of 1,2.

By way of derogation from the second subparagraph, where the institution has unrestricted access to the detailed calculations carried out by the third party, the factor of 1,2 shall not apply. The institution shall provide those calculations to its competent authority upon request.

(a) the institutions measure the value of their holdings of units or shares in a CIU at historical cost but measure the value of the underlying assets of the CIU at fair value if they apply the look-through approach;

(b) a change in the market value of the units or shares for which institutions measure the value at historical cost changes neither the amount of own funds of those institutions nor the exposure value associated with those holdings.

Article 132a

Approaches for calculating risk-weighted exposure amounts of CIUs

Institutions shall carry out the calculations referred to in the first subparagraph under the assumption that the CIU first incurs exposures to the maximum extent allowed under its mandate or relevant law 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, and that the CIU applies leverage to the maximum extent allowed under its mandate or relevant law, where applicable.

Institutions shall carry out the calculations referred to in the first subparagraph in accordance with the methods set out in this Chapter, in Chapter 5, and in Section 3, 4 or 5 of Chapter 6 of this Title.

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 derivative exposures which would not be subject to that requirement if they were incurred directly by the institution.

EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020.

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

Article 132b

Exclusions from the approaches for calculating risk-weighted exposure amounts of CIUs

Article 132c

Treatment of off-balance-sheet exposures to CIUs

Institutions shall calculate the risk-weighted exposure amount for their off-balance-sheet items with the potential to be converted into exposures in the form of units or shares in a CIU by multiplying the exposure values of those exposures calculated in accordance with Article 111, with the following risk weight:

(a) for all exposures for which institutions use one of the approaches set out in Article 132a: where: = the risk weight; i = the index denoting the CIU: RWAEi = the amount calculated in accordance with Article 132a for a CIUi; = the exposure value of the exposures of CIUi; Ai = the accounting value of assets of CIUi; and EQi = the accounting value of the equity of CIUi.

Institutions shall calculate the risk-weighted exposure amount for off-balance-sheet exposures arising from minimum value commitments that meet all the conditions set out in paragraph 3 of this Article by multiplying the exposure value of those exposures by a conversion factor of 20 % and the risk weight derived under Article 132 or 152.

Institutions shall determine the risk-weighted exposure amount for off-balance-sheet exposures arising from minimum value commitments in accordance with paragraph 2 where all the following conditions are met:

(a) the off-balance-sheet exposure of the institution is a minimum value commitment for an investment into units or shares of one or more CIUs under which the institution is only obliged to pay out under the minimum value commitment where the market value of the underlying exposures of the CIU or CIUs is below a predetermined threshold at one or more points in time, as specified in the contract;

(b) the CIU is any of the following: (i) a UCITS as defined in Directive 2009/65/EC; or (ii) an AIF as defined in point (a) of Article 4(1) of Directive 2011/61/EU which solely invests in transferable securities or in other liquid financial assets referred to in Article 50(1) of Directive 2009/65/EC, where the mandate of the AIF does not allow a leverage higher than that allowed under Article 51(3) of Directive 2009/65/EC;

(c) the current market value of the underlying exposures of the CIU underlying the minimum value commitment without considering the effect of the off-balance-sheet minimum value commitments covers or exceeds the present value of the threshold specified in the minimum value commitment;

(d) when the excess of the market value of the underlying exposures of the CIU or CIUs over the present value of the minimum value commitment declines, the institution, or another undertaking in so far as it is covered by the supervision on a consolidated basis to which the institution itself is subject in accordance with this Regulation and Directive 2013/36/EU or Directive 2002/87/EC, can influence the composition of the underlying exposures of the CIU or CIUs or limit the potential for a further reduction of the excess in other ways;

(e) the ultimate direct or indirect beneficiary of the minimum value commitment is typically a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU.;

Article 133

Equity exposures

All of the following shall be classified as equity exposures:

(a) any exposure that meets all of the following conditions: (i) it is irredeemable in the sense that the return of invested funds can be achieved only by the sale of the investment or sale of the rights to the investment or by the liquidation of the issuer; (ii) it does not embody an obligation on the part of the issuer; (iii) it conveys a residual claim on the assets or income of the issuer;

(b) instruments that would qualify as Tier 1 items if issued by an institution;

(c) instruments that embody an obligation on the part of the issuer and meet any of the following conditions: (i) the issuer is able to defer the settlement of the obligation indefinitely; (ii) the obligation requires, or permits at the issuer’s discretion, settlement by issuance of a fixed number of the issuer’s equity shares; (iii) the obligation requires, or permits at the issuer’s discretion, settlement by issuance of a variable number of the issuer’s equity shares and, ceteris paribus, any change in the value of the obligation is attributable to, comparable to, and in the same direction as, the change in the value of a fixed number of the issuer’s equity shares; (iv) the holder of the instrument has the option of requiring that the obligation be settled in equity shares, unless one of the following conditions is met: (1) in the case of a traded instrument, the institution has demonstrated to the satisfaction of the competent authority that the instrument is traded on the market more like the debt of the issuer than like its equity; (2) in the case of non-traded instruments, the institution has demonstrated to the satisfaction of the competent authority that the instrument should be treated as a debt position;

(d) debt obligations and other securities, partnerships, derivatives or other vehicles structured in such a way that the economic substance is similar to the exposures referred to in points (a), (b) and (c), including liabilities from which the return is linked to that of equities;

(e) equity exposures that are recorded as a loan but arise from a debt-equity swap made as part of the orderly realisation or restructuring of the debt.

For the purposes of the first subparagraph, point (c)(iii), obligations include those that require or permit settlement by issuance of a variable number of the issuer’s equity shares, for which the change in the monetary value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor, where both the factor and the referenced number of shares are fixed.

For the purposes of the first subparagraph, point (c)(iv), where one of the conditions laid down in that point is met, the institution may decompose the risks for regulatory purposes, subject to the prior permission of the competent authority.

Equity investments shall not be treated as equity exposures in any of the following cases:

(a) the equity investments are structured in such a way that their economic substance is similar to the economic substance of debt holdings which do not meet the criteria set out in paragraph 1;

(b) the equity investments constitute securitisation exposures.

The following equity exposures to unlisted companies shall be assigned a risk weight of 400 %, unless those exposures are required to be deducted or risk weighted in accordance with Part Two:

(a) investments for short-term resale purposes;

(b) investments in venture capital firms or similar investments which are acquired in anticipation of significant short-term capital gains.

By way of derogation from the first subparagraph of this paragraph, long-term equity investments, including investments in equities of corporate clients with which the institution has or intends to establish a long-term business relationship and debt-equity swaps for corporate restructuring purposes shall be assigned a risk weight in accordance with paragraph 3 or 5, as applicable. For the purposes of this Article, a long-term equity investment is an equity investment that is held for three years or longer or incurred with the intention to be held for three years or longer as approved by the institution’s senior management.

Institutions that have received the prior permission of the competent authorities may assign a risk weight of 100 % to equity exposures incurred under legislative programmes to stimulate specified sectors of the economy, up to the part of such equity exposures that in aggregate does not exceed 10 % of the institutions’ own funds, that comply with all of the following conditions:

(a) the legislative programmes provide significant subsidies or guarantees, including by multilateral development banks, public development credit institutions as defined in Article 429a(2) or international organisations, for the investment to the institution;

(b) the legislative programmes involve some form of government oversight;

(c) the legislative programmes involve restrictions on the equity investment, such as limitations on the size and types of businesses in which the institution is investing, on allowable amounts of ownership interests, on the geographical location and on other relevant factors that limit the potential risk of the investment for the investing institution.

Article 134

Other items

Section 3

Recognition and mapping of credit risk assessment

Sub-Section 1

Recognition of ECAIs

Article 135

Use of credit assessments by ECAIs

On the basis of that report, the Commission shall, where appropriate, submit a legislative proposal to the European Parliament and to the Council by 10 January 2026.

Sub-Section 2

Mapping of ECAI's credit assessments

Article 136

Mapping of ECAI's credit assessments

EBA, EIOPA and ESMA shall submit those draft implementing technical standards to the Commission by 1 July 2014 and shall submit revised draft implementing technical standards where necessary.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010 and of Regulation (EU) No 1095/2010 respectively.

When determining the mapping of credit assessments, EBA, EIOPA and ESMA shall comply with the following requirements:

(a) in order to differentiate between the relative degrees of risk expressed by each credit assessment, EBA, EIOPA and ESMA shall consider quantitative factors such as the long-term default rate associated with all items assigned the same credit assessment. For recently established ECAIs and for those that have compiled only a short record of default data, EBA, EIOPA and ESMA shall ask the ECAI what it believes to be the long-term default rate associated with all items assigned the same credit assessment;

(b) in order to differentiate between the relative degrees of risk expressed by each credit assessment, EBA, EIOPA and ESMA shall consider qualitative factors such as the pool of issuers that the ECAI covers, the range of credit assessments that the ECAI assigns, each credit assessment meaning and the ECAI's definition of default;

(c) EBA, EIOPA and ESMA shall compare default rates experienced for each credit assessment of a particular ECAI and compare them with a benchmark built on the basis of default rates experienced by other ECAIs on a population of issuers that present an equivalent level of credit risk;

(d) where the default rates experienced for the credit assessment of a particular ECAI are materially and systematically higher then the benchmark, EBA, EIOPA and ESMA shall assign a higher credit quality step in the credit quality assessment scale to the ECAI credit assessment;

(e) where EBA, EIOPA and ESMA have increased the associated risk weight for a specific credit assessment of a particular ECAI, and where default rates experienced for that ECAI's credit assessment are no longer materially and systematically higher than the benchmark, EBA, EIOPA and ESMA may restore the original credit quality step in the credit quality assessment scale for the ECAI credit assessment.

EBA, EIOPA and ESMA 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 in accordance with Article 15 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010 and of Regulation (EU) No 1095/2010 respectively.

Sub-Section 3

Use of credit assessments by Export Credit Agencies

Article 137

Use of credit assessments by export credit agencies

For the purpose of Article 114, institutions may use credit assessments of an Export Credit Agency that the institution has nominated, if either of the following conditions is met:

(a) it is a consensus risk score from export credit agencies participating in the OECD ‘Arrangement on Guidelines for Officially Supported Export Credits’;

(b) the Export Credit Agency publishes its credit assessments, and the Export Credit Agency subscribes to the OECD agreed methodology, and the credit assessment is associated with one of the eight minimum export insurance premiums that the OECD agreed methodology establishes. An institution may revoke its nomination of an Export Credit Agency. An institution shall substantiate the revocation if there are concrete indications that the intention underlying the revocation is to reduce the capital adequacy requirements.

Exposures for which a credit assessment by an Export Credit Agency is recognised for risk weighting purposes shall be assigned a risk weight in accordance with Table 9.

MEIP	0	1	2	3	4	5	6	7
Risk weight	0 %	0 %	20 %	50 %	100 %	100 %	100 %	150 %

Section 4

Use of the ECAI credit assessments for the determination of risk weights

Article 138

General requirements

An institution may nominate one or more ECAIs to be used for the determination of risk weights to be assigned to assets and off-balance sheet items. An institution may revoke its nomination of an ECAI. An institution shall substantiate the revocation if there are concrete indications that the intention underlying the revocation is to reduce the capital adequacy requirements. Credit assessments shall not be used selectively. An institution shall use solicited credit assessments. However it may use unsolicited credit assessments if EBA has confirmed that unsolicited credit assessments of an ECAI do not differ in quality from solicited credit assessments of this ECAI. EBA shall refuse or revoke this confirmation in particular if the ECAI has used an unsolicited credit assessment to put pressure on the rated entity to place an order for a credit assessment or other services. In using credit assessment, institutions shall comply with the following requirements:

(a) an institution which decides to use the credit assessments produced by an ECAI for a certain class of items shall use those credit assessments consistently for all exposures belonging to that class;

(b) an institution which decides to use the credit assessments produced by an ECAI shall use them in a continuous and consistent way over time;

(c) an institution shall only use ECAIs credit assessments that take into account all amounts both in principal and in interest owed to it;

(d) where only one credit assessment is available from a nominated ECAI for a rated item, that credit assessment shall be used to determine the risk weight for that item;

(e) where two credit assessments are available from nominated ECAIs and the two correspond to different risk weights for a rated item, the higher risk weight shall be assigned;

(f) where more than two credit assessments are available from nominated ECAIs for a rated item, the two assessments generating the two lowest risk weights shall be referred to. If the two lowest risk weights are different, the higher risk weight shall be assigned. If the two lowest risk weights are the same, that risk weight shall be assigned;

(g) for exposures to institutions, an institution shall not use an ECAI credit assessment that incorporates assumptions of implicit government support, unless the respective ECAI credit assessment refers to an institution owned by or set up and sponsored by central governments, regional governments or local authorities.

For the purposes of the first paragraph, point (g), in the case of institutions, other than institutions owned by or set up and sponsored by central governments, regional governments or local authorities, for which only ECAI credit assessments exist which incorporate assumptions of implicit government support, exposures to such institutions shall be treated as exposures to unrated institutions in accordance with Article 121.

‘Implicit government support’ means that the central government, regional government or local authority would act to prevent creditors of the institution from incurring losses in the event of the institution’s default or distress.

Article 139

Issuer and issue credit assessment

Where no directly applicable credit assessment exists for a certain item, but a credit assessment exists for a specific issuing programme or facility to which the item constituting the exposure does not belong or a general credit assessment exists for the issuer, then that credit assessment shall be used in either of the following cases:

(a) the credit assessment produces a higher risk weight than would be the case if the exposure were treated as unrated and the exposure concerned: (i) is not a specialised lending exposure; (ii) ranks pari passu or junior in all respects to the specific issuing programme or facility or to senior unsecured exposures of that issuer, as relevant;

(b) the credit assessment produces a lower risk weight than would be the case if the exposure were treated as unrated and the exposure concerned: (i) is not a specialised lending exposure; (ii) ranks pari passu or senior in all respects to the specific issuing programme or facility or to senior unsecured exposures of that issuer, as relevant.

In all other cases, the exposure shall be treated as unrated.

Article 140

Long-term and short-term credit assessments

Any short-term credit assessment shall only apply to the item the short-term credit assessment refers to, and it shall not be used to derive risk weights for any other item, except in the following cases:

(a) if a short-term rated facility is assigned a 150 % risk weight, then all unrated unsecured exposures on that obligor whether short-term or long-term shall also be assigned a 150 % risk weight;

(b) if a short-term rated facility is assigned a 50 % risk-weight, no unrated short-term exposure shall be assigned a risk weight lower than 100 %.

Article 141

Domestic and foreign currency items

For the purposes of the first subparagraph, where the exposure denominated in a foreign currency is guaranteed against convertibility and transfer risk, the credit assessment on the obligor’s domestic currency item may only be used for risk weighting purposes on the guaranteed part of that exposure. The part of that exposure that is not guaranteed shall be risk weighted based on a credit assessment on the obligor that refers to an item denominated in that foreign currency.

CHAPTER 3

Internal Ratings Based Approach

Section 1

Permission by competent authorities to use the IRB approach

Article 142

Definitions

For the purposes of this Chapter, the following definitions shall apply:

(1) ‘rating system’ means all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to rating grades or pools, and the quantification of default and loss estimates that have been developed for a certain type of exposures;

(1a) ‘exposure class’ means any of the exposure classes referred to in Article 147(2), point (a), point (aa)(i) or (ii), point (b), point (c)(i), (ii) or (iii), point (d)(i), (ii), (iii) or (iv), point (e), (ea), (f) or (g);

(1b) ‘corporate exposure’ means an exposure assigned to any of the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii);

(1c) ‘retail exposure’ means an exposure assigned to any of the exposure classes referred to in Article 147(2), point (d)(i), (ii), (iii) or (iv);

(1d) ‘regional governments, local authorities and public sector entities exposure’ means an exposure assigned to any of the exposure classes referred to in Article 147(2), point (aa)(i) or (ii);

(2) ‘type of exposures’ means a group of homogeneously managed exposures, which may be limited to a single entity or a single sub-set of entities within a group provided that the same type of exposures is managed differently in other entities of the group;

(3) ‘business unit’ means any separate organisational or legal entities, business lines, geographical locations;

(4) ‘large regulated financial sector entity’ means a financial sector entity which meets all of the following conditions: (a) the entity’s total assets, or the total assets of its parent company where the entity has a parent company, calculated on an individual or consolidated basis, are greater than or equal to EUR 70 billion, using the most recent audited financial statement or consolidated financial statement in order to determine asset size; (b) the entity is subject to prudential requirements, directly on an individual or consolidated basis, or indirectly from the prudential consolidation of its parent undertaking, in accordance with this Regulation, Regulation (EU) 2019/2033, Directive 2009/138/EC, or legal prudential requirements of a third country at least equivalent to those Union acts;

(5) ‘unregulated financial sector entity’ means a financial sector entity that does not fulfil the condition set out in point (4)(b);

(5a) ‘large corporate’ means any corporate undertaking having consolidated annual sales of more than EUR 500 million or belonging to a group where the total annual sales for the consolidated group is more than EUR 500 million;

(6) ‘obligor grade’ means a risk category within the obligor rating scale of a rating system, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of probability of default (PD) are derived;

(7) ‘facility grade’ means a risk category within a rating system's facility scale, to which exposures are assigned on the basis of a specified and distinct set of rating criteria, from which own estimates of LGD are derived;

(8a) ‘PD/LGD modelling adjustment approach’ means an adjustment of the LGD or modelling an adjustment of both the PD and the LGD of the underlying exposure;

(9) ‘protection-provider-RW-floor’ means the risk weight applicable to a comparable, direct exposure to the protection provider;

(10) for an exposure to which an institution applies the IRB Approach by using its own estimates of LGD under Article 143, ‘recognised’ unfunded credit protection means an unfunded credit protection whose effect on the calculation of risk-weighted exposure amounts or expected loss amounts of the underlying exposure is taken into account with one of the following methods, in accordance with Article 108(3): (a) PD/LGD modelling adjustment approach; (b) substitution of risk parameters approach under A-IRB as defined in Article 192, point (5);

(11) ‘SA-CCF’ means the percentage applicable under Chapter 2 in accordance with Article 111(2);

(12) ‘IRB-CCF’ means own estimates of credit conversion factor.

For the purposes of the first subparagraph, point (5a), in making the assessment for the sales threshold, the amounts shall be reported, as they are, in the audited financial statements of the corporates or, for corporates that are part of consolidated groups, their consolidated groups according to the accounting standard applicable to the ultimate parent undertaking of the consolidated group. The figures shall be based on the average amounts calculated over the prior three years, or on the latest amounts updated every three years by the institution.

Article 143

Permission to use the IRB Approach

Institutions shall obtain the prior permission of the competent authorities for the following:

(a) material changes to the range of application of a rating system that the institution has received permission to use;

(b) material changes to a rating system that the institution has received permission to use.

The range of application of a rating system shall comprise all exposures of the relevant type of exposure for which that rating system was developed.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

Article 144

Competent authorities' assessment of an application to use an IRB Approach

The competent authority shall grant permission pursuant to Article 143 for an institution to use the IRB Approach, including to use own estimates of LGD and conversion factors, only if the competent authority is satisfied that requirements laid down in this Chapter are met, in particular those laid down in Section 6, and that the systems of the institution for the management and rating of credit risk exposures are sound and implemented with integrity and, in particular, that the institution has demonstrated to the satisfaction of the competent authority that the following standards are met:

(a) the institution's rating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;

(b) internal ratings and default and loss estimates used in the calculation of own funds requirements and associated systems and processes play an essential role in the risk management and decision-making process, and in the credit approval, internal capital allocation and corporate governance functions of the institution;

(c) the institution has a credit risk control unit responsible for its rating systems that is appropriately independent and free from undue influence;

(d) the institution collects and stores all relevant data to provide effective support to its credit risk measurement and management process;

(e) the institution documents its rating systems and the rationale for their design and validates its rating systems;

(f) the institution has validated each rating system during an appropriate period prior to the permission to use that rating system, has assessed during that period whether each rating system is suited to the range of application of that rating system, and has made the necessary changes to each rating system following from its assessment;

(g) the institution has calculated under the IRB Approach the own funds requirements resulting from its risk parameters estimates and is able to submit the reporting as required by Article 430;

(h) the institution has assigned and continues to assign each exposure in the range of application of a rating system to a rating grade or pool of that rating system.

The requirements to use an IRB Approach, including own estimates of LGD and conversion factors, apply also where an institution has implemented a rating system, or model used within a rating system, that it has purchased from a third-party vendor.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 145

Prior experience of using IRB approaches

Article 146

Measures to be taken where the requirements of this Chapter cease to be met

Where an institution ceases to comply with the requirements laid down in this Chapter, it shall notify the competent authority and do one of the following:

(a) present to the satisfaction of the competent authority a plan for a timely return to compliance and realise this plan within a period agreed with the competent authority;

(b) demonstrate to the satisfaction of the competent authorities that the effect of non-compliance is immaterial.

Article 147

Methodology to assign exposures to exposure classes

Each exposure shall be assigned to one of the following exposure classes:

(a) exposures to central governments and central banks;

(aa) exposures to regional governments, local authorities and public sector entities, to be assigned to the following exposure classes: (i) exposures to regional governments and local authorities; (ii) exposures to public sector entities;

(b) exposures to institutions;

(c) exposures to corporates, to be assigned to the following exposure classes: (i) general corporates; (ii) specialised lending exposures; (iii) corporate purchased receivables;

(d) retail exposures, to be assigned to the following exposure classes: (i) qualifying revolving retail exposures (‘QRREs’); (ii) retail exposures secured by residential property; (iii) retail purchased receivables; (iv) other retail exposures;

(e) equity exposures;

(ea) exposures in the form of units or shares in a CIU;

(f) items representing securitisation positions;

(g) other non credit-obligation assets.

The following exposures shall be assigned to the class laid down in point (a) of paragraph 2:

(b) exposures to multilateral development banks referred to in Article 117(2);

(c) exposures to International Organisations which attract a risk weight of 0 % under Article 118.

The following exposures shall be assigned to the class laid down in point (b) of paragraph 2:

(c) exposures to multilateral development banks which are not assigned a 0 % risk weight under Article 117; and

(d) exposures to financial institutions which are treated as exposures to institutions in accordance with Article 119(5).

To be eligible for the retail exposure class laid down in point (d) of paragraph 2, exposures shall meet the following criteria:

(a) they shall be one of the following: (i) exposures to one or more natural persons; (ii) exposures to an SME, provided that 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 exposures secured by residential property, up to the property value does not, to the knowledge of the institution, which shall take reasonable steps to verify the amount of that exposure, exceed EUR 1 million; (iii) exposures secured by residential property, including first and subsequent liens, term loans, revolving home equity lines of credit, and exposures as referred to in Article 108(4) and (5), regardless of the exposure size, provided that the exposure is either of the following: (1) an exposure to a natural person; (2) an exposure to associations or cooperatives of individuals that are regulated under national law and exist with the sole purpose of granting their members the use of a primary residence in the property securing the loan;

(b) they are treated by the institution in its risk management consistently over time and in a similar manner;

(c) they are not managed just as individually as exposures in the exposure classes referred to in paragraph 2, point (c)(i), (ii) or (iii);

(d) they each represent one of a significant number of similarly managed exposures.

In addition to the exposures listed in the first subparagraph, the present value of retail minimum lease payments shall be included in the retail exposure class.

Exposures fulfilling all of the conditions set out in the first subparagraph, point (a)(iii), points (b), (c) and (d), of this paragraph shall be assigned to the exposure class referred to in paragraph 2, point (d)(ii).

By way of derogation from the third subparagraph of this paragraph, competent authorities may exclude from the exposure class referred to in paragraph 2, point (d)(ii), loans to natural persons who have mortgaged more than four immovable properties or housing units, including the loans to natural persons referred to in Article 108(4), and assign those loans to one of the exposure classes referred to in paragraph 2, point (c)(i), (ii) or (iii).

Retail exposures belonging to a type of exposures meeting all of the following conditions shall be assigned to the exposure class referred to in paragraph 2, point (d)(i):

(a) the exposures of that type of exposures are to one or more natural persons;

(b) the exposures of that type of exposures are revolving, unsecured, and, to the extent they are not drawn immediately and unconditionally, cancellable by the institution;

(c) the maximum exposure in that type of exposure to a single natural person is EUR 100 000 or less;

(d) that type of exposures has exhibited low volatility of loss rates, relative to its average level of loss rates, especially within the low PD bands;

(e) the treatment of exposures assigned to that type of exposures as a qualifying revolving retail exposure is consistent with the underlying risk characteristics of that type of exposures.

By way of derogation from the first subparagraph, point (b), the requirement to be unsecured shall not apply in respect of collateralised credit facilities linked to a wage account. In that case, amounts recovered from the collateral shall not be taken into account in the LGD estimates.

Institutions shall identify within the exposure class referred to in paragraph 2, point (d)(i) transactor exposures (‘QRRE transactors’) and exposures that are not transactor exposures (‘QRRE revolvers’). In particular, QRREs with less than 12 months of repayment history shall be identified as QRRE revolvers.

Within the corporate exposure class laid down in point (c) of paragraph 2, institutions shall separately identify as specialised lending exposures, exposures which possess the following characteristics:

(a) the exposure is to an entity which was created specifically to finance or operate physical assets or is an economically comparable exposure;

(b) the contractual arrangements give the lender a substantial degree of control over the assets and the income that they generate;

(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.

Those exposures shall be assigned to the exposure class referred to in paragraph 2, point (c)(ii), and shall be categorised as follows: ‘project finance’ (PF), ‘object finance’ (OF), ‘commodity finance’ (CF) and ‘income-producing real estate’ (IPRE).

EBA shall develop draft regulatory technical standards to specify the following:

(a) the categorisation to PF, OF and CF, consistently with the definitions of Chapter 2;

(b) the determination of the IPRE category, in particular specifying which ADC exposures and exposures secured by immovable property may or shall be categorised as IPRE.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.

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

Article 148

Conditions for implementing the IRB Approach across different classes of exposure and business units

Subject to the prior permission of the competent authorities, implementation of the IRB Approach may be carried out sequentially across the different types of exposures within a certain exposure class within the same business unit and across different business units in the same group, or for the use of own estimates of LGD or for the use of IRB-CCF.

Article 149

Conditions to revert to the use of less sophisticated approaches

An institution that uses the IRB Approach for a particular exposure class or type of exposure shall not stop using that approach and use instead the Standardised Approach for the calculation of risk-weighted exposure amounts unless the following conditions are met:

(a) the institution has demonstrated to the satisfaction of the competent authority that the use of the Standardised Approach is not made with a view to engaging in regulatory arbitrage, including by unduly reducing the own funds requirements of the institution, is necessary on the basis of the nature and complexity of the institution’s total exposures of that type and would not have a material adverse impact on the solvency of the institution or its ability to manage risk effectively;

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

Institutions which have obtained permission under Article 151(9) to use own estimates of LGDs and conversion factors, shall not revert to the use of LGD values and conversion factors referred to in Article 151(8) unless the following conditions are met:

(a) the institution has demonstrated to the satisfaction of the competent authority that the use of LGDs and conversion factors laid down in Article 151(8) for a certain exposure class or type of exposure is not proposed in order to reduce the own funds requirement of the institution, is necessary on the basis of nature and complexity of the institution's total exposures of this type and would not have a material adverse impact on the solvency of the institution or its ability to manage risk effectively;

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

Article 150

Conditions for permanent partial use

Institutions shall apply the Standardised Approach for all of the following exposures:

(a) exposures assigned to the exposure class referred to in Article 147(2), point (e);

(b) exposures assigned to exposure classes or belonging to types of exposures within an exposure class, for which institutions have not received the prior permission of the competent authorities to use the IRB Approach for the calculation of the risk-weighted exposure amounts and expected loss amounts.

An institution that is permitted to use the IRB Approach for the calculation of risk-weighted exposure amounts and expected loss amounts for a given exposure class may, subject to the competent authority’s prior permission, apply the Standardised Approach for some types of exposures within that exposure class, including exposures of foreign branches and different product groups, where those types of exposures are immaterial in terms of size and perceived risk profile.

In addition to the exposures referred to in paragraph 1, second subparagraph, an institution may, subject to the competent authority’s prior permission, apply the Standardised Approach for the following exposures where the IRB Approach is applied for other types of exposures within the same exposure class:

(a) exposures to central governments and central banks of the Member States and their regional governments, local authorities, and public sector entities, provided that: (i) there is no difference in risk between the exposures to that central government and central bank and those other exposures because of specific public arrangements; and (ii) exposures to central governments and central banks are assigned a 0 % risk weight under Article 114(2) or (4);

(b) exposures of an institution to a counterparty which is its parent undertaking, its subsidiary or a subsidiary of its parent undertaking, provided that the counterparty is an institution or a financial holding company, mixed financial holding company, financial institution, asset management company or ancillary services undertaking subject to appropriate prudential requirements or an undertaking linked by a relationship within the meaning of Article 22(7) of Directive 2013/34/EU;

(c) exposures between institutions which meet the requirements set out in Article 113(7).

An institution that is permitted to use the IRB Approach for the calculation of risk-weighted exposure amounts for only some types of exposures within an exposure class shall apply the Standardised Approach for the remaining types of exposures within that exposure class.

In addition to the exposures referred to in paragraph 1, second subparagraph, of this Article and in this paragraph, an institution may apply the Standardised Approach for exposures to churches and religious communities which meet the requirements set out in Article 115(3).

Section 2

Calculation of risk-weighted exposure amounts

Sub-Section 1

Treatment by type of exposure class

Article 151

Treatment by exposure class

For the following exposures, institutions shall apply the LGD values set out in Article 161(1) and SA-CCFs in accordance with Article 166(8), (8a) and (8b):

(a) exposures assigned to the exposure class referred to in Article 147(2), point (b);

(b) exposures to financial sector entities other than those referred to in point (a) of this subparagraph;

(c) exposures to large corporates not assigned to the exposure class referred to in Article 147(2), point (c)(ii).

For exposures belonging to the exposure classes referred to in Article 147(2), point (a), point (aa)(i) or (ii) or point (c)(i), (ii) or (iii), except for the exposures referred to in the first subparagraph of this paragraph, institutions shall apply the LGD values set out in Article 161(1) and the SA-CCFs in accordance with Article 166(8), (8a) and (8b), unless they have been permitted to use their own estimates of LGD and IRB-CCF for those exposures in accordance with paragraph 9 of this Article.

Article 152

Treatment of exposures in the form of units or shares in CIUs

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 derivative 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 of this Article and that do not use the methods set out in this Chapter or in Chapter 5, as applicable, for all or parts of the underlying exposures of the CIU shall calculate risk-weighted exposure amounts and expected loss amounts for all or those parts of the underlying exposures in accordance with the following principles:

(a) for underlying exposures that would be assigned to the exposure class referred to in Article 147(2), point (e), institutions shall apply the Standardised Approach laid down in Chapter 2;

(b) for exposures assigned to the items representing securitisation positions referred to in Article 147(2), point (f), institutions shall apply the treatment set out in Article 254 as if those exposures were directly held by those institutions;

(c) for all other underlying exposures, institutions shall apply the Standardised Approach laid down in Chapter 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 party, provided that all the following conditions are met:

(a) the third party 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; (ii) for CIUs not covered by point (i) of this point, the CIU management company, provided that the CIU management company meets the criteria set out in point (a) of Article 132(3);

(b) for exposures other than those listed in points (a), (b) and (c) of paragraph 4 of this Article, the third party carries out the calculation in accordance with the look-through approach set out in Article 132a(1);

(c) for exposures listed in points (a), (b) and (c) of paragraph 4, the third party carries out the calculation in accordance with the approaches set out therein;

(d) an external auditor has confirmed the correctness of the third party's calculation.

Institutions that rely on third-party calculations shall multiply the risk weighted exposure amounts of a CIU's exposures resulting from those calculations by a factor of 1,2.

By way of derogation from the second subparagraph, where the institution has unrestricted access to the detailed calculations carried out by the third party, the 1,2 factor shall not apply. The institution shall provide those calculations to its competent authority upon request.

Sub-Section 2

Calculation of risk-weighted exposure amounts for credit risk

Article 153

Risk-weighted exposure amounts for exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates

Subject to the application of the specific treatments laid down in paragraphs 2 and 4, the risk-weighted exposure amounts for exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates shall be calculated according to the following formulae:

Risk – weighted exposure amount = RW · exposure value

where the risk weight RW is defined as

(i) if PD = 0, RW shall be 0;

(ii) if PD = 1, i.e., for defaulted exposures: — where institutions apply the LGD values set out in Article 161(1), RW shall be 0; — where institutions use own estimates of LGDs, RW shall be ; where the expected loss best estimate (hereinafter referred to as ‘ELBE ’) shall be the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h);

(iii) if 0 < PD < 1, then:

where:

N = the cumulative distribution function for a standard normal random variable, i.e. N(x) equals the probability that a normal random variable with mean of 0 and variance of 1, is less than or equal to x;

G = the inverse cumulative distribution function for a standard normal random variable, i.e. if x = G(z), x is the value such that N(x) = z;

R = the coefficient of correlation, which is defined as:

b = the maturity adjustment factor, which is defined as: b = [0,11852 – 0,05478 ‏‏‏· ln(PD)]²;

M = the maturity, expressed in years and determined in accordance with Article 162.

For exposures to companies where the total annual sales for the consolidated group of which the firm is a part is less than EUR 50 million, institutions may use the following correlation formula in paragraph 1 (iii) for the calculation of risk weights for corporate exposures. In this formula S is expressed as total annual sales in millions of euro with EUR 5 million ≤ S ≤ EUR 50 million. Reported sales of less than EUR 5 million shall be treated as if they were equivalent to EUR 5 million. For purchased receivables the total annual sales shall be the weighted average by individual exposures of the pool.

Institutions shall substitute total assets of the consolidated group for total annual sales when total annual sales are not a meaningful indicator of firm size and total assets are a more meaningful indicator than total annual sales.

For specialised lending exposures in respect of which an institution is not able to estimate PDs or the institutions' PD estimates do not meet the requirements set out in Section 6, the institution shall assign risk weights to these exposures in accordance with Table 1, as follows:

Remaining Maturity	Category 1	Category 2	Category 3	Category 4	Category 5
Less than 2,5 years	50 %	70 %	115 %	250 %	0 %
Equal or more than 2,5 years	70 %	90 %	115 %	250 %	0 %

In assigning risk weights to specialised lending exposures institutions shall take into account the following factors: financial strength, political and legal environment, transaction and/or asset characteristics, strength of the sponsor and developer, including any public private partnership income stream, and security package.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 154

Risk-weighted exposure amounts for retail exposures

The risk-weighted exposure amounts for retail exposures shall be calculated in accordance with the following formulae:

Risk – weighted exposure amount = RW · exposure value

where the risk weight RW is defined as follows:

(i) if PD = 1, i.e., for defaulted exposures, RW shall be where ELBE shall be the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h);

(ii) if PD < 1, then: where: N = the cumulative distribution function for a standard normal random variable, i.e. N(x) equals the probability that a normal random variable with mean of 0 and variance of 1, is less than or equal to x; G = the inverse cumulative distribution function for a standard normal random variable, i.e. if x = G(z), x is the value such that N(x) = z; R = the coefficient of correlation, which is defined as:

The risk weight calculated for an exposure partially secured by residential property pursuant to paragraph 1, point (ii), taking into account a coefficient of correlation R as set out in the first subparagraph of this paragraph, shall be applied both to the secured and the unsecured part of that exposure.

Competent authorities shall review the relative volatility of loss rates across QRREs belonging to the same type of exposures, as well as across the aggregate QRRE exposure class, and shall share information on the typical characteristics of qualifying revolving retail loss rates with Member States and with EBA.

To be eligible for the retail treatment, purchased receivables shall comply with the requirements set out in Article 184 and the following conditions:

(a) the institution has purchased the receivables from unrelated third party sellers, and its exposure to the obligor of the receivable does not include any exposures that are directly or indirectly originated by the institution itself;

(b) the purchased receivables shall be generated on an arm's-length basis between the seller and the obligor. As such, inter-company accounts receivables and receivables subject to contra-accounts between firms that buy and sell to each other are ineligible;

(c) the purchasing institution has a claim on all proceeds from the purchased receivables or a pro-rata interest in the proceeds; and

(d) the portfolio of purchased receivables is sufficiently diversified.

Article 156

Risk-weighted exposure amounts for other non credit-obligation assets

The risk-weighted exposure amounts for other non credit-obligation assets shall be calculated in accordance with the following formula:

Risk – weighted exposure amount = 100 % · exposure value,

except for:

(a) cash in hand and equivalent cash items as well as gold bullion held in own vault or on an allocated basis to the extent backed by bullion liabilities, in which case a 0 % risk-weight shall be assigned;

(b) when the exposure is a residual value of leased assets in which case it shall be calculated as follows: where t is the greater of 1 and the nearest number of whole years of the lease remaining.

Sub-Section 3

Calculation of risk-weighted exposure amounts for dilution risk of purchased receivables

Article 157

Risk-weighted exposure amounts for dilution risk of purchased receivables

EBA shall develop draft regulatory technical standards to further specify:

(a) the methodology for the calculation of risk-weighted exposure amount for dilution risk of purchased receivables, including recognition of credit risk mitigation in accordance with Article 160(4), and the conditions for the use of own estimates and parameters of the fall-back approach;

(b) the assessment of the immateriality criterion for the type of exposures referred to in paragraph 5. EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Section 3

Expected loss amounts

Article 158

Treatment by exposure type

The expected loss (EL) and expected loss amounts for exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities and retail exposures shall be calculated in accordance with the following formulae:

expected loss (EL) = PD * LGD

expected loss amount = EL [multiplied by] exposure value.

For defaulted exposures (PD = 100 %) where institutions use own estimates of LGD, EL shall be ELBE, the institution’s best estimate of expected loss for the defaulted exposure in accordance with Article 181(1), point (h).

The EL values for specialised lending exposures where institutions use the methods set out in Article 153(5) for assigning risk weights shall be assigned in accordance with Table 2.

Remaining Maturity	Category 1	Category 2	Category 3	Category 4	Category 5
Less than 2,5 years	0 %	0,4 %	2,8 %	8 %	50 %
Equal to or more than 2,5 years	0,4 %	0,8 %	2,8 %	8 %	50 %

The expected loss amounts for dilution risk of purchased receivables shall be calculated in accordance with the following formula:

Expected loss (EL) = PD · LGD

Expected loss amount = EL · exposure value

Article 159

Treatment of expected loss amounts, IRB shortfall and IRB excess

Institutions shall subtract the expected loss amounts of exposures referred to in Article 158(5), (6) and (10) from the sum of all of the following:

(a) the general and specific credit risk adjustments related to those exposures, calculated in accordance with Article 110;

(b) additional value adjustments due to counterparty default determined in accordance with Article 34 and related to exposures for which the expected loss amounts are calculated in accordance with Article 158(5), (6) and (10);

(c) other own funds reductions related to those exposures other than the deductions made in accordance with Article 36(1), point (m).

Where the calculation performed in accordance with the first subparagraph results in a positive amount, the amount obtained shall be called ‘IRB excess’. Where the calculation performed in accordance with the first subparagraph results in a negative amount, the amount obtained shall be called ‘IRB shortfall’.

Section 4

PD, LGD and maturity

Sub-Section - 1

Exposures covered by guarantees provided by Member States’ central governments and central banks or the ECB

Article 159a

Non-application of PD, LGD and CCF input floors

For the purposes of Chapter 3, and in particular with regard to Articles 160(1), 161(4), 164(4) and 166(8c), where an exposure is covered by an eligible guarantee provided by a central government or central bank or by the ECB, the PD, LGD and CCF input floors shall not apply to the part of the exposure covered by that guarantee. However, the part of the exposure that is not covered by that guarantee shall be subject to the PD, LGD and CCF input floors concerned.

Sub-Section 1

Exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities

Article 160

Probability of default (PD)

For purchased corporate receivables in respect of which an institution is not able to estimate PDs or an institution's PD estimates do not meet the requirements set out in Section 6, the PDs for these exposures shall be determined in accordance with the following methods:

(a) for senior claims on purchased corporate receivables PD shall be the institutions estimate of EL divided by LGD for these receivables;

(b) for subordinated claims on purchased corporate receivables PD shall be the institution's estimate of EL;

(c) an institution that has received the permission of the competent authority to use own LGD estimates for corporate exposures pursuant to Article 143 and that can decompose its EL estimates for purchased corporate receivables into PDs and LGDs in a manner that the competent authority considers to be reliable, may use the PD estimate that results from this decomposition.

Article 161

Loss Given Default (LGD)

Institutions shall use the following LGD values:

(a) senior exposures without eligible funded credit protection to central governments and central banks, to financial sector entities and to regional governments, local authorities and public sector entities: 45 %;

(aa) senior exposures without eligible funded credit protection to corporates which are not financial sector entities: 40 %;

(b) subordinated exposures without eligible collateral: 75 %;

(d) covered bonds eligible for the treatment set out in Article 129(4) or (5) may be assigned an LGD value of 11,25 %;

(e) for senior purchased corporate receivables exposures where an institution is not able to estimate PDs or where the institution’s PD estimates do not meet the requirements set out in Section 6: 40 %;

(f) for subordinated purchased corporate receivables exposures where an institution is not able to estimate PDs or the institution's PD estimates do not meet the requirements set out in Section 6: 100 %;

(g) for dilution risk of purchased corporate receivables: 100 %.

For exposures assigned to the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii), for the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, and in particular for the purposes of Article 153(1), point (iii), Article 157, and Article 158(1), (5) and (10), where own estimates of LGD are used, the LGD values for each exposure used as an input of the risk-weighted exposure amounts and expected loss formulae shall not be less than the following LGD input floor values, calculated in accordance with paragraph 6 of this Article.

LGD input floors (LGDfloor) for exposures belonging to the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii)
Exposure without eligible FCP (LGDU-floor)	Exposure fully secured by eligible FCP (LGDS-floor)
25 %	financial collateral	0 %
receivables	10 %
residential property or commercial immovable property	10 %
other physical collateral	15 %

For the purposes of paragraph 4 of this Article and for the purposes of the application of the relevant related adjustments, Hc and Hfx, in accordance with Article 230, funded credit protection shall be eligible pursuant to this Chapter. In that case, the type of funded credit protection ‘other physical collateral’ in Article 230, Table 1, shall be understood as ‘other physical and other eligible collateral’.

The applicable LGD input floor (LGDfloor) for an exposure partially secured by FCP is calculated as the weighted average of LGDU-floor for the part of the exposure without FCP and LGDS-floor for the fully secured part, as follows:

where:

LGDU-floor and LGDS-floor are the relevant floor values in Table 1;

E, ES, EU and HE are determined in accordance with Article 230.

Article 162

Maturity

For exposures for which an institution applies own estimates of LGD, the maturity value (M) shall be calculated using periods expressed in years, as set out in this paragraph and subject to paragraphs 3, 4 and 5 of this Article. M shall be no greater than five years, except in the cases specified in Article 384(2) where M as specified therein shall be used. M shall be calculated as follows in each of the following cases:

(a) for an instrument subject to a cash flow schedule, M shall be calculated in accordance with the following formula: where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the obligor in period t;

(b) for derivatives subject to a master netting agreement, M shall be the weighted average remaining maturity of the exposure, where M shall be at least 1 year, and the notional amount of each exposure shall be used for weighting the maturity;

(c) for exposures arising from fully or nearly-fully collateralised derivative instruments listed in Annex II and fully or nearly-fully collateralised margin lending transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least 10 days;

(d) for repurchase transactions or securities or commodities lending or borrowing transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least five days. The notional amount of each transaction shall be used for weighting the maturity;

(da) for secured lending transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least 20 days; the notional amount of each transaction shall be used for weighting the maturity;

(db) for a master netting agreement including more than one of the transaction types corresponding to point (c), (d) or (da) of this paragraph, M shall be the weighted average remaining maturity of the transactions where M shall be at least the longest holding period, expressed in years, applicable to such transactions as provided for in Article 224(2), either 10 days or 20 days, depending on the cases; the notional amount of each transaction shall be used for weighting the maturity;

(e) an institution that has received the permission of the competent authority pursuant to Article 143 to use own PD estimates for purchased corporate receivables, for drawn amounts M shall equal the purchased receivables exposure weighted average maturity, where M shall be at least 90 days. This same value of M shall also be used for undrawn amounts under a committed purchase facility provided that the facility contains effective covenants, early amortisation triggers, or other features that protect the purchasing institution against a significant deterioration in the quality of the future receivables it is required to purchase over the facility's term. Absent such effective protections, M for undrawn amounts shall be calculated as the sum of the longest-dated potential receivable under the purchase agreement and the remaining maturity of the purchase facility, where M shall be at least 90 days;

(f) for any instrument other than those referred to in this paragraph or when an institution is not in a position to calculate M as set out in point (a), M shall be the maximum remaining time, in years, that the obligor is permitted to take to fully discharge its contractual obligations, including the principal, interest, and fees, where M shall be at least one year;

(g) for institutions using the Internal Model Method set out in Section 6 of Chapter 6 to calculate the exposure values, M shall be calculated for exposures to which they apply this method and for which the maturity of the longest-dated contract contained in the netting set is greater than one year in accordance with the following formula: where: = a dummy variable whose value at future period tk is equal to 0 if tk > 1 year and to 1 if tk ≤ 1; = the expected exposure at the future period tk; = the effective expected exposure at the future period tk; = the risk-free discount factor for future time period tk;

(h) an institution that uses an internal model to calculate a one-sided credit valuation adjustment (CVA) may use, subject to the permission of the competent authorities, the effective credit duration estimated by the internal model as M. Subject to paragraph 2, for netting sets in which all contracts have an original maturity of less than one year the formula in point (a) shall apply;

(i) for institutions using the approaches referred to in Article 382a(1), point (a) or (b), to calculate the own funds requirements for the CVA risk of transactions with a given counterparty, M shall be no greater than 1 in the formula set out in Article 153(1), point (iii), for the purpose of calculating the risk-weighted exposure amounts for counterparty risk for the same transactions, as referred to in Article 92(4), point (a) or (g), as applicable;

(j) for revolving exposures, M shall be determined using the maximum contractual termination date of the facility; institutions shall not use the repayment date of the current drawing if that date is not the maximum contractual termination date of the facility.

Where the documentation requires daily re-margining and daily revaluation and includes provisions that allow for the prompt liquidation or set off of collateral in the event of default or failure to remargin, M shall be the weighted average remaining maturity of the transactions and M shall be at least one day for:

(a) fully or nearly-fully collateralised derivative instruments listed in Annex II;

(b) fully or nearly-fully collateralised margin lending transactions;

(c) repurchase transactions, securities or commodities lending or borrowing transactions.

In addition, for qualifying short-term exposures which are not part of the institution's ongoing financing of the obligor, M shall be at least one-day. Qualifying short term exposures shall include the following:

(a) exposures to institutions or investment firms arising from the settlement of foreign exchange obligations;

(b) self-liquidating short-term trade finance transactions and corporate purchased receivables, provided that the respective exposures have a residual maturity of up to one year;

(c) exposures arising from settlement of securities purchases and sales within the usual delivery period or two business days;

(d) exposures arising from cash settlements by wire transfer and settlements of electronic payment transactions and prepaid cost, including overdrafts arising from failed transactions that do not exceed a short, fixed agreed number of business days;

(e) issued as well as confirmed letters of credit that are short term, that is, they have a maturity below one year, and are self-liquidating.

Sub-Section 2

Retail exposures

Article 163

Probability of default (PD)

For the sole purpose of calculating risk-weighted exposure amounts and the expected loss amounts of those exposures, and in particular for the purposes of Articles 154 and 157, and Article 158(1), (5) and (10), the PD for each exposure that is used as an input of the risk-weighted exposure amounts and expected loss formulae shall be the higher of the one-year PD associated with the internal borrower grade or pool to which the retail exposure is assigned and the following PD input floor values:

(a) 0,1 % for QRRE revolvers;

(b) 0,05 % for retail exposures which are not QRRE revolvers.

Article 164

Loss Given Default (LGD)

For the sole purpose of calculating risk-weighted exposure amounts and expected loss amounts for retail exposures, and in particular pursuant to Article 154(1), point (ii), Article 157, and Article 158(1), (5) and (10), the LGD values for each exposure used as an input of the risk-weighted exposure amounts and expected loss formulae shall not be less than the LGD input floor values set out in Table 1, calculated in accordance with paragraph 4a of this Article:

LGD input floors (LGDfloor) for retail exposures
Exposure without FCP (LGDU-floor)	Exposure secured by FCP (LGDS-floor)
Retail exposure secured by residential property	N/A	Retail exposure secured by residential property	5 %
QRRE	50 %	QRRE	N/A
Other retail exposure	30 %	Other retail exposure secured by financial collateral	0 %
Other retail exposure secured by receivables	10 %
Other retail exposure secured by residential property or commercial immovable property	10 %
Other retail exposure secured by other physical collateral	15 %

For the purposes of paragraph 4, the following shall apply:

(a) LGD input floors in paragraph 4, Table 1 shall be applicable for exposures secured by funded credit protection when the funded credit protection is eligible pursuant to this Chapter;

(b) except for retail exposures secured by residential property, the LGD input floors in paragraph 4, Table 1, of this Article shall be applicable to exposures fully secured by funded credit protection where the value of the FCP, after the application of the relevant volatility adjustments in accordance with Article 230, is equal to or exceeds the exposure value of the underlying exposure; for the purpose of the application of the relevant related adjustments, Hc and Hfx, in accordance with Article 230, funded credit protection shall be eligible pursuant to this Chapter;

(c) except for retail exposures secured by residential property, the applicable LGD input floor for an exposure partially secured by funded credit protection is calculated in accordance with the formula set out in Article 161(6);

(d) for retail exposures secured by residential property, the applicable LGD input floor shall be fixed at 5 % irrespective of the level of collateral provided by the residential property.

Where the authority designated by the Member State for the application of this Article is the competent authority, it shall ensure that the relevant national bodies and authorities which have a macroprudential mandate are duly informed of the competent authority's intention to make use of this Article, and are appropriately involved in the assessment of financial stability concerns in its Member State in accordance with paragraph 6.

Where the authority designated by the Member State for the application of this Article is different from the competent authority, the Member State shall adopt the necessary provisions to ensure proper coordination and exchange of information between the competent authority and the designated authority for the proper application of this Article. In particular, authorities shall be required to cooperate closely and to share all the information that may be necessary for the adequate performance of the duties imposed upon the designated authority pursuant to this Article. That cooperation shall aim at avoiding any form of duplicative or inconsistent action between the competent authority and the designated authority, as well as ensuring that the interaction with other measures, in particular measures taken under Article 458 of this Regulation and Article 133 of Directive 2013/36/EU, is duly taken into account.

Where, on the basis of the assessment referred to in the first subparagraph of this paragraph, the authority designated in accordance with paragraph 5 concludes that the LGD input floor values referred to in paragraph 4 are not adequate, and if it considers that the inadequacy of LGD input floor values could adversely affect current or future financial stability in its Member State, it may set higher LGD input floor values for those exposures located in one or more parts of the territory of the Member State of that authority. Those higher LGD input floor values may also be applied at the level of one or more property segments of such exposures.

The authority designated in accordance with paragraph 5 shall notify EBA and the ESRB before making the decision referred to in the second subparagraph of this paragraph. Within one month of receipt of that notification, EBA and the ESRB shall provide their opinion to the Member State concerned. EBA and the ESRB shall publish the higher LGD input floor values referred to in the second subparagraph of this paragraph.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2019.

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

The ESRB may, by means of recommendations in accordance with Article 16 of Regulation (EU) No 1092/2010, and in close cooperation with EBA, give guidance to authorities designated in accordance with paragraph 5 of this Article on the following:

(a) factors which could ‘adversely affect current or future financial stability’ referred to in paragraph 6; and

(b) indicative benchmarks that the authority designated in accordance with paragraph 5 is to take into account when determining higher minimum LGD values.

Section 5

Exposure value

Article 166

Exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities and retail exposures

This rule also applies to assets purchased at a price different than the amount owed.

For purchased assets, the difference between the amount owed and the accounting value remaining after specific credit risk adjustments have been applied that has been recorded on the balance-sheet of the institutions when purchasing the asset is denoted discount if the amount owed is larger, and premium if it is smaller.

Where only the drawn balances of revolving facilities have been securitised, institutions shall ensure that they continue to hold the required amount of own funds against the undrawn balances associated with the securitisation.

An institution that has not received permission to use IRB-CCF shall calculate the exposure value as the committed but undrawn amount multiplied by the SA-CCF concerned.

An institution that uses IRB-CCF shall calculate the exposure value for undrawn commitments as the undrawn amount multiplied by IRB-CCF.

Subject to the permission of competent authorities, institutions that meet the requirements for the use of IRB-CCF as specified in Section 6 shall use IRB-CCF for exposures arising from undrawn revolving commitments treated under the IRB Approach provided that those exposures would not be subject to a SA-CCF of 100 % under the Standardised Approach. SA-CCFs shall be used for:

(a) all other off-balance-sheet items, in particular undrawn non-revolving commitments;

(b) exposures where the minimum requirements for calculating IRB-CCF as specified in Section 6 are not met by the institution or where the competent authority has not permitted the use of IRB-CCF.

For the purposes of this Article, a commitment shall be deemed ‘revolving’ where it lets an obligor obtain a loan where the obligor has the flexibility to decide how often to withdraw from the loan and at what intervals, allowing the obligor to drawdown, repay and redraw loans advanced to it. Contractual arrangements that allow prepayments and subsequent redraws of those prepayments shall be considered revolving.

Where IRB-CCF are used for the sole purpose of calculating risk-weighted exposure amounts and expected loss amounts of exposures arising from revolving commitments other than exposures assigned to the exposure class in accordance with Article 147(2), point (a), in particular pursuant to Article 153(1), Article 157 and Article 158(1), (5) and (10), the exposure value for each exposure used as an input of the risk-weighted exposure amount and expected loss formulae shall not be less than the sum of:

(a) the drawn amount of the revolving commitment;

(b) 50 % of the off-balance exposure amount of the remaining undrawn part of the revolving commitment calculated using the applicable SA-CCF provided for in Article 111.

The sum of points (a) and (b) shall be referred to as the ‘CCF input floor’.

Article 168

Other non credit-obligation assets

The exposure value of other non credit-obligation assets shall be the accounting value remaining after specific credit risk adjustment have been applied

Section 6

Requirements for the IRB approach

Sub-Section 1

Rating systems

Article 169

General principles

EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on how to apply in practice the requirements on model design, risk quantification, validation and application of risk parameters using continuous or very granular rating scales for each risk parameter.

Article 170

Structure of rating systems

The structure of rating systems for exposures to corporates, institutions, central governments and central banks, and regional governments, local authorities and public sector entities shall comply with the following requirements:

(a) a rating system shall take into account obligor and transaction risk characteristics;

(b) a rating system shall have an obligor rating scale which reflects exclusively quantification of the risk of obligor default. The obligor rating scale shall have a minimum of 7 grades for non-defaulted obligors and one for defaulted obligors;

(c) an institution shall document the relationship between obligor grades in terms of the level of default risk each grade implies and the criteria used to distinguish that level of default risk;

(d) institutions with portfolios concentrated in a particular market segment and range of default risk shall have enough obligor grades within that range to avoid undue concentrations of obligors in a particular grade. Significant concentrations within a single grade shall be supported by convincing empirical evidence that the obligor grade covers a reasonably narrow PD band and that the default risk posed by all obligors in the grade falls within that band;

(e) to be permitted by the competent authority to use own estimates of LGDs for own funds requirement calculation, a rating system shall incorporate a distinct facility rating scale which exclusively reflects LGD related transaction characteristics. The facility grade definition shall include both a description of how exposures are assigned to the grade and of the criteria used to distinguish the level of risk across grades;

(f) significant concentrations within a single facility grade shall be supported by convincing empirical evidence that the facility grade covers a reasonably narrow LGD band, respectively, and that the risk posed by all exposures in the grade falls within that band.

The structure of rating systems for retail exposures shall comply with the following requirements:

(a) rating systems shall reflect both obligor and transaction risk, and shall capture all relevant obligor and transaction characteristics;

(b) the level of risk differentiation shall ensure that the number of exposures in a given grade or pool is sufficient to allow for meaningful quantification and validation of the loss characteristics at the grade or pool level. The distribution of exposures and obligors across grades or pools shall be such as to avoid excessive concentrations;

(c) the process of assigning exposures to grades or pools shall provide for a meaningful differentiation of risk, for a grouping of sufficiently homogenous exposures, and shall allow for accurate and consistent estimation of loss characteristics at grade or pool level. For purchased receivables the grouping shall reflect the seller's underwriting practices and the heterogeneity of its customers.

Institutions shall consider the following risk drivers when assigning exposures to grades or pools:

(a) obligor risk characteristics;

(b) transaction risk characteristics, including product and funded credit protection types, recognised unfunded credit protection, loan-to-value measures, seasoning and seniority; institutions shall explicitly address cases where several exposures benefit from the same funded or unfunded credit protection;

(c) delinquency, except where an institution demonstrates to the satisfaction of its competent authority that delinquency is not a material driver of risk for the exposure.

Article 171

Assignment to grades or pools

An institution shall have specific definitions, processes and criteria for assigning exposures to grades or pools within a rating system that comply with the following requirements:

(a) the grade or pool definitions and criteria shall be sufficiently detailed to allow those charged with assigning ratings to consistently assign obligors or facilities posing similar risk to the same grade or pool. This consistency shall exist across lines of business, departments and geographic locations;

(b) the documentation of the rating process shall allow third parties to understand the assignments of exposures to grades or pools, to replicate grade and pool assignments and to evaluate the appropriateness of the assignments to a grade or a pool;

(c) the criteria shall also be consistent with the institution's internal lending standards and its policies for handling troubled obligors and facilities.

Article 172

Assignment of exposures

For exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates, the assignment of exposures shall be carried out in accordance with the following criteria:

(a) each obligor shall be assigned to an obligor grade as part of the credit approval process;

(b) for those exposures for which an institution has received the permission of the competent authority to use own estimates of LGDs and conversion factors pursuant to Article 143, each exposure shall also be assigned to a facility grade as part of the credit approval process;

(c) institutions using the methods set out in Article 153(5) for assigning risk weights for specialised lending exposures shall assign each of these exposures to a grade in accordance with Article 170(2);

(d) each separate legal entity to which the institution is exposed shall be separately rated;

(e) separate exposures to the same obligor shall be assigned to the same obligor grade, irrespective of any differences in the nature of each specific transaction. However, where separate exposures are allowed to result in multiple grades for the same obligor, the following shall apply: (i) country transfer risk, this being dependent on whether the exposures are denominated in local or foreign currency; (ii) the treatment of associated guarantees to an exposure may be reflected in an adjusted assignment to an obligor grade; (iii) consumer protection, bank secrecy or other legislation prohibit the exchange of client data.

For the purposes of the first subparagraph, point (d), an institution shall have appropriate policies for the treatment of individual obligor clients and groups of connected clients. Those policies shall contain a process for the identification of Specific Wrong-Way risk for each legal entity to which the institution is exposed.

For the purposes of Chapter 6, transactions with counterparties where a Specific Wrong-Way risk has been identified shall be treated differently when calculating their exposure value.

Article 173

Integrity of assignment process

For exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates, the assignment process shall meet the following requirements:

(a) Assignments and periodic reviews of assignments shall be completed or approved by an independent party that does not directly benefit from decisions to extend the credit;

(b) Institutions shall review assignments at least annually and adjust the assignment where the result of the review does not justify carrying forward the current assignment. High risk obligors and problem exposures shall be subject to more frequent review. Institutions shall undertake a new assignment if material information on the obligor or exposure becomes available;

(c) An institution shall have an effective process to obtain and update relevant information on obligor characteristics that affect PDs, and on transaction characteristics that affect LGDs or conversion factors.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 174

Use of models

Institutions shall use statistical or other mathematical methods (‘models’) to assign exposures to obligor or facility grades or pools. The following requirements shall be met:

(a) the model shall have good predictive power and own funds requirements shall not be distorted as a result of its use;

(b) the institution shall have in place a process for vetting data inputs into the model, which includes an assessment of the accuracy, completeness and appropriateness of the data;

(c) the data used to build the model shall be representative of the population of the institution's actual obligors or exposures;

(d) the institution shall have a regular cycle of model validation that includes monitoring of model performance and stability; review of model specification; and testing of model outputs against outcomes;

(e) the institution shall complement the statistical model by human judgement and human oversight to review model-based assignments and to ensure that the models are used appropriately. Review procedures shall aim at finding and limiting errors associated with model weaknesses. Human judgements shall take into account all relevant information not considered by the model. The institution shall document how human judgement and model results are to be combined.

For the purposes of the first paragraph, point (a), the input variables shall form a reasonable and effective basis for the resulting predictions. The model shall not have material biases. There shall be a functional link between the inputs and the outputs of the model, which may be determined through expert judgement, where appropriate.

Article 175

Documentation of rating systems

Where the institution employs statistical models in the rating process, the institution shall document their methodologies. This material shall:

(a) provide a detailed outline of the theory, assumptions and mathematical and empirical basis of the assignment of estimates to grades, individual obligors, exposures, or pools, and the data source(s) used to estimate the model;

(b) establish a rigorous statistical process including out-of-time and out-of-sample performance tests for validating the model;

(c) indicate any circumstances under which the model does not work effectively.

Article 176

Data maintenance

For exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates, institutions shall collect and store:

(a) complete rating histories on obligors and recognised guarantors;

(b) the dates the ratings were assigned;

(c) the key data and methodology used to derive the rating;

(d) the person responsible for the rating assignment;

(e) the identity of obligors and exposures that defaulted;

(f) the date and circumstances of such defaults;

(g) data on the PDs and realised default rates associated with rating grades and ratings migration.

Institutions using own estimates of LGDs and conversion factors shall collect and store:

(a) complete histories of data on the facility ratings and LGD and conversion factor estimates associated with each rating scale;

(b) the dates on which the ratings were assigned and the estimates were made;

(c) the key data and methodology used to derive the facility ratings and LGD and conversion factor estimates;

(d) the person who assigned the facility rating and the person who provided LGD and conversion factor estimates;

(e) data on the estimated and realised LGDs and conversion factors associated with each defaulted exposure;

(f) data on the LGD of the exposure before and after evaluation of the effects of a guarantee/or credit derivative, for those institutions that reflect the credit risk mitigating effects of guarantees or credit derivatives through LGD;

(g) data on the components of loss for each defaulted exposure.

For retail exposures, institutions shall collect and store:

(a) data used in the process of allocating exposures to grades or pools;

(b) data on the estimated PDs, LGDs and conversion factors associated with grades or pools of exposures;

(c) the identity of obligors and exposures that defaulted;

(d) for defaulted exposures, data on the grades or pools to which the exposure was assigned over the year prior to default and the realised outcomes on LGD and conversion factor;

(e) data on loss rates for qualifying revolving retail exposures.

Article 177

Stress tests used in assessment of capital adequacy

EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on the application of paragraph 2 and 2a.

Sub-Section 2

Risk quantification

Article 178

Default of an obligor or credit facility

A default shall be considered to have occurred with regard to a particular obligor when either or both of the following have taken place:

(a) the institution considers that the obligor is unlikely to pay its credit obligations to the institution, the parent undertaking or any of its subsidiaries in full, without recourse by the institution to actions such as realising security;

(b) the obligor is more than 90 days past due on any material credit obligation to the institution, the parent undertaking or any of its subsidiaries.

In the case of retail exposures, institutions may apply the definition of default laid down in points (a) and (b) of the first subparagraph at the level of an individual credit facility rather than in relation to the total obligations of a borrower.

The following shall apply for the purposes of point (b) of paragraph 1:

(a) for overdrafts, days past due commence once an obligor has breached an advised limit, has been advised a limit smaller than current outstandings, or has drawn credit without authorisation and the underlying amount is material;

(b) for the purposes of point (a), an advised limit comprises any credit limit determined by the institution and about which the obligor has been informed by the institution;

(c) days past due for credit cards commence on the minimum payment due date;

(d) materiality of a credit obligation past due shall be assessed against a threshold, defined by the competent authorities. This threshold shall reflect a level of risk that the competent authority considers to be reasonable;

(e) institutions shall have documented policies in respect of the counting of days past due, in particular in respect of the re-ageing of the facilities and the granting of extensions, amendments or deferrals, renewals, and netting of existing accounts. These policies shall be applied consistently over time, and shall be in line with the internal risk management and decision processes of the institution.

For the purpose of point (a) of paragraph 1, elements to be taken as indications of unlikeliness to pay shall include the following:

(a) the institution puts the credit obligation on non-accrued status;

(b) the institution recognises a specific credit adjustment resulting from a significant perceived decline in credit quality subsequent to the institution taking on the exposure;

(c) the institution sells the credit obligation at a material credit-related economic loss;

(d) the institution consents to a forbearance measure as referred to in Article 47b of the credit obligation where that measure is likely to result in a diminished financial obligation due to the material forgiveness, or postponement, of principal, interest or, where relevant, fees;

(e) the institution has filed for the obligor's bankruptcy or a similar order in respect of an obligor's credit obligation to the institution, the parent undertaking or any of its subsidiaries;

(f) the obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of a credit obligation to the institution, the parent undertaking or any of its subsidiaries.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

By 10 July 2025, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to update the guidelines referred to in the first subparagraph of this paragraph. In particular, that update shall take due account of the necessity to encourage institutions to engage in proactive, preventive and meaningful debt restructuring to support obligors.

In developing those guidelines, EBA shall duly consider the need for granting a sufficient flexibility to institutions when specifying what constitutes a diminished financial obligation for the purposes of paragraph 3, point (d).

Article 179

Overall requirements for estimation

In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements:

(a) an institution's own estimates of the risk parameters PD, LGD, conversion factor and EL shall incorporate all relevant data, information and methods. The estimates shall be derived using both historical experience and empirical evidence, and not based purely on judgemental considerations. The estimates shall be plausible and intuitive and shall be based on the material drivers of the respective risk parameters. The less data an institution has, the more conservative it shall be in its estimation;

(b) an institution shall be able to provide a breakdown of its loss experience in terms of default frequency, LGD, conversion factor, or loss where EL estimates are used, by the factors it sees as the drivers of the respective risk parameters. The institution's estimates shall be representative of long run experience;

(c) any changes in lending practice or the process for pursuing recoveries over the observation periods referred to in Article 180(1)(h) and (2)(e), Article 181(1)(j) and (2), and Article 182(2) and (3) shall be taken into account. An institution's estimates shall reflect the implications of technical advances and new data and other information, as it becomes available. Institutions shall review their estimates when new information comes to light but at least on an annual basis;

(d) the population of exposures represented in the data used for estimation, the lending standards used when the data was generated and other relevant characteristics shall be comparable with those of the institution's exposures and standards. The economic or market conditions that underlie the data shall be relevant to current and foreseeable conditions. The number of exposures in the sample and the data period used for quantification shall be sufficient to provide the institution with confidence in the accuracy and robustness of its estimates;

(e) for purchased receivables the estimates shall reflect all relevant information available to the purchasing institution regarding the quality of the underlying receivables, including data for similar pools provided by the seller, by the purchasing institution, or by external sources. The purchasing institution shall evaluate any data relied upon which is provided by the seller;

(f) to overcome biases, an institution shall include appropriate adjustments in its estimates to the extent possible; after having included an appropriate adjustment, it shall add to its estimates a sufficient margin of conservatism that is related to the expected range of estimation errors; where methods and data are considered to be less satisfactory, the expected range of errors is larger, and the margin of conservatism shall be larger.

Where institutions use different estimates for the calculation of risk weights and for internal purposes, it shall be documented and be reasonable. If institutions can demonstrate to their competent authorities that for data that have been collected prior to 1 January 2007 appropriate adjustments have been made to achieve broad equivalence with the definition of default laid down in Article 178 or with loss, competent authorities may permit the institutions some flexibility in the application of the required standards for data.

Where an institution uses data that is pooled across institutions it shall meet the following requirements:

(a) the rating systems and criteria of other institutions in the pool are similar to its own;

(b) the pool is representative of the portfolio for which the pooled data is used;

(c) the pooled data is used consistently over time by the institution for its estimates;

(d) the institution shall remain responsible for the integrity of its rating systems;

(e) the institution shall maintain sufficient in-house understanding of its rating systems, including the ability to effectively monitor and audit the rating process.

Article 180

Requirements specific to PD estimation

In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to PD estimation to exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, exposures to institutions and exposures to corporates:

(a) institutions shall estimate PDs by obligor grade from long run averages of one-year default rates. PD estimates for obligors that are highly leveraged or for obligors whose assets are predominantly traded assets shall reflect the performance of the underlying assets based on periods of stressed volatilities;

(b) for purchased corporate receivables institutions may estimate the EL by obligor grade from long run averages of one-year realised default rates;

(c) if an institution derives long run average estimates of PDs and LGDs for purchased corporate receivables from an estimate of EL, and an appropriate estimate of PD or LGD, the process for estimating total losses shall meet the overall standards for estimation of PD and LGD set out in this part, and the outcome shall be consistent with the concept of LGD as set out in Article 181(1)(a);

(d) institutions shall use PD estimation techniques only with supporting analysis. Institutions shall recognise the importance of judgmental considerations in combining results of techniques and in making adjustments for limitations of techniques and information;

(e) to the extent that an institution uses data on internal default experience for the estimation of PDs, the estimates shall be reflective of current underwriting standards and of any differences in the rating system that generated the data and the current rating system; where underwriting standards or rating systems have changed, after including an appropriate adjustment, the institution shall add a greater margin of conservatism in its estimate of PD related to the expected range of estimation errors that is not already covered by the appropriate adjustment;

(f) to the extent that an institution associates or maps its internal grades to the scale used by an ECAI or similar organisations and then attributes the default rate observed for the external organisation's grades to the institution's grades, mappings shall be based on a comparison of internal rating criteria to the criteria used by the external organisation and on a comparison of the internal and external ratings of any common obligors. Biases or inconsistencies in the mapping approach or underlying data shall be avoided. The criteria of the external organisation underlying the data used for quantification shall be oriented to default risk only and not reflect transaction characteristics. The analysis undertaken by the institution shall include a comparison of the default definitions used, subject to the requirements in Article 178. The institution shall document the basis for the mapping;

(g) to the extent that an institution uses statistical default prediction models it is allowed to estimate PDs as the simple average of default-probability estimates for individual obligors in a given grade. The institution's use of default probability models for this purpose shall meet the standards specified in Article 174;

(h) irrespective of whether an institution is using external, internal, or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used shall be at least five years for at least one source;

(i) irrespective of the method used to estimate PD, institutions shall estimate a PD for each rating grade based on the observed historical average one-year default rate that is an arithmetic average based on the number of obligors (count weighted); other approaches, including exposure-weighted averages, shall not be permitted.

For the purposes of the first subparagraph, point (h), of this paragraph where the available observation period spans a longer period for any source, and where those data are relevant, that longer period shall be used. The data shall include a representative mix of good and bad years of the economic cycle relevant for the type of exposures. Subject to the permission of competent authorities, institutions which have not received the permission of the competent authority pursuant to Article 143 to use own estimates of LGD or to use IRB-CCF, may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.

For retail exposures, the following requirements shall apply:

(a) institutions shall estimate PDs by obligor or facility grade or pool from long run averages of one-year default rates, and default rates shall be calculated at facility level only where the definition of default is applied at individual credit facility level pursuant to Article 178(1), second subparagraph;

(b) PD estimates may also be derived from an estimate of total losses and appropriate estimates of LGDs;

(c) institutions shall regard internal data for assigning exposures to grades or pools as the primary source of information for estimating loss characteristics. Institutions may use external data (including pooled data) or statistical models for quantification provided that the following strong links both exist: (i) between the institution's process of assigning exposures to grades or pools and the process used by the external data source; and (ii) between the institution's internal risk profile and the composition of the external data;

(d) if an institution derives long run average estimates of PD and LGD for retail exposures from an estimate of total losses and an appropriate estimate of PD or LGD, the process for estimating total losses shall meet the overall standards for estimation of PD and LGD set out in this part, and the outcome shall be consistent with the concept of LGD as set out in point (a) of Article 181(1);

(e) irrespective of whether an institution is using external, internal or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used shall be at least five years for at least one source;

(f) institutions shall identify and analyse expected changes of risk parameters over the life of credit exposures (seasoning effects).

For purchased retail receivables, institutions may use external and internal reference data. Institutions shall use all relevant data sources as points of comparison.

For the purposes of the first subparagraph, point (a), the PD shall be based on the observed historical average one-year default rate.

For the purposes of the first subparagraph, point (e), where the available observation spans a longer period for any source, and where those data are relevant, that longer period shall be used. The data shall include a representative mix of good and bad years of the economic cycle relevant for the type of exposures. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 181

Requirements specific to own-LGD estimates

In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to own-LGD estimates:

(a) institutions shall estimate LGDs by facility grade or pool on the basis of the average realised LGDs by facility grade or pool using all observed defaults within the data sources (default weighted average);

(b) institutions shall use LGD estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver realised LGDs at a constant level by grade or pool over time, institutions shall make adjustments to their estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn;

(c) an institution shall consider the extent of any dependence between, on the one hand, the risk of the obligor and, on the other hand, that of funded credit protection, other than master netting agreements and on-balance-sheet netting of loans and deposits, or its provider;

(d) currency mismatches between the underlying obligation and the funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits shall be treated conservatively in the institution’s assessment of LGD;

(e) to the extent that LGD estimates take into account the existence of funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits, those estimates shall not solely be based on the estimated market value of the funded credit protection;

(f) to the extent that LGD estimates take into account the existence of funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits, institutions shall establish internal requirements for the management, legal certainty and risk management of that funded credit protection, and those requirements shall be generally consistent with those set out in Chapter 4, Section 3, Sub-section 1;

(g) to the extent that an institution recognises funded credit protection other than master netting agreements and on-balance-sheet netting of loans and deposits for determining the exposure value for counterparty credit risk in accordance with Chapter 6, Section 5 or 6, any amount expected to be recovered from that funded credit protection shall not be taken into account in the LGD estimates;

(h) for the specific case of exposures already in default, the institution shall use the sum of its best estimate of expected loss for each exposure given current economic circumstances and exposure status and its estimate of the increase of loss rate caused by possible additional unexpected losses during the recovery period, i.e. between date of default and final liquidation of the exposure;

(i) to the extent that fees for late payments, imposed on the obligor before the time of default, have been capitalised in the institution’s income statement, they shall be added to the institution's measure of exposure and loss;

(j) for exposures to corporates, institutions, central governments and central banks, and regional governments, local authorities and public sector entities, estimates of LGD shall be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source, if the available observation period spans a longer period for any source, and the data are relevant, that longer period shall be used.

For the purposes of the first subparagraph, point (a), of this paragraph institutions shall adequately take into account recoveries realised in the course of the relevant recovery processes from any type of funded credit protection as well as from unfunded credit protection not falling under the definition in Article 142(1), point (10).

For the purposes of the first subparagraph, point (c), cases where there is a significant degree of dependence shall be addressed in a conservative manner.

For the purposes of the first subparagraph, point (e), LGD estimates shall take into account the effect of the potential inability of institutions to expeditiously gain control of their collateral and liquidate it.

For retail exposures, institutions may do the following:

(a) derive LGD estimates from realised losses and appropriate estimates of PDs;

(b) reflect future drawings either in their conversion factors or in their LGD estimates;

(c) For purchased retail receivables use external and internal reference data to estimate LGDs.

For the purposes of the first subparagraph, point (b), where institutions include future additional drawings in their conversion factors, those should be taken into account in the LGD in both the numerator and the denominator. Where institutions do not include future additional drawings in their conversion factors, those should be taken into account in the LGD numerator only.

For retail exposures, estimates of LGD shall be based on data over a minimum of five years. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.

EBA shall develop draft regulatory technical standards to specify the following:

(a) the nature, severity and duration of an economic downturn referred to in paragraph 1;

(b) the conditions according to which a competent authority may permit an institution pursuant to paragraph 2 to use relevant data covering a period of two years when the institution implements the IRB Approach.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

For the purpose of calculating loss, EBA shall, by 31 December 2025, issue updated guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on the following:

(a) with regard to cases that return to non-defaulted status, specifying how artificial cash flow is to be treated and whether it is more appropriate for institutions to discount the artificial cash flow over the actual period of default;

(b) assessing whether the calibration and application of the discount rate is appropriate for the calculation of economic loss across all exposures.

Article 182

Requirements specific to own-conversion factor estimates

In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to own-conversion factor estimates:

(a) institutions shall estimate conversion factors by facility grade or pool on the basis of the average realised conversion factors by facility grade or pool using the default weighted average resulting from all observed defaults within the data sources;

(b) institutions shall use conversion factor estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver realised conversion factors at a constant level by grade or pool over time, institutions shall make adjustments to their estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn;

(c) institutions’ IRB-CCF shall reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered;

(d) in arriving at estimates of conversion factors institutions shall consider their specific policies and strategies adopted in respect of account monitoring and payment processing. Institutions shall also consider their ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events;

(e) institutions shall have adequate systems and procedures in place to monitor facility amounts, current outstandings against committed lines and changes in outstandings per obligor and per grade. The institution shall be able to monitor outstanding balances on a daily basis;

(f) if institutions use different estimates of conversion factors for the calculation of risk-weighted exposure amounts and internal purposes it shall be documented and be reasonable;

(g) institutions’ IRB-CCF shall be estimated using a 12-month fixed-horizon approach;

(h) institutions’ IRB-CCF shall be based on reference data that reflect the obligor, facility and bank management practice characteristics of the exposures to which the estimates are applied.

For the purposes of the first subparagraph, point (a), where institutions observe a negative realised conversion factor on their default observations, the realised conversion factor on those observations shall be equal to zero for the purpose of quantification of their IRB-CCF. Institutions may use the information of the negative realised conversion factor in the process of model development for the purpose of risk differentiation.

For the purposes of the first subparagraph, point (c), IRB-CCF shall incorporate a greater margin of conservatism where a stronger positive correlation can reasonably be expected between the default frequency and the magnitude of the conversion factor.

For the purposes of the first subparagraph, point (g), each default shall be linked to relevant obligor and facility characteristics at the fixed reference date defined as 12 months prior to the date of default.

For the purposes of paragraph 1, point (h), IRB-CCF applied to particular exposures shall not be based on data that comingle the effects of disparate characteristics or data from exposures that exhibit materially different risk characteristics. IRB-CCF shall be based on appropriately homogenous segments. For that purpose, the following practices shall only be allowed on the basis of a detailed scrutiny and justification by an institution:

(a) SME/mid-market underlying data being applied to large corporate obligors;

(b) data from commitments with a small unused limit availability being applied to facilities with a large unused limit availability;

(c) data from delinquent obligors or blocked for further drawdowns at the reference date being applied to obligors with no known delinquency or relevant restrictions;

(d) data that have been affected by changes in the obligors’ mix of borrowing and other credit-related products over the observation period unless those data have been effectively adjusted by removing the effects of the changes in the product mix.

For the purposes of paragraph 1a, point (d), institutions shall demonstrate to the competent authorities that they have a detailed understanding of the impact of changes in customer product mix on the exposures reference data sets and associated IRB-CCF, and that the impact is immaterial or has been effectively mitigated within their estimation process. In that regard, the following shall not be deemed appropriate:

(a) setting floors or caps to CCF or exposure value observations, with the exception of the realised conversion factor equal to zero, in accordance with paragraph 1, second subparagraph;

(b) using obligor-level estimates that do not fully cover the relevant product transformation options or that inappropriately combine products with very different characteristics;

(c) adjusting only material observations affected by product transformation;

(d) excluding observations affected by product profile transformation.

For retail exposures, estimates of conversion factors shall be based on data over a minimum of five years. Subject to the permission of competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall be increased by one year each year until relevant data cover at least five years.

EBA shall develop draft regulatory technical standards to specify the following:

(a) the nature, severity and duration of an economic downturn referred to in paragraph 1;

(b) conditions according to which a competent authority may permit and institution to use relevant data covering a period of two years at the time an institution first implements the IRB Approach.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 183

Requirements for assessing the effect of unfunded credit protection for exposures to central governments and central banks, exposures to regional governments, local authorities and public sector entities, and exposures to corporates, where own estimates of LGD are used and for retail exposures

The following requirements shall apply in relation to eligible guarantors and guarantees:

(a) institutions shall have clearly specified criteria for the types of guarantors they recognise for the calculation of risk-weighted exposure amounts;

(b) for recognised guarantors the same rules as for obligors as set out in Articles 171, 172 and 173 shall apply;

(c) the guarantee shall be evidenced in writing, non-cancellable and non-changeable on the part of the guarantor, in force until the obligation is satisfied in full, to the extent of the amount and tenor of the guarantee, and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach and enforce a judgement;

(d) the guarantee shall be unconditional.

For the purposes of the first subparagraph, point (d), an ‘unconditional guarantee’ means a guarantee where the credit protection contract does not contain any clause the fulfilment of which is outside the direct control of the lending institution and that could prevent the guarantor from being obliged to pay out in a timely manner pursuant to the qualifying default of the obligor or to the non-payment by the original obligor. A clause in the credit protection contract providing that a flawed due diligence or fraud by the lending institution cancels or diminishes the extent of the guarantee offered by the guarantor shall not disqualify that guarantee from being considered unconditional.

Guarantees where the payment by the guarantor is subject to the lending institution first having to pursue the obligor and that only cover losses remaining after the institution has completed the workout process shall be considered unconditional.

The criteria shall be plausible and intuitive. They shall address the guarantor's ability and willingness to perform under the guarantee, the likely timing of any payments from the guarantor, the degree to which the guarantor's ability to perform under the guarantee is correlated with the obligor's ability to repay, and the extent to which residual risk to the obligor remains.

The criteria shall address the payout structure of the credit derivative and conservatively assess the impact this has on the level and timing of recoveries. The institution shall consider the extent to which other forms of residual risk remain.

First-to-default credit derivatives may be recognised as eligible unfunded credit protection. However, second-to-default and all other nth-to-default credit derivatives shall not be recognised as eligible unfunded credit protection.

Article 184

Requirements for purchased receivables

The institution shall monitor both the quality of the purchased receivables and the financial condition of the seller and servicer. The following shall apply:

(a) the institution shall assess the correlation among the quality of the purchased receivables and the financial condition of both the seller and servicer, and have in place internal policies and procedures that provide adequate safeguards to protect against any contingencies, including the assignment of an internal risk rating for each seller and servicer;

(b) the institution shall have clear and effective policies and procedures for determining seller and servicer eligibility. The institution or its agent shall conduct periodic reviews of sellers and servicers in order to verify the accuracy of reports from the seller or servicer, detect fraud or operational weaknesses, and verify the quality of the seller's credit policies and servicer's collection policies and procedures. The findings of these reviews shall be documented;

(c) the institution shall assess the characteristics of the purchased receivables pools, including over-advances; history of the seller's arrears, bad debts, and bad debt allowances; payment terms, and potential contra accounts;

(d) the institution shall have effective policies and procedures for monitoring on an aggregate basis single-obligor concentrations both within and across purchased receivables pools;

(e) the institution shall ensure that it receives from the servicer timely and sufficiently detailed reports of receivables ageings and dilutions to ensure compliance with the institution's eligibility criteria and advancing policies governing purchased receivables, and provide an effective means with which to monitor and confirm the seller's terms of sale and dilution.

Sub-Section 3

Validation of internal estimates

Article 185

Validation of internal estimates

Institutions shall validate their internal estimates subject to the following requirements:

(a) institutions shall have robust systems in place to validate the accuracy and consistency of rating systems, processes, and the estimation of all relevant risk parameters. The internal validation process shall enable the institution to assess the performance of internal rating and risk estimation systems consistently and meaningfully;

(b) institutions shall regularly compare realised default rates with estimated PDs for each grade and, where realised default rates are outside the expected range for that grade, institutions shall specifically analyse the reasons for the deviation. Institutions using own estimates of LGDs and conversion factors shall also perform analogous analysis for these estimates. Such comparisons shall make use of historical data that cover as long a period as possible. The institution shall document the methods and data used in such comparisons. This analysis and documentation shall be updated at least annually;

(c) institutions shall also use other quantitative validation tools and comparisons with relevant external data sources. The analysis shall be based on data that are appropriate to the portfolio, are updated regularly, and cover a relevant observation period. Institutions' internal assessments of the performance of their rating systems shall be based on as long a period as possible;

(d) the methods and data used for quantitative validation shall be consistent through time. Changes in estimation and validation methods and data (both data sources and periods covered) shall be documented;

(e) institutions shall have sound internal standards for situations where deviations in realised PDs, LGDs, conversion factors and total losses, where EL is used, from expectations, become significant enough to call the validity of the estimates into question. These standards shall take account of business cycles and similar systematic variability in default experience. Where realised values continue to be higher than expected values, institutions shall revise estimates upward to reflect their default and loss experience;

Sub-Section 5

Internal governance and oversight

Article 189

Corporate Governance

Senior management shall be subject to the following requirements:

(a) they shall provide notice to the management body or a designated committee thereof of material changes or exceptions from established policies that will materially impact the operations of the institution's rating systems;

(b) they shall have a good understanding of the rating systems designs and operations;

(c) they shall ensure, on an ongoing basis that the rating systems are operating properly.

Senior management shall be regularly informed by the credit risk control units about the performance of the rating process, areas needing improvement, and the status of efforts to improve previously identified deficiencies.

Article 190

Credit risk control

The areas of responsibility for the credit risk control unit or units shall include:

(a) testing and monitoring grades and pools;

(b) production and analysis of summary reports of the institution's rating systems;

(c) implementing procedures to verify that grade and pool definitions are consistently applied across departments and geographic areas;

(d) reviewing and documenting any changes to the rating process, including the reasons for the changes;

(e) reviewing the rating criteria to evaluate if they remain predictive of risk. Changes to the rating process, criteria or individual rating parameters shall be documented and retained;

(f) active participation in the design or selection, implementation and validation of models used in the rating process;

(g) oversight and supervision of models used in the rating process;

(h) ongoing review and alterations to models used in the rating process.

Institutions using pooled data in accordance with Article 179(2) may outsource the following tasks:

(a) production of information relevant to testing and monitoring grades and pools;

(b) production of summary reports of the institution's rating systems;

(c) production of information relevant to a review of the rating criteria to evaluate if they remain predictive of risk;

(d) documentation of changes to the rating process, criteria or individual rating parameters;

(e) production of information relevant to ongoing review and alterations to models used in the rating process.

Article 191

Internal Audit

Internal audit or another comparable independent auditing unit shall review at least annually the institution's rating systems and its operations, including the operations of the credit function and the estimation of PDs, LGDs, ELs and conversion factors. Areas of review shall include adherence to all applicable requirements.

CHAPTER 4

Credit risk mitigation

Section 1

Definitions and general requirements

Article 192

Definitions

For the purposes of this Chapter, the following definitions shall apply:

(1) ‘lending institution’ means the institution which has the exposure in question;

(2) ‘secured lending transaction’ means any transaction giving rise to an exposure secured by collateral which does not include a provision conferring upon the institution the right to receive margin at least daily;

(3) ‘capital market-driven transaction’ means any transaction giving rise to an exposure secured by collateral which includes a provision conferring upon the institution the right to receive margin at least daily;

(4) ‘underlying CIU’ means a CIU in the shares or units of which another CIU has invested;

(5) ‘substitution of risk parameters approach under A-IRB’ means the substitution, in accordance with Article 236a, of both the PD and LGD risk parameters of the underlying exposure with the corresponding PD and LGD that would be assigned under the IRB approach using own estimates of LGD to a comparable direct exposure to the protection provider.

Article 193

Principles for recognising the effect of credit risk mitigation techniques

Where an institution calculating risk-weighted exposure amounts under the Standardised Approach has more than one form of credit risk mitigation covering a single exposure it shall do both of the following:

(a) subdivide the exposure into parts covered by each type of credit risk mitigation tool;

(b) calculate the risk-weighted exposure amount for each part obtained in point (a) separately in accordance with the provisions of Chapter 2 and this Chapter.

When an institution calculating risk-weighted exposure amounts under the Standardised Approach covers a single exposure with credit protection provided by a single protection provider and that protection has differing maturities, it shall do both of the following:

(a) subdivide the exposure into parts covered by each credit risk mitigation tool;

(b) calculate the risk-weighted exposure amount for each part obtained in point (a) separately in accordance with the provisions of Chapter 2 and this Chapter.

Article 194

Principles governing the eligibility of credit risk mitigation techniques

The lending institution shall provide, upon request of the competent authority, the most recent version of the independent, written and reasoned legal opinion or opinions that it used to establish whether its credit protection arrangement or arrangements meet the condition laid down in the first subparagraph.

Institutions may recognise funded credit protection in the calculation of the effect of credit risk mitigation only where the assets relied upon for protection meet both of the following conditions:

(a) they are included in the list of eligible assets set out in Articles 197 to 200, as applicable;

(b) they are sufficiently liquid and their value over time sufficiently stable to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk-weighted exposure amounts and to the degree of recognition allowed.

In the case of unfunded credit protection, a protection agreement shall qualify as an eligible protection agreement only where it meets both the following conditions:

(a) it is included in the list of eligible protection agreements set out in Articles 203 and 204(1);

(b) it is legally effective and enforceable in the relevant jurisdictions, to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk-weighted exposure amounts and to the degree of recognition allowed;

(c) the protection provider meets the criteria laid down in paragraph 5.

Section 2

Eligible forms of credit risk mitigation

Sub-Section 1

Funded credit protection

Article 195

On-balance sheet netting

An institution may use on-balance sheet netting of mutual claims between itself and its counterparty as an eligible form of credit risk mitigation.

Without prejudice to Article 196, eligibility is limited to reciprocal cash balances between the institution and the counterparty. Institutions may amend risk-weighted exposure amounts and, as relevant, expected loss amounts only for loans and deposits that they have received themselves and that are subject to an on-balance sheet netting agreement.

Article 196

Master netting agreements covering repurchase transactions or securities or commodities lending or borrowing transactions or other capital market-driven transactions

Institutions adopting the Financial Collateral Comprehensive Method set out in Article 223 may take into account the effects of bilateral netting contracts covering repurchase transactions, securities or commodities lending or borrowing transactions, or other capital market-driven transactions with a counterparty. Without prejudice to Article 299, the collateral taken and securities or commodities borrowed within such agreements or transactions shall comply with the eligibility requirements for collateral set out in Articles 197 and 198.

Article 197

Eligibility of collateral under all approaches and methods

Institutions may use the following items as eligible collateral under all approaches and methods:

(a) cash on deposit with, or cash assimilated instruments held by, the lending institution;

(b) debt securities, issued by central governments or central banks, which have a credit assessment by an ECAI or export credit agency where: (i) the ECAI or export credit agency has been nominated by the institution for the purposes of Chapter 2; and (ii) the credit assessment has been determined by EBA to be associated with credit quality step 1, 2, 3 or 4 under the rules for the risk weighting of exposures to central governments and central banks under Chapter 2;

(c) debt securities, issued by institutions, which have a credit assessment by an ECAI where: (i) the ECAI has been nominated by the institution for the purposes of Chapter 2; and (ii) the credit assessment has been determined by EBA to be associated with credit quality step 1, 2 or 3 under the rules for the risk weighting of exposures to institutions under Chapter 2;

(d) debt securities, issued by other entities, which have a credit assessment by an ECAI where: (i) the ECAI has been nominated by the institution for the purposes of Chapter 2; and (ii) the credit assessment has been determined by EBA to be associated with credit quality step 1, 2 or 3 under the rules for the risk weighting of exposures to corporates under Chapter 2;

(e) debt securities having a short-term credit assessment by an ECAI where: (i) the ECAI has been nominated by the institution for the purposes of Chapter 2; and (ii) the credit assessment has been determined by EBA to be associated with credit quality step 1, 2 or 3 under the rules for the risk weighting of short-term exposures under Chapter 2;

(f) equities or convertible bonds that are included in a main index;

(g) gold bullion;

(h) securitisation positions that are not resecuritisation positions and which are subject to a 100 % risk weight or lower in accordance with Article 261 to Article 264.

For the purposes of point (b) of paragraph 1, ‘debt securities issued by central governments or central banks’ shall include all the following:

(a) debt securities issued by regional governments or local authorities, exposures to which are treated as exposures to the central government in whose jurisdiction they are established under Article 115(2);

(b) debt securities issued by public sector entities which are treated as exposures to central governments in accordance with Article 116(4);

(c) debt securities issued by multilateral development banks to which a 0 % risk weight is assigned under Article 117(2);

(d) debt securities issued by international organisations which are assigned a 0 % risk weight under Article 118.

For the purposes of point (c) of paragraph 1, ‘debt securities issued by institutions’ shall include all the following:

(a) debt securities issued by regional governments or local authorities other than those debt securities referred to in point (a) of paragraph 2;

(b) debt securities issued by public sector entities, exposures to which are treated in accordance with Article 116(1) and (2);

(c) debt securities issued by multilateral development banks other than those to which a 0 % risk weight is assigned under Article 117(2).

An institution may use debt securities that are issued by other institutions or investment firms and that do not have a credit assessment by an ECAI as eligible collateral where those debt securities fulfil all the following criteria:

(a) they are listed on a recognised exchange;

(b) they qualify as senior debt;

(c) all other rated issues by the issuing institution of the same seniority have a credit assessment by an ECAI which has been determined by EBA to be associated with credit quality step 3 or above under the rules for the risk weighting of exposures to institutions or short term exposures under Chapter 2;

(d) the lending institution has no information to suggest that the issue would justify a credit assessment below that indicated in point (c);

(e) the market liquidity of the instrument is sufficient for these purposes.

Institutions may use units or shares in CIUs as eligible collateral where all the following conditions are satisfied:

(a) the units or shares have a daily public price quote;

(b) the CIUs are limited to investing in instruments that are eligible for recognition under paragraphs 1 and 4;

(c) the CIUs meet the conditions laid down in Article 132(3).

Where a CIU invests in shares or units of another CIU, conditions laid down in points (a) to (c) of the first subparagraph shall apply equally to any such underlying CIU.

The use by a CIU of derivative instruments to hedge permitted investments shall not prevent units or shares in that undertaking from being eligible as collateral.

For the purposes of paragraph 5 of this Article, where a CIU (the ‘original CIU’) or any of its underlying CIUs are not limited to investing in instruments that are eligible under paragraphs 1 and 4 of this Article, the following shall apply:

(a) where the institutions apply the look-through approach referred to in Article 132a(1) or Article 152(2) for direct exposures to a CIU, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU that are eligible under paragraphs 1 and 4 of this Article;

(b) where institutions apply the mandate-based approach referred to in Article 132a(2) or 152(5) for direct exposures to a CIU, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU that are eligible under paragraphs 1 and 4 of this Article under the assumption that that CIU or any of its underlying CIUs have invested in non-eligible instruments to the maximum extent allowed under their respective mandates.

Where any underlying CIU has underlying CIUs of its own, institutions may use units or shares in the original CIU as eligible collateral provided that they apply the methodology laid down in the first subparagraph.

Where non-eligible assets can have a negative value due to liabilities or contingent liabilities resulting from ownership, institutions shall do both of the following:

(a) calculate the total value of the non-eligible assets;

(b) where the amount obtained under point (a) is negative, subtract the absolute value of that amount from the total value of the eligible assets.

ESMA shall develop draft implementing technical standards to specify the following:

(a) the main indices referred to in point (f) of paragraph 1 of this Article, in point (a) of Article 198(1), in Article 224(1) and (4), and in point (e) of Article 299(2);

(b) the recognised exchanges referred to in point (a) of paragraph 4 of this Article, in point (a) of Article 198(1), in Article 224(1) and (4), in point (e) of Article 299(2), in point (k) of Article 400(2), in point (e) of Article 416(3), in point (c) of Article 428(1), and in point 12 of Annex III in accordance with the conditions laid down in point (72) of Article 4(1).

ESMA shall submit those draft implementing technical standards to the Commission by 31 December 2014.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.

Article 198

Additional eligibility of collateral under the Financial Collateral Comprehensive Method

In addition to the collateral established in Article 197, where an institution uses the Financial Collateral Comprehensive Method set out in Article 223, that institution may use the following items as eligible collateral:

(a) equities or convertible bonds not included in a main index but traded on a recognised exchange;

(b) units or shares in CIUs where both the following conditions are met: (i) the units or shares have a daily public price quote; (ii) the CIU is limited to investing in instruments that are eligible for recognition under Article 197(1) and (4) and the items mentioned in point (a) of this subparagraph.

In the case a CIU invests in units or shares of another CIU, conditions (a) and (b) of this paragraph equally apply to any such underlying CIU.

The use by a CIU of derivative instruments to hedge permitted investments shall not prevent units or shares in that undertaking from being eligible as collateral.

Where the CIU or any underlying CIU are not limited to investing in instruments that are eligible for recognition under Article 197(1) and (4) and in the items referred to in paragraph 1, point (a), of this Article, the following shall apply:

(a) where institutions apply the look-through approach referred to in Article 132a(1) or 152(2) for direct exposures to a CIU, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU, that are eligible under Article 197(1) and (4), and the items referred to in paragraph 1, point (a), of this Article;

(b) where institutions apply the mandate-based approach referred to in Article 132a(2) or 152(5) for direct exposures to a CIUs, they may use units or shares in that CIU as collateral up to the amount equal to the value of the instruments held by that CIU, that are eligible under Article 197(1) and (4), and the items referred to in paragraph 1, point (a), of this Article under the assumption that that CIU or any of its underlying CIUs have invested in non-eligible instruments to the maximum extent allowed under their respective mandates.

Where non-eligible instruments can have a negative value due to liabilities or contingent liabilities resulting from ownership, institutions shall do both of the following:

(a) calculate the total value of the non-eligible instruments;

(b) where the amount obtained under point (a) is negative, subtract the absolute value of that amount from the total value of the eligible instruments.

Article 199

Additional eligibility for collateral under the IRB Approach

In addition to the collateral referred to in Articles 197 and 198, institutions that calculate risk-weighted exposure amounts and expected loss amounts under the IRB Approach may also use the following forms of collateral:

(a) immovable property collateral in accordance with paragraphs 2, 3 and 4;

(b) receivables in accordance with paragraph 5;

(c) other physical collateral in accordance with paragraphs 6 and 8;

(d) leasing in accordance with paragraph 7.

Unless otherwise specified under Article 124(9), institutions may use as eligible collateral residential property which is or will be occupied or let by the owner, or the beneficial owner in the case of personal investment companies, and commercial immovable property, including offices and other commercial premises, where both of the following conditions are met:

(a) the property value does not materially depend upon the credit quality of the obligor;

(b) the risk of the borrower does not materially depend upon the performance of the underlying property or project, but on the underlying capacity of the borrower to repay the debt from other sources, and as a consequence the repayment of the facility does not materially depend on any cash flow generated by the underlying property serving as collateral.

For the purposes of the first subparagraph, point (a), institutions may exclude situations where purely macro-economic factors affect both the property value and the performance of the borrower.

Institutions may derogate from point (b) of paragraph 2 for exposures secured by residential property situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established residential property market is present in that territory with loss rates that do not exceed any of the following limits:

(a) the aggregated amount reported by institutions under Article 430a(1), point (a), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,3  %;

(b) the aggregated amount reported by institutions under Article 430a(1), point (b), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,5  %.

Where either of the conditions in points (a) and (b) of the first subparagraph is not met in a given year, institutions shall not use the treatment set out in that subparagraph until both conditions are satisfied in a subsequent year.

Institutions may derogate from point (b) of paragraph 2 for commercial immovable property situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established commercial immovable property market is present in that territory with loss rates that do not exceed any of the following limits:

(a) the aggregated amount reported by institutions under Article 430a(1), point (d), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,3  %;

(b) the aggregated amount reported by institutions under Article 430a(1), point (e), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,5  %.

Where either of the conditions in points (a) and (b) of the first subparagraph is not met in a given year, institutions shall not use the treatment set out in that subparagraph until both conditions are satisfied in a subsequent year.

Where a public development credit institution as defined in Article 429a(2) of this Regulation issues a promotional loan as defined in Article 429a(3) of this Regulation to another institution, or to a financial institution that is authorised to carry out activities as referred to in Annex I, point 2 or 3, to Directive 2013/36/EU and that meets the conditions set out in Article 119(5) of this Regulation, and where that other institution or financial institution passes through directly or indirectly that promotional loan to an ultimate obligor and cedes the receivable from the promotional loan as collateral to the public development credit institution, the public development credit institution may use the ceded receivable as eligible collateral, regardless of the original maturity of the ceded receivable.

Competent authorities shall permit an institution to use as eligible collateral physical collateral of a type other than those indicated in paragraphs 2, 3 and 4 where all the following conditions are met:

(a) there are liquid markets, evidenced by frequent transactions taking into account the asset type, for the disposal of the collateral in an expeditious and economically efficient manner. Institutions shall carry out the assessment of this condition periodically and where information indicates material changes in the market;

(b) there are well-established, publicly available market prices for the collateral. Institutions may consider market prices as well-established where they come from reliable sources of information such as public indices and reflect the price of the transactions under normal conditions. Institutions may consider market prices as publicly available, where these prices are disclosed, easily accessible, and obtainable regularly and without any undue administrative or financial burden;

(c) the institution analyses the market prices, time and costs required to realise the collateral and the realised proceeds from the collateral;

(d) the institution demonstrates that in at least 90 % of all liquidations for a given type of collateral the realised proceeds from the collateral are not below 70 % of the collateral value; where there is material volatility in the market prices, the institution demonstrates to the satisfaction of the competent authority that its valuation of the collateral is sufficiently conservative.

Institutions shall document the fulfilment of the conditions specified in points (a) to (d) of the first subparagraph and those specified in Article 210.

Article 200

Other funded credit protection

Institutions may use the following other funded credit protection as eligible collateral:

(a) cash on deposit with, or cash assimilated instruments held by, a third party institution in a non-custodial arrangement and pledged to the lending institution;

(b) life insurance policies pledged to the lending institution;

(c) instruments issued by a third‐party institution or by an investment firm which are to be repurchased by that institution or by that investment firm on request.

Sub-Section 2

Unfunded credit protection

Article 201

Eligibility of protection providers under all approaches

Institutions may use the following parties as eligible providers of unfunded credit protection:

(a) central governments and central banks;

(b) regional governments or local authorities;

(c) multilateral development banks;

(d) international organisations to which a 0 % risk weight is assigned in accordance with in Article 118;

(e) public sector entities, claims on which are treated in accordance with Article 116;

(f) institutions, and financial institutions for which exposures to the financial institution are treated as exposures to institutions in accordance with Article 119(5);

(fa) regulated financial sector entities;

(g) where the credit protection is not provided to a securitisation exposure, other undertakings, that have a credit assessment by a nominated ECAI, including parent undertakings, subsidiaries or affiliated entities of the obligor where a direct exposure to those parent undertakings, subsidiaries or affiliated entities has a lower risk weight than the exposure to the obligor;

(h) qualifying central counterparties.

For the purposes of the first subparagraph, point (fa), of this Article, ‘regulated financial sector entity’ means a financial sector entity meeting the condition set out in Article 142(1), point (4)(b).

Article 203

Eligibility of guarantees as unfunded credit protection

Institutions may use guarantees as eligible unfunded credit protection.

Sub-Section 3

Types of derivatives

Article 204

Eligible types of credit derivatives

Institutions may use the following types of credit derivatives, and instruments that may be composed of such credit derivatives or that are economically effectively similar, as eligible credit protection:

(a) credit default swaps;

(b) total return swaps;

(c) credit linked notes to the extent of their cash funding.

Where 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 offsetting 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.

Where 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 Sections 4 to 6 for the calculation of risk-weighted exposure amounts and expected loss amounts where they acquire unfunded credit protection.

Article 204a

Eligible types of equity derivatives

Where 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 offsetting 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 shall not qualify as eligible credit protection.

Where 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 Sections 4 to 6 of this Chapter for the calculation of risk-weighted exposure amounts and expected loss amounts where they acquire unfunded credit protection.

Section 3

Requirements

Sub-Section 1

Funded credit protection

Article 205

Requirements for on-balance sheet netting agreements other than master netting agreements referred to in Article 206

On-balance sheet netting agreements other than master netting agreements referred to in Article 206 shall qualify as an eligible form of credit risk mitigation where all the following conditions are met:

(a) those agreements are legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;

(b) institutions are able to determine at any time the assets and liabilities that are subject to those agreements;

(c) institutions monitor and control the risks associated with the termination of the credit protection on an ongoing basis;

(d) institutions monitor and control the relevant exposures on a net basis and do so on an ongoing basis.

Article 206

Requirements for master netting agreements covering repurchase transactions or securities or commodities lending or borrowing transactions or other capital market driven transactions

Master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions or other capital market driven transactions shall qualify as an eligible form of credit risk mitigation where the collateral provided under those agreements meets all the requirements laid down in Article 207(2) to (4) and where all the following conditions are met:

(a) they are legally effective and enforceable in all relevant jurisdictions, including in the event of the bankruptcy or insolvency of the counterparty;

(b) they give the non-defaulting party the right to terminate and close-out in a timely manner all transactions under the agreement upon the event of default, including in the event of the bankruptcy or insolvency of the counterparty;

(c) they provide for the netting of gains and losses on transactions closed out under an agreement so that a single net amount is owed by one party to the other.

Article 207

Requirements for financial collateral

Securities issued by the obligor, or any related group entity, shall not qualify as eligible collateral. This notwithstanding, the obligor's own issues of covered bonds falling within the terms of Article 129 qualify as eligible collateral when they are posted as collateral for a repurchase transaction, provided that they comply with the condition set out in the first subparagraph.

Institutions shall have conducted sufficient legal review confirming the enforceability of the collateral arrangements in all relevant jurisdictions. They shall re-conduct such review as necessary to ensure continuing enforceability.

Institutions shall fulfil all the following operational requirements:

(a) they shall properly document the collateral arrangements and have in place clear and robust procedures for the timely liquidation of collateral;

(b) they shall use robust procedures and processes to control risks arising from the use of collateral, including risks of failed or reduced credit protection, valuation risks, risks associated with the termination of the credit protection, concentration risk arising from the use of collateral and the interaction with the institution's overall risk profile;

(c) they shall have in place documented policies and practices concerning the types and amounts of collateral accepted;

(d) they shall calculate the market value of the collateral, and revalue it accordingly, at least once every six months and whenever they have reason to believe that a significant decrease in the market value of the collateral has occurred; ESG-related considerations shall prompt an assessment of whether a significant decrease in the market value of the collateral has occurred;

(e) where the collateral is held by a third party, they shall take reasonable steps to ensure that the third party segregates the collateral from its own assets;

(f) they shall ensure that they devote sufficient resources to the orderly operation of margin agreements with OTC derivatives and securities-financing counterparties, as measured by the timeliness and accuracy of their outgoing margin calls and response time to incoming margin calls;

(g) they shall have in place collateral management policies to control, monitor and report the following: (i) the risks to which margin agreements expose them; (ii) the concentration risk to particular types of collateral assets; (iii) the reuse of collateral including the potential liquidity shortfalls resulting from the reuse of collateral received from counterparties; (iv) the surrender of rights on collateral posted to counterparties.

Article 208

Requirements for immovable property collateral

The following requirements on legal certainly shall be met:

(a) a mortgage or charge is enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement and shall be properly filed on a timely basis;

(b) all legal requirements for establishing the pledge have been fulfilled;

(c) the protection agreement and the legal process underpinning it enable the institution to realise the value of the protection within a reasonable timeframe.

The following requirements on monitoring of property values and on property valuation shall be met:

(a) institutions monitor the value of the property on a frequent basis and at a minimum once every year for commercial immovable property and once every three years for residential property. Institutions carry out more frequent monitoring where the market is subject to significant changes in conditions;

(b) the property valuation is reviewed when information available to institutions indicates that the property value may have declined materially relative to general market prices and that review is carried out by a valuer who possesses the necessary qualifications, ability and experience to execute a valuation and who is independent from the credit decision process; ESG-related considerations, including those related to limitations imposed by the relevant Union and Member States regulatory objectives and legal acts, as well as, where relevant for internationally active institutions, third-country legal and regulatory objectives, shall be considered to be an indication that the property value might have declined materially, relative to general market prices; for loans exceeding EUR 3 million or 5 % of the own funds of an institution, the property valuation shall be reviewed by such valuer at least every three years.

Institutions may monitor the value of the immovable property and identify the immovable property in need of revaluation, in accordance with paragraph 3, by means of advanced statistical or other mathematical methods (‘models’), provided that those methods are developed independently from the credit decision process and all of the following conditions are met:

(a) the institutions set out, in their policies and procedures, the criteria for using models to monitor the values of collateral and to identify the properties that should be revaluated; those policies and procedures shall account for such models’ proven track record, property-specific variables considered, the use of minimum available and accurate information, and the models’ uncertainty;

(b) the institutions ensure that the models used are: (i) property- and location-specific at a sufficient level of granularity; (ii) valid and accurate, and subject to robust and regular back-testing against the actual observed transaction prices; (iii) based on a sufficiently large and representative sample, based on observed transaction prices; (iv) based on up-to-date data of high quality;

(c) the institutions are ultimately responsible for the appropriateness and performance of the models;

(d) the institutions ensure that the documentation of the models is up to date;

(e) the institutions have in place adequate IT processes, systems and capabilities and have sufficient and accurate data for any model-based monitoring of the value of immovable property collateral and identification of property in need of revaluation;

(f) the estimates of models are independently validated and the validation process is generally consistent with the principles set out in Article 185, where applicable.

By way of derogation from Article 92(5), point (a)(ii), and without prejudice to the derogation set out in Article 92(3), second subparagraph, for exposures secured by immovable property granted before 1 January 2025, institutions that apply the IRB Approach referred to in Chapter 3 of this Title by using their own estimates of LGD shall not be required to apply the provisions set out in the first subparagraph of this paragraph.

Article 209

Requirements for receivables

The following requirements on legal certainty shall be met:

(a) the legal mechanism by which the collateral is provided to a lending institution shall be robust and effective and ensure that that institution has clear rights over the collateral including the right to the proceeds from the sale of the collateral;

(b) institutions shall take all steps necessary to fulfil local requirements in respect of the enforceability of security interest. Lending institutions shall have a first priority claim over the collateral although such claims may still be subject to the claims of preferential creditors provided for in legislative provisions;

(c) institutions shall have conducted sufficient legal review confirming the enforceability of the collateral arrangements in all relevant jurisdictions;

(d) institutions shall properly document their collateral arrangements and shall have in place clear and robust procedures for the timely collection of collateral;

(e) institutions shall have in place procedures that ensure that any legal conditions required for declaring the default of a borrower and timely collection of collateral are observed;

(f) in the event of a borrower's financial distress or default, institutions shall have legal authority to sell or assign the receivables to other parties without consent of the receivables obligors.

The following requirements on risk management shall be met:

(a) an institution shall have in place a sound process for determining the credit risk associated with the receivables. Such a process shall include analyses of a borrower's business and industry and the types of customers with whom that borrower does business. Where the institution relies on its borrowers to ascertain the credit risk of the customers, the institution shall review the borrowers' credit practices to ascertain their soundness and credibility;

(b) the difference between the amount of the exposure and the value of the receivables shall reflect all appropriate factors, including the cost of collection, concentration within the receivables pool pledged by an individual borrower, and potential concentration risk within the institution's total exposures beyond that controlled by the institution's general methodology. Institutions shall maintain a continuous monitoring process appropriate to the receivables. They shall also review, on a regular basis, compliance with loan covenants, environmental restrictions, and other legal requirements;

(c) receivables pledged by a borrower shall be diversified and not be unduly correlated with that borrower. Where there is material positive correlation, institutions shall take into account the attendant risks in the setting of margins for the collateral pool as a whole;

(d) institutions shall not use receivables from affiliates of a borrower, including subsidiaries and employees, as eligible credit protection;

(e) institution shall have in place a documented process for collecting receivable payments in distressed situations. Institutions shall have in place the requisite facilities for collection even when they normally rely on their borrowers for collections.

Article 210

Requirements for other physical collateral

Physical collateral other than immovable property collateral shall qualify as eligible collateral under the IRB Approach where all the following conditions are met:

(a) the collateral arrangement under which the physical collateral is provided to an institution shall be legally effective and enforceable in all relevant jurisdictions and shall enable that institution to realise the value of the collateral within a reasonable timeframe;

(b) with the sole exception of permissible first priority claims referred to in Article 209(2)(b), only first liens on, or charges over, collateral shall qualify as eligible collateral and an institution shall have priority over all other lenders to the realised proceeds of the collateral;

(c) institutions shall monitor the value of the collateral on a frequent basis and at least once every year. Institutions shall carry out more frequent monitoring where the market is subject to significant changes in conditions;

(d) the loan agreement shall include detailed descriptions of the collateral as well as detailed specifications of the manner and frequency of revaluation;

(e) institutions shall clearly document in internal credit policies and procedures available for examination the types of physical collateral they accept and the policies and practices they have in place in respect of the appropriate amount of each type of collateral relative to the exposure amount;

(f) institutions' credit policies with regard to the transaction structure shall address the following: (i) appropriate collateral requirements relative to the exposure amount; (ii) the ability to liquidate the collateral readily; (iii) the ability to establish objectively a price or market value; (iv) the frequency with which the value can readily be obtained, including a professional appraisal or valuation; (v) the volatility or a proxy of the volatility of the value of the collateral.

(g) when conducting valuation and revaluation, institutions shall take fully into account any deterioration or obsolescence of the collateral, paying particular attention to the effects of the passage of time on fashion- or date-sensitive collateral; for physical collateral, obsolescence of collateral shall also include ESG-related valuation considerations related to prohibitions or limitations imposed by the relevant Union and Member States regulatory objectives and legal acts, as well as, where relevant for internationally active institutions, third-country legal and regulatory objectives;

(h) institutions shall have the right to physically inspect the collateral. They shall also have in place policies and procedures addressing their exercise of the right to physical inspection;

(i) the collateral taken as protection shall be adequately insured against the risk of damage and institutions shall have in place procedures to monitor this.

Where general security agreements, or other forms of floating charge, provide the lending institution with a registered claim over a company’s assets and where that claim contains both assets that are not eligible as collateral under the IRB Approach and assets that are eligible as collateral under the IRB Approach, the institution may recognise those latter assets as eligible funded credit protection. In that case, that recognition shall be conditional on those assets meeting the requirements for eligibility of collateral under the IRB Approach as set out in this Chapter.

Article 211

Requirements for treating lease exposures as collateralised

Institutions shall treat exposures arising from leasing transactions as collateralised by the type of property leased, where all the following conditions are met:

(a) the conditions set out in Article 208 or 210, as applicable, for the type of property leased to qualify as eligible collateral are met;

(b) the lessor has in place robust risk management with respect to the use to which the leased asset is put, its location, its age and the planned duration of its use, including appropriate monitoring of the value of the security;

(c) the lessor has legal ownership of the asset and is able to exercise its rights as owner in a timely fashion;

(d) where this has not already been ascertained in calculating the LGD level, the difference between the value of the unamortised amount and the market value of the security is not so large as to overstate the credit risk mitigation attributed to the leased assets.

Article 212

Requirements for other funded credit protection

Cash on deposit with, or cash assimilated instruments held by, a third party institution shall be eligible for the treatment set out in Article 232(1), where all the following conditions are met:

(a) the borrower's claim against the third party institution is openly pledged or assigned to the lending institution and such pledge or assignment is legally effective and enforceable in all relevant jurisdictions and is unconditional and irrevocable;

(b) the third party institution is notified of the pledge or assignment;

(c) as a result of the notification, the third party institution is able to make payments solely to the lending institution or to other parties only with the lending institution's prior consent.

Life insurance policies pledged to the lending institution shall qualify as eligible collateral where all the following conditions are met:

(a) the life insurance policy is openly pledged or assigned to the lending institution;

(b) the company providing the life insurance is notified of the pledge or assignment and, as a result of the notification, may not pay amounts payable under the contract without the prior consent of the lending institution;

(c) the lending institution has the right to cancel the policy and receive the surrender value in the event of the default of the borrower;

(d) the lending institution is informed of any non-payments under the policy by the policy-holder;

(e) the credit protection is provided for the maturity of the loan. Where this is not possible because the insurance relationship ends before the loan relationship expires, the institution shall ensure that the amount deriving from the insurance contract serves the institution as security until the end of the duration of the credit agreement;

(f) the pledge or assignment is legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement;

(g) the surrender value is declared by the company providing the life insurance and is non-reducible;

(h) the surrender value is to be paid by the company providing the life insurance in a timely manner upon request;

(i) the surrender value shall not be requested without the prior consent of the institution;

(j) the company providing the life insurance is subject to Directive 2009/138/EC or is subject to supervision by a competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union.

Sub-Section 2

Unfunded credit protection and credit linked notes

Article 213

Requirements common to guarantees and credit derivatives

Subject to Article 214(1), credit protection deriving from a guarantee or credit derivative shall qualify as eligible unfunded credit protection where all of the following conditions are met:

(a) the credit protection is direct;

(b) the extent of the credit protection is clearly set out and incontrovertible;

(c) the credit protection contract does not contain any clause, the fulfilment of which is outside the direct control of the lending institution, that: (i) would allow the protection provider to cancel or change the credit protection unilaterally; (ii) would increase the effective cost of the credit protection as a result of a deterioration in the credit quality of the protected exposure; (iii) could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due, or where the leasing contract has expired for the purpose of recognising guaranteed residual value under Articles 134(7) and 166(4); (iv) could allow the maturity of the credit protection to be reduced by the protection provider;

(d) the credit protection contract is legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement.

For the purposes of the first subparagraph, point (c), a clause in the credit protection contract providing that flawed due diligence or fraud by the lending institution cancels or diminishes the extent of the credit protection offered by the guarantor, shall not disqualify that credit protection from being eligible.

For the purposes of the first subparagraph, point (c), the protection provider may make one lump sum payment of all monies due under the claim, or may assume the future payment obligations of the obligor covered by the credit protection contract.

An institution shall have conducted sufficient legal review confirming the enforceability of the unfunded credit protection in all relevant jurisdictions. It shall repeat such review as necessary to ensure continuing enforceability.

Article 214

Sovereign and other public sector counter-guarantees

Institutions may treat the exposures referred to in paragraph 2 as protected by a guarantee provided by the entities listed in that paragraph, provided that all the following conditions are satisfied:

(a) the counter-guarantee covers all credit risk elements of the claim;

(b) both the original guarantee and the counter-guarantee meet the requirements for guarantees set out in Articles 213 and 215(1), except that the counter-guarantee need not be direct;

(c) the cover is robust and nothing in the historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct guarantee by the entity in question.

The treatment set out in paragraph 1 shall apply to exposures protected by a guarantee which is counter-guaranteed by any of the following entities:

(a) a central government or a central bank;

(b) a regional government or a local authority;

(c) a public sector entity, claims on which are treated as claims on the central government in accordance with Article 116(4);

(d) a multilateral development bank or an international organisation, to which a 0 % risk weight is assigned under or by virtue of Articles 117(2) and 118 respectively;

(e) a public sector entity, claims on which are treated in accordance with Article 116(1) and (2).

Article 215

Additional requirements for guarantees

Guarantees shall qualify as eligible unfunded credit protection where all the conditions in Article 213 and all the following conditions are met:

(a) on the qualifying default of or non-payment by the obligor, the lending institution has the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of which the protection is provided;

(b) the guarantee is an explicitly documented obligation assumed by the guarantor;

(c) either of the following conditions is met: (i) the guarantee covers all types of payments the obligor is expected to make in respect of the claim; (ii) where certain types of payment are excluded from the guarantee, the lending institution has adjusted the value of the guarantee to reflect the limited coverage.

The payment by the guarantor shall not be subject to the lending institution first having to pursue the obligor.

In the case of unfunded credit protection covering residential mortgage loans, the requirements in Article 213(1), point (c)(iii), and in the first subparagraph, point (a), of this paragraph, shall only be required to be satisfied within 24 months.

In the case of guarantees provided in the context of mutual guarantee schemes or provided by or counter-guaranteed by entities as listed in Article 214(2), the requirements in paragraph 1, point (a), of this Article and in Article 213(1), point (c)(iii), shall be considered to be satisfied where either of the following conditions is met:

(a) pursuant to the qualifying default of or non-payment by the original obligor, the lending institution has the right to obtain in a timely manner a provisional payment by the guarantor that meets both the following conditions: (i) the provisional payment represents a robust estimate of the amount of the loss that the lending institution is likely to incur, including losses resulting from the non-payment of interest and other types of payment which the borrower is obliged to make; (ii) the provisional payment is proportional to the coverage of the guarantee;

(b) the lending institution can demonstrate to the satisfaction of the competent authority that the effects of the guarantee, which shall also cover losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, justify such treatment; that justification shall be properly documented and subject to dedicated internal approval and audit procedures.

Article 216

Additional requirements for credit derivatives

Credit derivatives shall qualify as eligible unfunded credit protection where all the conditions in Article 213 and all the following conditions are met:

(a) the credit events specified in the credit derivative contract include: (i) the failure to pay the amounts due under the terms of the underlying obligation that are in effect at the time of such failure, with a grace period that is equal to or shorter than the grace period in the underlying obligation; (ii) the bankruptcy, insolvency or inability of the obligor to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and analogous events; (iii) the restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that results in a credit loss event;

(b) where credit derivatives allow for cash settlement: (i) institutions have in place a robust valuation process in order to estimate loss reliably; (ii) there is a clearly specified period for obtaining post-credit-event valuations of the underlying obligation;

(c) where the protection purchaser's right and ability to transfer the underlying obligation to the protection provider is required for settlement, the terms of the underlying obligation provide that any required consent to such transfer shall not be unreasonably withheld;

(d) the identity of the parties responsible for determining whether a credit event has occurred is clearly defined;

(e) the determination of the credit event is not the sole responsibility of the protection provider;

(f) the protection buyer has the right or ability to inform the protection provider of the occurrence of a credit event.

Where the credit events do not include restructuring of the underlying obligation as described in point (a)(iii), the credit protection may nonetheless be eligible subject to a reduction in the value as specified in Article 233(2);

A mismatch between the underlying obligation and the reference obligation under the credit derivative or between the underlying obligation and the obligation used for purposes of determining whether a credit event has occurred is permissible only where both the following conditions are met:

(a) the reference obligation or the obligation used for the purpose of determining whether a credit event has occurred, as the case may be, ranks pari passu with or is junior to the underlying obligation;

(b) the underlying obligation and the reference obligation or the obligation used for the purpose of determining whether a credit event has occurred, as the case may be, share the same obligor and legally enforceable cross-default or cross-acceleration clauses are in place.

By way of derogation from paragraph 1, for a corporate exposure covered by a credit derivative, the credit event referred to in point (a)(iii) of that paragraph shall not be required to be specified in the derivative contract, provided that all of the following conditions are met:

(a) a 100 % vote is needed to amend the maturity, principal, coupon, currency or seniority status of the underlying corporate exposure;

(b) the legal domicile in which the corporate exposure is governed has a well-established bankruptcy code that allows for a company to reorganise and restructure, and provides for an orderly settlement of creditor claims.

Where the conditions set out in points (a) and (b) of this paragraph are not met, the credit protection may nonetheless be eligible subject to a reduction in the value as specified in Article 233(2).

Section 4

Calculating the effects of credit risk mitigation

Sub-Section 1

Funded credit protection

Article 218

Credit linked notes

Investments in credit linked notes issued by the lending institution may be treated as cash collateral for the purpose of calculating the effect of funded credit protection in accordance with this Sub-section, provided that the credit default swap embedded in the credit linked note qualifies as eligible unfunded credit protection. For the purpose of determining whether the credit default swap embedded in a credit linked note qualifies as eligible unfunded credit protection, the institution may consider the condition in point (c) of Article 194(6) to be met.

Article 219

On-balance-sheet netting

Loans to and deposits with the lending institution subject to on-balance-sheet netting shall be treated by that institution as cash collateral for the purpose of calculating the effect of funded credit protection for those loans and deposits of the lending institution subject to on-balance-sheet netting.

Article 220

Using the Supervisory Volatility Adjustments Approach for master netting agreements

For the purpose of calculating E*, institutions shall:

(a) calculate the net position in each group of securities or in each type of commodity by subtracting the amount in point (ii) from the amount in point (i): (i) the total value of a group of securities or of commodities of the same type lent, sold or provided under the master netting agreement; (ii) the total value of a group of securities or of commodities of the same type borrowed, purchased or received under the master netting agreement;

(b) calculate the net position in each currency, other than the settlement currency of the master netting agreement, by subtracting the amount in point (ii) from the amount in point (i): (i) the sum of the total value of securities denominated in that currency lent, sold or provided under the master netting agreement and the amount of cash in that currency lent or transferred under that agreement; (ii) the sum of the total value of securities denominated in that currency borrowed, purchased or received under the master netting agreement and the amount of cash in that currency borrowed or received under that agreement;

(c) apply the value of the volatility adjustment, or, where relevant, the absolute value of the volatility adjustment appropriate for a given group of securities or for a given type of commodities, to the absolute value of the positive or negative net position in the securities in that group of securities, or to the commodities from that type of commodities;

(d) apply the foreign exchange risk (fx) volatility adjustment to the net positive or negative position in each currency other than the settlement currency of the master netting agreement.

Institutions shall calculate E* in accordance with the following formula:

where:

i = the index that denotes all separate securities, commodities or cash positions under the agreement that are either lent, sold with an agreement to repurchase, or posted by the institution to the counterparty;

j = the index that denotes all separate securities, commodities or cash positions under the agreement that are either borrowed, purchased with an agreement to resell, or held by the institution;

k = the index that denotes all separate currencies in which any securities, commodities or cash positions under the agreement are denominated;

Ei = the exposure value of a given security, commodity or cash position i, that is either lent, sold with an agreement to repurchase, or posted to the counterparty under the agreement that would apply in the absence of credit protection, where institutions calculate the risk-weighted exposure amounts in accordance with Chapter 2 or 3, as applicable;

Cj = the value of a given security, commodity or cash position j that is either borrowed, purchased with an agreement to resell, or held by the institution under the agreement;

= the net position (positive or negative) in a given currency k other than the settlement currency of the agreement as calculated in accordance with paragraph 2, point (b);

= the foreign exchange volatility adjustment for currency k;

Enet = the net exposure of the agreement, calculated as follows:

where:

l = the index that denotes all distinct groups of the same securities and all distinct types of the same commodities under the agreement;

= the net position (positive or negative) in a given group of securities l, or a given type of commodities l, under the agreement, calculated in accordance with paragraph 2, point (a);

= the volatility adjustment appropriate to a given group of securities l, or a given type of commodities l, determined in accordance with paragraph 2, point (c); the sign of shall be determined as follows:

N = the total number of distinct groups of the same securities and distinct types of the same commodities under the agreement; for the purposes of this calculation, those groups and types for which is less than shall not be counted;

Egross = the gross exposure of the agreement, calculated as follows:

.

Article 221

Using the internal models approach for master netting agreements

An institution may use the internal model approach where all of the following conditions are met:

(a) the institution uses that approach only for exposures for which the risk-weighted exposures amounts are calculated under the IRB Approach set out in Chapter 3;

(b) the institution is granted the permission to use that approach by its competent authority.

Competent authorities shall permit an institution to use an internal models approach only where they are satisfied that the institution's system for managing the risks arising from the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and where the following qualitative standards are met:

(a) the internal risk-measurement model used for calculating the potential price volatility for the transactions is closely integrated into the daily risk-management process of the institution and serves as the basis for reporting risk exposures to the senior management of the institution;

(b) the institution has a risk control unit that meets all the following requirements: (i) it is independent from business trading units and reports directly to senior management; (ii) it is responsible for designing and implementing the institution's risk-management system; (iii) it produces and analyses daily reports on the output of the risk-measurement model and on the appropriate measures to be taken in terms of position limits;

(c) the daily reports produced by the risk-control unit are reviewed by a level of management with sufficient authority to enforce reductions of positions taken and of overall risk exposure;

(d) the institution has sufficient staff skilled in the use of sophisticated models in the risk control unit;

(e) the institution has established procedures for monitoring and ensuring compliance with a documented set of internal policies and controls concerning the overall operation of the risk-measurement system;

(f) the institution's models have a proven track record of reasonable accuracy in measuring risks demonstrated through the back-testing of its output using at least one year of data;

(g) the institution frequently conducts a rigorous programme of stress testing and the results of these tests are reviewed by senior management and reflected in the policies and limits it sets;

(h) the institution conducts, as part of its regular internal auditing process, an independent review of its risk-measurement system. This review shall include both the activities of the business trading units and of the independent risk-control unit;

(i) at least once a year, the institution conducts a review of its risk-management system;

(j) the internal model meets the requirements set out in Article 292(8) and (9) and in Article 294.

An institution may use empirical correlations within risk categories and across risk categories where its system for measuring correlations is sound and implemented with integrity.

Institutions using the internal models approach shall calculate E* in accordance with the following formula:

where:

When calculating risk-weighted exposure amounts using internal models, institutions shall use the previous business day's model output.

The calculation of the potential change in value referred to in paragraph 6 shall be subject to all the following standards:

(a) it shall be carried out at least daily;

(b) it shall be based on a 99th percentile, one-tailed confidence interval;

(c) it shall be based on a 5-day equivalent liquidation period, except in the case of transactions other than securities repurchase transactions or securities lending or borrowing transactions where a 10-day equivalent liquidation period shall be used;

(d) it shall be based on an effective historical observation period of at least one year except where a shorter observation period is justified by a significant upsurge in price volatility;

(e) the data set used in the calculation shall be updated every three months.

Where an institution has a repurchase transaction, a securities or commodities lending or borrowing transaction and margin lending or similar transaction or netting set which meets the criteria set out in Article 285(2), (3) and (4), the minimum holding period shall be brought in line with the margin period of risk that would apply under those paragraphs, in combination with Article 285(5).

EBA shall develop draft regulatory technical standards to specify the following:

(a) what constitutes an immaterial portfolio for the purpose of paragraph 3;

(b) the criteria for determining whether an internal model is sound and implemented with integrity for the purpose of paragraphs 4 and 5 and master netting agreements.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2015.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 222

Financial Collateral Simple Method

Institutions shall assign a risk weight of 10 %, to the extent of the collateralisation, to the exposure values of such transactions collateralised by debt securities issued by central governments or central banks which are assigned a 0 % risk weight under Chapter 2.

For transactions other than those referred to in paragraphs 4 and 5, institutions may assign a 0 % risk weight where the exposure and the collateral are denominated in the same currency, and either of the following conditions is met:

(a) the collateral is cash on deposit or a cash assimilated instrument;

(b) the collateral is in the form of debt securities issued by central governments or central banks eligible for a 0 % risk weight under Article 114, and its market value has been discounted by 20 %.

For the purpose of paragraphs 5 and 6 debt securities issued by central governments or central banks shall include:

(a) debt securities issued by regional governments or local authorities exposures to which are treated as exposures to the central government in whose jurisdiction they are established under Article 115;

(b) debt securities issued by multilateral development banks to which a 0 % risk weight is assigned under or by virtue of Article 117(2);

(c) debt securities issued by international organisations which are assigned a 0 % risk weight under Article 118;

(d) debt securities issued by public sector entities which are treated as exposures to central governments in accordance with Article 116(4).

Article 223

Financial Collateral Comprehensive Method

Where collateral is denominated in a currency that differs from the currency in which the underlying exposure is denominated, institutions shall add an adjustment reflecting currency volatility to the volatility adjustment appropriate to the collateral as set out in Articles 224 to 227.

In the case of OTC derivatives transactions covered by netting agreements recognised by the competent authorities under Chapter 6, institutions shall apply a volatility adjustment reflecting currency volatility when there is a mismatch between the collateral currency and the settlement currency. Even where multiple currencies are involved in the transactions covered by the netting agreement, institutions shall apply a single volatility adjustment.

Institutions shall calculate the volatility-adjusted value of the collateral (CVA) they need to take into account as follows:

where:

Institutions shall use the formula in this paragraph when calculating the volatility-adjusted value of the collateral for all transactions except for those transactions subject to recognised master netting agreements to which the provisions set out in Articles 220 and 221 apply.

Institutions shall calculate the volatility-adjusted value of the exposure (EVA) they need to take into account as follows:

where:

In the case of OTC derivative transactions, institutions using the method laid down in Section 6 of Chapter 6 shall calculate EVA as follows:

For the purpose of calculating E in paragraph 3, the following shall apply:

(a) for institutions calculating risk-weighted exposure amounts under the Standardised Approach, the exposure value of an off-balance-sheet item listed in Annex I shall be 100 % of that item’s value rather than the exposure value indicated in Article 111(2);

(b) for off-balance-sheet items other than derivatives treated under the IRB Approach, institutions shall calculate their exposure values using a CCF of 100 % instead of the SA-CCF or IRB-CCF provided for in Article 166(8), (8a) and (8b).

Institutions shall calculate the fully adjusted value of the exposure (E*), taking into account both volatility and the risk-mitigating effects of collateral as follows:

where:

In the case of OTC derivative transactions, institutions using the methods laid down in Sections 3, 4 and 5 of Chapter 6 shall take into account the risk-mitigating effects of collateral in accordance with the provisions laid down in Sections 3, 4 and 5 of Chapter 6, as applicable.

Where the collateral consists of a number of eligible items, institutions shall calculate the volatility adjustment (H) as follows:

where:

Article 224

Supervisory volatility adjustment under the Financial Collateral Comprehensive Method

The volatility adjustments to be applied by institutions under the Supervisory Volatility Adjustments Approach, assuming daily revaluation, shall be those set out in Tables 1 to 4 of this paragraph.

VOLATILITY ADJUSTMENTS

Credit quality step with which the credit assessment of the debt security is associated	Residual maturity (m), expressed in years	Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), point (b)	Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), points (c) and (d)	Volatility adjustments for securitisation positions and meeting the criteria laid down in Article 197(1), point (h)
		20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)	20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)	20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)
1	m ≤ 1	0,707	0,5	0,354	1,414	1	0,707	2,828	2	1,414
	1 < m ≤ 3	2,828	2	1,414	4,243	3	2,121	11,314	8	5,657
	3 < m ≤ 5	2,828	2	1,414	5,657	4	2,828	11,314	8	5,657
	5 < m ≤ 10	5,657	4	2,828	8,485	6	4,243	22,627	16	11,314
	m > 10	5,657	4	2,828	16,971	12	8,485	22,627	16	11,314
2 to 3	m ≤ 1	1,414	1	0,707	2,828	2	1,414	5,657	4	2,828
	1 < m ≤ 3	4,243	3	2,121	5,657	4	2,828	16,971	12	8,485
	3 < m ≤ 5	4,243	3	2,121	8,485	6	4,243	16,971	12	8,485
	5 < m ≤ 10	8,485	6	4,243	16,971	12	8,485	33,941	24	16,971
	m > 10	8,485	6	4,243	28,284	20	14,142	33,941	24	16,971
4	all	21,213	15	10,607	N/A	N/A	N/A	N/A	N/A	N/A
Credit quality step with which the credit assessment of a short term debt security is associated	Residual maturity (m), expressed in years	Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), point (b), with short-term credit assessments	Volatility adjustments for debt securities issued by entities as referred to in Article 197(1), points (c) and (d), with short-term credit assessments	Volatility adjustments for securitisation positions and meeting the criteria laid down in Article 197(1), point (h), with short-term credit assessments
---	---	---	---	---	---	---	---	---	---	---
		20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)	20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)	20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)
1		0,707	0,5	0,354	1,414	1	0,707	2,828	2	1,414
2 to 3		1,414	1	0,707	2,828	2	1,414	5,657	4	2,828
	20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)
---	---	---	---
Main index equities, main index convertible bonds	28,284	20	14,142
Other equities or convertible bonds listed on a recognised exchange	42,426	30	21,213
Cash	0	0	0
Gold bullion	28,284	20	14,142
20-day liquidation period (%)	10-day liquidation period (%)	5-day liquidation period (%)
---	---	---
11,314	8	5,657

The calculation of volatility adjustments in accordance with paragraph 1 shall be subject to the following conditions:

(a) for secured lending transactions the liquidation period shall be 20 business days;

(b) for repurchase transactions, except insofar as such transactions involve the transfer of commodities or guaranteed rights relating to title to commodities, and securities lending or borrowing transactions the liquidation period shall be 5 business days;

(c) for other capital market driven transactions, the liquidation period shall be 10 business days.

Where an institution has a transaction or netting set which meets the criteria set out in Article 285(2), (3) and (4), the minimum holding period shall be brought in line with the margin period of risk that would apply under those paragraphs.

For the purpose of determining the credit quality step with which a credit assessment of the debt security is associated referred to in the first subparagraph, Article 197(7) also applies.

Where the assets in which the fund has invested are not known to the institution, the volatility adjustment is the highest volatility adjustment that would apply to any of the assets in which the fund has the right to invest.

Article 226

Scaling up of volatility adjustment under the Financial Collateral Comprehensive Method

The volatility adjustments set out in Article 224 are the volatility adjustments an institution shall apply where there is daily revaluation. Where the frequency of revaluation is less than daily, institutions shall apply larger volatility adjustments. Institutions shall calculate them by scaling up the daily revaluation volatility adjustments, using the following square-root-of-time formula:

where:

H = the volatility adjustment to be applied;

HM = the voatility adjustment where there is daily revaluation;

NR = the actual number of business days between revaluations;

TM = the liquidation period for the type of transaction in question.

Article 227

Conditions for applying a 0 % volatility adjustment under the Financial Collateral Comprehensive Method

Institutions may apply a 0 % volatility adjustment where all the following conditions are met:

(a) both the exposure and the collateral are cash or debt securities issued by central governments or central banks within the meaning of Article 197(1)(b) and eligible for a 0 % risk weight under Chapter 2;

(b) both the exposure and the collateral are denominated in the same currency;

(c) either the maturity of the transaction is no more than one day or both the exposure and the collateral are subject to daily marking-to-market or daily re-margining;

(d) the time between the last marking-to-market before a failure to re-margin by the counterparty and the liquidation of the collateral is no more than four business days;

(e) the transaction is settled in a settlement system proven for that type of transaction;

(f) the documentation covering the agreement or transaction is standard market documentation for repurchase transactions or securities lending or borrowing transactions in the securities concerned;

(g) the transaction is governed by documentation specifying that where the counterparty fails to satisfy an obligation to deliver cash or securities or to deliver margin or otherwise defaults, then the transaction is immediately terminable;

(h) the counterparty is considered a core market participant by the competent authorities.

The core market participants referred to in point (h) of paragraph 2 shall include the following entities:

(a) the entities mentioned in Article 197(1)(b) exposures to which are assigned a 0 % risk weight under Chapter 2;

(b) institutions;

(ba) investment firms;

(c) other financial undertakings within the meaning of points (25)(b) and (d) of Article 13 of Directive 2009/138/EC exposures to which are assigned a 20 % risk weight under the Standardised Approach or which, in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts under the IRB Approach, do not have a credit assessment by a recognised ECAI and are internally rated by the institution;

(d) regulated CIUs that are subject to capital or leverage requirements;

(e) regulated pension funds;

(f) recognised clearing organisations.

Article 228

Calculating risk-weighted exposure amounts under the Financial Collateral Comprehensive method for exposures treated under the Standardised Approach

Under the Standardised Approach, institutions shall use E as calculated under Article 223(5) as the exposure value for the purposes of Article 113. In the case of off-balance-sheet items listed in Annex I, institutions shall use E as the value to which the percentages indicated in Article 111(2) shall be applied to arrive at the exposure value.

Article 229

Valuation principles for eligible collateral other than financial collateral

The valuation of immovable property shall meet all of the following requirements:

(a) the value is appraised independently from an institution’s mortgage acquisition, loan processing and loan decision process by an independent valuer who possesses the necessary qualifications, ability and experience to execute a valuation;

(b) the value is appraised using prudently conservative valuation criteria which meet all of the following requirements: (i) the value excludes expectations on price increases; (ii) the value is adjusted to take into account the potential for the current market value to be significantly above the value that would be sustainable over the life of the loan;

(c) the value is documented in a transparent and clear manner;

(d) the value is not higher than a market value for the immovable property where such market value can be determined;

(e) where the property is revalued, the property value does not exceed the average value measured for that property, or for a comparable property over the last six years for residential property or eight years for commercial immovable property or the value at origination, whichever is higher.

For the purpose of calculating the average value, institutions shall take the average across property values observed at equal intervals and the reference period shall include at least three data points.

For the purpose of calculating the average value, institutions may use the results of the monitoring of property values in accordance with Article 208(3). The property value may exceed that average value or the value at origination, as applicable, in the case of modifications made to the property that unequivocally increase its value, such as improvements of the energy performance or improvements to the resilience, protection and adaptation to physical risks of the building or housing unit. The property value shall not be revalued upward if institutions do not have sufficient data to calculate the average value except if the value increase is based on modifications that unequivocally increase its value.

The valuation of immovable property shall take account of any prior claims on the property, unless a prior claim is taken into account in the calculation of the gross exposure amount pursuant to Article 124(6), point (c), or as reducing the amount of 55 % of the property value pursuant to Article 125(1) or Article 126(1), and reflect, where applicable, the results of the monitoring required under Article 208(3).

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.

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

Article 230

Calculating risk-weighted exposure amounts and expected loss amounts for an exposure with an eligible funded credit protection under the IRB Approach

Under the IRB Approach, except for those exposures that fall under the scope of Article 220, institutions shall use the effective LGD (LGD) as the LGD for the purposes of Chapter 3 to recognise funded credit protection eligible pursuant to this Chapter. Institutions shall calculate LGD as follows:

where:

E = the exposure value before taking into account the effect of the funded credit protection; for an exposure secured by financial collateral eligible in accordance with this Chapter, that amount shall be calculated in accordance with Article 223(3); in the case of securities lent or posted, that amount shall be equal to the cash lent or securities lent or posted; for securities that are lent or posted, the exposure value shall be increased by applying the volatility adjustment (HE) in accordance with Articles 223 to 227;

ES = the current value of the funded credit protection received after the application of the volatility adjustment applicable to that type of funded credit protection (HC) and the application of the volatility adjustment for currency mismatches (Hfx) between the exposure and the funded credit protection, in accordance with paragraphs 2 and 3; ES shall be capped at the following value: E·(1+HE);

EU = E·(1+HE) – ES;

LGDU = the applicable LGD for an unsecured exposure as set out in Article 161(1);

LGDS = the applicable LGD to exposures secured by the type of eligible FCP used in the transaction, as specified in paragraph 2, Table 1.

Table 1 specifies the values of LGDS and Hc applicable in the formula set out in paragraph 1.

Type of FCP	LGDS	Volatility adjustment (Hc)
Financial collateral	0 %	Volatility adjustment Hc as set out in Articles 224 to 227
Receivables	20 %	40 %
Residential property and commercial immovable property	20 %	40 %
Other physical collateral	25 %	40 %
Ineligible FCP	Not applicable	100 %

Article 231

Calculating risk-weighted exposure amounts and expected loss amounts in the case of pools of eligible funded credit protection for an exposure treated under the IRB Approach

Institutions that have obtained multiple types of funded credit protection may, for exposures treated under the IRB Approach, apply the formula set out in Article 230, sequentially for each individual type of collateral. For that purpose, those institutions shall, after each step of recognising one individual type of FCP, reduce the remaining value of the unsecured exposure (EU) by the adjusted value of the collateral (ES) recognised in that step. In accordance with Article 230(1), the total of ES across all funded credit protection types shall be capped at the value of E·(1+HE), resulting in the following formula:

where:

LGDS,i = the LGD applicable to FCP i, as specified in Article 230(2);

ES,i = the current value of FCP i received after the application of the volatility adjustment applicable for the type of FCP (Hc) pursuant to Article 230(2).

Article 232

Other funded credit protection

Where the conditions set out in Article 212(2) are met, institutions shall subject the portion of the exposure collateralised by the current surrender value of life insurance policies pledged to the lending institution to the following treatment:

(a) where the exposure is subject to the Standardised Approach, it shall be risk-weighted by using the risk weights specified in paragraph 3;

(b) where the exposure is subject to the IRB Approach but not subject to the institution's own estimates of LGD, it shall be assigned an LGD of 40 %.

In the event of a currency mismatch, institutions shall reduce the current surrender value in accordance with Article 233(3), the value of the credit protection being the current surrender value of the life insurance policy.

For the purposes of point (a) of paragraph 2, institutions shall assign the following risk weights on the basis of the risk weight assigned to a senior unsecured exposure to the undertaking providing the life insurance:

(a) a risk weight of 20 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 20 %;

(b) a risk weight of 35 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 50 %;

(ba) a risk weight of 52,5  %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 75 %;

(c) a risk weight of 70 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 100 %;

(d) a risk weight of 150 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 150 %.

Institutions may treat instruments repurchased on request that are eligible under Article 200(c) as a guarantee by the issuing institution. The value of the eligible credit protection shall be the following:

(a) where the instrument will be repurchased at its face value, the value of the protection shall be that amount;

(b) where the instrument will be repurchased at market price, the value of the protection shall be the value of the instrument valued in the same way as the debt securities that meet the conditions in Article 197(4).

Sub-Section 2

Unfunded credit protection

Article 233

Valuation

In the case of credit derivatives which do not include as a credit event restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that result in a credit loss event the following shall apply:

(a) where the amount that the protection provider has undertaken to pay is not higher than the exposure value, institutions shall reduce the value of the credit protection calculated under paragraph 1 by 40 %;

(b) where the amount that the protection provider has undertaken to pay is higher than the exposure value, the value of the credit protection shall be no higher than 60 % of the exposure value.

Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated, institutions shall reduce the value of the credit protection by the application of a volatility adjustment as follows:

where:

Where there is no currency mismatch Hfx is equal to zero.

Article 234

Calculating risk-weighted exposure amounts and expected loss amounts in the event of partial protection and tranching

Where an institution transfers a part of the risk of a loan in one or more tranches, the rules set out in Chapter 5 shall apply. Institutions may consider materiality thresholds on payments below which no payment shall be made in the event of loss to be equivalent to retained first loss positions and to give rise to a tranched transfer of risk.

Article 235

Calculating risk-weighted exposure amounts under the substitution approach where the guaranteed exposure is treated under the Standardised Approach

For the purposes of Article 113(3), institutions shall calculate the risk-weighted exposure amounts for exposures with unfunded credit protection to which those institutions apply the Standardised Approach, irrespective of the treatment of comparable direct exposure to the protection provider, in accordance with the following formula:

max {0, E – GA} · r + GA · g

where:

E = the exposure value calculated in accordance with Article 111; for that purpose, the exposure value of an off-balance-sheet item listed in Annex I shall be 100 % of its value rather than the exposure value indicated in Article 111(2);

GA = the amount of credit protection adjusted for foreign exchange risk (G*) as calculated under Article 233(3) further adjusted for any maturity mismatch as laid down in Section 5 of this Chapter;

r = the risk weight of exposures to the obligor as specified in Chapter 2;

g = the risk weight applicable to a direct exposure to the protection provider as specified in Chapter 2.

Article 235a

Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach where the guaranteed exposure is treated under the IRB Approach and a comparable direct exposure to the protection provider is treated under the Standardised Approach

For exposures with unfunded credit protection to which an institution applies the IRB Approach set out in Chapter 3 and where comparable direct exposures to the protection provider are treated under the Standardised Approach, institutions shall calculate the risk-weighted exposure amounts in accordance with the following formula:

max {0, E – GA} · r + GA · g

where:

E = the exposure value determined in accordance with Chapter 3, Section 5; for that purpose, institutions shall calculate the exposure value for off-balance-sheet items other than derivatives treated under the IRB Approach using a CCF of 100 % instead of the SA-CCFs or IRB-CCF provided for in Article 166(8), (8a) and (8b);

GA = the amount of credit protection adjusted for foreign exchange risk (G*) as calculated in accordance with Article 233(3) further adjusted for any maturity mismatch as laid down in Section 5 of this Chapter;

r = the risk weight of exposures to the obligor as specified in Chapter 3;

g = the risk weight applicable to a direct exposure to the protection provider as specified in Chapter 2.

Article 236

Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach where the guaranteed exposure is treated under the IRB Approach without the use of own estimates of LGD and a comparable direct exposure to the protection provider is treated under the IRB Approach

Article 236a

Calculating risk-weighted exposure amounts and expected loss amounts under the substitution approach where the guaranteed exposure is treated under the IRB Approach using own estimates of LGD and a comparable direct exposure to the protection provider is treated under the IRB Approach

Section 5

Maturity mismatches

Article 237

Maturity mismatch

Where there is a maturity mismatch the credit protection shall not qualify as eligible where either of the following conditions is met:

(a) the original maturity of the protection is less than one year;

(b) the exposure is a short term exposure specified by the competent authorities as being subject to a one-day floor rather than a one-year floor in respect of the maturity value (M) under Article 162(3).

Article 238

Maturity of credit protection

Article 239

Valuation of protection

For transactions subject to funded credit protection under the Financial Collateral Comprehensive Method, institutions shall reflect the maturity of the credit protection and of the exposure in the adjusted value of the collateral in accordance with the following formula:

where:

Institutions shall use CVAM as CVA further adjusted for maturity mismatch in the formula for the calculation of the fully adjusted value of the exposure (E*) set out in Article 223(5).

For transactions subject to unfunded credit protection, institutions shall reflect the maturity of the credit protection and of the exposure in the adjusted value of the credit protection in accordance with the following formula:

where:

Institutions shall use GA as the value of the protection for the purposes of Articles 233 to 236.

CHAPTER 5

Securitisation

Section 1

Definitions and criteria for simple, transparent and standardised securitisations

Article 242

Definitions

For the purposes of this Chapter, the following definitions apply:

(1) ‘clean-up call option’ means a contractual option that entitles the originator to call the securitisation positions before all of the securitised exposures have been repaid, either by repurchasing the underlying exposures remaining in the pool in the case of traditional securitisations or by terminating the credit protection in the case of synthetic securitisations, in both cases when the amount of outstanding underlying exposures falls to or below certain pre-specified level;

(2) ‘credit-enhancing interest-only strip’ means an on-balance sheet asset that represents a valuation of cash flows related to future margin income and is a subordinated tranche in the securitisation;

(3) ‘liquidity facility’ means a liquidity facility as defined in point (14) of Article 2 of Regulation (EU) 2017/2402;

(4) ‘unrated position’ means a securitisation position which does not have an eligible credit assessment in accordance with Section 4;

(5) ‘rated position’ means a securitisation position which has an eligible credit assessment in accordance with Section 4;

(6) ‘senior securitisation position’ means a position backed or secured by a first claim on the whole of the underlying exposures, disregarding for these purposes amounts due under interest rate or currency derivative contracts, fees or other similar payments, and irrespective of any difference in maturity with one or more other senior tranches with which that position shares losses on a pro-rata basis;

(7) ‘IRB pool’ means a pool of underlying exposures of a type in relation to which the institution has permission to use the IRB Approach and is able to calculate risk- weighted exposure amounts in accordance with Chapter 3 for all of these exposures;

(8) ‘mixed pool’ means a pool of underlying exposures of a type in relation to which the institution has permission to use the IRB Approach and is able to calculate risk- weighted exposure amounts in accordance with Chapter 3 for some, but not all, of the exposures;

(9) ‘overcollateralisation’ means any form of credit enhancement by virtue of which underlying exposures are posted in value which is higher than the value of the securitisation positions;

(10) ‘simple, transparent and standardised securitisation’ or ‘STS securitisation’ means a securitisation that meets the requirements set out in Article 18 of Regulation (EU) 2017/2402;

(11) ‘asset-backed commercial paper programme’ or ‘ABCP programme’ means an asset backed commercial paper programme or ABCP programme as defined in point (7) of Article 2 of Regulation (EU) 2017/2402;

(12) ‘asset-backed commercial paper transaction’ or ‘ABCP transaction’ means an asset-backed commercial paper transaction or ABCP transaction as defined in point (8) of Article 2 of Regulation (EU) 2017/2402;

(13) ‘traditional securitisation’ means a traditional securitisation as defined in point (9) of Article 2 of Regulation (EU) 2017/2402;

(14) ‘synthetic securitisation’ means a synthetic securitisation as defined in point (10) of Article 2 of Regulation (EU) 2017/2402;

(15) ‘revolving exposure’ means a revolving exposure as defined in point (15) of Article 2 of Regulation (EU) 2017/2402;

(16) ‘early amortisation provision’ means an early amortisation provision as defined in point (17) of Article 2 of Regulation (EU) 2017/2402;

(17) ‘first loss tranche’ means a first loss tranche as defined in point (18) of Article 2 of Regulation (EU) 2017/2402;

(18) ‘mezzanine securitisation position’ means a position in the securitisation which is subordinated to the senior securitisation position and more senior than the first loss tranche, and which is subject to a risk weight lower than 1 250 % and higher than 25 % in accordance with Subsections 2 and 3 of Section 3;

(19) ‘promotional entity’ means any undertaking or entity established by a Member State’s central, regional or local government, which grants promotional loans or grants promotional guarantees, whose primary goal is not to make profit or maximise market share but to promote that government’s public policy objectives, provided that, subject to State aid rules, that government has an obligation to protect the economic basis of the undertaking or entity and maintain its viability throughout its lifetime, or that at least 90 % of its original capital or funding or the promotional loan it grants is directly or indirectly guaranteed by the Member State’s central, regional or local government;

(20) ‘synthetic excess spread’ means a synthetic excess spread as defined in point (29) of Article 2 of Regulation (EU) 2017/2402.

Article 243

Criteria for STS securitisations qualifying for differentiated capital treatment

Positions in an ABCP programme or ABCP transaction that qualify as positions in an STS securitisation shall be eligible for the treatment set out in Articles 260, 262 and 264 where the following requirements are met:

(a) the underlying exposures meet, at the time of their inclusion in the ABCP programme, to the best knowledge of the originator or the original lender, the conditions for being assigned, under the Standardised Approach and taking into account any eligible credit risk mitigation, a risk weight equal to or smaller than 75 % on an individual exposure basis where the exposure is a retail exposure or 100 % for any other exposures; and

(b) the aggregate exposure value of all exposures to a single obligor at ABCP programme level does not exceed 2 % of the aggregate exposure value of all exposures within the ABCP programme at the time the exposures were added to the ABCP programme. For the purposes of this calculation, loans or leases to a group of connected clients, to the best knowledge of the sponsor, shall be considered as exposures to a single obligor.

In the case of trade receivables, point (b) of the first subparagraph shall not apply where the credit risk of those trade receivables is fully covered by eligible credit protection in accordance with Chapter 4, provided that in that case the protection provider is an institution, an investment firm, an insurance undertaking or a reinsurance undertaking.

In the case of securitised residual leasing values, point (b) of the first subparagraph shall not apply where those values are not exposed to refinancing or resell risk due to a legally enforceable commitment to repurchase or refinance the exposure at a pre-determined amount by a third party eligible under Article 201(1).

By way of derogation from point (a) of the first subparagraph, where an institution applies Article 248(3) or has been granted permission to apply the Internal Assessment Approach in accordance with Article 265, the risk weight that institution would assign to a liquidity facility that completely covers the ABCP issued under the programme is equal to or smaller than 100 %.

Positions in a securitisation, other than an ABCP programme or ABCP transaction, that qualify as positions in an STS securitisation, shall be eligible for the treatment set out in Articles 260, 262 and 264 where the following requirements are met:

(a) at the time of inclusion in the securitisation, the aggregate exposure value of all exposures to a single obligor in the pool does not exceed 2 % of the exposure values of the aggregate outstanding exposure values of the pool of underlying exposures. For the purposes of this calculation, loans or leases to a group of connected clients shall be considered as exposures to a single obligor. In the case of securitised residual leasing values, the first subparagraph of this point shall not apply where those values are not exposed to refinancing or resell risk due to a legally enforceable commitment to repurchase or refinance the exposure at a pre-determined amount by a third party eligible under Article 201(1);

(b) at the time of their inclusion in the securitisation, the underlying exposures meet the conditions for being assigned, under the Standardised Approach and taking into account any eligible credit risk mitigation, a risk weight equal to or smaller than: (i) 40 % on an exposure value-weighted average basis for the portfolio where the exposures are loans secured by residential mortgages or fully guaranteed residential loans, as referred to in point (e) of Article 129(1); (ii) 50 % on an individual exposure basis where the exposure is a loan secured by a commercial mortgage; (iii) 75 % on an individual exposure basis where the exposure is a retail exposure; (iv) for any other exposures, 100 % on an individual exposure basis;

(c) where points (b)(i) and (b)(ii) apply, the loans secured by lower ranking security rights on a given asset shall only be included in the securitisation where all loans secured by prior ranking security rights on that asset are also included in the securitisation;

(d) where point (b)(i) of this paragraph applies, no loan in the pool of underlying exposures shall have a loan-to-value ratio higher than 100 %, at the time of inclusion in the securitisation, measured in accordance with point (d)(i) of Article 129(1) and Article 229(1).

Section 2

Recognition of significant risk transfer

Article 244

Traditional securitisation

The originator institution of a traditional securitisation may exclude underlying exposures from its calculation of risk-weighted exposure amounts and, where relevant, expected loss amounts if either of the following conditions is fulfilled:

(a) significant credit risk associated with the underlying exposures has been transferred to third parties;

(b) the originator institution applies a 1 250 % risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation positions from Common Equity Tier 1 items in accordance with point (k) of Article 36(1).

Significant credit risk shall be considered as transferred in either of the following cases:

(a) the risk-weighted exposure amounts of the mezzanine securitisation positions held by the originator institution in the securitisation do not exceed 50 % of the risk-weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;

(b) the originator institution does not hold more than 20 % of the exposure value of the first loss tranche in the securitisation, provided that both of the following conditions are met: (i) the originator can demonstrate that the exposure value of the first loss tranche exceeds a reasoned estimate of the expected loss on the underlying exposures by a substantial margin; (ii) there are no mezzanine securitisation positions.

Where the possible reduction in risk-weighted exposure amounts, which the originator institution would achieve by the securitisation under points (a) or (b), is not justified by a commensurate transfer of credit risk to third parties, competent authorities may decide on a case-by-case basis that significant credit risk shall not be considered as transferred to third parties.

By way of derogation from paragraph 2, competent authorities may allow originator institutions to recognise significant credit risk transfer in relation to a securitisation where the originator institution demonstrates in each case that the reduction in own funds requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties. Permission may only be granted where the institution meets both of the following conditions:

(a) the institution has adequate internal risk management policies and methodologies to assess the transfer of credit risk;

(b) the institution has also recognised the transfer of credit risk to third parties in each case for the purposes of the institution’s internal risk management and its internal capital allocation.

In addition to the requirements set out in paragraphs 1, 2 and 3, all of the following conditions shall be met:

(a) the transaction documentation reflects the economic substance of the securitisation;

(b) the securitisation positions do not constitute payment obligations of the originator institution;

(c) the underlying exposures are placed beyond the reach of the originator institution and its creditors in a manner that meets the requirement set out in Article 20(1) of Regulation (EU) 2017/2402;

(d) the originator institution does not retain control over the underlying exposures. It shall be considered that control is retained over the underlying exposures where the originator has the right to repurchase from the transferee the previously transferred exposures in order to realise their benefits or if it is otherwise required to re-assume transferred risk. The originator institution’s retention of servicing rights or obligations in respect of the underlying exposures shall not of itself constitute control of the exposures;

(e) the securitisation documentation does not contain terms or conditions that: (i) require the originator institution to alter the underlying exposures to improve the average quality of the pool; or (ii) increase the yield payable to holders of positions or otherwise enhance the positions in the securitisation in response to a deterioration in the credit quality of the underlying exposures;

(f) where applicable, the transaction documentation makes it clear that the originator or the sponsor may only purchase or repurchase securitisation positions or repurchase, restructure or substitute the underlying exposures beyond their contractual obligations where such arrangements are executed in accordance with prevailing market conditions and the parties to them act in their own interest as free and independent parties (arm’s length);

(g) where there is a clean-up call option, that option shall also meet all of the following conditions: (i) it can be exercised at the discretion of the originator institution; (ii) it may only be exercised when 10 % or less of the original value of the underlying exposures remains unamortised; (iii) it is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors in the securitisation and is not otherwise structured to provide credit enhancement;

(h) the originator institution has received an opinion from a qualified legal counsel confirming that the securitisation complies with the conditions set out in point (c) of this paragraph.

The EBA shall monitor the range of supervisory practices in relation to the recognition of significant risk transfer in traditional securitisations in accordance with this Article. In particular, the EBA shall review:

(a) the conditions for the transfer of significant credit risk to third parties in accordance with paragraphs 2, 3 and 4;

(b) the interpretation of ‘commensurate transfer of credit risk to third parties’ for the purposes of the competent authorities’ assessment provided for in the second subparagraph of paragraph 2 and in paragraph 3;

(c) the requirements for the competent authorities’ assessment of securitisation transactions in relation to which the originator seeks recognition of significant credit risk transfer to third parties in accordance with paragraph 2 or 3.

The EBA shall report its findings to the Commission by 2 January 2021. The Commission may, having taken into account the report from the EBA, adopt a delegated act in accordance with Article 462, to supplement this Regulation by further specifying the items listed in points (a), (b) and (c) of this paragraph.

Article 245

Synthetic securitisation

The originator institution of a synthetic securitisation may calculate risk-weighted exposure amounts, and, where relevant, expected loss amounts with respect to the underlying exposures in accordance with Articles 251 and 252, where either of the following conditions is met:

(a) significant credit risk has been transferred to third parties either through funded or unfunded credit protection;

(b) the originator institution applies a 1 250 % risk weight to all securitisation positions that it retains in the securitisation or deducts these securitisation positions from Common Equity Tier 1 items in accordance with point (k) of Article 36(1).

Significant credit risk shall be considered as transferred in either of the following cases:

(a) the risk-weighted exposure amounts of the mezzanine securitisation positions held by the originator institution in the securitisation do not exceed 50 % of the risk-weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;

(b) the originator institution does not hold more than 20 % of the exposure value of the first loss tranche in the securitisation, provided that both of the following conditions are met: (i) the originator can demonstrate that the exposure value of the first loss tranche exceeds a reasoned estimate of the expected loss on the underlying exposures by a substantial margin; (ii) there are no mezzanine securitisation positions.

Where the possible reduction in risk-weighted exposure amounts, which the originator institution would achieve by the securitisation, is not justified by a commensurate transfer of credit risk to third parties, competent authorities may decide on a case-by-case basis that significant credit risk shall not be considered as transferred to third parties.

By way of derogation from paragraph 2, competent authorities may allow originator institutions to recognise significant credit risk transfer in relation to a securitisation where the originator institution demonstrates in each case that the reduction in own funds requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties. Permission may only be granted where the institution meets both of the following conditions:

(a) the institution has adequate internal risk-management policies and methodologies to assess the transfer of risk;

(b) the institution has also recognised the transfer of credit risk to third parties in each case for the purposes of the institution’s internal risk management and its internal capital allocation.

In addition to the requirements set out in paragraphs 1, 2 and 3, all of the following conditions shall be met:

(a) the transaction documentation reflects the economic substance of the securitisation;

(b) the credit protection by virtue of which credit risk is transferred complies with Article 249;

(c) the securitisation documentation does not contain terms or conditions that: (i) impose significant materiality thresholds below which credit protection is deemed not to be triggered if a credit event occurs; (ii) allow for the termination of the protection due to deterioration of the credit quality of the underlying exposures; (iii) require the originator institution to alter the composition of the underlying exposures to improve the average quality of the pool; or (iv) increase the institution’s cost of credit protection or the yield payable to holders of positions in the securitisation in response to a deterioration in the credit quality of the underlying pool;

(d) the credit protection is enforceable in all relevant jurisdictions;

(e) where applicable, the transaction documentation makes it clear that the originator or the sponsor may only purchase or repurchase securitisation positions or repurchase, restructure or substitute the underlying exposures beyond their contractual obligations where such arrangements are executed in accordance with prevailing market conditions and the parties to them act in their own interest as free and independent parties (arm’s length);

(f) where there is a clean-up call option, that option meets all the following conditions: (i) it may be exercised at the discretion of the originator institution; (ii) it may only be exercised when 10 % or less of the original value of the underlying exposures remains unamortised; (iii) it is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors in the securitisation and is not otherwise structured to provide credit enhancement;

(g) the originator institution has received an opinion from a qualified legal counsel confirming that the securitisation complies with the conditions set out in point (d) of this paragraph;

The EBA shall monitor the range of supervisory practices in relation to the recognition of significant risk transfer in synthetic securitisations in accordance with this Article. In particular, the EBA shall review:

(a) the conditions for the transfer of significant credit risk to third parties in accordance with paragraphs 2, 3 and 4;

(b) the interpretation of ‘commensurate transfer of credit risk to third parties’ for the purposes of the competent authorities’ assessment provided for in the second subparagraph of paragraph 2 and in paragraph 3; and

(c) the requirements for the competent authorities’ assessment of securitisation transactions in relation to which the originator seeks recognition of significant credit risk transfer to third parties in accordance with paragraph 2 or 3.

The EBA shall report its findings to the Commission by 2 January 2021. The Commission may, having taken into account the report from the EBA, adopt a delegated act in accordance with Article 462, to supplement this Regulation by further specifying the items listed in points (a), (b) and (c) of this paragraph.

Article 246

Operational requirements for early amortisation provisions

Where the securitisation includes revolving exposures and early amortisation provisions or similar provisions, significant credit risk shall only be considered transferred by the originator institution where the requirements laid down in Articles 244 and 245 are met and the early amortisation provision, once triggered, does not:

(a) subordinate the institution’s senior or pari passu claim on the underlying exposures to the other investors’ claims;

(b) subordinate further the institution’s claim on the underlying exposures relative to other parties’ claims; or

(c) otherwise increase the institution’s exposure to losses associated with the underlying revolving exposures.

Section 3

Calculation of risk-weighted exposure amounts

Subsection 1

General Provisions

Article 247

Calculation of risk-weighted exposure amounts

Where an originator institution has transferred significant credit risk associated with the underlying exposures of the securitisation in accordance with Section 2, that institution may:

(a) in the case of a traditional securitisation, exclude the underlying exposures from its calculation of risk-weighted exposure amounts, and, as relevant, expected loss amounts;

(b) in the case of a synthetic securitisation, calculate risk-weighted exposure amounts, and, where relevant, expected loss amounts, with respect to the underlying exposures in accordance with Articles 251 and 252.

Where the originator institution has not transferred significant credit risk or has decided not to apply paragraph 1, it shall not be required to calculate risk-weighted exposure amounts for any position it may have in the securitisation but shall continue including the underlying exposures in its calculation of risk-weighted exposure amounts and, where relevant, expected loss amounts as if they had not been securitised.

Article 248

Exposure value

The exposure value of a securitisation position shall be calculated as follows:

(a) the exposure value of an on-balance sheet securitisation position shall be its accounting value remaining after any relevant specific credit risk adjustments on the securitisation position have been applied in accordance with Article 110;

(b) the exposure value of an off-balance sheet securitisation position shall be its nominal value less any relevant specific credit risk adjustments on the securitisation position in accordance with Article 110, multiplied by the relevant conversion factor as set out in this point. The conversion factor shall be 100 %, except in the case of cash advance facilities. To determine the exposure value of the undrawn portion of the cash advance facilities, a conversion factor of 0 % may be applied to the nominal amount of a liquidity facility that is unconditionally cancellable provided that repayment of draws on the facility are senior to any other claims on the cash flows arising from the underlying exposures and the institution has demonstrated to the satisfaction of the competent authority that it is applying an appropriately conservative method for measuring the amount of the undrawn portion;

(c) the exposure value for the counterparty credit risk of a securitisation position that results from a derivative instrument listed in Annex II, shall be determined in accordance with Chapter 6;

(d) an originator institution may deduct from the exposure value of a securitisation position which is assigned 1 250 % risk weight in accordance with Subsection 3 or deducted from Common Equity Tier 1 in accordance with point (k) of Article 36(1), the amount of the specific credit risk adjustments on the underlying exposures in accordance with Article 110, and any non-refundable purchase price discounts connected with such underlying exposures to the extent that such discounts have caused the reduction of own funds;

(e) the exposure value of a synthetic excess spread shall include, as applicable, the following: (i) any income from the securitised exposures already recognised by the originator institution in its income statement under the applicable accounting framework that the originator institution has contractually designated to the transaction as synthetic excess spread and that is still available to absorb losses; (ii) any synthetic excess spread that is contractually designated by the originator institution in any previous periods and that is still available to absorb losses; (iii) any synthetic excess spread that is contractually designated by the originator institution for the current period and that is still available to absorb losses; (iv) any synthetic excess spread contractually designated by the originator institution for future periods. For the purposes of this point, any amount that is provided as collateral or credit enhancement in relation to the synthetic securitisation and that is already subject to an own funds requirement in accordance with this Chapter shall not be included in the exposure value.

The EBA shall develop draft regulatory technical standards to specify what constitutes an appropriately conservative method for measuring the amount of the undrawn portion referred to in point (b) of the first subparagraph.

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 third subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Where the positions partially overlap, the institution may split the position into two parts and recognise the overlap in relation to one part only in accordance with the first subparagraph. Alternatively, the institution may treat the positions as if they were fully overlapping by expanding for capital calculation purposes the position that produces the higher risk-weighted exposure amounts.

The institution may also recognise an overlap between the specific risk own funds requirements for positions in the trading book and the own funds requirements for securitisation positions in the non-trading book, provided that the institution is able to calculate and compare the own funds requirements for the relevant positions.

For the purposes of this paragraph, two positions shall be deemed to be overlapping where they are mutually offsetting in such a manner that the institution is able to preclude the losses arising from one position by performing the obligations required under the other position.

EBA shall submit those draft regulatory technical standards to the Commission by 10 October 2021.

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

Article 249

Recognition of credit risk mitigation for securitisation positions

Eligible unfunded credit protection and unfunded credit protection providers shall be limited to those which are eligible in accordance with Chapter 4 and recognition of credit risk mitigation shall be subject to compliance with the relevant requirements as laid down under Chapter 4.

Institutions which are allowed to apply the IRB Approach to a direct exposure to the protection provider may assess eligibility in accordance with the first subparagraph based on the equivalence of the PD for the protection provider to the PD associated with the credit quality steps referred to in Article 136.

By way of derogation from paragraph 2, SSPEs shall be eligible protection providers where all of the following conditions are met:

(a) the SSPE owns assets that qualify as eligible financial collateral in accordance with Chapter 4;

(b) the assets referred to in point (a) are not subject to claims or contingent claims ranking ahead or pari passu with the claim or contingent claim of the institution receiving unfunded credit protection; and

(c) all the requirements for the recognition of financial collateral set out in Chapter 4 are met.

Where a securitisation position benefits from full credit protection or a partial credit protection on a pro-rata basis, the following requirements shall apply:

(a) the institution providing credit protection shall calculate risk-weighted exposure amounts for the portion of the securitisation position benefiting from credit protection in accordance with Subsection 3 as if it held that portion of the position directly;

(b) the institution buying credit protection shall calculate risk-weighted exposure amounts in accordance with Chapter 4 for the protected portion.

In all cases not covered by paragraph 6, the following requirements shall apply:

(a) the institution providing credit protection shall treat the portion of the position benefiting from credit protection as a securitisation position and shall calculate risk-weighted exposure amounts as if it held that position directly in accordance with Subsection 3, subject to paragraphs 8, 9 and 10;

(b) the institution buying credit protection shall calculate risk-weighted exposure amounts for the protected portion of the position referred to in point (a) in accordance with Chapter 4. The institution shall treat the portion of the securitisation position not benefiting from credit protection as a separate securitisation position and shall calculate risk-weighted exposure amounts in accordance with Subsection 3, subject to paragraphs 8, 9 and 10.

Institutions using the Securitisation External Ratings Based Approach (SEC-ERBA) under Subsection 3 for the original securitisation position shall calculate risk-weighted exposure amounts for the positions derived in accordance with paragraph 7 as follows:

(a) where the derived position has the higher seniority, it shall be assigned the risk weight of the original securitisation position;

(b) where the derived position has the lower seniority, it may be assigned an inferred rating in accordance with Article 263(7). In that case, thickness input T shall only be computed on the basis of the derived position. Where a rating may not be inferred, the institution shall apply the higher of the risk weight resulting from either: (i) applying the SEC-SA in accordance with paragraph 8 and Subsection 3; or (ii) the risk weight of the original securitisation position under the SEC-ERBA.

Article 250

Implicit support

A transaction shall not be considered as support for the purposes of paragraph 1 where the transaction has been duly taken into account in the assessment of significant credit risk transfer and both parties have executed the transaction acting in their own interest as free and independent parties (arm’s length). For these purposes, the institution shall undertake a full credit review of the transaction and, at a minimum, take into account all of the following items:

(a) the repurchase price;

(b) the institution’s capital and liquidity position before and after repurchase;

(c) the performance of the underlying exposures;

(d) the performance of the securitisation positions;

(e) the impact of support on the losses expected to be incurred by the originator relative to investors.

If an originator institution or a sponsor institution fails to comply with paragraph 1 in respect of a securitisation, the institution shall include all of the underlying exposures of that securitisation in its calculation of risk-weighted exposure amounts as if they had not been securitised and disclose:

(a) that it has provided support to the securitisation in breach of paragraph 1; and

(b) the impact of the support provided in terms of own funds requirements.

Article 251

Originator institutions’ calculation of risk-weighted exposure amounts securitised in a synthetic securitisation

Article 252

Treatment of maturity mismatches in synthetic securitisations

For the purposes of calculating risk-weighted exposure amounts in accordance with Article 251, any maturity mismatch between the credit protection by which the transfer of risk is achieved and the underlying exposures shall be calculated as follows:

(a) the maturity of the underlying exposures shall be taken to be the longest maturity of any of those exposures subject to a maximum of 5 years. The maturity of the credit protection shall be determined in accordance with Chapter 4;

(b) an originator institution shall ignore any maturity mismatch in calculating risk-weighted exposure amounts for securitisation positions subject to a risk weight of 1 250 % in accordance with this Section. For all other positions, the maturity mismatch treatment set out in Chapter 4 shall be applied in accordance with the following formula: where: RW = risk-weighted exposure amounts for the purposes of Article 92(4), point (a); RWAss = risk-weighted exposure amounts for the underlying exposures as if they had not been securitised, calculated on a pro-rata basis; RWSP = risk-weighted exposure amounts calculated under Article 251 as if there was no maturity mismatch; T = maturity of the underlying exposures, expressed in years; t = maturity of credit protection, expressed in years; t = 0,25

Article 253

Reduction in risk-weighted exposure amounts

Subsection 2

Hierarchy of methods and common parameters

Article 254

Hierarchy of methods

Institutions shall use one of the methods set out in Subsection 3 to calculate risk-weighted exposure amounts in accordance with the following hierarchy:

(a) where the conditions set out in Article 258 are met, an institution shall use the SEC-IRBA in accordance with Articles 259 and 260;

(b) where the SEC-IRBA may not be used, an institution shall use the SEC-SA in accordance with Articles 261 and 262;

(c) where the SEC-SA may not be used, an institution shall use the SEC-ERBA in accordance with Articles 263 and 264 for rated positions or positions in respect of which an inferred rating may be used.

For rated positions or positions in respect of which an inferred rating may be used, an institution shall use the SEC-ERBA instead of the SEC-SA in each of the following cases:

(a) where the application of the SEC-SA would result in a risk weight higher than 25 % for positions qualifying as positions in an STS securitisation;

(b) where the application of the SEC-SA would result in a risk weight higher than 25 % or the application of the SEC-ERBA would result in a risk weight higher than 75 % for positions not qualifying as positions in an STS securitisation;

(c) for securitisation transactions backed by pools of auto loans, auto leases and equipment leases.

For the purposes of the first subparagraph, an institution shall notify its decision to the competent authority no later than 17 November 2018.

Any subsequent decision to further change the approach applied to all of its rated securitisation positions shall be notified by the institution to its competent authority before the 15th November immediately following that decision.

In the absence of any objection by the competent authority by 15 December immediately following the deadline referred to in the second or third subparagraph, as appropriate, the decision notified by the institution shall take effect from 1 January of the following year and shall be valid until a subsequently notified decision comes into effect. An institution shall not use different approaches in the course of the same year.

Article 255

Determination of KIRB and KSA

For KIRB calculation purposes, the risk-weighted exposure amounts that would be calculated under Chapter 3 in respect of the underlying exposures shall include:

(a) the amount of expected losses associated with all the underlying exposures of the securitisation including defaulted underlying exposures that are still part of the pool in accordance with Chapter 3; and

(b) the amount of unexpected losses associated with all the underlying exposures including defaulted underlying exposures in the pool in accordance with Chapter 3.

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.

The EBA shall develop draft regulatory technical standards to further specify the conditions to allow institutions to calculate KIRB for the pools of underlying exposures in accordance with paragraph 4, in particular with regard to:

(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)

For the purposes of Subsection 3 and subject to paragraph 2, institutions may measure the maturity of a tranche (MT) as either:

(a) the weighted average maturity of the contractual payments due under the tranche in accordance with the following formula: 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: 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)

Institutions shall use the SEC-IRBA to calculate risk-weighted exposure amounts in relation to a securitisation position where the following conditions are met:

(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.

Competent authorities may on a case-by-case basis preclude the use of the SEC-IRBA where securitisations have highly complex or risky features. For these purposes, the following may be regarded as highly complex or risky features:

(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

Under the SEC-IRBA, the risk-weighted exposure amount for a securitisation position shall be calculated by multiplying the exposure value of the position calculated in accordance with Article 248 by the applicable risk weight determined as follows, in all cases subject to a floor of 15 %:

RW = 1 250 %	when D ≤ KIRB
	when A ≥ KIRB
	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

where:

where:

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
Senior, non-granular (N < 25)	0,11	2,61	-2,91	0,68	0,07
Non-senior, granular (N ≥ 25)	0,16	2,87	-1,03	0,21	0,07
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
Non-senior	0	0	-5,78	0,55	0,27

The effective number of exposures (N) shall be calculated as follows:

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.

The exposure-weighted average LGD shall be calculated as follows:

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.

Where the share of the largest underlying exposure in the pool (C1) is no more than 3 %, institutions may use the following simplified method to calculate N and the exposure-weighted average LGDs:

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.

Where the position is backed by a mixed pool and the institution is able to calculate KIRB on at least 95 % of the underlying exposure amounts in accordance with point (a) of Article 258(1), the institution shall calculate the capital charge for the pool of underlying exposures as:

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 %

Article 261

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

Under the SEC-SA, the risk-weighted exposure amount for a position in a securitisation shall be calculated by multiplying the exposure value of the position as calculated in accordance with Article 248 by the applicable risk weight determined as follows, in all cases subject to a floor of 15 %:

RW = 1 250 %	when D ≤ KA
	when A ≥ KA
	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;

where:

For the purposes of paragraph 1, KA shall be calculated as follows:

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:

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:

Article 263

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

For exposures with short-term credit assessments or when a rating based on a short-term credit assessment may be inferred in accordance with paragraph 7, the following risk weights shall apply:

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

For exposures with long-term credit assessments or when a rating based on a long-term credit assessment may be inferred in accordance with paragraph 7 of this Article, the risk weights set out in Table 2 shall apply, adjusted as applicable for tranche maturity (MT) in accordance with Article 257 and paragraph 4 of this Article and for tranche thickness for non-senior tranches in accordance with paragraph 5 of this Article:

Credit Quality Step	Senior tranche	Non-senior (thin) tranche
Tranche maturity (MT)	Tranche maturity (MT)
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 %

In order to account for tranche thickness, institutions shall calculate the risk weight for non-senior tranches as follows:

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

For the purposes of using inferred ratings, institutions shall attribute to an unrated position an inferred rating equivalent to the credit assessment of a rated reference position which meets all of the following conditions:

(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

For exposures with short-term credit assessments or when a rating based on a short-term credit assessment may be inferred in accordance with Article 263(7), the following risk weights shall apply:

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

For exposures with long-term credit assessments or when a rating based on a long-term credit assessment may be inferred in accordance with Article 263(7), risk weights shall be determined in accordance with Table 4, adjusted for tranche maturity (MT) in accordance with Article 257 and Article 263(4) and for tranche thickness for non-senior tranches in accordance with Article 263(5):

Credit Quality Step	Senior tranche	Non-senior (thin) tranche
Tranche maturity (MT)	Tranche maturity (MT)
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.

The competent authorities shall grant institutions permission to apply the Internal Assessment Approach within a clearly defined scope of application where all of the following conditions are met:

(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.

Institutions which have received permission to apply the Internal Assessment Approach shall not revert to the use of other methods for positions that fall within scope of application of the Internal Assessment Approach unless both of the following conditions are met:

(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.

For the purposes of this Article, the risk weight that would be applicable under the IRB Approach in accordance with Chapter 3 shall include the ratio of:

(a) expected losses multiplied by 12,5 to

(b) the exposure value of the underlying exposures.

Article 268

Maximum capital requirements

The maximum capital requirement shall be the result of multiplying the amount calculated in accordance with paragraphs 1 or 2 by the largest proportion of interest that the institution holds in the relevant tranches (V), expressed as a percentage and calculated as follows:

(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

For a position in a re-securitisation, institutions shall apply the SEC-SA in accordance with Article 261, with the following changes:

(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

For the purposes of this Article:

(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:

where:

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:

where:

For the purposes of this Article, the non-refundable purchase price discount shall be calculated by subtracting the amount referred to in point (b) from the amount referred to in point (a):

(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

An originator institution may calculate the risk-weighted exposure amounts of a securitisation position in an STS on-balance sheet securitisation as referred to in Article 26a(1) of Regulation (EU) 2017/2402 in accordance with Article 260, 262 or 264 of this Regulation, as applicable, where that position meets both of the following conditions:

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

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

EBA shall monitor the application of paragraph 1 in particular with regard to:

(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

An institution shall use the credit assessments of its securitisation positions in a consistent and non-selective manner and, for these purposes, shall comply with the following requirements:

(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:

(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;

(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;

(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;

(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;

(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;

(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.

Where permitted by the competent authorities in accordance with Article 283(1) and (2), an institution may determine the exposure value for the following items using the Internal Model Method set out in Section 6:

(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.

When an institution purchases protection through a credit derivative against a non-trading book exposure or against a counterparty risk exposure, it may calculate its own funds requirement for the hedged exposure in accordance with either of the following:

(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

An institution may calculate the exposure value of its 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 both of the following thresholds on the basis of an assessment carried out on a monthly basis using the data as of the last day of the month:

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

(b) EUR 300 million.

An institution may calculate the exposure value of its derivative positions in accordance with the method set out in Section 5, provided that the size of its on- and off-balance-sheet derivative business is equal to or less than both of the following thresholds on the basis of an assessment carried out on a monthly basis using the data as of the last day of the month:

(a) 5 % of the institution's total assets;

(b) EUR 100 million.

For the purposes of paragraphs 1 and 2, institutions shall calculate the size of their on- and off-balance-sheet derivative business on the basis of data as of the last day of each month in accordance with the following requirements:

(a) derivative positions shall be valued at their market values on that given date; where the market value of a position is not available on a given date, institutions shall take a fair value for the position on that date; where the market value and fair value of a position are not available on a given date, institutions shall take the most recent of the market value or fair value for that position;

(b) the absolute value of the aggregated long position shall be summed with the absolute value of the aggregated short position;

(c) all derivative positions shall be included, except credit derivatives that are recognised as internal hedges against non-trading book credit risk exposures.

For the purposes of the first subparagraph, the meaning of long and short positions is the same as that set out in Article 94(3).

For the purposes of the first subparagraph, the value of the aggregated long (short) position shall be equal to the sum of the values of the individual long (short) positions included in the calculation in accordance with point (c).

Article 273b

Non-compliance with the conditions for using simplified methods for calculating the exposure value of derivatives and the simplified approach for calculating the own funds requirements for CVA risk

Institutions shall cease to calculate the exposure values of their derivative positions in accordance with Section 4 or 5 and to calculate the own funds requirements for CVA risk in accordance with Article 385, as applicable, within three months of the occurrence of one of the following:

(a) the institution does not meet the conditions set out in point (a) of Article 273a(1) or (2), as applicable, or the conditions set out in point (b) of Article 273a(1) or (2), as applicable, for three consecutive months;

(b) the institution does not meet the conditions set out in point (a) of Article 273a(1) or (2), as applicable, or the conditions set out in point (b) of Article 273a(1) or (2), as applicable, for more than six of the preceding 12 months.

Section 3

Standardised approach for counterparty credit risk

Article 274

Exposure 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 types of contractual netting agreements referred to in 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 Article 297 in respect of the netting agreement.

Where any of the conditions set out in the first subparagraph are not met, the institution shall treat each transaction 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 as follows:

Where multiple margin agreements apply to the same netting set, or the same netting set includes both transactions subject to a margin agreement and transactions not subject to a margin agreement, an institution shall calculate its exposure value as follows:

(a) the institution shall establish the hypothetical sub-netting sets concerned, composed of transactions included in the netting set, as follows: (i) all transactions subject to a margin agreement and to the same margin period of risk as determined in accordance with Article 285(2) to (5), shall be allocated to the same sub-netting set; (ii) all transactions not subject to a margin agreement shall be allocated to the same sub-netting set, distinct from the sub-netting sets established in accordance with point (i) of this paragraph;

(b) the institution shall calculate the replacement cost of the netting set in accordance with Article 275(2), taking into account all transactions within the netting set, whether or not subject to a margin agreement, and apply all of the following: (i) CMV shall be calculated for all transactions within a netting set gross of any collateral held or posted where positive and negative market values are netted in computing the CMV; (ii) NICA, VM, TH, and MTA, where applicable, shall be calculated separately as the sum across the same inputs applicable to each individual margin agreement of the netting set;

(c) the institution shall calculate the potential future exposure of the netting set referred to in Article 278 by applying all of the following: (i) the multiplier referred to in Article 278(1) shall be based on the inputs CMV, NICA and VM, as applicable, in accordance with point (b) of this paragraph; (ii) shall be calculated in accordance with Article 278, separately for each hypothetical sub-netting set referred to in point (a) of this paragraph.

Institutions may set to zero the exposure value of a netting set that satisfies all 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 not subject to any margin agreement.

By way of derogation from the first subparagraph, institutions shall replace a vanilla digital option the strike of which equals K with the relevant collar combination of two sold and bought vanilla call or put options that meet the following requirements:

(a) the two options of the collar combination have: (i) the same expiry date and the same spot or forward price of the underlying instrument as the vanilla digital option; (ii) strikes equal to 0,95 ·K and 1,05 ·K respectively;

(b) the collar combination replicates exactly the vanilla digital option payoff outside the range between the two strikes referred to in point (a).

The risk position of the two options of the collar combination referred to in the second subparagraph shall be calculated separately in accordance with Article 279.

Article 275

Replacement cost

Institutions shall calculate the replacement cost RC for netting sets that are not subject to a margin agreement, in accordance with the following formula:

Institutions shall calculate the replacement cost for single netting sets that are subject to a margin agreement in accordance with the following formula:

Institutions shall calculate the replacement cost for multiple netting sets that are subject to the same margin agreement in accordance with the following formula:

where:

For the purposes of the first subparagraph, NICAMA may be calculated at trade 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

Recognition and treatment of collateral

For the purposes of this Section, institutions shall calculate the collateral amounts of VM, VMMA, NICA and NICAMA, by applying all the following requirements:

(a) where all the transactions included in a netting set belong to the trading book, only collateral that is eligible under Articles 197 and 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 Article 197 shall be recognised;

(c) collateral received from a counterparty shall be recognised with a positive sign and collateral posted to a counterparty shall be recognised with a negative sign;

(d) the volatility-adjusted value of any type of collateral received or posted shall be calculated in accordance with Article 223;

(e) the same collateral item shall not be included in both VM and NICA at the same time;

(f) the same collateral item shall not be included in both VMMA and NICAMA at the same time;

(g) any collateral posted to the counterparty that is segregated from the assets of that counterparty and, as a result of that segregation, is bankruptcy remote in the event of the default or insolvency of that counterparty shall not be recognised in the calculation of NICA and NICAMA.

For the calculation of the volatility-adjusted value of collateral posted referred to in point (d) of paragraph 1 of this Article, institutions shall replace the formula set out in Article 223(2) with the following formula:

For the purposes of point (d) of paragraph 1, institutions shall set the liquidation period relevant for the calculation of the volatility-adjusted value of any collateral received or posted in accordance with one of the following time horizons:

(a) one year for the netting sets referred to in Article 275(1);

(b) the margin period of risk determined in accordance with point (b) of Article 279c(1) for the netting sets referred to in Article 275(2) and (3).

Article 277

Mapping of transactions to risk categories

Institutions shall map each transaction of a netting set to one of the following risk categories to determine the potential future exposure of the netting set referred to in Article 278:

(a) interest rate risk;

(b) foreign exchange risk;

(c) credit risk;

(d) equity risk;

(e) commodity risk;

(f) other risks.

Notwithstanding paragraphs 1, 2 and 3, when mapping transactions to the risk categories listed in paragraph 1, institutions shall apply the following requirements:

(a) where the primary risk driver of a transaction, or the most material risk driver in a given risk category for transactions referred to in paragraph 3, is an inflation variable, institutions shall map the transaction to the interest rate risk category;

(b) where the primary risk driver of a transaction, or the most material risk driver in a given risk category for transactions referred to in paragraph 3, is a climatic conditions variable, institutions shall map the transaction to the commodity risk category.

EBA shall develop draft regulatory technical standards to specify:

(a) the method for identifying transactions with only one material risk driver;

(b) the method for identifying transactions with more than one material risk driver and for identifying the most material of those risk drivers for the purposes of paragraph 3.

EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.

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

Article 277a

Hedging 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:

(a) transactions mapped to the interest rate risk category shall be assigned to the same hedging set only where their primary risk driver, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), is denominated in the same currency;

(b) transactions mapped to the foreign exchange risk category shall be assigned to the same hedging set only where their primary risk driver, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), is based on the same currency pair;

(c) all the transactions mapped to the credit risk category shall be assigned to the same hedging set;

(d) all the transactions mapped to the equity risk category shall be assigned to the same hedging set;

(e) transactions mapped to the commodity risk category shall be assigned to one of the following hedging sets on the basis of the nature of their primary risk driver or the most material risk driver in the given risk category for transactions referred to in Article 277(3): (i) energy; (ii) metals; (iii) agricultural goods; (iv) other commodities; (v) climatic conditions;

(f) transactions mapped to the other risks category shall be assigned to the same hedging set only where their primary risk driver, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), is identical.

For the purposes of point (a) of the first subparagraph of this paragraph, 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 do not 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, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), is denominated in the same currency.

By way of derogation from paragraph 1 of this Article, institutions shall establish separate individual hedging sets in each risk category for the following transactions:

(a) transactions for which the primary risk driver, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), is either the market implied volatility or the realised volatility of a risk driver or the correlation between two risk drivers;

(b) transactions for which the primary risk driver, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), is the difference between two risk drivers mapped to the same risk category or transactions that consist of two 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 other payment leg than the one containing the primary risk driver.

For the purposes of point (a) of the first subparagraph of this paragraph, institutions shall assign transactions to the same hedging set of the relevant risk category only where their primary risk driver, or the most material risk driver in the given risk category for transactions referred to in Article 277(3), 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 therein is identical and the two risk drivers contained in this pair are positively correlated. Otherwise, institutions shall assign transactions referred to in point (b) of the first subparagraph to one of the hedging sets established in accordance with paragraph 1, on the basis of only one of the two risk drivers referred to in point (b) of the first subparagraph.

For the purposes of the first subparagraph, point (a), of this paragraph, institutions shall assign transactions to a separate hedging set of the relevant risk category following the same hedging set construction set out in paragraph 1.

Article 278

Potential future exposure

Institutions shall calculate the potential future exposure of a netting set as follows:

where:

For the purpose 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 least one transaction of the netting set has been mapped to that risk category.

For the purposes of paragraph 1, the multiplier shall be calculated as follows:

multiplier =		1 if z ≥ 0
if

where:

z =		CMV – NICA for the netting sets referred to in Article 275(1)
CMV – VM – NICA for the netting sets referred to in Article 275(2)
CMVi – NICAi for the netting sets referred to in Article 275(3)

Article 279

Calculation of the risk position

For the purpose of calculating the risk category add-ons referred to in Articles 280a to 280f, institutions shall calculate the risk position of each transaction of a netting set as follows:

Article 279a

Supervisory delta

Institutions shall calculate the supervisory delta as 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 or multiple dates in the future, except where those options are mapped to the interest rate risk or commodity risk category, institutions shall use the following formula: where: δ = the supervisory delta; sign = – 1 where the transaction is a sold call option or a bought put option; sign = + 1 where the transaction is a bought call option or sold put option; type = – 1 where the transaction is a put option; type = + 1 where the transaction is a call option; N(x) = 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 = the spot or forward price of the underlying instrument of the option; for options the cash flows of which depend on an average value of the price of the underlying instrument, P shall be equal to the average value at the calculation date; K = the strike price of the option; T = the period between the expiry date of the option (Texp) and the reporting date; for options which can be exercised at one future date only, Texp is equal to that date; for options which can be exercised at multiple future dates, Texp is equal to the latest of those dates; T shall be expressed in years using the relevant business day convention; and σ = the supervisory volatility of the option determined in accordance with Table 1 on the basis of the risk category of the transaction and the nature of the underlying instrument of the option. Table 1 Risk category Underlying instrument Supervisory volatility Foreign exchange All 15 % Credit Single-name instrument 100 % Multiple-names instrument 80 % Equity Single-name instrument 120 % Multiple-names instrument 75 % Commodity Electricity 150 % Other commodities (excluding electricity) 70 % Others All 150 % Institutions using the forward price of the underlying instrument of an option shall ensure that: (i) the forward price is consistent with the characteristics of the option; (ii) 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 and a nth-to-default credit derivative, institutions shall use the following formula: where: sign =

• 1 where credit protection has been obtained through the transaction – 1 where credit protection has been provided through the transaction A = the attachment point of the tranche; for a nth-to-default credit derivative transaction based on reference entities k, A = (n – 1)/k; and D = the detachment point of the tranche; for a nth-to-default credit derivative transaction based on reference entities k, D = n/k;

(c) for transactions not referred to in point (a) or (b), institutions shall use the following supervisory delta: δ =

• 1 if the transaction is a long position in the primary risk driver or in the most material risk driver in the given risk category – 1 if the transaction is a short position in the primary risk driver or in the most material risk driver in the given risk category

EBA shall develop draft regulatory technical standards to specify:

(a) in accordance with international regulatory developments, the formulae that institutions shall use to calculate the supervisory delta of call and put options mapped to the interest rate risk or commodity risk category compatible with market conditions in which interest rates or commodity prices may be negative and the supervisory volatility that is suitable for those formulae;

(b) the method for determining whether a transaction is a long or short position in the primary risk driver or in the most material risk driver in the given risk category for transactions referred to in Article 277(3).

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 279b

Adjusted notional amount

Institutions shall calculate the adjusted 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 and the supervisory duration factor, which shall be calculated as follows: where: R = the supervisory discount rate; R = 5 %; S = the period between the start date of a transaction and the reporting date, which shall be expressed in years using the relevant business day convention; E = the period between the end date of a transaction and the reporting date, which shall be expressed in years using the relevant business day convention; and OneBusinessYear = one year expressed in business days using the relevant business day convention. The start date of a transaction is the earliest date at which at least a contractual payment under the transaction, to or from the institution, is either fixed or exchanged, other than payments related to the exchange of collateral in a margin agreement. Where the transaction has already been fixing or making payments at the reporting date, the start date of a transaction shall be equal to 0. Where a transaction involves one or more contractual future dates on which the institution or the counterparty may decide to terminate the transaction prior to its contractual maturity, the start date of a transaction 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 counterparty may decide to terminate the transaction earlier than its contractual maturity; (ii) the date at which a transaction starts fixing or making payments, other than payments related to the exchange of collateral in a margin agreement. Where a transaction has a financial instrument as the underlying instrument that may give rise to contractual obligations additional to those of the transaction, the start date of a transaction shall be determined on the basis of the earliest date at which the underlying instrument starts fixing or making payments. The end date of a transaction is the latest date at which a contractual payment under the transaction, to or from the institution, is or may be exchanged. Where a transaction has a financial instrument as an underlying instrument that may give rise to contractual obligations additional to those of the transaction, the end date of a transaction shall be determined on the basis of the last contractual payment of the underlying instrument of the transaction. Where a transaction is structured to settle an outstanding exposure following specified payment dates and where the terms are reset so that the market value of the transaction is zero on those specified dates, the settlement of the outstanding exposure at those specified dates is considered a contractual payment under the same transaction;

(b) for transactions mapped to the foreign exchange risk category, institutions shall calculate the adjusted notional amount as follows: (i) where the transaction consists of one payment leg, the adjusted notional amount shall be the notional amount of the derivative contract; (ii) where the transaction consists of two 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 consists of two payment legs and the notional amount of each payment leg is denominated in a currency other than the institution's reporting currency, the adjusted notional amount shall be the largest of the notional amounts of the two payment legs after those amounts have been converted into the institution's reporting currency at the prevailing spot exchange rate;

(c) for transactions mapped to the equity risk category or commodity 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 and the number of units in the underlying instrument referenced by the transaction; where a transaction mapped to the equity risk category or commodity risk category is contractually expressed as a notional amount, institutions shall use the notional amount of the transaction rather than the number of units in the underlying instrument as the adjusted notional amount;

(d) for transactions mapped to the other risks category, institutions shall calculate the adjusted notional amount on the basis of the most appropriate method among the methods set out in points (a), (b) and (c), depending on the nature and characteristics of the underlying instrument of the transaction.

Institutions shall determine the notional amount or number of units of the 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 instrument of a transaction is not fixed until its contractual maturity: (i) 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 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;

(c) for contracts that provide for a multiplication of the cash-flow payments or a multiplication of the underlying of the derivative 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.

Article 279c

Maturity Factor

Institutions shall calculate the maturity factor as follows:

(a) for transactions included in the netting sets referred to in Article 275(1), institutions shall use the following formula:

where: MF = the maturity factor; M = the remaining maturity of the transaction which is equal to the period of time needed for the termination of all contractual obligations of the transaction; for that purpose, any optionality of a derivative contract shall be considered to be a contractual obligation; the remaining maturity shall be expressed in years using the relevant business day convention; where 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; where a transaction is structured to settle outstanding exposure following specified payment dates and where the terms are reset so that the market value of the transaction is zero on those specified dates, the remaining maturity of the transaction shall be equal to the time until the next reset date; and OneBusinessYear = one year expressed in business days using the relevant business day convention;

(b) for transactions included in the netting sets referred to in Article 275(2) and (3), the maturity factor is defined as:

where: MF = the maturity factor; MPOR = the margin period of risk of the netting set determined in accordance with Article 285(2) to (5); and OneBusinessYear = one year expressed in business days using the relevant business day convention. When determining the margin period of risk 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 five business days.

Article 280

Hedging set supervisory factor coefficient

For the purpose of calculating the add-on of a hedging set as referred to in Articles 280a to 280f, the hedging set supervisory factor coefficient ‘є’ shall be the following:

| є = | | 1 for the hedging sets established in accordance with Article 277a(1) |

---	---	---
5 for the hedging sets established in accordance with point (a) of Article 277a(2)
0,5 for the hedging sets established in accordance with point (b) of Article 277a(2)

Article 280a

Interest rate risk category add-on

For the purposes of Article 278, institutions shall calculate the interest rate risk category add-on for a given netting set as follows:

where:

Institutions shall calculate the interest rate risk category add-on for hedging set j as follows:

where:

For the purpose of calculating the effective notional amount of hedging set j, institutions shall first map 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 Article 279b(1):

Bucket	End date (in years)
1	> 0 and <= 1
2	> 1 and <= 5
3	> 5

Institutions shall then calculate the effective notional amount of hedging set j in accordance with the following formula:

where:

where:

Article 280b

Foreign exchange risk category add-on

For the purposes of Article 278, institutions shall calculate the foreign exchange risk category add-on for a given netting set as follows:

where:

Institutions shall calculate the foreign exchange risk category add-on for hedging set j as follows:

where:

where:

Article 280c

Credit risk category add-on

For the purposes of paragraph 2, institutions shall establish the relevant credit reference entities of the netting set in accordance with the following:

(a) there shall be one credit reference entity 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 entity only where the underlying reference debt instrument of those transactions is issued by the same issuer;

(b) there shall be one credit reference entity for each group of reference debt instruments or single-name credit derivatives that underlie a multi-name transaction allocated to the credit risk category; multi-names transactions shall be assigned to the same credit reference entity only where the group of underlying reference debt instruments or single-name credit derivatives of those transactions have the same constituents.

For the purposes of Article 278, institution shall calculate the credit risk category add-on for a given netting set as follows:

where:

Institutions shall calculate the credit risk category add-on for hedging set j as follows:

where:

Institutions shall calculate the add-on for the credit reference entity k as follows:

where:

Institutions shall calculate the supervisory factor applicable to the credit reference entity k as follows:

(a) (i) an institution using the approach referred to in Chapter 3 shall map the internal rating of the individual issuer to one of the external credit assessments;

(b) for the credit reference entity k established in accordance with point (b) of paragraph 1:

(ii) Table 3 Credit quality step Supervisory factor for single-name transactions 1 0,38 % 2 0,42 % 3 0,54 % 4 1,06 % 5 1,6 % 6 6,0 % Table 4 Dominant credit quality Supervisory factor for quoted indices Investment grade 0,38 % Non-investment grade 1,06 %

Article 280d

Equity risk category add-on

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 equity reference entity for each issuer of a reference equity instrument that underlies a single-name transaction allocated to the equity risk category; single-name transactions shall be assigned to the same equity reference entity only where the underlying reference equity instrument of those transactions is issued by the same issuer;

(b) there shall be one equity reference entity for each group of reference equity instruments or single-name equity derivatives that underlie a multi-name transaction allocated to the equity risk category; multi-names transactions shall be assigned to the same equity reference entity only where the group of underlying reference equity instruments or single-name equity derivatives of those transactions, as applicable, has the same constituents.

For the purposes of Article 278, institutions shall calculate the equity risk category add-on for a given netting set as follows:

where:

Institutions shall calculate the equity risk category add-on for hedging set j as follows:

where:

Institutions shall calculate the add-on for the equity reference entity k as follows:

where:

Article 280e

Commodity risk category add-on

For the purposes of Article 278, institutions shall calculate the commodity risk category add-on for a given netting set as follows:

where:

Institutions shall calculate the commodity risk category add-on for hedging set j as follows:

where:

Institutions shall calculate the add-on for the commodity reference type k as follows:

where:

Article 280f

Other risks category add-on

For the purposes of Article 278, institutions shall calculate the other risks category add-on for a given netting set as follows:

where:

Institutions shall calculate the other risks category add-on for hedging set j as follows:

where:

Section 4

Simplified standardised approach for counterparty credit risk

Article 281

Calculation of the exposure value

The exposure value of a netting set shall be calculated in accordance with the following requirements:

(a) institutions shall not apply the treatment referred to in Article 274(6);

(b) by way of derogation from Article 275(1), for netting sets that are not referred to in Article 275(2), institutions shall calculate the replacement cost in accordance with the following formula: RC = max{CMV, 0} where: RC = the replacement cost; and CMV = the current market value.

(c) by way of derogation from Article 275(2) of this Regulation, for netting sets of transactions: that are traded on a recognised exchange; that are centrally cleared by a central counterparty authorised in accordance with Article 14 of Regulation (EU) No 648/2012 or recognised in accordance with Article 25 of that Regulation; or for which collateral is exchanged bilaterally with the counterparty in accordance with Article 11 of Regulation (EU) No 648/2012, institutions shall calculate the replacement cost in accordance with the following formula: RC = TH + MTA where: RC = the replacement cost; TH = the margin threshold applicable to the netting set under the margin agreement below which the institution cannot call for collateral; and MTA = the minimum transfer amount applicable to the netting set under the margin agreement;

(d) by way of derogation from Article 275(3), for multiple netting sets that are subject to a margin agreement, 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 Article 277a(1);

(f) institutions shall set to 1 the multiplier in the formula that is used to calculate the potential future exposure in Article 278(1), as follows: where: PFE = the potential future exposure; and AddOn^(a) = the add-on for risk category a;

(g) by way of derogation from Article 279a(1), for all transactions, institutions shall calculate the supervisory delta as follows: δ =

• 1 where the transaction is a long position in the primary risk driver – 1 where the transaction is a short position in the primary risk driver where: δ = the supervisory delta;

(h) the formula referred to in point (a) of Article 279b(1) that is used to compute the supervisory duration factor shall read as follows: supervisory duration factor = E – S where: E = the period between the end date of a transaction and the reporting date; and S = the period between the start date of a transaction and the reporting date;

(i) the maturity factor referred to in Article 279c(1) shall be calculated as follows: (i) for transactions included in netting sets referred to in Article 275(1), MF = 1; (ii) for transactions included in netting sets referred to in Article 275(2) and (3), MF = 0,42;

(j) the formula referred to in Article 280a(3) that is used to calculate the effective notional amount of hedging set j shall read as follows:

where:

the effective notional amount of hedging set j; and Dj,k = the effective notional amount of bucket k of hedging set j;

(k) the formula referred to in Article 280c(3) that is used to calculate the credit risk category add-on for hedging set j shall read as follows:

where:

the credit risk category add-on for hedging set j; and AddOn(Entityk) = the add-on for the credit reference entity k;

(l) the formula referred to in Article 280d(3) that is used to calculate the equity risk category add-on for hedging set j shall read as follows:

where:

the equity risk category add-on for hedging set j; and AddOn(Entityk) = the add-on for the credit reference entity k;

(m) the formula referred to in Article 280e(4) that is used to calculate the commodity risk category add-on for hedging set j shall read as follows:

where:

the commodity risk category add-on for hedging set j; and

the add-on for the commodity reference type k.

Section 5

Original exposure method

Article 282

Calculation of the exposure value

The current replacement cost referred to in paragraph 2 shall be calculated as follows:

(a) for netting sets of transactions: that are traded on a recognised exchange; centrally cleared by a central counterparty authorised in accordance with Article 14 of Regulation (EU) No 648/2012 or recognised in accordance with Article 25 of that Regulation; or for which collateral is exchanged bilaterally with the counterparty in accordance with Article 11 of Regulation (EU) No 648/2012, institutions shall use the following formula: RC = TH + MTA where: RC = the replacement cost; TH = the margin threshold applicable to the netting set under the margin agreement below which the institution cannot call for collateral; and 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 use the following formula: RC = max{CMV, 0} where: RC = the replacement cost; and CMV = the current market value.

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 paragraph 2 as follows:

(a) 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, 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 % and the residual maturity of the transaction expressed in years for interest-rate derivative contracts; (ii) the product of 6 % and the residual maturity of the transaction expressed in years for credit derivative contracts; (iii) 4 % for foreign-exchange derivatives; (iv) 18 % for gold and commodity derivatives other than electricity derivatives; (v) 40 % for electricity derivatives; (vi) 32 % for equity derivatives;

(c) the notional amount referred to in point (b) of this paragraph shall be determined in accordance with Article 279b(2) and (3) for all derivatives listed in that point; in addition, the notional amount of the derivatives referred to in points (b)(iii) to (b)(vi) of this paragraph shall be determined in accordance with points (b) and (c) of Article 279b(1);

(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 interest-rate derivatives and credit derivatives in accordance with points b(i) and (b)(ii), an institution may choose to use the original maturity instead of the residual maturity of the contracts.

Section 6

Internal Model Method

Article 283

Permission to use the Internal Model Method

Provided that the competent authorities are satisfied that the requirement in paragraph 2 have been met by an institution, they shall permit that institution to use the Internal Model Method (IMM) to calculate the exposure value for any of the following transactions:

(a) transactions in Article 273(2)(a);

(b) transactions in Article 273(2)(b), (c) and (d);

(c) transactions in Article 273(2)(a) to (d),

Where an institution is permitted to use the IMM to calculate exposure value for any of the transactions mentioned in points (a) to (c) of the first subparagraph, it may also use the IMM for the transactions in Article 273(2)(e).

Notwithstanding the third subparagraph of Article 273(1), an institution may choose not to apply this method to exposures that are immaterial in size and risk. In such case, an institution shall apply one of the methods set out in Sections 3 to 5 to these exposures where the relevant requirements for each approach are met.

If an institution ceases to comply with the requirements laid down in this Section, it shall notify the competent authority and do one of the following:

(a) present to the competent authority a plan for a timely return to compliance;

(b) demonstrate to the satisfaction of the competent authority that the effect of non-compliance is immaterial.

Article 284

Exposure value

The model used by the institution for that purpose shall:

(a) specify the forecasting distribution for changes in the market value of the netting set attributable to joint changes in relevant market variables, such as interest rates, foreign exchange rates;

(b) calculate the exposure value for the netting set at each of the future dates on the basis of the joint changes in the market variables.

The own funds requirement for counterparty credit risk with respect to the CCR exposures to which an institution applies the IMM, shall be the higher of the following:

(a) the own funds requirement for those exposures calculated on the basis of Effective EPE using current market data;

(b) the own funds requirement for those exposures calculated on the basis of Effective EPE using a single consistent stress calibration for all CCR exposures to which they apply the IMM.

Except for counterparties identified as having Specific Wrong-Way risk that fall within the scope of Article 291(4) and (5), institutions shall calculate the exposure value as the product of alpha (α) times Effective EPE, as follows:

Exposure value = α · Effective EPE

where:

Effective EPE shall be calculated by estimating expected exposure (EEt) as the average exposure at future date t, where the average is taken across possible future values of relevant market risk factors.

The model shall estimate EE at a series of future dates t1, t2, t3, etc.

Effective EE shall be calculated recursively as:

where:

Effective EPE is the average Effective EE during the first year of future exposure. If all contracts in the netting set mature within less than one year, EPE shall be the average of EE until all contracts in the netting set mature. Effective EPE shall be calculated as a weighted average of Effective EE:

Notwithstanding paragraph 4, competent authorities may permit institutions to use their own estimates of alpha, where:

(a) alpha shall equal the ratio of internal capital from a full simulation of CCR exposure across counterparties (numerator) and internal capital based on EPE (denominator);

(b) in the denominator, EPE shall be used as if it were a fixed outstanding amount.

When estimated in accordance with this paragraph, alpha shall be no lower than 1,2.

Article 285

Exposure value for netting sets subject to a margin agreement

If the netting set is subject to a margin agreement and daily mark-to-market valuation, the institution shall calculate Effective EPE as set out in this paragraph. If the model captures the effects of margining when estimating EE, the institution may, subject to the permission of the competent authority, use the model's EE measure directly in the equation in Article 284(5). Competent authorities shall grant such permission only if they verify that the model properly captures the effects of margining when estimating EE. An institution that has not received such permission shall use one of the following Effective EPE measures:

(a) Effective EPE, calculated without taking into account any collateral held or posted by way of margin plus any collateral that has been posted to the counterparty independent of the daily valuation and margining process or current exposure;

(b) Effective EPE, calculated as the potential increase in exposure over the margin period of risk, plus the larger of: (i) the current exposure including all collateral currently held or posted, other than collateral called or in dispute; (ii) the largest net exposure, including collateral under the margin agreement, that would not trigger a collateral call. This amount shall reflect all applicable thresholds, minimum transfer amounts, independent amounts and initial margins under the margin agreement.

For the purposes of point (b), institutions shall calculate the add-on as the expected positive change of the mark-to-market value of the transactions during the margin period of risk. Changes in the value of collateral shall be reflected using the Supervisory Volatility Adjustments Approach in accordance with Section 4 of Chapter 4 or the own estimates of volatility adjustments of the Financial Collateral Comprehensive Method, but no collateral payments shall be assumed during the margin period of risk. The margin period of risk is subject to the minimum periods set out in paragraphs 2 to 5.

For transactions subject to daily re-margining and mark-to-market valuation, the margin period of risk used for the purpose of modelling the exposure value with margin agreements shall not be less than:

(a) 5 business days for netting sets consisting only of repurchase transactions, securities or commodities lending or borrowing transactions and margin lending transactions;

(b) 10 business days for all other netting sets.

Points (a) and (b) of paragraph 2 shall be subject to the following exceptions:

(a) for all netting sets where the number of trades exceeds 5 000 at any point during a quarter, the margin period of risk for the following quarter shall not be less than 20 business days. This exception shall not apply to institutions' trade exposures;

(b) for netting sets containing one or more trades involving either illiquid collateral, or an OTC derivative that cannot be easily replaced, the margin period of risk shall not be less than 20 business days.

An institution shall determine whether collateral is illiquid or whether OTC derivatives cannot be easily replaced in the context of stressed market conditions, characterised by the absence of continuously active markets where a counterparty would, within two days or fewer, obtain multiple price quotations that would not move the market or represent a price reflecting a market discount (in the case of collateral) or premium (in the case of an OTC derivative).

An institution shall consider whether trades or securities it holds as collateral are concentrated in a particular counterparty and if that counterparty exited the market precipitously whether the institution would be able to replace those trades or securities.

For re-margining with a periodicity of N days, the margin period of risk shall be at least equal to the period specified in paragraphs 2 and 3, F, plus N days minus one day. That is:

Margin Period of Risk = F + N – 1

Article 286

Management of CCR — Policies, processes and systems

An institution shall establish and maintain a CCR management framework, consisting of:

(a) policies, processes and systems to ensure the identification, measurement, management, approval and internal reporting of CCR;

(b) procedures for ensuring that those policies, processes and systems are complied with.

Those policies, processes and systems shall be conceptually sound, implemented with integrity and documented. The documentation shall include an explanation of the empirical techniques used to measure CCR.

The CCR management framework required by paragraph 1 shall take account of market, liquidity, and legal and operational risks that are associated with CCR. In particular, the framework shall ensure that the institution complies with the following principles:

(a) it does not undertake business with a counterparty without assessing its creditworthiness;

(b) it takes due account of settlement and pre-settlement credit risk;

(c) it manages such risks as comprehensively as practicable at the counterparty level by aggregating CCR exposures with other credit exposures and at the firm-wide level.

An institution using the IMM shall ensure that its CCR management framework accounts to the satisfaction of the competent authority for the liquidity risks of all of the following:

(a) potential incoming margin calls in the context of exchanges of variation margin or other margin types, such as initial or independent margin, under adverse market shocks;

(b) potential incoming calls for the return of excess collateral posted by counterparties;

(c) calls resulting from a potential downgrade of its own external credit quality assessment.

An institution shall ensure that the nature and horizon of collateral re-use is consistent with its liquidity needs and does not jeopardise its ability to post or return collateral in a timely manner.

Article 287

Organisation structures for CCR management

An institution using the IMM shall establish and maintain:

(a) a risk control unit that complies with paragraph 2;

(b) a collateral management unit that complies with paragraph 3.

The risk control unit shall be responsible for the design and implementation of its CCR management, including the initial and on-going validation of the model, and shall carry out the following functions and meet the following requirements:

(a) it shall be responsible for the design and implementation of the CCR management system of the institution;

(b) it shall produce daily reports on and analyse the output of the institution's risk measurement model. That analysis shall include an evaluation of the relationship between measures of CCR exposure values and trading limits;

(c) it shall control input data integrity and produce and analyse reports on the output of the institution's risk measurement model, including an evaluation of the relationship between measures of risk exposure and credit and trading limits;

(d) it shall be independent from units responsible for originating, renewing or trading exposures and free from undue influence;

(e) it shall be adequately staffed;

(f) it shall report directly to the senior management of the institution;

(g) its work shall be closely integrated into the day-to-day credit risk management process of the institution;

(h) its output shall be an integral part of the process of planning, monitoring and controlling the institution's credit and overall risk profile.

The collateral management unit shall carry out the following tasks and functions:

(a) calculating and making margin calls, managing margin call disputes and reporting levels of independent amounts, initial margins and variation margins accurately on a daily basis;

(b) controlling the integrity of the data used to make margin calls, and ensuring that it is consistent and reconciled regularly with all relevant sources of data within the institution;

(c) tracking the extent of re-use of collateral and any amendment of the rights of the institution to or in connection with the collateral that it posts;

(d) reporting to the appropriate level of management the types of collateral assets that are reused, and the terms of such reuse including instrument, credit quality and maturity;

(e) tracking concentration to individual types of collateral assets accepted by the institution;

(f) reporting collateral management information on a regular basis, but at least quarterly, to senior management, including information on the type of collateral received and posted, the size, aging and cause for margin call disputes. That internal reporting shall also reflect trends in these figures.

Article 288

Review of CCR management system

An institution shall regularly conduct an independent review of its CCR management system through its internal auditing process. That review shall include both the activities of the control and collateral management units required by Article 287 and shall specifically address, as a minimum:

(a) the adequacy of the documentation of the CCR management system and process required by Article 286;

(b) the organisation of the CCR control unit required by Article 287(1)(a);

(c) the organisation of the collateral management unit required by Article 287(1)(b);

(d) the integration of CCR measures into daily risk management;

(e) the approval process for risk pricing models and valuation systems used by front and back-office personnel;

(f) the validation of any significant change in the CCR measurement process;

(g) the scope of CCR captured by the risk measurement model;

(h) the integrity of the management information system;

(i) the accuracy and completeness of CCR data;

(j) the accurate reflection of legal terms in collateral and netting agreements into exposure value measurements;

(k) the verification of the consistency, timeliness and reliability of data sources used to run models, including the independence of such data sources;

(l) the accuracy and appropriateness of volatility and correlation assumptions;

(m) the accuracy of valuation and risk transformation calculations;

(n) the verification of the model's accuracy through frequent back-testing as set out in points (b) to (e) of Article 293(1);

(o) the compliance of the CCR control unit and collateral management unit with the relevant regulatory requirements.

Article 289

Use test

Article 290

Stress testing

It shall apply at least quarterly multifactor stress testing scenarios and assess material non-directional risks including yield curve exposure and basis risks. Multiple-factor stress tests shall, at a minimum, address the following scenarios in which the following occurs:

(a) severe economic or market events have occurred;

(b) broad market liquidity has decreased significantly;

(c) a large financial intermediary is liquidating positions.

Article 291

Wrong-Way Risk

For the purposes of this Article:

(a) ‘General Wrong-Way risk’ arises when the likelihood of default by counterparties is positively correlated with general market risk factors;

(b) ‘Specific Wrong-Way risk’ arises when future exposure to a specific counterparty is positively correlated with the counterparty's PD due to the nature of the transactions with the counterparty. An institution shall be considered to be exposed to Specific Wrong-Way risk if the future exposure to a specific counterparty is expected to be high when the counterparty's probability of a default is also high.

Institutions shall calculate the own funds requirements for CCR in relation to transactions where Specific Wrong-Way risk has been identified and where there exists a legal connection between the counterparty and the issuer of the underlying of the OTC derivative or the underlying of the transactions referred to in points (b), (c) and (d) of Article 273(2)), in accordance with the following principles:

(a) the instruments where Specific Wrong-Way risk exists shall not be included in the same netting set as other transactions with the counterparty, and shall each be treated as a separate netting set;

(b) within any such separate netting set, for single-name credit default swaps the exposure value equals the full expected loss in the value of the remaining fair value of the underlying instruments based on the assumption that the underlying issuer is in liquidation;

(c) LGD for an institution using the approach set out in Chapter 3 shall be 100 % for such swap transactions;

(d) for an institution using the approach set out in Chapter 2, the applicable risk weight shall be that of an unsecured transaction;

(e) for all other transactions referencing a single name in any such separate netting set, the calculation of the exposure value shall be consistent with the assumption of a jump-to-default of those underlying obligations where the issuer is legally connected with the counterparty. For transactions referencing a basket of names or index, the jump-to-default of the respective underlying obligations where the issuer is legally connected with the counterparty, shall be applied, if material;

(f) to the extent that the calculation uses existing market risk calculations for own funds requirements for default risk as set out in Title IV, Chapter 1a, Section 4 or 5, or for default risk using an internal default risk model as set out in Title IV, Chapter 1b, Section 3, that already contain an LGD assumption, the LGD in the formula used shall be 100 %.

Article 292

Integrity of the modelling process

An institution shall ensure the integrity of modelling process as set out in Article 284 by adopting at least the following measures:

(a) the model shall reflect transaction terms and specifications in a timely, complete, and conservative fashion;

(b) those terms shall include at least contract notional amounts, maturity, reference assets, margining arrangements and netting arrangements;

(c) those terms and specifications shall be maintained in a database that is subject to formal and periodic audit;

(d) a process for recognising netting arrangements that requires legal staff to verify that netting under those arrangements is legally enforceable;

(e) the verification required under point (d) shall be entered into the database mentioned in point (c) by an independent unit;

(f) the transmission of transaction terms and specification data to the EPE model shall be subject to internal audit;

(g) there shall be processes for formal reconciliation between the model and source data systems to verify on an ongoing basis that transaction terms and specifications are being reflected in EPE correctly or at least conservatively.

To calculate the Effective EPE using a stress calibration, an institution shall calibrate Effective EPE using either three years of data that includes a period of stress to the credit default spreads of its counterparties or market implied data from such a period of stress.

The requirements in paragraphs 3, 4 and 5 shall be applied by the institution for that purpose.

The competent authorities shall require an institution to adjust the stress calibration if the exposures of those benchmark portfolios deviate substantially from each other.

An institution shall subject the model to a validation process that is clearly articulated in the institutions' policies and procedures. That validation process shall:

(a) specify the kind of testing needed to ensure model integrity and identify conditions under which the assumptions underlying the model are inappropriate and may therefore result in an understatement of EPE;

(b) include a review of the comprehensiveness of the model.

An institution shall monitor the relevant risks and have processes in place to adjust its estimation of Effective EPE when those risks become significant. In complying with this paragraph, the institution shall:

(a) identify and manage its exposures to Specific Wrong-Way risk arising as specified in Article 291(1)(b) and exposures to General Wrong-Way risk arising as specified in Article 291(1)(a);

(b) for exposures with a rising risk profile after one year, compare on a regular basis the estimate of a relevant measure of exposure over one year with the same exposure measure over the life of the exposure;

(c) for exposures with a residual maturity below one year, compare on a regular basis the replacement cost (current exposure) and the realised exposure profile, and store data that would allow such a comparison.

Article 293

Requirements for the risk management system

An institution shall comply with the following requirements:

(a) it shall meet the qualitative requirements set out in Part Three, Title IV, Chapter 5;

(b) it shall conduct a regular programme of back-testing, comparing the risk measures generated by the model with realised risk measures, and hypothetical changes based on static positions with realised measures;

(c) it shall carry out an initial validation and an on-going periodic review of its CCR exposure model and the risk measures generated by it. The validation and review shall be independent of the model development;

(d) the management body and senior management shall be involved in the risk control process and shall ensure that adequate resources are devoted to credit and counterparty credit risk control. In this regard, the daily reports prepared by the independent risk control unit established in accordance Article 287(1)(a) shall be reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual traders and reductions in the overall risk exposure of the institution;

(e) the internal risk measurement exposure model shall be integrated into the day-to-day risk management process of the institution;

(f) the risk measurement system shall be used in conjunction with internal trading and exposure limits. In this regard, exposure limits shall be related to the institution's risk measurement model in a manner that is consistent over time and that is well understood by traders, the credit function and senior management;

(g) an institution shall ensure that its risk management system is well documented. In particular, it shall maintain a documented set of internal policies, controls and procedures concerning the operation of the risk measurement system, and arrangements to ensure that those policies are complied with;

(h) an independent review of the risk measurement system shall be carried out regularly in the institution's own internal auditing process. This review shall include both the activities of the business trading units and of the independent risk control unit. A review of the overall risk management process shall take place at regular intervals (and no less than once a year) and shall specifically address, as a minimum, all items referred to in Article 288;

(i) the on-going validation of counterparty credit risk models, including back-testing, shall be reviewed periodically by a level of management with sufficient authority to decide the action that will be taken to address weaknesses in the models.

Article 294

Validation requirements

As part of the initial and on-going validation of its CCR exposure model and its risk measures, an institution shall ensure that the following requirements are met:

(a) the institution shall carry out back-testing using historical data on movements in market risk factors prior to the permission by the competent authorities in accordance with Article 283(1). That back-testing shall consider a number of distinct prediction time horizons out to at least one year, over a range of various initialisation dates and covering a wide range of market conditions;

(b) the institution using the approach set out in Article 285(1)(b) shall regularly validate its model to test whether realised current exposures are consistent with prediction over all margin periods within one year. If some of the trades in the netting set have a maturity of less than one year, and the netting set has higher risk factor sensitivities without these trades, the validation shall take this into account;

(c) it shall back-test the performance of its CCR exposure model and the model's relevant risk measures as well as the market risk factor predictions. For collateralised trades, the prediction time horizons considered shall include those reflecting typical margin periods of risk applied in collateralised or margined trading;

(d) if the model validation indicates that Effective EPE is underestimated, the institution shall take the action necessary to address the inaccuracy of the model;

(e) it shall test the pricing models used to calculate CCR exposure for a given scenario of future shocks to market risk factors as part of the initial and on-going model validation process. Pricing models for options shall account for the nonlinearity of option value with respect to market risk factors;

(f) the CCR exposure model shall capture the transaction-specific information necessary to be able to aggregate exposures at the level of the netting set. An institution shall verify that transactions are assigned to the appropriate netting set within the model;

(g) the CCR exposure model shall include transaction-specific information to capture the effects of margining. It shall take into account both the current amount of margin and margin that would be passed between counterparties in the future. Such a model shall account for the nature of margin agreements that are unilateral or bilateral, the frequency of margin calls, the margin period of risk, the minimum threshold of un-margined exposure the institution is willing to accept, and the minimum transfer amount. Such a model shall either estimate the mark-to-market change in the value of collateral posted or apply the rules set out in Chapter 4;

(h) the model validation process shall include static, historical back-testing on representative counterparty portfolios. An institution shall conduct such back-testing on a number of representative counterparty portfolios that are actual or hypothetical at regular intervals. Those representative portfolios shall be chosen on the basis of their sensitivity to the material risk factors and combinations of risk factors to which the institution is exposed;

(i) an institution shall conduct back-testing that is designed to test the key assumptions of the CCR exposure model and the relevant risk measures, including the modelled relationship between tenors of the same risk factor, and the modelled relationships between risk factors;

(j) the performance of CCR exposure models and its risk measures shall be subject to appropriate back-testing practice. The back testing programme shall be capable of identifying poor performance in an EPE model's risk measures;

(k) an institution shall validate its CCR exposure models and all risk measures out to time horizons commensurate with the maturity of trades for which exposure is calculated using IMM in accordance to the Article 283;

(l) an institution shall regularly test the pricing models used to calculate counterparty exposure against appropriate independent benchmarks as part of the on-going model validation process;

(m) the on-going validation of an institution's CCR exposure model and the relevant risk measures shall include an assessment of the adequacy of the recent performance;

(n) the frequency with which the parameters of an CCR exposure model are updated shall be assessed by an institution as part of the initial and on-going validation process;

(o) the initial and on-going validation of CCR exposure models shall assess whether or not the counterparty level and netting set exposure calculations of exposure are appropriate.

Section 7

Contractual netting

Article 295

Recognition of contractual netting as risk-reducing

Institutions may treat as risk reducing in accordance with Article 298 only the following types of contractual netting agreements where the netting agreement has been recognised by competent authorities in accordance with Article 296 and where the institution meets the requirements set out in Article 297:

(a) bilateral contracts for novation between an institution and its counterparty under which mutual claims and obligations are automatically amalgamated in such a way that the novation fixes one single net amount each time it applies so as to create a single new contract that replaces all former contracts and all obligations between parties pursuant to those contracts and is binding on the parties;

(b) other bilateral agreements between an institution and its counterparty;

(c) contractual cross-product netting agreements for institutions that have received the approval to use the method set out in Section 6 for transactions falling under the scope of that method. Competent authorities shall report to EBA a list of the contractual cross-product netting agreements approved.

Netting across transactions entered into by different legal entities of a group shall not be recognised for the purposes of calculating the own funds requirements.

Article 296

Recognition of contractual netting agreements

The following conditions shall be fulfilled by all contractual netting agreements used by an institution for the purposes of determining exposure value in this Part:

(a) the institution has concluded a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of default by the counterparty it would be entitled to receive or obliged to pay only the net sum of the positive and negative mark-to-market values of included individual transactions;

(b) the institution has made available to the competent authorities written and reasoned legal opinions to the effect that, in the event of a legal challenge of the netting agreement, the institution's claims and obligations would not exceed those referred to in point (a). The legal opinion shall refer to the applicable law: (i) the jurisdiction in which the counterparty is incorporated; (ii) if a branch of an undertaking is involved, which is located in a country other than that where the undertaking is incorporated, the jurisdiction in which the branch is located; (iii) the jurisdiction whose law governs the individual transactions included in the netting agreement; (iv) the jurisdiction whose law governs any contract or agreement necessary to effect the contractual netting;

(c) credit risk to each counterparty is aggregated to arrive at a single legal exposure across transactions with each counterparty. This aggregation shall be factored into credit limit purposes and internal capital purposes;

(d) the contract shall not contain any clause which, in the event of default of a counterparty, permits a non-defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulting party, even if the defaulting party is a net creditor (i.e. walk-away clause).

If any of the competent authorities are not satisfied that the contractual netting is legally valid and enforceable under the law of each of the jurisdictions referred to in point (b) the contractual netting agreement shall not be recognised as risk-reducing for either of the counterparties. Competent authorities shall inform each other accordingly.

The legal opinions referred to in point (b) may be drawn up by reference to types of contractual netting. The following additional conditions shall be fulfilled by contractual cross-product netting agreements:

(a) the net sum referred to in point (a) of paragraph 2 is the net sum of the positive and negative close out values of any included individual bilateral master agreement and of the positive and negative mark-to-market value of the individual transactions (the ‘cross-product net amount’);

(b) the legal opinions referred to in point (b) of paragraph 2 shall address the validity and enforceability of the entire contractual cross-product netting agreement under its terms and the impact of the netting arrangement on the material provisions of any included individual bilateral master agreement.

Article 297

Obligations of institutions

Taking into account the contractual cross-product netting agreement, the institution shall continue to comply with the requirements for the recognition of bilateral netting and the requirements of Chapter 4 for the recognition of credit risk mitigation, as applicable, with respect to each included individual bilateral master agreement and transaction.

Article 298

Effects of recognition of netting as risk-reducing

Netting for the purposes of Sections 3 to 6 shall be recognised as set out in those Sections.

Section 8

Items in the trading book

Article 299

Items in the trading book

When calculating risk-weighted exposure amounts for counterparty risk of items in the trading book, institutions shall comply with the following principles:

(b) institutions shall not use the Financial Collateral Simple Method set out in Article 222 for the recognition of the effects of financial collateral;

(c) in the case of repurchase transactions and securities or commodities lending or borrowing transactions booked in the trading book, institutions may recognise as eligible collateral all financial instruments and commodities that are eligible to be included in the trading book;

(d) for exposures arising from OTC derivative instruments booked in the trading book, institutions may recognise commodities that are eligible to be included in the trading book as eligible collateral;

(e) for the purposes of calculating volatility adjustments where such financial instruments or commodities which are not eligible under Chapter 4 are lent, sold or provided, or borrowed, purchased or received by way of collateral or otherwise under such a transaction, and an institution is using the Supervisory Volatility Adjustments Approach under Section 3 of Chapter 4, institutions shall treat such instruments and commodities in the same way as non-main index equities listed on a recognised exchange;

(f) where an institution is using the Own Estimates of Volatility adjustments Approach under Section 3 of Chapter 4 in respect of financial instruments or commodities which are not eligible under Chapter 4, it shall calculate volatility adjustments for each individual item. Where an institution has obtained the approval to use the internal models approach defined in Chapter 4, it may also apply that approach in the trading book;

(g) in relation to the recognition of master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions, or other capital market-driven transactions, institutions shall only recognise netting across positions in the trading book and the non-trading book when the netted transactions fulfil the following conditions:

(i) all transactions are marked to market daily; (ii) any items borrowed, purchased or received under the transactions may be recognised as eligible financial collateral under Chapter 4 without the application of points (c) to (f) of this paragraph;

(h) where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is recognised under this Regulation in accordance with Article 204, institutions shall apply one of the following approaches:

(i) treat it as if there were no counterparty risk arising from the position in that credit derivative; (ii) consistently include for the purpose of calculating the own funds requirements for counterparty credit risk all credit derivatives in the trading book forming part of internal hedges or purchased as protection against a CCR exposure where the credit protection is recognised as eligible under Chapter 4.

Section 9

Own funds requirements for exposures to a central counterparty

Article 300

Definitions

For the purposes of this Section and of Part Seven, the following definitions apply:

(1) ‘bankruptcy remote’, in relation to client assets, means that effective arrangements exist which ensure that those assets will not be available to the creditors of a CCP or of a clearing member in the event of the insolvency of that CCP or clearing member respectively, or that the assets will not be available to the clearing member to cover losses it incurred following the default of a client or clients other than those that provided those assets;

(2) ‘CCP-related transaction’ means a contract or a transaction listed in Article 301(1) between a client and a clearing member that is directly related to a contract or a transaction listed in that paragraph between that clearing member and a CCP;

(3) ‘clearing member’ means a clearing member as defined in point (14) of Article 2 of Regulation (EU) No 648/2012;

(4) ‘client’ means a client as defined in point (15) of Article 2 of Regulation (EU) No 648/2012 or an undertaking that has established indirect clearing arrangements with a clearing member in accordance with Article 4(3) of that Regulation;

(5) ‘cash transaction’ means a transaction in cash, debt instruments or equities, a spot foreign exchange transaction or a spot commodities transaction; however, repurchase transactions, securities or commodities lending transactions, and securities or commodities borrowing transactions, are not cash transactions;

(6) ‘indirect clearing arrangement’ means an arrangement that meets the conditions set out in the second subparagraph of Article 4(3) of Regulation (EU) No 648/2012;

(7) ‘higher-level client’ means an entity providing clearing services to a lower-level client;

(8) ‘lower-level client’ means an entity accessing the services of a CCP through a higher-level client;

(9) ‘multi-level client structure’ means an indirect clearing arrangement under which clearing services are provided to an institution by an entity which is not a clearing member, but is itself a client of a clearing member or of a higher-level client;

(10) ‘unfunded contribution to a default fund’ means a contribution that an institution that acts as a clearing member has contractually committed to provide to a CCP after the 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 two counterparties exchange deposits and a CCP interposes itself between them to ensure the performance of those counterparties' payment obligations.

Article 301

Material scope

This Section applies to the following contracts and transactions, for as long as they are outstanding with a CCP:

(a) the derivative contracts listed in Annex II and credit derivatives;

(b) securities financing transactions and fully guaranteed deposit lending or borrowing transactions; and

(c) long settlement transactions.

This Section does not apply to exposures arising from the settlement of cash transactions. Institutions shall apply the treatment laid down in Title V to trade exposures arising from those transactions and a 0 % risk weight to default fund contributions covering only those transactions. Institutions shall apply the treatment set out in Article 307 to default fund contributions that cover any of the contracts listed in the first subparagraph of this paragraph in addition to cash transactions.

For the purposes of this Section, the following requirements shall apply:

(a) the initial margin shall not include contributions to a CCP for mutualised loss sharing arrangements;

(b) the 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;

(c) where a CCP uses the initial margin to mutualise losses among its clearing members, institutions that act as clearing members shall treat that initial margin as a default fund contribution.

Article 302

Monitoring of exposures to CCPs

Article 303

Treatment of clearing members' exposures to CCPs

An institution that acts as a clearing member, either for its own purposes or as a financial intermediary between a client and a CCP, shall calculate the own funds requirements for its exposures to a CCP as follows:

(a) 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 Article 307 to its default fund contributions to the CCP.

Article 304

Treatment of clearing members' exposures to clients

Where an institution that acts as a clearing member uses the methods set out in Section 3 or 6 of this Chapter to calculate the own funds requirement for its exposures, the following provisions shall apply:

(a) 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 business days for its exposures to a CCP;

(c) by way of derogation from Article 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 set out in point (b) of that paragraph and does not contain disputed trades or exotic options;

(d) where a CCP retains variation margin against a transaction, and the institution's collateral is not protected against the insolvency of the CCP, the institution shall apply a margin period of risk that is the lower of one year and the remaining maturity of the transaction, with a floor of 10 business days.

In the case of a multi-level client structure, the treatment set out in the first subparagraph may be applied at each level of that structure.

Article 305

Treatment of clients' exposures

Without prejudice to the approach specified in paragraph 1, where an institution is a client, it may calculate the own funds requirements for its trade exposures for CCP-related transactions with its clearing member in accordance with Article 306 provided that all the following conditions are met:

(a) the positions and assets of that institution related to those transactions are distinguished and segregated, at the level of both the clearing member and the CCP, from the positions and assets of both the clearing member and the other clients of that clearing member and as a result of that distinction and segregation those positions and assets are bankruptcy remote in the event of the default or insolvency of the clearing member or one or more of its other clients;

(b) laws, regulations, rules and contractual arrangements applicable to or binding that institution or the CCP facilitate the transfer of the client's positions relating to those contracts and transactions and of the corresponding collateral to another clearing member within the applicable margin period of risk in the event of default or insolvency of the original clearing member. In such circumstance, the client's positions and the collateral shall be transferred at market value unless the client requests to close out the position at market value;

(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 set out in point (b) is met are legal, valid, binding and enforceable under the relevant laws of the relevant jurisdiction or jurisdictions;

(d) the CCP is a QCCP.

When assessing its compliance with the condition set out in point (b) of the first subparagraph, 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 that practice.

Article 306

Own funds requirements for trade exposures

An institution shall apply the following treatment to its trade exposures with CCPs:

(a) it shall apply a risk weight of 2 % to the exposure values of all its trade exposures with QCCPs;

(b) it shall apply the risk weight used for the Standardised Approach to credit risk as set out in Article 107(2)(b) to all its trade exposures with non-qualifying CCPs;

(c) where an institution acts as a financial intermediary between a client and a CCP, and the terms of the CCP-related transaction stipulate that the institution is not required to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, that institution may set the exposure value of the trade exposure with the CCP that corresponds to that CCP-related transaction to zero;

(d) where an institution acts as a financial intermediary between a client and a CCP, and the terms of the CCP-related transaction stipulate that the institution is required to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, that institution shall apply the treatment in point (a) or (b), as applicable, to the trade exposure with the CCP that corresponds to that CCP-related transaction.

Article 307

Own funds requirements for contributions to the default fund of a CCP

An institution that acts as a clearing member shall apply the following treatment to its exposures arising from its contributions to the default fund of a CCP:

(a) it shall calculate the own funds requirement for its pre-funded contributions to the default fund 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 non-qualifying CCP in accordance with the approach set out in Article 309;

(c) it shall calculate the own funds requirement for its unfunded contributions to the default fund of a QCCP in accordance with the treatment set out in Article 310.

Article 308

Own funds requirements for pre-funded contributions to the default fund of a QCCP

An institution shall calculate the own funds requirement to cover the exposure arising from its pre-funded contribution as follows:

where:

Article 309

Own funds requirements for pre-funded contributions to the default fund of a non-qualifying CCP and for unfunded contributions to a non-qualifying CCP

An institution shall apply the following formula to calculate the own funds requirement for the exposures arising from its pre-funded contributions to the default fund of a non-qualifying CCP and from unfunded contributions to such CCP:

Article 310

Own funds requirements for unfunded contributions to the default fund of a QCCP

An institution shall apply a 0 % risk weight to its unfunded contributions to the default fund of a QCCP.

Article 311

Own funds requirements for exposures to CCPs that cease to meet certain conditions

Where the condition set out in paragraph 1 is met, institutions shall, within three months of becoming aware of the circumstance referred to therein, or at an earlier time if the competent authorities of those institutions so require, do the following with respect to their exposures to that CCP:

(a) apply the treatment set out in point (b) of Article 306(1) to their trade exposures to that CCP;

(b) apply the treatment set out in Article 309 to their pre-funded contributions to the default fund 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) and (b) of this paragraph, as exposures to a corporate in accordance with the Standardised Approach for credit risk set out in Chapter 2.

TITLE III

OWN FUNDS REQUIREMENT FOR OPERATIONAL RISK

CHAPTER 1

CALCULATION OF THE OWN FUNDS REQUIREMENT FOR OPERATIONAL RISK

Article 311a

Definitions

For the purposes of this Title, the following definitions apply:

(1) “operational risk event” means any event linked to an operational risk which generates a loss or multiple losses, within one or multiple financial years;

(2) “aggregated gross loss” means the sum of all gross losses linked to the same operational risk event over one or multiple financial years;

(3) “aggregated net loss” means the sum of all net losses linked to the same operational risk event over one or multiple financial years;

(4) “grouped losses” means all operational losses caused by a common underlying trigger or root cause that could be grouped into one operational risk event.

Article 312

Own funds requirement for operational risk

The own funds requirement for operational risk shall be the business indicator component calculated in accordance with Article 313.

Article 313

Business indicator component

Institutions shall calculate their business indicator component in accordance with the following formula:

where:

BIC = the business indicator component;

BI = the business indicator, expressed in billions of euro, calculated in accordance with Article 314.

Article 314

Business indicator

Institutions shall calculate their business indicator in accordance with the following formula:

BI = ILDC + SC + FC

where:

BI = the business indicator, expressed in billions of euro;

ILDC = the interest, leases and dividend component, expressed in billions of euro and calculated in accordance with paragraph 2;

SC = the services component, expressed in billions of euro and calculated in accordance with paragraph 5;

FC = the financial component, expressed in billions of euro and calculated in accordance with paragraph 6.

For the purposes of paragraph 1, the interest, leases and dividend component shall be calculated in accordance with the following formula:

where:

ILDC = the interest, leases and dividend component;

IC = the interest component, which is the institution’s interest income from all financial assets and other interest income, including finance income from financial leases and income from operating leases and profits from leased assets, minus the institution’s interest expenses from all financial liabilities and other interest expenses, including interest expense from financial and operating leases, depreciation and impairment of, and losses from, operating leased assets, calculated as the annual average of the absolute values of the differences over the last three financial years;

AC = the asset component, which is the sum of the institution’s total gross outstanding loans, advances, interest bearing securities, including government bonds, and lease assets, calculated as the annual average over the last three financial years on the basis of the amounts at the end of each of the respective financial years;

DC = the dividend component, which is the institution’s dividend income from investments in stocks and funds not consolidated in the financial statements of the institution, including dividend income from non-consolidated subsidiaries, associates and joint ventures, calculated as the annual average over the last three financial years.

By way of derogation from paragraph 2, an EU parent institution may, until 31 December 2027, request permission from its consolidating supervisor to calculate a separate interest, leases and dividend component for any of its specific subsidiary institutions and to add the outcome of that calculation to the interest, leases and dividend component calculated, on a consolidated basis, for the other entities of the group where all of the following conditions are met:

(a) the subsidiaries’ retail or commercial banking activities account for the majority of their activity;

(b) a significant proportion of the subsidiaries’ retail or commercial banking activities comprise loans associated with a high PD;

(c) the use of the derogation provides an appropriate basis for calculating the EU parent institution’s own funds requirement for operational risk.

Once granted, the permission, and its conditions, shall be reassessed by the consolidating supervisor every two years.

The consolidating supervisor shall notify EBA as soon as such permission is granted, confirmed or withdrawn.

By 31 December 2031, EBA shall report to the Commission on the use and appropriateness of the derogation referred to in the first subparagraph having regard, in particular, to the specific business models concerned and to the adequacy of the related own funds requirement for operational risk. On the basis of that report, and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2032.

For the purposes of paragraph 1, the services component shall be calculated in accordance with the following formula:

SC = max(OI,OE) + max(FI,FE)

where:

SC = the services component;

OI = the other operating income, which is the annual average over the last three financial years of the institution’s income from ordinary banking operations not included in other items of the business indicator but of similar nature;

OE = the other operating expenses, which is the annual average over the last three financial years of the institution’s expenses and losses from ordinary banking operations not included in other items of the business indicator but of similar nature, and from operational risk events;

FI = the fee and commission income component, which is the annual average over the last three financial years of the institution’s income received from providing advice and services, including income received by the institution as an outsourcer of financial services;

FE = the fee and commission expenses component, which is the annual average over the last three financial years of the institution’s expenses paid for receiving advice and services, including outsourcing fees paid by the institution for the supply of financial services, but excluding outsourcing fees paid for the supply of non-financial services.

Subject to the prior permission of the competent authority, and to the extent that the institutional protection scheme has at its disposal suitable and uniformly stipulated systems for the monitoring and classification of operational risks, institutions that are members of an institutional protection scheme meeting the requirements of Article 113(7) may calculate the services component net of any income received from, or expenses paid to, institutions that are members of the same institutional protection scheme. Any losses resulting from the related operational risks are subject to mutualisation across institutional protection scheme members.

For the purposes of paragraph 1, the financial component shall be calculated in accordance with the following formula:

FC = TC + BC

where:

FC = the financial component;

TC = the trading book component, which is the annual average of the absolute values over the last three financial years of the net profit or loss, as applicable, on the institution’s trading book, determined as appropriate either in accordance with accounting standards or in accordance with Part Three, Title I, Chapter 3, including from trading assets and trading liabilities, from hedge accounting and from exchange differences;

BC = the banking book component, which is the annual average of the absolute values over the last three financial years of the net profit or loss, as applicable, on the institution’s non-trading book, including from financial assets and liabilities measured at fair value through profit and loss, from hedge accounting, from exchange differences and from realised gains and losses on financial assets and liabilities not measured at fair value through profit and loss.

Institutions shall not use any of the following elements in the calculation of their business indicator:

(a) income and expenses from insurance or reinsurance business;

(b) premiums paid and payments received from insurance or reinsurance policies purchased;

(c) administrative expenses, including staff expenses, outsourcing fees paid for the supply of non-financial services, and other administrative expenses;

(d) recovery of administrative expenses including recovery of payments on behalf of customers;

(e) expenses of premises and fixed assets, except where those expenses result from operational risk events;

(f) depreciation of tangible assets and amortisation of intangible assets, except the depreciation related to operating lease assets, which shall be included in financial and operating lease expenses;

(g) provisions and reversal of provisions, except where those provisions relate to operational risk events;

(h) expenses due to share capital repayable on demand;

(i) impairment and reversal of impairment;

(j) changes in goodwill recognised in profit or loss;

(k) corporate income tax.

EBA shall develop draft regulatory technical standards to specify the following:

(a) the components of the business indicator, and their use, by developing lists of typical sub-items, taking into account international regulatory standards and, where appropriate, the prudential boundary defined in Part Three, Title I, Chapter 3;

(b) the elements listed in paragraph 7 of this Article.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

EBA shall submit those draft implementing technical standards to the Commission by 10 January 2026.

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.

Article 315

Adjustments to the business indicator

EBA shall develop draft regulatory technical standards to specify the following:

(a) how institutions are to determine the adjustments to the business indicator referred to in paragraphs 1 and 2;

(b) the conditions under which competent authorities are able to grant the permission referred to in paragraph 2;

(c) the timing for the adjustments referred to in paragraph 2.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

CHAPTER 2

DATA COLLECTION AND GOVERNANCE

Article 316

Calculation of the annual operational risk loss

By way of derogation from the first subparagraph, competent authorities may grant a waiver from the requirement to calculate an annual operational risk loss to institutions with a business indicator that does not exceed EUR 1 billion, provided that the institution has demonstrated to the satisfaction of the competent authority that it would be unduly burdensome for the institution to apply the first subparagraph.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

Article 317

Loss data set

For the purpose of paragraph 1, institutions shall:

(a) include in the loss data set each operational risk event recorded during one or multiple financial years;

(b) use the date of accounting for including losses related to operational risk events in the loss data set;

(c) allocate losses and recoveries related to a common operational risk event or related operational risk events over time and posted to the accounts over several years, to the corresponding financial years of the loss data set, in line with their accounting treatment.

Institutions shall also collect:

(a) information about the reference dates of operational risk events, including: (i) the date when the operational risk event happened or first began (“date of occurrence”), where available; (ii) the date on which the institution became aware of the operational risk event (“date of discovery”); (iii) the date or dates on which an operational risk event results in a loss, or the reserve or provision against a loss, recognised in the institution’s profit and loss accounts (“date of accounting”);

(b) information on any recoveries of gross loss amounts as well as descriptive information about the drivers or causes of the loss events.

The level of detail of any descriptive information shall be commensurate with the size of the gross loss amount.

For the purposes of this Article, institutions shall ensure the soundness, robustness and performance of their IT systems and infrastructure necessary to maintain and update the loss data set, in particular by ensuring all of the following:

(a) their IT systems and infrastructure are sound and resilient and that that soundness and resilience can be maintained on a continuous basis;

(b) their IT systems and infrastructure are subject to configuration management, change management and release management processes;

(c) where an institution outsources parts of the maintenance of its IT systems and infrastructure, the soundness, robustness and performance of the IT systems and infrastructure is ensured by confirming at least the following:

(i) its IT systems and infrastructure are sound and resilient and that soundness and resilience can be maintained on a continuous basis; (ii) the process for planning, creating, testing and deploying the IT systems and infrastructure is sound and proper with reference to project management, risk management, governance, engineering, quality assurance and test planning, systems’ modelling and development, quality assurance in all activities, including code reviews and, where appropriate, code verification, and testing, including user acceptance; (iii) its IT systems and infrastructure are subject to configuration management, change management and release management processes; (iv) the process for planning, creating, testing and deploying the IT systems and infrastructure and contingency plans is approved by the management body or senior management and the management body and senior management are periodically informed about the IT systems and infrastructure performance.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

Article 318

Calculation of net loss and gross loss

For the purposes of Article 316(1), institutions shall calculate for each operational risk event a net loss as follows:

net loss = gross loss – recovery

where:

gross loss = a loss linked to an operational risk event before recoveries of any type;

recovery = one or multiple independent occurrences, related to the original operational risk event, separated in time, in which funds or inflows of economic benefits are received from a third party.

Institutions shall maintain on an ongoing basis an updated calculation of the net loss for each specific operational risk event. To that end, institutions shall update the net loss calculation based on the observed or estimated variations of the gross loss and the recovery for each of the last 10 financial years. Where losses, linked to the same operational risk event, are observed during multiple financial years within that 10-year time window, the institution shall calculate and maintain updated:

(a) the net loss, gross loss and recovery for each of the financial years of the 10-year time window where that net loss, gross loss and recovery were recorded;

(b) the aggregated net loss, aggregated gross loss and aggregated recovery of all relevant financial years of the 10-year time window.

For the purposes of paragraph 1, the following items shall be included in the gross loss computation:

(a) direct charges, such as impairments, settlements, amounts paid to make good the damage, penalties and interest in arrears and legal fees, to the institution’s profit and loss accounts and write-downs due to the operational risk event, including: (i) where the operational risk event relates to market risk, the costs to unwind market positions in the recorded loss amount of the operational risk items; (ii) where payments relate to failures or inadequate processes of the institution, penalties, interest charges, late-payment charges, legal fees and, with the exclusion of the tax amount originally due, tax, unless that amount is already included under point (e);

(b) costs incurred as a consequence of the operational risk event, including external expenses with a direct link to the operational risk event and costs of repair or replacement, incurred to restore the position that was prevailing before the operational risk event occurred;

(c) provisions or reserves accounted for in the profit and loss accounts against the potential operational loss impact, including those from misconduct events;

(d) losses stemming from operational risk events with a definitive financial impact which are temporarily booked in transitory or suspense accounts and are not yet reflected in the profit and loss accounts (“pending losses”);

(e) negative economic impacts booked in a financial year and which are due to operational risk events impacting the cash flows or financial statements of previous financial years (“timing losses”).

For the purposes of the first subparagraph, point (d), material pending losses shall be included in the loss data set within a time period commensurate with the size and age of the pending item.

For the purposes of the first subparagraph, point (e), the institution shall include in the loss data set material timing losses where those losses are due to operational risk events that span more than one financial year. Institutions shall include in the recorded loss amount of the operational risk item of a financial year losses that are due to the correction of booking errors that occurred in any previous financial year, even where those losses do not directly affect third parties. Where there are material timing losses and the operational risk event affects directly third parties, including customers, providers and employees of the institution, the institution shall also include the official restatement of previously issued financial reports.

For the purposes of paragraph 1, the following items shall be excluded from the gross loss computation:

(a) costs of general maintenance of contracts on property, plant or equipment;

(b) internal or external expenditure to enhance the business after the operational risk losses, including upgrades, improvements, risk assessment initiatives and enhancements;

(c) insurance premiums.

Upon request from the competent authority, the institution shall provide all documentation needed to verify the payments received and factored in the calculation of the net loss of an operational risk event.

Article 319

Loss data thresholds

Article 320

Exclusion of losses

An institution may request permission from the competent authority to exclude from the calculation of its annual operational risk loss exceptional operational risk events that are no longer relevant to the institution’s risk profile, where all of the following conditions are met:

(a) the institution can demonstrate to the satisfaction of the competent authority that the cause of the operational risk event at the origin of those operational risk losses will not occur again;

(b) the aggregated net loss of the corresponding operational risk event is either of the following: (i) equal to or exceed 10 % of the institution’s average annual operational risk loss, calculated over the last 10 financial years and based on the threshold referred to in Article 319(1), where the operational risk loss event refers to activities that are still part of the business indicator; (ii) related to an operational risk event that refers to activities divested from the business indicator in accordance with Article 315(2);

(c) the operational risk loss was in the loss database for a minimum period of one year, unless the operational risk loss is related to activities divested from the business indicator in accordance with Article 315(2).

For the purposes of the first subparagraph, point (c), of this paragraph the minimum period of one year shall start from the date on which the operational risk event, included in the loss data set, first became greater than the materiality threshold provided for in Article 319(1).

An institution requesting the permission referred to in paragraph 1 shall provide the competent authority with documented justifications for the exclusion of an exceptional operational risk event, including:

(a) a description of the operational risk event;

(b) proof that the loss from the operational risk event is above the materiality threshold for loss exclusion referred to in paragraph 1, point (b)(i), including the date on which that operational risk event became greater than the materiality threshold;

(c) the date on which the operational risk event concerned would be excluded, considering the minimum retention period set out in paragraph 1, point (c);

(d) the reason why the operational risk event is no longer deemed relevant to the institution’s risk profile;

(e) a demonstration that there are no similar or residual legal exposures and that the operational risk event to be excluded has no relevance to other activities or products;

(f) reports of the institution’s independent review or validation, confirming that the operational risk event is no longer relevant and that there are no similar or residual legal exposures;

(g) proof that competent bodies of the institution, through the institution’s approval processes, have approved the request for exclusion of the operational risk event and the date of such approval;

(h) the impact of the exclusion of the operational risk event on the annual operational risk loss.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2027.

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

Article 321

Inclusion of losses from merged or acquired entities or activities

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2027.

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

Article 322

Comprehensiveness, accuracy and quality of the loss data

Article 323

Operational risk management framework

Institutions shall have in place:

(a) a well-documented assessment and management system for operational risk which is closely integrated into day-to-day risk management processes, forms an integral part of the process of monitoring and controlling the institution’s operational risk profile, and for which clear responsibilities have been assigned; the assessment and management system for operational risk shall identify the institution’s exposures to operational risk and track relevant operational risk data, including material loss data;

(b) an operational risk management function that is independent from the institution’s business and operational units;

(c) a system of reporting to senior management that provides operational risk reports to relevant functions within the institution;

(d) a system of regular monitoring and reporting of operational risk exposures and loss experience, and procedures for taking appropriate corrective actions;

(e) routines for ensuring compliance, and policies for the treatment of non-compliance;

(f) regular reviews of the institution’s operational risk assessment and management processes and systems, carried out by internal or external auditors that possess the necessary knowledge;

(g) internal validation processes that operate in a sound and effective manner;

(h) transparent and accessible data flows and processes associated with the institution’s operational risk assessment system.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2027.

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

TITLE IV

OWN FUNDS REQUIREMENTS FOR MARKET RISK

CHAPTER 1

General provisions

Article 325

Approaches for calculating the own funds requirements for market risk

An institution shall calculate the own funds requirements for market risk for all its trading book positions and all its non-trading book positions that are subject to foreign exchange risk or commodity risk in accordance with the following approaches:

(a) the alternative standardised approach set out in Chapter 1a;

(b) the alternative internal model approach set out in Chapter 1b for those positions assigned to trading desks for which the institution has been granted permission by its competent authority to use that alternative approach as set out in Article 325az(1);

(c) the simplified standardised approach referred to in paragraph 2 of this Article, provided that the institution meets the conditions set out in Article 325a(1).

By way of derogation from the first subparagraph, an institution shall not calculate own funds requirements for foreign exchange risk for trading book positions and non-trading book positions that are subject to foreign exchange risk where those positions are deducted from the institution’s own funds. The institution shall document its use of the derogation set out in this subparagraph, including its impact and materiality, and make the information available, upon request, to its competent authority.

The own funds requirements for market risk calculated in accordance with the simplified standardised approach shall be the sum of the following own funds requirements, as applicable:

(a) the own funds requirements for position risk referred to in Chapter 2, multiplied by: (i) 1,3 , for the general and specific risks of positions in debt instruments, excluding securitisation instruments as referred to in Article 337; (ii) 3,5 , for the general and specific risks of positions in equity instruments;

(b) the own funds requirements for foreign exchange risk referred to in Chapter 3, multiplied by 1,2 ;

(c) the own funds requirements for commodity risk referred to in Chapter 4, multiplied by 1,9 ;

(d) the own funds requirements for securitisation instruments as referred to in Article 337.

Securitisation positions and nth-to-default credit derivatives that meet all the following criteria shall be included in the ACTP:

(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: (i) single-name instruments, including single-name credit derivatives, for which a liquid two-way market exists; (ii) commonly-traded indices based on the instruments referred to in point (i).

A two-way market is considered to exist where there are independent bona fide offers to buy and sell, so that a price that is 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 custom.

Positions with any of the following underlying instruments shall not be included in the ACTP:

(a) underlying instruments that are assigned to the exposure classes referred to in point (h) or (i) of Article 112;

(b) a claim on a special purpose entity, collateralised, directly or indirectly, by a position that, in accordance with paragraph 6, would itself not be eligible for inclusion in the ACTP.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 325a

Conditions for using the simplified standardised approach

An institution may calculate the own funds requirements for market risk by using the simplified standardised approach referred to in Article 325(1), point (c), provided that the size of the institution’s on- and off-balance-sheet business that is subject to market risk is equal to or less than each of the following thresholds, on the basis of an assessment carried out on a monthly basis using data as of the last day of the month:

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

(b) EUR 500 million.

Institutions shall calculate the size of their on- and off-balance-sheet business that is subject to market risk using data as of the last day of each month 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 and the credit derivative transactions that perfectly offset the market risk of the internal hedges as referred to in Article 106(3);

(b) all non-trading book positions that are subject to foreign exchange risk or commodity risk shall be included, except those positions that are excluded from the calculation of the own funds requirements for foreign exchange risk in accordance with Article 104c or that are deducted from the institutions’ own funds;

(c) all positions shall be valued at their market values on that date, except for positions referred to in point (b); where the market value of a trading book position is not available on a given date, institutions shall take a fair value for the trading book position on that date; where the fair value and market value of a trading book position are not available on a given date, institutions shall take the most recent market value or fair value for that position;

(d) all non-trading book positions that are subject to foreign exchange risk shall be considered as an overall net foreign exchange position and valued in accordance with Article 352;

(e) all the non-trading book positions that are subject to commodity risk shall be valued in accordance with Articles 357 and 358;

(f) the absolute value of the aggregated long position shall be summed with the absolute value of the aggregated short position.

For the purposes of the first subparagraph, the meaning of long and short positions is the same as the meaning set out in Article 94(3).

For the purposes of the first subparagraph, the value of the aggregated long (short) position shall be equal to the sum of the values of the individual long (short) positions included in the calculation in accordance with points (a) and (b) of that subparagraph.

Institutions shall cease to calculate the own funds requirements for market risk in accordance with the approach referred to in Article 325(1), point (c), within three months of either of the following cases:

(a) the institution does not meet the condition set out in point (a) or (b) of paragraph 1 for three consecutive months; or

(b) the institution does not meet the condition set out in point (a) or (b) of paragraph 1 during more than 6 out of the last 12 months.

Article 325b

Permission for consolidated requirements

Institutions may apply paragraph 1 only with the permission of the competent authorities which shall be granted if all 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 guarantees mutual financial support within the group.

Where there are undertakings located in third countries, all the following conditions shall be met in addition to those set out 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 third-country investment firms;

(b) on an individual basis, such undertakings comply 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 affect the transfer of funds within the group.

Where a competent authority has not granted an institution the permission referred to in paragraph 2 for at least one institution or undertaking of the group, the following requirements shall apply for the calculation of the own funds requirements for market risk on a consolidated basis in accordance with this Title:

(a) the institution shall calculate net positions and own funds requirements in accordance with this Title for all positions in institutions or undertakings of the group for which the institution has been granted the permission referred to in paragraph 2, using the treatment set out in paragraph 1;

(b) the institution shall calculate net positions and own funds requirements in accordance with this Title individually for all positions in each institution or undertaking of the group for which the institution has not been granted the permission referred to in paragraph 2;

(c) the institution shall calculate the total own funds requirements in accordance with this Title on a consolidated basis by adding the amounts calculated in points (a) and (b) of this paragraph.

For the purposes of the calculation referred to in the first subparagraph, points (a) and (b), institutions and undertakings referred to therein shall use the same reporting currency as the reporting currency used to calculate the own funds requirements for market risk in accordance with this Title on a consolidated basis for the group.

CHAPTER 1a

Alternative standardised approach

Section 1

General provisions

Article 325c

Scope, structure and qualitative requirements of the alternative standardised approach

Institutions shall calculate the own funds requirements for market risk in accordance with the alternative standardised approach for a portfolio of trading book positions or non-trading book positions that are subject to foreign exchange or commodity risk as the sum of the following three components:

(a) the own funds requirement under the sensitivities-based method set out in Section 2;

(b) the own funds requirement for the default risk set out in Section 5 which is only applicable to the trading book positions referred to in that Section;

(c) the own funds requirement for residual risks set out in Section 4 which is only applicable to the trading book positions referred to in that Section.

For the purposes of the first subparagraph, ‘third-party undertaking’ means an undertaking that provides auditing or consulting services to institutions and that has staff with sufficient skills in the area of market risk.

The review of the alternative standardised approach referred to in paragraph 5 shall cover the activities of both the business trading units and of the independent risk control unit and shall assess at least the following:

(a) the internal policies, procedures and controls for monitoring and ensuring compliance with the requirements referred to in paragraph 1 of this Article;

(b) the adequacy of the documentation of the risk management system and processes and the organisation of the risk control unit referred to in paragraph 4 of this Article;

(c) the accuracy of sensitivity computations and of the process used to derive those computations from the institution’s pricing models that serve as a basis for reporting profit and loss to senior management, as referred to in Article 325t;

(d) the verification process that the institution employs to evaluate the consistency, timeliness and reliability of the data sources used in the calculation of the own funds requirements for market risk using the alternative standardised approach, including the independence of those data sources.

An institution shall conduct the review referred to in the first subparagraph at least once a year, or on a less frequent basis of up to every two years where the institution can demonstrate to the satisfaction of the competent authority that the size, systemic importance, nature, scale and complexity of its trading book business justifies a less frequent review.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2028.

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

Section 2

Sensitivities-based method for calculating the own funds requirement

Article 325d

Definitions

For the purposes of this Chapter, the following definitions apply:

(1) ‘risk class’ means one of the following seven categories:

(i) general interest rate risk; (ii) credit spread risk (CSR) for non-securitisation; (iii) credit spread risk for securitisation not included in the alternative correlation trading portfolio (non-ACTP CSR); (iv) credit spread risk for securitisation included in the alternative correlation trading portfolio (ACTP CSR); (v) equity risk; (vi) commodity risk; (vii) foreign exchange risk;

(2) ‘sensitivity’ means the relative change in the value of a position, as a result of a change in the value of one of the relevant risk factors of the position, calculated with the institution's pricing model in accordance with Subsection 2 of Section 3;

(3) ‘bucket’ means a sub-category of positions within one risk class with a similar risk profile to which a risk weight as defined in Subsection 1 of Section 3 is assigned.

Article 325e

Components of the sensitivities-based method

Institutions shall calculate the own funds requirement for market risk under the sensitivities-based method by aggregating the following three own funds requirements in accordance with Article 325h:

(a) own funds requirements for delta risk which capture the risk of changes in the value of an instrument due to movements in its non-volatility related risk factors;

(b) own funds requirements for vega risk which capture the risk of changes in the value of an instrument due to movements in its volatility-related risk factors;

(c) own funds requirements for curvature risk which capture the risk of changes in the value of an instrument due to movements in the main non-volatility related risk factors not captured by the own funds requirements for delta risk.

For the purpose of the calculation referred to in paragraph 1,

(a) all the positions of instruments with optionality shall be subject to the own funds requirements referred to in points (a), (b) and (c) of paragraph 1 for the risks other than exotic underlyings of the instruments as referred to in point (a) of Article 325u(2);

(b) all the positions of instruments without optionality shall be subject to the own funds requirements referred to in point (a) of paragraph 1 for the risks other than exotic underlyings of the instruments as referred to in point (a) of Article 325u(2).

For the purposes of this Chapter, instruments with optionality include, among others: calls, puts, caps, floors, swap options, barrier options and exotic options. Embedded options, such as prepayment or behavioural options, shall be considered to be stand-alone positions in options for the purpose of calculating the own funds requirements for market risk.

For the purposes of this Chapter, instruments whose cash flows can be written as a linear function of the underlying's notional amount shall be considered to be instruments without optionality.

An institution that chooses to use the approach set out in the first subparagraph shall notify its competent authority thereof at least three months before the first use. After those three months have elapsed and provided that the competent authority has not objected, the institution may use that approach until the competent authority informs the institution that it is no longer permitted to do so.

An institution that wishes to stop using the approach set out in the first subparagraph shall notify its competent authority thereof at least three months before stopping that use. The institution may stop applying that approach, unless the competent authority has objected within that three-month period.

Article 325f

Own funds requirements for delta and vega risks

The net sensitivities to each risk factor within each bucket shall be multiplied by the corresponding risk weights set out in Section 6, giving rise to weighted sensitivities to each risk factor within that bucket in accordance with the following formula:

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. The corresponding correlations for weighted sensitivities within the same bucket (ρkl), set out in Section 6, shall be used.

The bucket-specific sensitivity shall be calculated for each bucket within a risk class in accordance with paragraphs 5, 6 and 7. Once the bucket-specific sensitivity 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 γbc for weighted sensitivities in different buckets set out in Section 6, giving rise to the risk-class specific own funds requirement for delta or vega risk:

where:

The risk-class specific own funds requirements for delta or vega risk shall be calculated for each risk class in accordance with paragraphs 1 to 8.

Article 325g

Own funds requirements for curvature risk

For a given risk factor, institutions shall perform those calculations on a net basis across all the positions of the instruments subject to the own funds requirement for curvature risk that contain that risk factor.

where:

For the purposes of the calculation referred to in paragraph 2, where xk is a curve of risk factors allocated to the GIRR, CSR and commodity risk classes, sik shall be the sum of the delta sensitivities to the risk factor of the curve across all tenors of the curve.

where:

;

;

;

where:

;

;

Article 325h

Aggregation of risk-class specific own funds requirements for delta, vega and curvature risks

The process to calculate the risk-class specific own funds requirements for delta, vega and curvature risks described in Articles 325f and 325g shall be performed three times per risk class, each time using a different set of correlation parameters ρkl (correlation between risk factors within a bucket) and γbc (correlation between 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 ρkl and γbc remain unchanged from those specified in Section 6;

(b) the high correlations scenario, whereby the correlation parameters ρkl and γbc that are specified in Section 6 shall be uniformly multiplied by 1,25, with ρkl and γbc subject to a cap at 100 %;

(c) the ‘low correlations’ scenario, whereby the correlation parameters ρkl and γbc that are specified in Section 6 shall be replaced by and, respectively.

Article 325i

Treatment of index instruments and other multi-underlying instruments

Institutions shall use a look-through approach for index and other multi-underlying instruments in accordance with the following:

(a) for the purposes of calculating the own funds requirements for delta and curvature risk, institutions shall consider that they hold individual positions directly in the underlying constituents of the index or other multi-underlying instruments, except for a position in an index included in the ACTP for which they shall calculate a single sensitivity to the index;

(b) institutions are allowed to net the sensitivities to a risk factor of a given constituent of an index instrument or other multi-underlying instrument with the sensitivities to the same risk factor of the same constituent of single name instruments, except for positions included in the ACTP;

(c) for the purposes of calculating the own funds requirements for vega risk, institutions may either consider that they directly hold individual positions in the underlying constituents of the index or other multi-underlying instrument, or calculate a single sensitivity to the underlying of that instrument. In the latter case, institutions shall assign the single sensitivity to the relevant bucket as set out in Subsection 1 of Section 6 as follows: (i) where, taking into account the weightings of that index, more than 75 % of constituents in that index would be mapped to the same bucket, institutions shall assign the sensitivity to that bucket and treat it as a single-name sensitivity in that bucket; (ii) in all other cases, institutions shall assign the sensitivity to the relevant index bucket.

By way of derogation from point (a) of paragraph 1, institutions may calculate a single sensitivity to a position in a listed equity or credit index for the purposes of calculating the own funds requirements for delta and curvature risks provided the listed equity or credit index meets the conditions set out in paragraph 3. In that case, institutions shall assign the single sensitivity to the relevant bucket as set out in Subsection 1 of Section 6 as follows:

(a) where, taking into account the weightings of that listed index, more than 75 % of constituents in that listed index would be mapped to the same bucket, that sensitivity shall be assigned to that bucket and treated as a single-name sensitivity in that bucket;

(b) in all other cases, institutions shall assign the sensitivity to the relevant listed index bucket.

Institutions may use the approach set out in paragraph 2 for instruments referencing a listed equity or credit index where all of the following conditions are met:

(a) the constituents of the listed index and their respective weightings in that index are known;

(b) the listed index contains at least 20 constituents;

(c) no single constituent contained within the listed index represents more than 25 % of the total market capitalisation of that index;

(d) no set comprising one tenth of the total number of constituents of the listed index, rounded up to the next integer, represents more than 60 % of the total market capitalisation of that index;

(e) the total market capitalisation of all the constituents of the listed index is no less than EUR 40 billion.

Article 325j

Treatment of collective investment undertakings

An institution shall calculate the own funds requirements for market risk of a position in a CIU using one of the following approaches:

(a) an institution that meets the condition set out in Article 104(8), point (a), shall calculate the own funds requirements for market risk of that position by looking through the underlying positions of the CIU, on a monthly basis, as if those positions were directly held by the institution;

(b) an institution that meets the condition set out in Article 104(8), point (b), shall calculate the own funds requirements for market risk of that position by using either of the following approaches: (i) it shall consider the position in the CIU as a single equity position allocated to the bucket ‘other sector’ in Article 325ap(1), Table 8; (ii) it shall consider the limits set in the CIU’s mandate and in the relevant law.

For the purposes of the calculation referred to in the first subparagraph, point (b)(ii), of this paragraph the institution may calculate the own funds requirements for counterparty credit risk and own funds requirements for credit valuation adjustment risk of derivative positions of the CIU using the simplified approach set out in Article 132a(3).

For the purposes of the approaches referred to in paragraph 1, point (b), of this Article the institution shall:

(a) apply the own funds requirements for default risk set out in Section 5 and the residual risk add-on set out in Section 4 to a position in a CIU, where the mandate of that CIU allows it to invest in exposures that shall be subject to those own funds requirements; when using the approach referred to in paragraph 1, point (b)(i), of this Article the institution shall consider the position in the CIU as a single unrated equity position allocated to the bucket ‘unrated’ in Article 325y(1), Table 2; and

(b) for all positions in the same CIU, use the same approach among the approaches set out in paragraph 1, point (b), of this Article to calculate the own funds requirements on a stand-alone basis as a separate portfolio.

However, where data for the last 12 months are not fully available, an institution may, subject to permission from the institution’s competent authority, use an annualised return difference from a period shorter than 12 months.

The institution shall use the same hypothetical portfolio as the one referred to in the first subparagraph to calculate, where applicable, the own funds requirements for default risk set out in Section 5 and the residual risk add-on set out in Section 4 to a position in a CIU.

The methodology developed by the institution to determine the hypothetical portfolios of all positions in CIUs for which the calculations referred to in the first subparagraph are used shall be approved by its competent authority.

To calculate the own funds requirements for market risk of a CIU position in accordance with the approach set out in paragraph 1, point (a), institutions may rely on a third party to perform such calculation, provided that all of the following conditions are met:

(a) the third party 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; (ii) for CIUs not covered by point (i) of this point, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3), point (a); (iii) a third-party vendor on condition that the data, information or risk metrics are provided or calculated by the third parties referred to in point (i) or (ii) of this point or by another such third-party vendor;

(b) the third party provides the institution with the data, information or risk metrics to calculate the own funds requirement for market risk of the CIU position in accordance with the approach referred to in paragraph 1, point (a), of this Article;

(c) an external auditor of the institution has confirmed the adequacy of the third-party’s data, information or risk metrics referred to in point (b) of this paragraph and the institution’s competent authority has unrestricted access to those data, information or risk metrics upon request.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2027.

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

Article 325k

Underwriting positions

Institutions shall apply one of the 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 risk in accordance with the approach set out in this Chapter on the basis of the adjusted net sensitivities.

| Business day 0 | 0 % |

| --- | --- | | Business day 1 | 10 % | | Business days 2 and 3 | 25 % | | Business day 4 | 50 % | | Business day 5 | 75 % | | After business day 5 | 100 % |

For the purposes of this Article, ‘business day 0’ means the business day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.

Section 3

Risk factor and sensitivity definitions

Subsection 1

Risk factor definitions

Article 325l

General interest rate risk factors

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 risk or profits and losses to senior management.

Where the data on market-implied swap curves described in paragraph 2 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.

Where institutions use the general interest rate 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 the own funds requirements for credit spread risk. In those cases, where it is not possible to disentangle the risk-free rate from the credit spread component, the sensitivity to the risk factor shall be allocated both to the general interest rate risk and to credit spread risk classes.

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 institution's pricing model for that instrument.

Each cross-currency basis risk factor shall consist of one vector of cross-currency basis of different maturities per currency. For each debt instrument, the vector shall contain as many components as there are cross-currency bases used as variables by the institution's pricing model for that instrument. Each currency shall constitute a different bucket.

Institutions shall calculate the sensitivity of the instrument to the cross-currency basis 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. Within each bucket there shall be two possible distinct risk factors: basis over euro and basis over US dollar, regardless of the number of components there are in each cross-currency basis vector. The maximum number of net sensitivities per bucket shall be two.

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 factor.

Where institutions map implied volatilities to the maturities as referred to in this paragraph, the following requirements shall apply:

(a) where the maturity of the option is aligned with the maturity of the underlying, a single risk factor shall be considered, which shall be mapped to 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 to the maturity of the option; (ii) the second risk factor shall be mapped to the residual maturity of the underlying of the option at the expiry date of the option.

There shall be no curvature risk own funds requirements for inflation and cross currency basis risks.

Article 325m

Credit spread risk factors for non-securitisation

Article 325n

Credit spread risk factors for securitisation

Institutions shall apply the credit spread risk factors referred to in paragraph 5 to securitisation positions that are not included in the ACTP, as referred to in Article 325(6), (7) and (8).

The buckets applicable to the credit spread risk for securitisations that are not included in the ACTP shall be specific to that risk-class category, as referred to in Section 6.

The credit spread risk factors to be applied by institutions to securitisation positions that are included in the ACTP 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 instruments and credit default swaps, and for each of the following maturities: 0,5 years, 1 year, 3 years, 5 years, 10 years.

(b) the vega risk factors applicable to options with securitisation positions that are included in the ACTP as underlyings shall be the implied volatilities of the credit 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 maturity 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 point (a) of this paragraph; for each instrument, the vector shall contain as many components as there are different maturities of credit spread rates that are used as variables by the institution's pricing model for that instrument.

The credit spread risk factors to be applied by institutions to securitisation positions that are not included in the ACTP shall refer to the spread of the tranche rather than the spread of the underlying instruments 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 maturity of the tranche: 0,5 years, 1 year, 3 years, 5 years, 10 years;

(b) the vega risk factors applicable to options with securitisation positions that are not included in the ACTP 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 maturity of the 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 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 325o

Equity risk factors

For the purposes of equity risk, a specific equity 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 maturities of repo rates that are used as variables by the institution's pricing model for that instrument.

Institutions shall calculate the sensitivity of an instrument to an equity 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.

Article 325p

Commodity risk factors

The sensitivity of the instrument to each risk factor used in the curvature risk formula shall be calculated as specified in Article 325g. For the purposes 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 commodity type.

Article 325q

Foreign exchange risk factors

By way of derogation from paragraphs 1 and 3, an institution may replace, subject to permission from its competent authority, its reporting currency by another currency (‘the base currency’) in all the spot exchange rates to express the delta and curvature foreign exchange risk factors where all of the following conditions are met:

(a) the institution uses only one base currency;

(b) the institution applies the base currency consistently to all its trading book and non-trading book positions;

(c) the institution has demonstrated to the satisfaction of its competent authority that:

(i) using the chosen base currency provides an appropriate risk representation for the institution’s positions subject to foreign exchange risks; (ii) the choice of base currency is compatible with the manner in which the institution manages those foreign exchange risks internally; (iii) the choice of base currency is not driven primarily by the desire to reduce the institution’s own funds requirements;

(d) the institution takes into account the translation risk between the reporting currency and the base currency.

An institution that has been permitted to use a base currency as set out in the first subparagraph shall convert the resulting own funds requirements for foreign exchange risk into the reporting currency using the prevailing spot exchange rate between the base currency and the reporting currency.

Subsection 2

Sensitivity definitions

Article 325r

Delta risk sensitivities

Institutions shall calculate delta general interest rate risk (GIRR) sensitivities as follows:

(a) the sensitivities to risk factors consisting of risk-free rates shall be calculated as follows: where: = the sensitivities to risk factors consisting of risk-free rates; rkt = the rate of a risk-free curve k with maturity t; Vi (.) = the pricing function of instrument i; and x,y = risk factors other than rkt in the pricing function Vi;

(b) the sensitivities to risk factors consisting of inflation risk and cross-currency basis shall be calculated as follows: where: = the sensitivities to risk factors consisting of inflation risk and cross-currency basis; = 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 i; = the unity matrix of dimension (1 × m); Vi (.) = the pricing function of the instrument i; and y, z = other variables in the pricing model.

Institutions shall calculate the delta credit spread risk sensitivities for all securitisation and non-securitisation positions as follows:

where:

Institutions shall calculate delta equity risk sensitivities as follows:

(a) the sensitivities to risk factors consisting of equity spot prices shall be calculated as follows: where: sk = the sensitivities to risk factors consisting of equity spot prices; k = a specific equity security; EQk = the value of the spot price of that equity security; Vi (.) = the pricing function of instrument i; and x,y = risk factors other than EQk in the pricing function Vi;

(b) the sensitivities to risk factors consisting of equity repo rates shall be calculated as follows: where: = the sensitivities to risk factors consisting of equity repo rates; k = the index that denotes the equity; = a vector of m components representing the repo term structure for a specific equity k with m being equal to the number of repo rates corresponding to different maturities used in the pricing model of instrument i; = the unity matrix of dimension (1 · m); Vi (.) = the pricing function of the instrument i; and y,z = risk factors other than

in the pricing function Vi.

Institutions shall calculate the delta commodity risk sensitivities to each risk factor k as follows:

where:

Institutions shall calculate the delta foreign exchange risk sensitivities to each foreign exchange risk factor k as follows:

where:

Article 325s

Vega risk sensitivities

Institutions shall calculate the vega risk sensitivity of an option to a given risk factor k as follows:

where:

Article 325t

Requirements on sensitivity computations

By way of derogation from the first subparagraph of this paragraph, competent authorities may require an institution that has been granted permission to use the alternative internal model approach set out in Chapter 1b to use the pricing functions of the risk-measurement system of their internal model approach in the calculation of sensitivities under this Chapter for the purposes of the calculation and the reporting requirements set out in Article 325(3).

When calculating vega risk sensitivities of instruments with optionality as referred to in point (b) of Article 325e(2), the following requirements shall apply:

(a) for general interest rate risk and credit spread risk, institutions shall assume, for each currency, that the underlying of the volatility risk factors for which vega risk is calculated follows either a lognormal or normal distribution in the pricing models used for those instruments;

(b) for equity risk, commodity risk and foreign exchange risk, institutions shall assume that the underlying of the volatility risk factors for which vega risk is calculated follows a lognormal distribution in the pricing models used for those instruments.

By way of derogation from paragraph 1, subject to the permission of the competent authorities, an institution may use alternative definitions of delta risk sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets all the following conditions:

(a) those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution;

(b) the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities for the position than are the formulas set out in this Subsection, and that the resulting sensitivities do not materially differ from those formulas.

By way of derogation from paragraph 1, subject to the permission of the competent authorities, an institution may calculate vega sensitivities on the basis of a linear transformation of alternative definitions of sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets both the following conditions:

(a) those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution;

(b) the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities for the position than are the formulae set out in this Subsection, that the linear transformation referred to in the first subparagraph reflects a vega risk sensitivity, and that the resulting sensitivities do not materially differ from the ones applying those formulae.

Section 4

The residual risk add-on

Article 325u

Own funds requirements for residual risks

Instruments are considered to be exposed to residual risks where they meet any of the following conditions:

(a) the instrument references an exotic underlying, which, for the purposes of this Chapter, means a trading book instrument referencing an underlying exposure that is not in the scope of the delta, vega or curvature risk treatments under the sensitivities-based method laid down in Section 2 or the own funds requirements for the default risk set out in Section 5;

(b) the instrument is an instrument bearing other residual risks, which, for the purposes of this Chapter, means any of the following instruments: (i) instruments that are subject to the own funds requirements for vega and curvature risk under the sensitivities-based method set out in Section 2 and that generate pay-offs that cannot be replicated as a finite linear combination of plain-vanilla options with a single underlying equity price, commodity price, exchange rate, bond price, credit default swap price or interest rate swap; (ii) instruments that are positions that are included in the ACTP referred to in Article 325(6); hedges that are included in that ACTP, as referred to in Article 325(8), shall not be considered.

Institutions shall calculate the additional own funds requirements referred to in paragraph 1 as the sum of gross notional amounts of the instruments referred to in paragraph 2, multiplied by the following risk weights:

(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 way of derogation from paragraph 1, institution shall not apply the own funds 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) No 648/2012;

(c) the instrument perfectly offsets the market risk of another position in the trading book, in which case the two perfectly matching trading book positions shall be exempted from the own funds requirement for residual risks.

The competent authority shall grant permission to apply the treatment referred to in the first subparagraph if the institution can demonstrate on an ongoing basis to the satisfaction of the competent authority that the instruments comply with the criteria to be treated as hedging positions.

The institution shall report to the competent authority the result of the calculation of the own funds requirements for the residual risks for all instruments for which the derogation referred to in the first subparagraph is applied.

When developing those draft regulatory technical standards, EBA shall examine whether longevity risk, weather, natural disasters and future realised volatility should be considered as exotic underlyings.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.

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

EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024.

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

Section 5

Own funds requirements for the default risk

Article 325v

Definitions and general provisions

For the purposes of this Section, the following definitions apply:

(a) ‘short exposure’ means that the default of an issuer or group of issuers leads to a gain for the institution, regardless of the type of instrument or transaction creating the exposure;

(b) ‘long exposure’ means that the default of an issuer or group of issuers leads to a loss for the institution, regardless of the type of instrument or transaction creating the exposure;

(c) ‘gross jump-to-default (gross JTD) amount’ means the estimated size of the loss or gain that the default of the obligor would produce for a specific exposure;

(d) ‘net jump-to-default (net JTD) amount’ means the estimated size of the loss or gain that an institution would incur due to the default of an obligor, after offsetting between gross JTD amounts has taken place,

(e) ‘loss given default’ or ‘LGD’ means the loss given default of the obligor on an instrument issued by that obligor expressed as a share of the notional amount of the instrument;

(f) ‘default risk weight’ means the percentage representing the estimated probability of the default of each obligor, according to the creditworthiness of that obligor.

Subsection 1

Own funds requirements for the default risk for non-securitisations

Article 325w

Gross jump-to-default amounts

Institutions shall calculate the gross JTD amounts for each long exposure to debt instruments as follows:

Institutions shall calculate the gross JTD amounts for each short exposure to debt instruments as follows:

For the purposes of the calculation set out in paragraphs 1 and 2, the LGD for debt instruments to be applied by institutions shall be the following:

(a) exposures to non-senior debt instruments shall be assigned an LGD of 100 %;

(b) exposures to senior debt instruments shall be assigned an LGD of 75 %;

(c) exposures to covered bonds, as referred to in Article 129, shall be assigned an LGD of 25 %.

(a) in the case of a bond, the notional amount is the face value of the bond;

(b) in the case of a sold put option on a bond, the notional amount is the notional amount of the option; in the case of a bought call option on a bond, the notional amount is 0.

For exposures to equity instruments, institutions shall calculate the gross JTD amounts as follows:

where:

EBA shall develop draft regulatory technical standards to specify:

(a) how institutions are to determine the components P&Llong, P&Lshort, Adjustmentlong and Adjustmentshort when calculating the JTD amounts for different types of instruments in accordance with this Article;

(b) which alternative methodologies institutions are to use for the purposes of the estimation of gross JTD amounts referred to in paragraph 7.

(c) the notional amounts of instruments other than the ones referred to in points (a) and (b) of paragraph 4.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.

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

Article 325x

Net jump-to-default amounts

Offsetting shall be either full or partial, depending on the maturities of the offsetting exposures:

(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 maturity 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 multiplied by the ratio of the exposure's maturity relative to one year.

Article 325y

Calculation of the own funds requirements for the default risk

Net JTD amounts, irrespective of the type of counterparty, shall be multiplied by the default risk weights that correspond to their credit quality, as specified in Table 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 % | | Unrated | 15 % | | Defaulted | 100 % |

Weighted net JTD amounts shall be aggregated within each bucket, in accordance with the following formula:

For the purposes of calculating the DRCb and the WtS, the long positions and short positions shall be aggregated for all positions within a bucket, regardless of the credit quality step to which those positions are allocated, to produce the bucket-specific own funds requirements for the default risk.

Subsection 2

Own funds requirements for the default risk for securitisations not included in the ACTP

Article 325z

Jump-to-default amounts

Article 325aa

Calculation of the own funds requirement for the default risk for securitisations

Risk-weighted net JTD amounts shall be assigned to the following buckets:

(a) one common bucket for all corporates, regardless of the region;

(b) 44 different buckets corresponding to one bucket per region for each of the 11 asset classes defined in the second subparagraph.

For the purposes of the first subparagraph, the 11 asset classes are ABCP, auto loans/leases, residential mortgage-backed securities (RMBS), credit cards, commercial mortgage-backed securities (CMBS), collateralised loan obligations, collateralised debt obligations squared (CDO-squared), small and medium-sized enterprises (SMEs), student loans, other retail, other wholesale. The four regions are Asia, Europe, North America, and rest of the world.

Subsection 3

Own funds requirements for the default risk for securitisations included in the ACTP

Article 325ab

Scope

Article 325ac

Jump-to-default amounts for the ACTP

For the purposes of this Article, the following definitions apply:

(a) ‘decomposition with a valuation model’ means that a single name constituent of a securitisation is valued as the difference between the unconditional value of the securitisation and the conditional value of the securitisation assuming that single name defaults with an LGD of 100 %;

(b) ‘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;

(c) ‘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.

Nth-to-default products shall be treated as tranched products with the following attachment and detachment points:

(a) attachment point = (N – 1) / Total Names;

(b) detachment point = N / Total Names; where ‘Total Names’ shall be the total number of names in the underlying basket or pool.

Net JTD amounts shall be determined by offsetting long gross JTD amounts and short gross JTD amounts. Offsetting shall only be possible between exposures that are otherwise identical except for maturity. Offsetting shall only be possible as follows:

(a) for indices, index tranches and bespoke tranches, offsetting shall be possible across maturities within the same index family, series and tranche, subject to the provisions on exposures of less than one year laid down in Article 325x; long gross JTD amounts and short gross JTD amounts that perfectly replicate each other may be offset through decomposition into single name equivalent exposures using a valuation model; in such cases, the sum of the gross JTD amounts of the single name equivalent exposures obtained through decomposition shall be equal to the gross JTD amount of the undecomposed exposure;

(b) offsetting through decomposition as set out is point (a) shall not be allowed for resecuritisations or derivatives on securitisation;

(c) for indices and index tranches, offsetting shall be possible across maturities within the same index family, series and tranche by replication or by decomposition; where the long exposures and short exposures are otherwise equivalent, apart from one residual component, offsetting shall be allowed and the net JTD amount shall reflect the residual exposure;

(d) different tranches of the same index series, different series of the same index and different index families may not be used to offset each other.

Article 325ad

Calculation of the own funds requirements for the default risk for the ACTP

Net JTD amounts shall be multiplied by:

(a) for non-tranched products, the default risk weights corresponding to their credit quality as specified in Article 325y(1) and (2);

(b) for tranched products, the default risk weights referred to in Article 325aa(1).

Weighted net JTD amounts shall be aggregated within each bucket in accordance with the following formula:

Institutions shall calculate the own funds requirements for the default risk for the ACTP by using the following formula:

where:

Section 6

Risk weights and correlations

Subsection 1

Delta risk weights and correlations

Article 325ae

Risk weights for general interest rate risk

For currencies not included in the most liquid currency sub-category as referred to in point (b) Article 325bd(7), the risk weights of the sensitivities to the risk-free rate risk factors shall be the following:

| Bucket | Maturity | Risk Weight |

| --- | --- | --- | | 1 | 0,25 years | 1,7 % | | 2 | 0,5 years | 1,7 % | | 3 | 1 year | 1,6 % | | 4 | 2 years | 1,3 % | | 5 | 3 years | 1,2 % | | 6 | 5 years | 1,1 % | | 7 | 10 years | 1,1 % | | 8 | 15 years | 1,1 % | | 9 | 20 years | 1,1 % | | 10 | 30 years | 1,1 % |

The risk weights of risk factors based on the currencies included in the most liquid currency sub-category as referred to in Article 325bd(7), point (b), and the domestic currency of the institution shall be the following:

(a) for risk-free rate risk factors, the risk weights referred to in paragraph 1, Table 3, of this Article divided by ;

(b) for inflation risk factor and cross currency basis risk factors, the risk weights referred to in paragraph 2 of this Article divided by .

Article 325af

Intra bucket correlations for general interest rate risk

Between two weighted sensitivities of general interest rate risk factors WSk and WSl within the same bucket, corresponding to the same curve, but having different maturities, correlation shall be set in accordance with the following formula:

where:

Article 325ag

Correlations across buckets for general interest rate risk

Article 325ah

Risk weights for credit spread risk for non-securitisations

Risk weights for the sensitivities to credit spread risk factors for non-securitisations shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 4:

Bucket number	Credit quality	Sector	Risk weight
1	All	Central government, including central banks, of Member States	0,5 %
2	Credit quality step 1 to 3	Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118	0,5 %
3	Regional or local authority and public sector entities	1,0 %
4	Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders	5,0 %
5	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	3,0 %
6	Consumer goods and services, transportation and storage, administrative and support service activities	3,0 %
7	Technology, telecommunications	2,0 %
8	Health care, utilities, professional and technical activities	1,5 %
9		Covered bonds issued by credit institutions established in Member States	1,0 %
10	Credit quality step 1	Covered bonds issued by credit institutions in third countries	1,5 %
Credit quality steps 2 to 3	2,5 %
11	Credit quality step 4 to 6 and unrated	Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118	2 %
12	Regional or local authority and public sector entities	4,0 %
13	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, promotional lenders and covered bonds	12,0 %
14	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	7,0 %
15	Consumer goods and services, transportation and storage, administrative and support service activities	8,5 %
16	Technology, telecommunications	5,5 %
17	Health care, utilities, professional and technical activities	5,0 %
18	Other sector	12,0 %
19	Listed credit indices with a majority of its individual constituents being investment grade	1,5 %
20	Listed credit indices with a majority of its individual constituents being non-investment grade or unrated	5 %

For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the standardised approach for credit risk set out in Title II, Chapter 2.

Article 325ai

Intra-bucket correlations for credit spread risk for non-securitisations

The correlation parameter ρk l between two sensitivities WSk and WSl within the same bucket shall be set as follows:

The correlation parameters referred to in paragraph 1 of this Article shall not apply to bucket 18 in Table 4 of Article 325ah(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 that bucket:

Article 325aj

Correlations across buckets for credit spread risk for non-securitisations

The correlation parameter γbc that applies to the aggregation of sensitivities between different buckets shall be set as follows:

(a) 1, where buckets b and c are buckets 1 to 17 and both buckets have the same credit quality category (either credit quality step 1 to 3 or credit quality step 4 to 6); otherwise it shall be equal to 50 %; for the purposes of that calculation, bucket 1 shall be considered as belonging to the same credit quality category as buckets that have credit quality step 1 to 3;

(b) 1, where either bucket b or c is bucket 18;

(c) 1, where bucket b or c is bucket 19 and the other bucket has credit quality step 1 to 3; otherwise it shall be equal to 50 %;

(d) 1, where bucket b or c is bucket 20 and the other bucket has credit quality step 4 to 6; otherwise it shall be equal to 50 %;

Bucket	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	18	19	20
1, 2 and 11		75 %	10 %	20 %	25 %	20 %	15 %	10 %	0 %	45 %	45 %
3 and 12			5 %	15 %	20 %	15 %	10 %	10 %	0 %	45 %	45 %
4 and 13				5 %	15 %	20 %	5 %	20 %	0 %	45 %	45 %
5 and 14					20 %	25 %	5 %	5 %	0 %	45 %	45 %
6 and 15						25 %	5 %	15 %	0 %	45 %	45 %
7 and 16							5 %	20 %	0 %	45 %	45 %
8 and 17								5 %	0 %	45 %	45 %
9 and 10									0 %	45 %	45 %
18										0 %	0 %
19											75 %
20

Article 325ak

Risk weights for credit spread risk for securitisations included in the ACTP

Risk weights for the sensitivities to credit spread risk factors for securitisations included in the ACTP risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket and shall be specified for each bucket in Table 6 pursuant to the delegated act referred to in Article 461a:

| Bucket number | Credit quality | Sector | Risk weight |

| --- | --- | --- | --- | | 1 | All | Central government, including central banks, of Member States | 4,0 % | | 2 | Credit quality step 1 to 10 | Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118 | 4,0 % | | 3 | Regional or local authority and public sector entities | 4,0 % | | | 4 | Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders | 8,0 % | | | 5 | Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying | 5,0 % | | | 6 | Consumer goods and services, transportation and storage, administrative and support service activities | 4,0 % | | | 7 | Technology, telecommunications | 3,0 % | | | 8 | Health care, utilities, professional and technical activities | 2,0 % | | | 9 | Covered bonds issued by credit institutions established in Member States | 3,0 % | | | 10 | Covered bonds issued by credit institutions in third countries | 6,0 % | | | 11 | Credit quality step 11 to 17 | Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118 | 13,0 % | | 12 | Regional or local authority and public sector entities | 13,0 % | | | 13 | Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, promotional lenders and covered bonds | 16,0 % | | | 14 | Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying | 10,0 % | | | 15 | Consumer goods and services, transportation and storage, administrative and support service activities | 12,0 % | | | 16 | Technology, telecommunications | 12,0 % | | | 17 | Health care, utilities, professional and technical activities | 12,0 % | | | 18 | Other sector | 13,0 % | |

For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the standardised approach for credit risk set out in Title II, Chapter 2.

By way of derogation from the second paragraph, institutions may assign a risk exposure of an unrated covered bond to bucket 4 where the institution that issues the covered bond has a credit quality step 1 to 3.

Article 325al

Correlations for credit spread risk for securitisations included in the ACTP

Article 325am

Risk weights for credit spread risk for securitisations not included in the ACTP

Risk weights for the sensitivities to credit spread risk factors for securitisation not included in the ACTP shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 7 and shall be specified for each bucket in Table 7 pursuant to the delegated act referred to in Article 461a:

| Bucket number | Credit quality | Sector | Risk weight |

| --- | --- | --- | --- | | 1 | Senior and credit quality step 1 to 10 | RMBS — Prime | 0,9 % | | 2 | RMBS — Mid-Prime | 1,5 % | | | 3 | RMBS — Sub-Prime | 2,0 % | | | 4 | CMBS | 2,0 % | | | 5 | Asset backed securities (ABS) — Student loans | 0,8 % | | | 6 | ABS — Credit cards | 1,2 % | | | 7 | ABS — Auto | 1,2 % | | | 8 | Collateralised loan obligations (CLO) non-ACTP | 1,4 % | | | 9 | Non-senior and credit quality step 1 to 10 | RMBS — Prime | 1,125 % | | 10 | RMBS — Mid-Prime | 1,875 % | | | 11 | RMBS — Sub-Prime | 2,5 % | | | 12 | CMBS | 2,5 % | | | 13 | ABS — Student loans | 1 % | | | 14 | ABS — Credit cards | 1,5 % | | | 15 | ABS — Auto | 1,5 % | | | 16 | CLO non-ACTP | 1,75 % | | | 17 | Credit quality step 11 to 17 and unrated | RMBS — Prime | 1,575 % | | 18 | RMBS — Mid-Prime | 2,625 % | | | 19 | RMBS — Sub-Prime | 3,5 % | | | 20 | CMBS | 3,5 % | | | 21 | ABS — Student loans | 1,4 % | | | 22 | ABS — Credit cards | 2,1 % | | | 23 | ABS — Auto | 2,1 % | | | 24 | CLO non-ACTP | 2,45 % | | | 25 | Other sector | 3,5 % | |

Article 325an

Intra-bucket correlations for credit spread risk for securitisations not included in the ACTP

Between two sensitivities WSk and WSl within the same bucket, the correlation parameter ρk

l shall be set as follows:

The correlation parameters referred to in paragraph 1 shall not apply to bucket 25 in Table 7 of Article 325am(1). The own funds requirement for the delta risk aggregation formula within bucket 25 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket:

Article 325ao

Correlations across buckets for credit spread risk for securitisations not included in the ACTP

Article 325ap

Risk weights for equity risk

Risk weights for the sensitivities to equity and equity repo rate risk factors shall be specified for each bucket in Table 8 pursuant to the delegated act referred to in Article 461a:

Bucket number	Market capitali-sation	Economy	Sector	Risk weight for equity spot price	Risk weight for equity repo rate
1	Large	Emerging market economy	Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities	55 %	0,55 %
2	Telecommunications, industrials	60 %	0,60 %
3	Basic materials, energy, agriculture, manufacturing, mining and quarrying	45 %	0,45 %
4	Financials including government-backed financials, real estate activities, technology	55 %	0,55 %
5	Advanced economy	Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities	30 %	0,30 %
6	Telecommunications, industrials	35 %	0,35 %
7	Basic materials, energy, agriculture, manufacturing, mining and quarrying	40 %	0,40 %
8	Financials including government-backed financials, real estate activities, technology	50 %	0,50 %
9	Small	Emerging market economy	All sectors described under bucket numbers 1, 2, 3 and 4	70 %	0,70 %
10	Advanced economy	All sectors described under bucket numbers 5, 6, 7 and 8	50 %	0,50 %
11	Other sector	70 %	0,70 %
12	Large market cap, advanced economy indices	15 %	0,15 %
13	Other indices	25 %	0,25 %

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.

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

Article 325aq

Intra-bucket correlations for equity risk

In other cases than the cases referred to in paragraph 1, the correlation parameter ρkl between two sensitivities WSk and WSl to equity spot price within the same bucket shall be set as follows:

(a) 15 % between two sensitivities within the same bucket that fall under the category large market capitalisation, emerging market economy (bucket number 1, 2, 3 or 4);

(b) 25 % between two sensitivities within the same bucket that fall under the category large market capitalisation, advanced economy (bucket number 5, 6, 7 or 8);

(c) 7,5 % between two sensitivities within the same bucket that fall under the category small market capitalisation, emerging market economy (bucket number 9);

(d) 12,5 % between two sensitivities within the same bucket that fall under the category small market capitalisation, advanced economy (bucket number 10);

(e) 80 % between two sensitivities within the same bucket that fall under either index bucket (bucket number 12 or 13).

The correlation parameters specified in paragraphs 1 to 4 shall not apply to bucket 11. The capital requirement for the delta risk aggregation formula within bucket 11 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket:

Article 325ar

Correlations across buckets for equity risk

The correlation parameter γbc shall apply to the aggregation of sensitivities between different buckets.

It shall be set in relation to the buckets of Table 8 in Article 325ap as follows:

(a) 15 % where the two buckets fall within bucket numbers 1 to 10;

(b) 0 % where either of the two buckets fall within bucket number 11;

(c) 75 % where the two buckets fall within bucket number 12 and 13;

(d) 45 % otherwise.

Article 325as

Risk weights for commodity risk

Risk weights for sensitivities to commodity risk factors shall be the following:

Bucket number	Bucket name	Risk weight
1	Energy — solid combustibles	30 %
2	Energy — liquid combustibles	35 %
3	Energy — electricity	60 %
3a	Energy — EU ETS carbon trading	40 %
3b	Energy — non-EU ETS carbon trading	60 %
4	Freight	80 %
5	Metals — non-precious	40 %
6	Gaseous combustibles	45 %
7	Precious metals (including gold)	20 %
8	Grains and oilseed	35 %
9	Livestock and dairy	25 %
10	Softs and other agricultural commodities	35 %
11	Other commodities	50 %

Article 325at

Intra-bucket correlations for commodity risk

The correlation parameter ρk l between two sensitivities WSk and WSl within the same bucket shall be set as follows:

The intra-bucket correlations ρkl

^(commodity) are:

| Bucket number | Bucket name | Correlation ρkl (commodity) |

| --- | --- | --- | | 1 | Energy - solid combustibles | 55 % | | 2 | Energy - liquid combustibles | 95 % | | 3 | Energy - electricity and carbon trading | 40 % | | 4 | Freight | 80 % | | 5 | Metals – non-precious | 60 % | | 6 | Gaseous combustibles | 65 % | | 7 | Precious metals (including gold) | 55 % | | 8 | Grains and oilseed | 45 % | | 9 | Livestock and dairy | 15 % | | 10 | Softs and other agricultural commodities | 40 % | | 11 | Other commodity | 15 % |

Notwithstanding paragraph 1, the following provisions apply:

(a) two risk factors that are allocated to bucket 3 in Table 10 and that concern electricity which is generated in different regions or is delivered at different periods under the contractual agreement shall be considered distinct commodity risk factors;

(b) two risk factors that are allocated to bucket 4 in Table 10 and that concern freight where the freight route or week of delivery differ shall be considered distinct commodity risk factors.

Article 325au

Correlations across buckets for commodity risk

The correlation parameter γb c applying to the aggregation of sensitivities between different buckets shall be set at:

(a) 20 % where the two buckets fall within bucket numbers 1 to 10;

(b) 0 % where either of the two buckets is bucket number 11.

Article 325av

Risk weights for foreign exchange risk

The risk weight of the foreign exchange risk factors concerning currency pairs which are composed of the euro and the currency of a Member State participating in the second stage of the economic and monetary union (ERM II) shall be one of the following:

(a) the risk weight referred to in paragraph 1, divided by 3;

(b) the maximum fluctuation within the fluctuation band formally agreed by the Member State and the European Central Bank, if that fluctuation band is narrower than the fluctuation band defined under ERM II.

Article 325aw

Correlations for foreign exchange risk

A uniform correlation parameter γb c equal to 60 % shall apply to the aggregation of sensitivities to foreign exchange risk factors.

Subsection 2

Vega and curvature risk weights and correlations

Article 325ax

Vega and curvature risk weights

Risk weights for sensitivities to vega risk factors shall be assigned in accordance with the risk class of the risk factors, as follows:

Risk class	Risk weights
GIRR	100 %
CSR non-securitisations	100 %
CSR securitisations (ACTP)	100 %
CSR securitisations (non-ACTP)	100 %
Equity (large cap and indices)	77,78  %
Equity (small cap and other sector)	100 %
Commodity	100 %
Foreign exchange	100 %

Article 325ay

Vega and curvature risk correlations

Between vega risk sensitivities within the same bucket of the general interest rate risk (GIRR) class, the correlation parameter ρkl shall be set as follows:.

where:

Between vega risk sensitivities within a bucket of the other risk classes, the correlation parameter ρkl shall be set as follows:

where:

CHAPTER 1b

Alternative internal model approach

Section 1

Permission and own funds requirements

Article 325az

Alternative internal model approach and permission to use alternative internal models

After having verified institutions' compliance with the requirements set out in Articles 325bh, 325bi and 325bj, competent authorities shall grant permission to those institutions to calculate their own funds requirements for the portfolio of all positions assigned to trading desks by using their alternative internal models in accordance with Article 325ba, provided that all the following requirements are met:

(a) the trading desks were established in accordance with Article 104b;

(b) the institution has provided to the competent authority a rationale for the inclusion of the trading desks in the scope of the alternative internal model approach;

(c) the trading desks have met the back-testing requirements referred to in Article 325bf(3);

(d) the trading desks have met the profit and loss attribution (‘P&L attribution’) requirements referred to in Article 325bg;

(e) for trading desks that have been assigned at least one of those trading book positions referred to in Article 325bl, the trading desks fulfil the requirements set out in Article 325bm for the internal default risk model;

(f) no securitisation or re-securitisation positions have been assigned to the trading desks;

(g) no positions in CIUs that meet the condition set out in Article 104(8), point (b), have been assigned to the trading desks.

For the purposes of point (b) of the first subparagraph of this paragraph, not including a trading desk in the scope of the alternative internal model approach shall not be motivated by the fact that the own funds requirement calculated under the alternative standardised approach set out in point (a) of Article 325(3) would be lower than the own funds requirement calculated under the alternative internal model approach.

Institutions shall notify the competent authorities of all other extensions and changes to the use of the alternative internal models for which the institution has received permission.

EBA shall develop draft regulatory technical standards to specify:

(a) the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc;

(b) the assessment methodology under which competent authorities verify an institution’s compliance with the requirements set out in this Chapter.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2024.

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

For the purpose of providing that opinion, EBA shall monitor the market conditions to assess whether extraordinary circumstances have occurred and, where that is the case, shall notify the Commission immediately.

EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024.

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

Article 325ba

Own funds requirements when using alternative internal models

An institution using an alternative internal model shall calculate the own funds requirements for the portfolio of all positions assigned to the trading desks for which the institution has been granted permission as referred to in Article 325az(2) as the higher of the following:

(a) the sum of the following values: (i) the institution's previous day's expected shortfall risk measure, calculated in accordance with Article 325bb (ESt-1), and (ii) the institution's previous day's stress scenario risk measure, calculated in accordance with Section 5 (SSt-1); or

(b) the sum of the following values: (i) the average of the institution's daily expected shortfall risk measure, calculated in accordance with Article 325bb for each of the preceding sixty business days (ES^avg), multiplied by the multiplication factor (mc); and (ii) the average of the institution's daily stress scenario risk measure, calculated in accordance with Section 5 for each of the preceding sixty business days (SS^avg).

Where calculating the own funds requirements for market risk using an internal model in accordance with the first subparagraph, an institution shall not include its own credit spreads in the calculation of the measures referred to in points (a) and (b) for positions in the institution’s own debt instruments.

Institutions holding positions in traded debt and equity instruments that are included in the scope of the internal default risk model and assigned to the trading desks referred to in paragraph 1 shall fulfil an additional own funds requirement, expressed as the 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.

By way of derogation from the first subparagraph, an institution shall not be subject to the additional own funds requirement for the holdings of its own debt instruments.

An institution using an alternative internal model shall calculate the total own funds requirements for market risk for all trading book positions and all non-trading book positions generating foreign exchange risk or commodity risk in accordance with the following formula:

where:

AIMA = the sum of the own funds requirements referred to in paragraphs 1 and 2;

PLAaddon = the additional own funds requirement referred to in Article 325bg(2);

ASAnon–aima = the own funds requirements for market risk as calculated under the alternative standardised approach referred to in Article 325(1), point (a), for the portfolio of trading book positions and non-trading book positions generating foreign exchange risk or commodity risk for which the institution uses the alternative standardised approach to calculate the own funds requirements for market risk;

ASAall portofolio = the own funds requirements for market risk as calculated under the alternative standardised approach referred to in Article 325(1), point (a), for the portfolio of all trading book positions and all non-trading book positions generating foreign exchange risk or commodity risk;

ASAaima = the own funds requirements for market risk as calculated under the alternative standardised approach referred to in Article 325(1), point (a), for the portfolio of trading book positions and non-trading book positions generating foreign exchange risk or commodity risk for which the institution uses the approach referred to in Article 325(1), point (b), to calculate the own funds requirements for market risk.

Section 2

General requirements

Article 325bb

Expected shortfall risk measure

Institutions shall calculate the expected shortfall risk measure referred to in point (a) of Article 325ba(1) for any given date ‘t’ and for any given portfolio of trading book positions and non-trading book positions that are subject to foreign exchange or commodity risk as follows:

where:

Article 325bc

Partial expected shortfall calculations

Institutions shall calculate all the partial expected shortfall measures referred to in Article 325bb(1) as follows:

(a) daily calculations of the partial expected shortfall measures;

(b) at 97,5th percentile, one tailed confidence interval;

(c) for a given portfolio of trading book positions and non-trading book positions that are subject to foreign exchange or commodity risk, institutions shall calculate the partial expected shortfall measure at time ‘t’ in accordance with the following formula: where: PESt = the partial expected shortfall measure at time t; j = the index that denotes the five liquidity horizons listed in the first column of Table 1; LHj = the length of liquidity horizons j as expressed in days in Table 1; T = the base time horizon, where T = 10 days; PESt(T) = the partial expected shortfall measure that is determined by applying scenarios of future shocks with a 10-day time horizon only to the specific set of modellable risk factors of the positions in the portfolio set out in paragraphs 2, 3 and 4 for each partial expected shortfall measure referred to in Article 325bb(1); and PESt(T, j) = the partial expected shortfall measure that is determined by applying scenarios of future shocks with a 10-day time horizon only to the specific set of modellable risk factors of the positions in the portfolio set out in paragraphs 2, 3 and 4 for each partial expected shortfall measure referred to in Article 325bb(1) and of which the effective liquidity horizon, as determined in accordance with Article 325bd(2), is equal or longer than LHj.

Table 1

Liquidity horizon j Length of liquidity horizon j (in days) 1 10 2 20 3 40 4 60 5 120

(a) An institution that no longer meets the requirement referred to in the first paragraph of this point shall immediately notify the competent authorities thereof and shall update the subset of the modellable risk factors within two weeks in order to meet that requirement; where, after two weeks, that institution has failed to meet that requirement, the institution shall revert to the approach set out in Chapter 1a to calculate the own funds requirements for market risk for some trading desks, until that institution is able to demonstrate to the competent authority that it is meeting the requirement set out in the first subparagraph of this point;

(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) of this paragraph shall be calibrated to historical data referred to in point (c) of paragraph 4; those data shall be updated on at least a monthly basis.

(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-month period; where there is a significant upsurge in the price volatility of a material number of modellable risks factors of an institution's portfolio which are not in the subset of the risk factors referred to in point (a) of paragraph 2, competent authorities may require an institution to use historical data for a period shorter than the preceding 12-months, but such a shorter period shall not be shorter than the preceding six-months; competent authorities shall notify EBA of any decision to require an institution to use historical data from a shorter period than 12 months and shall substantiate that decision.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026.

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

Article 325bd

Liquidity horizons

An institution shall notify the competent authorities of the trading desks and the broad sub-categories of risk factors to which it decides to apply the treatment referred to in the first subparagraph.

For the purpose of calculating the partial expected shortfall measures in accordance with point (c) of Article 325bc(1), the effective liquidity horizon of a given modellable risk factor of a given trading book position or a non-trading book position that is subject to foreign exchange or commodity risk shall be calculated as follows:

EffectiveLH =		SubCatLH if Mat > LH5
min (SubCatLH, minj{LHj/LHj ≥ Mat}) if LH1 ≤ Mat ≤ LH5
LH1 if Mat < LH1

where:

EBA shall develop draft regulatory technical standards to specify:

(a) how institutions are to map the risk factors of the positions referred to in paragraph 1 to broad categories of risk factors and broad sub-categories of risk factors for the purposes of paragraph 1;

(b) which currencies constitute the most liquid currencies sub-category of the broad category of interest rate risk factor of Table 2;

(c) which currency pairs constitute the most liquid currency pairs sub-category of the broad category of foreign exchange risk factor of Table 2;

(d) the definitions of small market capitalisation and large market capitalisation for the purposes of the equity price and volatility sub-category of the broad category of equity risk factor of Table 2.

EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020.

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

Broad categories of risk factors	Broad sub-categories of risk factors	Liquidity horizons	Length of the liquidity horizon (in days)
Interest rate	Most liquid currencies and domestic currency	1	10
Other currencies (excluding most liquid currencies)	2	20
Volatility	4	60
Other types	4	60
Credit spread	Central government, including central banks, of Member States	2	20
Covered bonds issued by credit institutions in Member States (Investment Grade)	2	20
Sovereign (Investment grade)	2	20
Sovereign (High yield)	3	40
Corporate (Investment grade)	3	40
Corporate (High yield)	4	60
Volatility	5	120
Other types	5	120
Equity	Equity price (Large market capitalisation)	1	10
Equity price (Small market capitalisation)	2	20
Volatility (Large market capitalisation)	2	20
Volatility (Small market capitalisation)	4	60
Other types	4	60
Foreign exchange	Most liquid currency pairs	1	10
Other currency pairs (excluding most liquid currency pairs)	2	20
Volatility	3	40
Other types	3	40
Commodity	Energy price and carbon emissions price	2	20
Precious metal price and non-ferrous metal 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 volatility	4	60
Precious metal volatility and non-ferrous metal volatility	4	60
Other commodity volatilities (excluding energy volatility, carbon emissions volatility, precious metal volatility and non-ferrous metal volatility)	5	120
Other types	5	120

Article 325be

Assessment of the modellability of risk factors

For the purposes of the assessment referred to in first subparagraph, competent authorities may allow institutions to use market data provided by third-party vendors.

In extraordinary circumstances, occurring during periods of significant reduction in certain trading activities across financial markets, competent authorities may allow institutions using the approach set out in this Chapter to consider as modellable risk factors that have been assessed as not modellable by those institutions in accordance with paragraph 1, provided that the following conditions are met:

(a) the risk factors subject to the treatment correspond to the trading activities which are significantly reduced across financial markets;

(b) the treatment is applied temporarily, and for not more than six months within one financial year;

(c) the treatment does not significantly reduce the total own funds requirements for market risk of the institutions applying it;

(d) competent authorities immediately notify EBA of any decision to allow institutions to apply the approach set out in this Chapter to consider as modellable risk factors that have been assessed as non-modellable, as well as of the trading activities concerned, and substantiate that decision.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 325bf

Regulatory back-testing requirements and multiplication factors

For the purposes of this Article, an ‘overshooting’ means a one-day change in the value of a portfolio composed of all the positions assigned to the trading desk that exceeds the related value-at-risk number calculated on the basis of the institution's alternative internal model in accordance with the following requirements:

(a) the calculation of the value at risk shall be subject to a one-day holding period;

(b) scenarios of future shocks shall apply to the risk factors of the trading desk's positions referred to in Article 325bg(3) and which are considered modellable in accordance with Article 325be;

(c) data inputs used to determine the scenarios of future shocks applied to the modellable risk factors shall be calibrated to historical data referred to in point (c) of Article 325bc(4);

(d) unless stated otherwise in this Article, the institution's alternative 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 325ba(1).

An institution's trading desk shall be deemed to meet the back-testing requirements where the number of overshootings for that trading desk that occurred over the most recent 250 business days does not exceed any of the following:

(a) 12 overshootings for the value-at-risk number, calculated at a 99th percentile one tailed-confidence interval on the basis of back-testing of the hypothetical changes in the value of the portfolio;

(b) 12 overshootings for the value-at-risk number, calculated at a 99th percentile one tailed-confidence interval on the basis of back-testing of the actual changes in the value of the portfolio;

(c) 30 overshootings for the value-at-risk number, calculated at a 97,5th percentile one tailed-confidence interval on the basis of back-testing of the hypothetical changes in the value of the portfolio;

(d) 30 overshootings for the value-at-risk number, calculated at a 97,5th percentile one tailed-confidence interval on the basis of back-testing of the actual changes in the value of the portfolio.

Institutions shall count daily overshootings in accordance with the following:

(a) the back-testing of hypothetical changes in the value of the portfolio shall be based on a comparison between the end-of-day value of the portfolio and, assuming unchanged positions, the value of the portfolio at the end of the subsequent day;

(b) the back-testing of actual changes in the value of the portfolio shall be based on a comparison between the end-of-day value of the portfolio and its actual value at the end of the subsequent day, excluding fees and commissions;

(c) an overshooting shall be counted for each business day for which the institution is not able to assess the value of the portfolio or is not able to calculate the value-at-risk number referred to in paragraph 3.

The multiplication factor (mc) shall be equal to at least the sum of 1,5 and an add-on determined in accordance with Table 3. For the portfolio referred to in paragraph 5, that add-on shall be calculated on the basis of the number of overshootings that occurred over the most recent 250 business days as evidenced by the institution’s back-testing of the value-at-risk number calculated in accordance with point (a) of this subparagraph. The calculation of the add-on shall be subject to the following requirements:

(a) an overshooting shall be a one-day change in the portfolio's value that exceeds the related value-at-risk number calculated by the institution's internal model in accordance with the following: (i) a one-day holding period; (ii) a 99th percentile, one tailed confidence interval; (iii) scenarios of future shocks shall apply to the risk factors of the trading desks' positions referred to in Article 325bg(3) and which are considered modellable in accordance with Article 325be; (iv) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors shall be calibrated to historical data referred to in point (c) of Article 325bc(4); (v) unless stated otherwise in this Article, 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 325ba(1);

(b) the number of overshootings shall be equal to the greater of the number of overshootings under hypothetical and the actual changes in the value of the portfolio. Table 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

In extraordinary circumstances, competent authorities may permit an institution to do one or both of the following:

(a) limit the calculation of the add-on to that resulting from overshootings under the back-testing of hypothetical changes where the number of overshootings under the back-testing of actual changes does not result from deficiencies in the institution’s alternative internal model;

(b) exclude the overshootings evidenced by the back-testing of hypothetical or actual changes from the calculation of the add-on where those overshootings do not result from deficiencies in the institution’s alternative internal model.

For the purposes of the first subparagraph, competent authorities may increase the value of mc above the sum referred to in that subparagraph, where an institution’s alternative internal model shows deficiencies preventing the appropriate measurement of the own funds requirements for market risk.

EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020.

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

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 325bg

Profit and loss attribution requirement

EBA shall develop draft regulatory technical standards to specify:

(a) the criteria specifying whether the theoretical changes in the value of a trading desk’s portfolio are either close or sufficiently close to the hypothetical changes in the value of a trading desk’s portfolio for the purposes of paragraph 1, taking into account international regulatory developments;

(b) the additional own funds requirement referred to in paragraph 2;

(c) the frequency at which the P&L attribution is to be performed by an institution;

(d) the technical elements to be included in the theoretical and hypothetical changes in the value of a trading desk's portfolio for the purposes of this Article;

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 325bh

Requirements on risk measurement

Institutions using an internal risk-measurement model that is used to calculate the own funds requirements for market risk as referred to in Article 325ba shall ensure that that model meets all the following requirements:

(a) the internal risk-measurement model shall capture a sufficient number of risk factors, which shall include at least the 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 referred to in Article 325bg; an 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-measurement model shall capture nonlinearities for options and other products as well as correlation risk and basis risk;

(c) the internal risk-measurement model shall incorporate a set of risk factors that correspond 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; the yield curve shall be divided into various maturity segments to capture the variations of volatility of rates along the yield curve; for material exposures to interest-rate risk in the major currencies and markets, the yield curve shall be modelled using a minimum of six maturity segments, 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 spread of less than perfectly correlated movements between different yield curves or different financial instruments on the same underlying issuer;

(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 CIUs, the actual foreign exchange positions of the CIU shall be taken into account; institutions may rely on third-party reporting of the foreign exchange position of the CIU, provided that the correctness of that report is adequately ensured;

(e) the sophistication of the modelling technique shall be proportionate to the materiality of the institutions' activities in the equity markets; the internal risk-measurement model shall use a separate risk factor at least for each of the equity markets in which the institution holds significant positions and at least one risk factor that captures systemic movements in equity prices and the dependency of that risk factor on the individual risk factors for each equity market;

(f) the internal risk-measurement model shall use a separate risk factor at least for each commodity in which the institution holds significant positions, unless the institution has a small aggregate commodity position compared to all its trading activities, in which case it may use a separate risk factor for each broad commodity type; for material exposures to commodity markets, the model shall capture the risk of less than perfectly correlated movements between commodities that are similar, but not identical, the exposure to changes in forward prices arising from maturity mismatches, and the convenience yield between derivative and cash positions;

(g) the proxies used shall show a good track record for the actual position held, shall be appropriately conservative, and shall be used only where the available data are insufficient, such as during the period of stress referred to in point (c) of Article 325bc(2);

(h) for material exposures to volatility risks in instruments with optionality, the internal risk-measurement model shall capture the dependency of implied volatilities across strike prices and options' maturities;

(i) for positions in CIUs, institutions shall look through the underlying positions of the CIUs at least on a weekly basis to calculate their own funds requirements in accordance with this Chapter; where the look-through approach is carried out weekly, institutions shall be able to monitor the risks resulting from significant changes in the composition of the CIU; institutions that do not have adequate data inputs or information to calculate the own funds requirements for market risk of a CIU position in accordance with the look-through approach may rely on a third party to obtain those data inputs or information, provided that all of the following conditions are met: (i) the third party is one of the following: (1) 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; (2) the CIU management company, provided that it meets the criteria set out in Article 132(3), point (a); (3) a third-party vendor on the condition that the data, information or risk metrics are provided or calculated by the third parties referred to in point (1) or (2) of this point or another such third-party vendor; (ii) the third party provides the institution with the data, information or risk metrics to calculate the own funds requirements for market risk of the CIU position in accordance with the look-through approach referred to in the first subparagraph; (iii) an external auditor of the institution has confirmed the adequacy of the third party data, information or risk metrics referred to in point (ii) and the competent authority has unrestricted access to those data, information or risk metrics upon request.

Article 325bi

Qualitative requirements

Any internal risk-measurement model used for the purposes of this Chapter shall be conceptually sound, shall be calculated and implemented with integrity, and shall comply with all the following qualitative requirements:

(a) any internal risk-measurement model used to calculate capital requirements for market risk shall be closely integrated into the daily risk management process of the institution and shall 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: (i) be responsible for designing and implementing any internal risk-measurement model used in the alternative internal model approach for the purposes of this Chapter; (ii) be responsible for the overall risk management system; (iii) produce and analyse daily reports on the output of any internal model used to calculate own funds requirements for market risk, and on the appropriateness of measures to be taken in terms of trading limits;

(c) the management body and senior management shall be actively involved in the risk-control process, and the daily reports produced by the risk control unit shall be reviewed at a level of management with sufficient authority to require the reduction of positions taken by individual traders and to require the reduction of the institution's overall risk exposure;

(d) the institution shall have a sufficient number of staff with a level of skills that is appropriate to the sophistication of the internal risk-measurement models, and a sufficient number of staff with skills in the trading, risk control, audit and back-office areas;

(e) 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 its internal risk-measurement models;

(f) any internal risk-measurement model, including any pricing model, shall have a proven track record of being reasonably accurate in measuring risks, and shall not differ significantly from the models that the institution uses for its internal risk management;

(g) the institution shall frequently conduct rigorous programmes of stress testing, including reverse stress tests, which shall encompass any internal risk-measurement model; the results of those stress tests shall be reviewed by senior management at least on a monthly basis and shall comply with the policies and limits approved by the management body; the institution shall take appropriate actions where the results of those stress tests show excessive losses arising from the trading's business of the institution under certain circumstances;

(h) the institution shall conduct an independent review of its internal risk-measurement models, either as part of its regular internal auditing process, or by mandating a third-party undertaking to conduct that review, which shall be conducted to the satisfaction of the competent authorities.

A validation unit, which is separate from the risk control unit referred to in the first subparagraph, point (b), shall conduct the initial and ongoing validation of any internal risk-measurement model used in the alternative internal model approach for the purposes of this Chapter.

For the purposes of point (h) of the first subparagraph, a third-party undertaking means an undertaking that provides auditing or consulting services to institutions and that has staff who have sufficient skills in the area of market risk 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 the risk-pricing models and valuation systems that are used by front and back-office personnel;

(d) 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;

(e) the accuracy and completeness of position data, the accuracy and appropriateness of volatility and correlation assumptions, the accuracy of valuation and risk sensitivity 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;

(f) the verification process that the institution employs to evaluate the consistency, timeliness and reliability of the data sources used to run any of its internal risk-measurement models, including the independence of those data sources;

(g) the verification process that the institution employs to evaluate back-testing requirements and P&L attribution requirements that are conducted in order to assess the accuracy of its internal risk-measurement models;

(h) where the review is performed by a third-party undertaking in accordance with point (h) of paragraph 1 of this Article, the verification that the internal validation process set out in Article 325bj fulfils its objectives.

Article 325bj

Internal validation

Institutions shall conduct the validation referred to in paragraph 1 in the following circumstances:

(a) when any internal risk-measurement model is initially developed and when any significant changes are made to that model;

(b) on a periodic basis, and where there have been significant structural changes in the market or changes to the composition of the portfolio which might lead to the internal risk-measurement model no longer being adequate.

The validation of the internal risk-measurement models of an institution shall not be limited to back-testing and P&L attribution requirements, but shall, at a minimum, include the following:

(a) tests to verify whether the assumptions made in the internal model are appropriate and do not underestimate or overestimate the risk;

(b) 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 portfolios;

(c) the use of hypothetical portfolios to ensure that the internal risk-measurement 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 325bk

Calculation of stress scenario risk measure

EBA shall develop draft regulatory technical standards to specify:

(a) how institutions are to develop extreme scenarios of future shock applicable to non-modellable risk factors and how they are to apply those extreme scenarios of future shock to those risk factors;

(b) a regulatory extreme scenario of future shock for each broad sub-category of risk factors listed in Table 2 of Article 325bd, which institutions may use when they are unable to develop an extreme scenario of future shock in accordance with point (a) of this subparagraph, or which competent authorities may require that institution apply if those authorities are not satisfied with the extreme scenario of future shock developed by the institution;

(c) the circumstances under which institutions may calculate a stress scenario risk measure for more than one non-modellable risk factor;

(d) how institutions are to aggregate the stress scenario risk measures of all non-modellable risk factors included in their trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk.

In developing those draft regulatory technical standards, EBA shall take into consideration the requirement that the level of own funds requirements for market risk of a non-modellable risk factor as set out in this Article shall be as high as the level of own funds requirements for market risk that would have been calculated under this Chapter if that risk factor were modellable.

EBA shall submit those draft regulatory technical standards to the Commission by 28 September 2020.

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

Section 3

Internal default risk model

Article 325bl

Scope of the internal default risk model

Article 325bm

Permission to use an internal default risk model

Article 325bn

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 trading book positions as referred to in Article 325bl as follows:

(a) the own funds requirements shall be equal to a value-at-risk number measuring potential losses in the market value of the portfolio caused by the default of issuers related to those positions at the 99,9 % confidence interval over a one-year time horizon;

(b) the potential loss referred to in point (a) means a direct or indirect loss in the market value of a position which was 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 value for the issuers' equity prices being set to zero;

(c) institutions shall determine default correlations between different issuers on the basis of a conceptually sound methodology, using objective historical data on market credit spreads or equity prices that cover at least a 10 year period that includes the stress period identified by the institution in accordance with Article 325bc(2); the calculation of default correlations between different issuers shall be calibrated to a one-year time horizon;

(d) the internal default risk model shall be based on a one-year constant position assumption.

Article 325bo

Recognition of hedges in an internal default risk model

Institutions shall ensure that maturity mismatches between a hedging instrument and the hedged instrument that could occur during the one-year time horizon, where those mismatches are not captured in their internal default risk model, do not lead to a material underestimation of risk.

Institutions shall recognise a hedging instrument only to the extent that it can be maintained even as the obligor approaches a credit event or other event.

Article 325bp

Particular requirements for an internal default risk model

To simulate the default of issuers in the internal default risk model, the institution's estimates of default probabilities shall meet the following requirements:

(a) the default probabilities shall be floored at 0,01  % for exposures to which a 0 % risk weight is applied in accordance with Articles 114 to 118 and at 0,01  % for covered bonds to which a 10 % risk weight is applied in accordance with Article 129; otherwise, 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) the default probabilities shall be measured using, solely or in combination with current market prices, data observed during a historical period of at least five years of actual past defaults and extreme declines in market prices equivalent to default events; default probabilities shall not be inferred solely from current market prices;

(d) an institution that has been granted permission to estimate default probabilities in accordance with Title II, Chapter 3, Section 1 for the exposure class and the rating system corresponding to a given issuer shall use the methodology set out therein to calculate the default probabilities of that issuer, provided that the data to make such an estimate are available;

(e) an institution that has not been granted permission to estimate default probabilities referred to in point (d) shall develop an internal methodology or use external sources to estimate these default probabilities consistently with the requirements applicable to estimates of default probability under this Article.

For the purposes of the first subparagraph, point (d), the data to estimate the default probabilities of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same obligor for which it estimates default probabilities in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter.

To simulate the default of issuers in the internal default risk model, the institution's estimates of loss given default shall meet the following requirements:

(a) the loss given default estimates are floored at 0 %;

(b) the loss given default estimates shall reflect the seniority of each position;

(c) an institution that has been granted permission to estimate LGD in accordance with Title II, Chapter 3, Section 1, for the exposure class and the rating system corresponding to a given exposure shall use the methodology set out therein to calculate LGD estimates of that issuer, provided that the data to make such an estimate are available;

(d) an institution that has not been granted permission to estimate LGD referred to in point (c) shall develop an internal methodology or use external sources to estimate LGD consistently with the requirements applying to estimates of LGD under this Article.

For the purposes of the first subparagraph, point (c), the data to estimate the LGD of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same exposure for which it estimates LGD in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter.

As part of the independent review and validation of the internal models that they use for the purposes of this Chapter, including for the risk-measurement system, institutions shall:

(a) verify that their approach for the modelling of correlations and price changes is appropriate for their portfolio, including the choice and weights of the systematic risk factors in the model;

(b) perform a variety of stress tests, including sensitivity analyses and scenario analyses, to assess the qualitative and quantitative reasonableness of the internal default risk model, in particular with regard to the treatment of concentrations; and

(c) apply appropriate quantitative validation including relevant internal modelling benchmarks.

The tests referred to in point (b) shall not be limited to the range of past events experienced.

EBA shall submit those draft regulatory technical standards to the Commission by 28 September 2020.

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

CHAPTER 2

Own funds requirements for position risk

Section 1

General provisions and specific instruments

Article 326

Own funds requirements for position risk

The institution's own funds requirement for position risk shall be the sum of the own funds requirements for the general and specific risk of its positions in debt and equity instruments. Securitisation positions in the trading book shall be treated as debt instruments.

Article 327

Netting

Article 328

Interest rate futures and forwards

Article 329

Options and warrants

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 330

Swaps

Swaps shall be treated for interest-rate risk purposes on the same basis as on-balance-sheet instruments. Thus, an interest-rate swap under which an institution receives floating-rate interest and pays fixed-rate interest shall be treated as equivalent to a long position in a floating-rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed-rate instrument with the same maturity as the swap itself.

Article 331

Interest rate risk on derivative instruments

Institutions which do not use models under paragraph 1 may, treat as fully offsetting any positions in derivative instruments covered in Articles 328 to 330 which meet the following conditions at least:

(a) the positions are of the same value and denominated in the same currency;

(b) the reference rate (for floating-rate positions) or coupon (for fixed-rate positions) is closely matched;

(c) the next interest-fixing date or, for fixed coupon positions, residual maturity corresponds with the following limits: (i) less than one month hence: same day; (ii) between one month and one year hence: within seven days; (iii) over one year hence: within 30 days.

Article 332

Credit Derivatives

When calculating the own funds requirement for general and specific risk of the party who assumes the credit risk (the ‘protection seller’), unless specified differently, the notional amount of the credit derivative contract shall be used. Notwithstanding the first sentence, the institution may elect to replace the notional value by the notional value plus the net market value change of the credit derivative since trade inception, a net downward change from the protection seller's perspective carrying a negative sign. For the purpose of calculating the specific risk charge, other than for total return swaps, the maturity of the credit derivative contract, rather than the maturity of the obligation, shall apply. Positions are determined as follows:

(a) a total return swap creates a long position in the general risk of the reference obligation and a short position in the general risk of a government bond with a maturity equivalent to the period until the next interest fixing and which is assigned a 0 % risk weight under Title II, Chapter 2. It also creates a long position in the specific risk of the reference obligation;

(b) a credit default swap does not create a position for general risk. For the purposes of specific risk, the institution shall record a synthetic long position in an obligation of the reference entity, unless the derivative is rated externally and meets the conditions for a qualifying debt item, in which case a long position in the derivative is recorded. If premium or interest payments are due under the product, these cash flows shall be represented as notional positions in government bonds;

(c) a single name credit linked note creates a long position in the general risk of the note itself, as an interest rate product. For the purpose of specific risk, a synthetic long position is created in an obligation of the reference entity. An additional long position is created in the issuer of the note. Where the credit linked note has an external rating and meets the conditions for a qualifying debt item, a single long position with the specific risk of the note need only be recorded;

(d) in addition to a long position in the specific risk of the issuer of the note, a multiple name credit linked note providing proportional protection creates a position in each reference entity, with the total notional amount of the contract assigned across the positions according to the proportion of the total notional amount that each exposure to a reference entity represents. Where more than one obligation of a reference entity can be selected, the obligation with the highest risk weighting determines the specific risk;

(e) a first-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity. If the size of the maximum credit event payment is lower than the own funds requirement under the method in the first sentence of this point, the maximum payment amount may be taken as the own funds requirement for specific risk.

A -n-th-asset-to-default credit derivative creates a position for the notional amount in an obligation of each reference entity less the n-1 reference entities with the lowest specific risk own funds requirement. If the size of the maximum credit event payment is lower than the own funds requirement under the method in the first sentence of this point, this amount may be taken as the own funds requirement for specific risk.

Where an n-th-to-default credit derivative is externally rated, the protection seller shall calculate the specific risk own funds requirement using the rating of the derivative and apply the respective securitisation risk weights as applicable.

Article 333

Securities sold under a repurchase agreement or lent

The transferor of securities or guaranteed rights relating to title to securities in a repurchase agreement and the lender of securities in a securities lending shall include these securities in the calculation of its own funds requirement under this Chapter provided that such securities are trading book positions.

Section 2

Debt instruments

Article 334

Net positions in debt instruments

Net positions shall be classified according to the currency in which they are denominated and shall calculate the own funds requirement for general and specific risk in each individual currency separately.

Sub-Section 1

Specific risk

Article 335

Cap on the own funds requirement for a net position

The institution may cap the own funds requirement for specific risk of a net position in a debt instrument at the maximum possible default-risk related loss. For a short position, that limit may be calculated as a change in value due to the instrument or, where relevant, the underlying names immediately becoming default risk-free.

Article 336

Own funds requirement for non-securitisation debt instruments

The institution shall assign its net positions in the trading book in instruments that are not securitisation positions as calculated in accordance with Article 327 to the appropriate categories in Table 1 on the basis of their issuer or obligor, external or internal credit assessment, and residual maturity, and then multiply them by the weightings shown in that table. It shall sum its weighted positions resulting from the application of this Article regardless of whether they are long or short in order to calculate its own funds requirement against specific risk.

| Categories | Specific risk own funds requirement |

| --- | --- | | Debt securities which would receive a 0 % risk weight under the Standardised Approach for credit risk. | 0 % | | Debt securities which would receive a 20 % or 50 % risk weight under the Standardised Approach for credit risk and other qualifying items as defined in paragraph 4. | 0,25 % (residual term to final maturity six months or less) 1,00 % (residual term to final maturity greater than six months and up to and including 24 months) 1,60 % (residual term to maturity exceeding 24 months) | | Debt securities which would receive a 100 % risk weight under the Standardised Approach for credit risk. | 8,00 % | | Debt which would receive a 150 % risk weight under the Standardised Approach for credit risk. | 12,00 % |

Other qualifying items are:

(a) long and short positions in assets for which a credit assessment by a nominated ECAI is not available and which meet all of the following conditions: (i) they are considered by the institution concerned to be sufficiently liquid; (ii) their investment quality is, according to the institution's own discretion, at least equivalent to that of the assets referred to under Table 1 second row; (iii) they are listed on at least one regulated market in a Member State or on a stock exchange in a third country provided that the exchange is recognised by the competent authorities of the relevant Member State;

(b) long and short positions in assets issued by institutions subject to the own funds requirements set out in this Regulation which are considered by the institution concerned to be sufficiently liquid and whose investment quality is, according to the institution's own discretion, at least equivalent to that of the assets referred to under Table 1 second row;

(c) securities issued by institutions that are deemed to be of equivalent, or higher, credit quality than those associated with credit quality step 2 under the Standardised Approach for credit risk of exposures to institutions and that are subject to supervisory and regulatory arrangements comparable to those under this Regulation and Directive 2013/36/EU.

Institutions that make use of point (a) or (b) shall have a documented methodology in place to assess whether assets meet the requirements in those points and shall notify this methodology to the competent authorities.

Article 337

Own funds requirement for securitisation instruments

Where an originator institution of a synthetic securitisation does not meet the conditions for significant risk transfer set out in Article 245, the originator institution shall include the exposures underlying the securitisation in its calculation of own funds requirements as if those exposures had not been securitised and shall ignore the effect of the synthetic securitisation for credit protection purposes.

Article 338

Own funds requirement for the correlation trading portfolio

An institution shall determine the larger of the following amounts as the specific risk own funds requirement for the correlation trading portfolio:

(a) the total specific risk own funds requirement that would apply just to the net long positions of the correlation trading portfolio;

(b) the total specific risk own funds requirement that would apply just to the net short positions of the correlation trading portfolio.

Sub-Section 2

General risk

Article 339

Maturity-based calculation of general risk

The institution shall compute the totals of the unmatched weighted long positions for the bands included in each of the zones in Table 2 in order to derive the unmatched weighted long position for each zone. Similarly, the sum of the unmatched weighted short positions for each band in a particular zone shall be summed to compute the unmatched weighted short position for that zone. That part of the unmatched weighted long position for a given zone that is matched by the unmatched weighted short position for the same zone shall be the matched weighted position for that zone. That part of the unmatched weighted long or unmatched weighted short position for a zone that cannot be thus matched shall be the unmatched weighted position for that zone.

Zone	Maturity band	Weighting (in %)	Assumed interest rate change (in %)
Coupon of 3 % or more	Coupon of less than 3 %
One	0 ≤ 1 month	0 ≤ 1 month	0,00	—
> 1 ≤ 3 months	> 1 ≤ 3 months	0,20	1,00
> 3 ≤ 6 months	> 3 ≤ 6 months	0,40	1,00
> 6 ≤ 12 months	> 6 ≤ 12 months	0,70	1,00
Two	> 1 ≤ 2 years	> 1,0 ≤ 1,9 years	1,25	0,90
> 2 ≤ 3 years	> 1,9 ≤ 2,8 years	1,75	0,80
> 3 ≤ 4 years	> 2,8 ≤ 3,6 years	2,25	0,75
Three	> 4 ≤ 5 years	> 3,6 ≤ 4,3 years	2,75	0,75
> 5 ≤ 7 years	> 4,3 ≤ 5,7 years	3,25	0,70
> 7 ≤ 10 years	> 5,7 ≤ 7,3 years	3,75	0,65
> 10 ≤ 15 years	> 7,3 ≤ 9,3 years	4,50	0,60
> 15 ≤ 20 years	> 9,3 ≤ 10,6 years	5,25	0,60
> 20 years	> 10,6 ≤ 12,0 years	6,00	0,60
	> 12,0 ≤ 20,0 years	8,00	0,60
	> 20 years	12,50	0,60

The institution's own funds requirement shall be calculated as the sum of:

(a) 10 % of the sum of the matched weighted positions in all maturity bands;

(b) 40 % of the matched weighted position in zone one;

(c) 30 % of the matched weighted position in zone two;

(d) 30 % of the matched weighted position in zone three;

(e) 40 % of the matched weighted position between zones one and two and between zones two and three;

(f) 150 % of the matched weighted position between zones one and three;

(g) 100 % of the residual unmatched weighted positions.

Article 340

Duration-based calculation of general risk

The institution shall then calculate the modified duration of each debt instrument on the basis of the following formula:

where:

Correction shall be made to the calculation of the modified duration for debt instruments which are subject to prepayment risk. EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines about how to apply such corrections.

The institution shall then allocate each debt instrument to the appropriate zone in Table 3. It shall do so on the basis of the modified duration of each instrument.

Zone	Modified duration (in years)	Assumed interest (change in %)
One	> 0 ≤ 1,0	1,0
Two	> 1,0 ≤ 3,6	0,85
Three	> 3,6	0,7

The institution shall then calculate the unmatched duration-weighted positions for each zone. It shall then follow the procedures laid down for unmatched weighted positions in Article 339(5) to (8).

The institution's own funds requirement shall then be calculated as the sum of the following:

(a) 2 % of the matched duration-weighted position for each zone;

(b) 40 % of the matched duration-weighted positions between zones one and two and between zones two and three;

(c) 150 % of the matched duration-weighted position between zones one and three;

(d) 100 % of the residual unmatched duration-weighted positions.

Section 3

Equities

Article 341

Net positions in equity instruments

EBA shall submit those draft regulatory technical standards to the Commission by 31 January 2014.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 342

Specific risk of equity instruments

The institution shall multiply its overall gross position by 8 % in order to calculate its own funds requirement against specific risk.

Article 343

General risk of equity instruments

The own funds requirement against general risk shall be the institution's overall net position multiplied by 8 %.

Article 344

Stock indices

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

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

Section 4

Underwriting

Article 345

Reduction of net positions

In the case of the underwriting of debt and equity instruments, an institution may use the following procedure in calculating its own funds requirements. The institution shall first calculate the net positions by deducting the underwriting positions which are subscribed or sub-underwritten by third parties on the basis of formal agreements. The institution shall then reduce the net positions by the reduction factors in Table 4 and calculate its own funds requirements using the reduced underwriting positions.

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 %.

‘Working day zero’ shall be the working day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.

Section 5

Specific risk own funds requirements for positions hedged by credit derivatives

Article 346

Allowance for hedges by credit derivatives

Full allowance shall be given when the values of the two legs always move in the opposite direction and broadly to the same extent. This will be the case in the following situations:

(a) the two legs consist of completely identical instruments;

(b) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (i.e., the cash position). The maturity of the swap itself may be different from that of the underlying exposure.

In these situations, a specific risk own funds requirement shall not be applied to either side of the position.

Partial allowance shall be given, absent the situations in paragraphs 3 and 4, in the following situations:

(a) the position falls under paragraph 3(b) but there is an asset mismatch between the reference obligation and the underlying exposure. However, the positions meet the following requirements: (i) the reference obligation ranks pari passu with or is junior to the underlying obligation; (ii) the underlying obligation and reference obligation share the same obligor and have legally enforceable cross-default or cross-acceleration clauses;

(b) the position falls under paragraph 3(a) or paragraph 4 but there is a currency or maturity mismatch between the credit protection and the underlying asset. Such currency mismatch shall be included in the own funds requirement for foreign exchange risk;

(c) the position falls under paragraph 4 but there is an asset mismatch between the cash position and the credit derivative. However, the underlying asset is included in the (deliverable) obligations in the credit derivative documentation.

In order to give partial allowance, rather than adding the specific risk own funds requirements for each side of the transaction, only the higher of the two own funds requirements shall apply.

Article 347

Allowance for hedges by first and nth-to default credit derivatives

In the case of first-to-default credit derivatives and nth-to-default credit derivatives, the following treatment applies for the allowance to be given in accordance with Article 346:

(a) where an institution obtains credit protection for a number of reference entities underlying a credit derivative under the terms that the first default among the assets shall trigger payment and that this credit event shall terminate the contract, the institution may offset specific risk for the reference entity to which the lowest specific risk percentage charge among the underlying reference entities applies in accordance with Table 1 in Article 336;

(b) where the nth default among the exposures triggers payment under the credit protection, the protection buyer may only offset specific risk if protection has also been obtained for defaults 1 to n-1 or when n-1 defaults have already occurred. In such cases, the methodology set out in point (a) for first-to-default credit derivatives shall be followed appropriately amended for nth-to-default products.

Section 6

Own funds requirements for CIUs

Article 348

Own funds requirements for CIUs

Article 349

General criteria for CIUs

CIUs shall be eligible for the approach set out in Article 350, where all the following conditions are met:

(a) the CIU's prospectus or equivalent document shall include all of the following:

(i) the categories of assets in which the CIU is authorised to invest; (ii) where investment limits apply, the relative limits and the methodologies to calculate them; (iii) where leverage is allowed, the maximum level of leverage; (iv) where concluding OTC financial derivatives transactions or repurchase transactions or securities borrowing or lending is allowed, a policy to limit counterparty risk arising from these transactions;

(b) the business of the CIU shall be reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period;

(c) the shares or units of the CIU shall be redeemable in cash, out of the undertaking's assets, on a daily basis at the request of the unit holder;

(d) investments in the CIU shall be segregated from the assets of the CIU manager;

(e) there shall be adequate risk assessment of the CIU, by the investing institution;

(f) CIUs shall be managed by persons supervised in accordance with Directive 2009/65/EC or equivalent legislation.

Article 350

Specific methods for CIUs

Institutions may calculate the own funds requirements for position risk, comprising specific and general risk, for positions in CIUs by assuming positions representing those necessary to replicate the composition and performance of the externally generated index or fixed basket of equities or debt securities referred to in point (a), subject to the following conditions:

(a) the purpose of the CIU's mandate is to replicate the composition and performance of an externally generated index or fixed basket of equities or debt securities;

(b) a minimum correlation coefficient between daily returns on the CIU and the index or basket of equities or debt securities it tracks of 0,9 can be clearly established over a minimum period of six months.

Where the institution is not aware of the underlying investments of the CIU on a daily basis, the institution may calculate the own funds requirements for position risk, comprising specific and general risk, subject to the following conditions:

(a) it will be assumed that the CIU first invests to the maximum extent allowed under its mandate in the asset classes attracting the highest own funds requirement for specific and general risk separately, and then continues making investments in descending order until the maximum total investment limit is reached. The position in the CIU will be treated as a direct holding in the assumed position;

(b) institutions shall take account of the maximum indirect exposure that they could achieve by taking leveraged positions through the CIU when calculating their own funds requirement for specific and general risk separately, by proportionally increasing the position in the CIU up to the maximum exposure to the underlying investment items resulting from the mandate;

(c) if the own funds requirement for specific and general risk together in accordance with this paragraph exceed that set out in Article 348(1) the own funds requirement shall be capped at that level.

Institutions may rely on the following third parties to calculate and report own funds requirements for position risk for positions in CIUs falling under paragraphs 1 to 4, in accordance with the methods set out in this Chapter:

(a) the depository of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository;

(b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3)(a).

The correctness of the calculation shall be confirmed by an external auditor.

CHAPTER 3

Own funds requirements for foreign-exchange risk

Article 351

De minimis and weighting for foreign exchange risk

If the sum of an institution’s overall net foreign exchange position and its net gold position, calculated in accordance with the procedure set out in Article 352, exceeds 2 % of its total own funds, the institution shall calculate an own funds requirement for foreign exchange risk. The own funds requirement for foreign exchange risk shall be the sum of its overall net foreign exchange position and its net gold position in the reporting currency, multiplied by 8 %.

Article 352

Calculation of the overall net foreign exchange position

The institution's net open position in each currency (including the reporting currency) and in gold shall be calculated as the sum of the following elements (positive or negative):

(a) the net spot position (i.e. all asset items less all liability items, including accrued interest, in the currency in question or, for gold, the net spot position in gold);

(b) the net forward position, which are all amounts to be received less all amounts to be paid under forward exchange and gold transactions, including currency and gold futures and the principal on currency swaps not included in the spot position;

(c) irrevocable guarantees and similar instruments that are certain to be called and likely to be irrecoverable;

(d) the net delta, or delta-based, equivalent of the total book of foreign-currency and gold options;

(e) the market value of other options.

The delta used for purposes of point (d) shall be that of the exchange concerned. For OTC options, or where delta is not available from the exchange concerned, the institution may calculate delta itself using an appropriate model, subject to permission by the competent authorities. Permission shall be granted if the model appropriately estimates the rate of change of the option's or warrant's value with respect to small changes in the market price of the underlying.

The institution may include net future income/expenses not yet accrued but already fully hedged if it does so consistently.

The institution may break down net positions in composite currencies into the component currencies in accordance with the quotas in force.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Before the entry into force of the technical standards referred to in the first subparagraph, competent authorities may continue to apply the existing national treatments, where the competent authorities have applied those treatments before 31 December 2013.

Article 353

Foreign exchange risk of CIUs

Institutions may rely on the following third parties' reporting of the foreign exchange positions in the CIU:

(a) the depository institution of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository institution;

(b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in point (a) of Article 132(3).

The correctness of the calculation shall be confirmed by an external auditor.

Article 354

Closely correlated currencies

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

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

CHAPTER 4

Own funds requirements for commodities risk

Article 355

Choice of method for commodities risk

Subject to Articles 356 to 358, institutions shall calculate the own funds requirement for commodities risk with one of the methods set out in Article 359, 360 or 361.

Article 356

Ancillary commodities business

Institutions with ancillary agricultural commodities business may determine the own funds requirements for their physical commodity stock at the end of each year for the following year where all of the following conditions are met:

(a) at any time of the year it holds own funds for this risk which are not lower than the average own funds requirement for that risk estimated on a conservative basis for the coming year;

(b) it estimates on a conservative basis the expected volatility for the figure calculated under point (a);

(c) its average own funds requirement for this risk does not exceed 5 % of its own funds or EUR 1 million and, taking into account the volatility estimated in accordance with (b), the expected peak own funds requirements do not exceed 6,5 % of its own funds;

(d) the institution monitors on an ongoing basis whether the estimates carried out under points (a) and (b) still reflect the reality.

Article 357

Positions in commodities

For the purposes of calculating a position in a commodity, the following positions shall be treated as positions in the same commodity:

(a) positions in different sub-categories of commodities in cases where the sub-categories are deliverable against each other;

(b) positions in similar commodities if they are close substitutes and where a minimum correlation of 0,9 between price movements can be clearly established over a minimum period of one year.

Article 358

Particular instruments

Institutions shall adequately reflect other risks associated with options, apart from the delta risk, in the own funds requirements.

EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Before the entry into force of the technical standards referred to in the first subparagraph, competent authorities may continue to apply the existing national treatments, where the competent authorities have applied those treatments before 31 December 2013.

Where an institution is either of the following, it shall include the commodities concerned in the calculation of its own funds requirement for commodities risk:

(a) the transferor of commodities or guaranteed rights relating to title to commodities in a repurchase agreement;

(b) the lender of commodities in a commodities lending agreement.

Article 359

Maturity ladder approach

The institution shall use a separate maturity ladder in line with Table 1 for each commodity. All positions in that commodity shall be assigned to the appropriate maturity bands. Physical stocks shall be assigned to the first maturity band between 0 and up to and including 1 month.

Maturity band (1)	Spread rate (in %) (2)
0 ≤ 1 month	1,50
> 1 ≤ 3 months	1,50
> 3 ≤ 6 months	1,50
> 6 ≤ 12 months	1,50
> 1 ≤ 2 years	1,50
> 2 ≤ 3 years	1,50
> 3 years	1,50

Positions in the same commodity may be offset and assigned to the appropriate maturity bands on a net basis for the following:

(a) positions in contracts maturing on the same date;

(b) positions in contracts maturing within 10 days of each other if the contracts are traded on markets which have daily delivery dates.

The institution's own funds requirement for each commodity shall be calculated on the basis of the relevant maturity ladder as the sum of the following:

(a) the sum of the matched long and short positions, multiplied by the appropriate spread rate as indicated in the second column of Table 1 for each maturity band and by the spot price for the commodity;

(b) the matched position between two maturity bands for each maturity band into which an unmatched position is carried forward, multiplied by 0,6 %, which is the carry rate and by the spot price for the commodity;

(c) the residual unmatched positions, multiplied by 15 % which is the outright rate and by the spot price for the commodity.

Article 360

Simplified approach

The institution's own funds requirement for each commodity shall be calculated as the sum of the following:

(a) 15 % of the net position, long or short, multiplied by the spot price for the commodity;

(b) 3 % of the gross position, long plus short, multiplied by the spot price for the commodity.

Article 361

Extended maturity ladder approach

Institutions may use the minimum spread, carry and outright rates set out in the following Table 2 instead of those indicated in Article 359 provided that the institutions:

(a) undertake significant commodities business;

(b) have an appropriately diversified commodities portfolio.

	Precious metals (except gold)	Base metals	Agricultural products (softs)	Other, including energy products
Spread rate (%)	1,0	1,2	1,5	1,5
Carry rate (%)	0,3	0,5	0,6	0,6
Outright rate (%)	8	10	12	15

Institutions shall notify the use they make of this Article to their competent authorities.

TITLE V

OWN FUNDS REQUIREMENTS FOR SETTLEMENT RISK

Article 378

Settlement/delivery risk

In the case of transactions in which debt instruments, equities, foreign currencies and commodities excluding repurchase transactions and securities or commodities lending and securities or commodities borrowing are unsettled after their due delivery dates, an institution shall calculate the price difference to which it is exposed.

The price difference is calculated as the difference between the agreed settlement price for the debt instrument, equity, foreign currency or commodity in question and its current market value, where the difference could involve a loss for the credit institution.

The institution shall multiply that price difference by the appropriate factor in the right column of the following Table 1 in order to calculate the institution's own funds requirement for settlement risk.

Number of working days after due settlement date	(%)
5 — 15	8
16 — 30	50
31 — 45	75
46 or more	100

Article 379

Free deliveries

An institution shall be required to hold own funds, as set out in Table 2, where the following occurs:

(a) it has paid for securities, foreign currencies or commodities before receiving them or it has delivered securities, foreign currencies or commodities before receiving payment for them;

(b) in the case of cross-border transactions, one day or more has elapsed since it made that payment or delivery.

| Column 1 | Column 2 | Column 3 | Column 4 |

| --- | --- | --- | --- | | Transaction Type | Up to first contractual payment or delivery leg | From first contractual payment or delivery leg up to four days after second contractual payment or delivery leg | From 5 business days post second contractual payment or delivery leg until extinction of the transaction | | Free delivery | No capital charge | Treat as an exposure | Treat as an exposure risk weighted at 1 250 % |

If the amount of positive exposure resulting from free delivery transactions is not material, institutions may apply a risk weight of 100 % to these exposures, except where a risk weight of 1 250 % in accordance with Column 4 of Table 2 in paragraph 1 is required.

Article 380

Waiver

Where a system wide failure of a settlement system, a clearing system or a CCP occurs, competent authorities may waive the own funds requirements calculated as set out in Articles 378 and 379 until the situation is rectified. In this case, the failure of a counterparty to settle a trade shall not be deemed a default for purposes of credit risk.

TITLE VI

OWN FUNDS REQUIREMENTS FOR CREDIT VALUATION ADJUSTMENT RISK

Article 381

Meaning of credit valuation adjustment

For the purposes of this Title and Chapter 6 of Title II, ‘credit valuation adjustment’ or ‘CVA’ means an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty. That adjustment reflects the current market value of the credit risk of the counterparty to the institution, but does not reflect the current market value of the credit risk of the institution to the counterparty.

For the purposes of this Title, ‘CVA risk’ means the risk of losses arising from changes in the value of CVA, calculated for the portfolio of transactions with a counterparty as set out in the first paragraph, due to movements in counterparty credit spread risk factors and in other risk factors embedded in the portfolio of transactions.

Article 382

Scope

The following transactions shall be excluded from the own funds requirements for CVA risk:

(a) transactions with non-financial counterparties as defined in point (9) of Article 2 of Regulation (EU) No 648/2012, or with non-financial counterparties established in a third country, where those transactions do not exceed the clearing threshold as specified in Article 10(3) and (4) of that Regulation;

(aa) intragroup transactions entered into with non-financial counterparties as defined in Article 2, point (9), of Regulation (EU) No 648/2012 which are part of the same group provided that all the following conditions are met: (i) the institution and the non-financial counterparties are included in the same consolidation on a full basis and are subject to supervision on a consolidated basis in accordance with Part One, Title II, Chapter 2; (ii) they are subject to appropriate centralised risk evaluation, measurement and control procedures; and (iii) the non-financial counterparties are established in the Union or, if they are established in a third country, the Commission has adopted an implementing act in accordance with paragraph 4c in respect of that third country;

(b) intragroup transactions entered into with financial counterparties, as defined in Article 2, point (8), of Regulation (EU) No 648/2012, financial institutions or ancillary services undertakings that are established in the Union or that are established in a third country that applies prudential and supervisory requirements to those financial counterparties, financial institutions or ancillary services undertakings that are at least equivalent to those applied in the Union, unless Member States adopt national law requiring the structural separation within a banking group, in which case the competent authorities may require those intragroup transactions between the structurally separated entities to be included in the own funds requirements;

(c) transactions with counterparties referred to in point (10) of Article 2 of Regulation (EU) No 648/2012 and subject to the transitional provisions set out in Article 89(1) of that Regulation until those transitional provisions cease to apply;

(d) transactions with counterparties referred to in Article 1(4) and (5) of Regulation (EU) No 648/2012 and transactions with counterparties for which Article 114(4) and Article 115(2) of this Regulation specifies a risk weight of 0 % for exposures to those counterparties.

The exemption from the CVA risk charge for those transactions referred to in point (c) of this paragraph) which are entered into during the transitional period laid down in Article 89(1) of Regulation (EU) No 648/2012 shall apply for the length of the contract of that transaction.

In regard to point (a), where an institution ceases to be exempt through crossing the exemption threshold or due to a change in the exemption threshold, outstanding contracts shall remain exempt until the date of their maturity.

EBA in cooperation with ESMA shall develop draft regulatory technical standards to specify the procedures for excluding transactions with non-financial counterparties established in a third country from the own funds requirement for CVA risk charge.

EBA shall submit those draft regulatory technical standards within six months of the date of the review referred to in the first subparagraph,

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

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026.

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

Article 382a

Approaches for calculating the own funds requirements for CVA risk

An institution shall calculate the own funds requirements for CVA risk for all transactions referred to in Article 382 in accordance with the following approaches:

(a) the standardised approach set out in Article 383, where the institution has been granted permission by the competent authority to use that approach;

(b) the basic approach set out in Article 384;

(c) the simplified approach set out in Article 385, provided that the institution meets the conditions set out in paragraph 1 of that Article.

An institution may use a combination of the approaches referred to in paragraph 1, points (a) and (b), to calculate the own funds requirements for CVA risk on a permanent basis for:

(a) different counterparties;

(b) different eligible netting sets with the same counterparty;

(c) different transactions of the same eligible netting set, provided that any of the conditions referred to in paragraph 5 are satisfied.

For the purposes of paragraph 3, point (c), the conditions referred to therein shall comprise the following:

(a) the split is consistent with the treatment of the legal netting set when calculating the CVA for accounting purposes;

(b) the permission granted by competent authorities to use the approach referred to in paragraph 1, point (a), is limited to the corresponding hypothetical netting set and does not cover all transactions within the eligible netting set.

Institutions shall document how they use a combination of the approaches referred to in paragraph 1, points (a) and (b), and as set out in this paragraph, to calculate the own funds requirements for CVA risk on a permanent basis.

Article 383

Standardised approach

The competent authority shall grant an institution permission to calculate its own funds requirements for CVA risk for a portfolio of transactions with one or more counterparties by using the standardised approach in accordance with paragraph 3 of this Article, after having assessed whether the institution complies with the following requirements:

(a) the institution has established a distinct unit which is responsible for the institution’s overall risk management and hedging of CVA risk;

(b) for each counterparty concerned, the institution has developed a regulatory CVA model to calculate the CVA of that counterparty in accordance with Article 383a;

(c) for each counterparty concerned, the institution is able to calculate, at least on a monthly basis, the sensitivities of its CVA to the risk factors concerned as determined in accordance with Article 383b;

(d) for all positions in eligible hedges recognised in accordance with Article 386 for the purpose of calculating the own funds requirements for CVA risk using the standardised approach, the institution is able to calculate, and at least on a monthly basis, the sensitivities of those positions to the relevant risk factors determined in accordance with Article 383b;

(e) the institution has established a risk control unit that is independent from business trading units and the unit referred to in point (a) and that reports directly to the management body; that risk control unit shall be responsible for designing and implementing the standardised approach and shall produce and analyse monthly reports on the output of that approach and, moreover, the risk control unit shall assess the appropriateness of the institution’s trading limits and include the results of that assessment in its monthly reports; the risk control unit shall have a sufficient number of staff with a level of skills that is appropriate to fulfil its purpose.

For the purposes of the first subparagraph, point (c), of this paragraph the sensitivity of a counterparty’s CVA to a risk factor means the relative change in the value of that CVA, as a result of a change in the value of one of the relevant risk factors of that CVA, calculated using the institution’s regulatory CVA model in accordance with Articles 383i and 383j.

For the purposes of the first subparagraph, point (d), of this paragraph the sensitivity of a position in an eligible hedge to a risk factor means the relative change in the value of that position, as a result of a change in the value of one of the relevant risk factors of that position, calculated using the institution’s pricing model in accordance with Articles 383i and 383j.

For the purpose of calculating the own funds requirements for CVA risk, the following definitions apply:

(1) “risk class” means any of the following categories:

(a) interest rate risk; (b) counterparty credit spread risk; (c) reference credit spread risk; (d) equity risk; (e) commodity risk; (f) foreign exchange risk;

(2) “CVA portfolio” means the portfolio composed of the aggregate CVA and the eligible hedges referred to in paragraph 1, point (d);

(3) “aggregate CVA” means the sum of the CVAs calculated using the regulatory CVA model for the counterparties referred to in paragraph 1, first subparagraph.

Institutions shall determine the own funds requirements for CVA risk using the standardised approach as the sum of the following own funds requirements calculated in accordance with Article 383b:

(a) the own funds requirements for delta risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant non-volatility related risk factors;

(b) the own funds requirements for vega risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant volatility related risk factors.

Article 383a

Regulatory CVA model

A regulatory CVA model used for calculating the own funds requirements for CVA risk in accordance with Article 383 shall be conceptually sound, implemented with integrity, and comply with all of the following requirements:

(a) the regulatory CVA model is capable of modelling the CVA of a given counterparty, recognising netting and margin agreements at netting set level, where relevant, in accordance with this Article;

(b) the institution estimates the counterparty’s probabilities of default from the counterparty credit spreads and market-consensus expected loss given default for that counterparty;

(c) the expected loss given default referred to in point (a) shall be the same as the market-consensus expected loss given default referred to in point (b), unless the institution can demonstrate that the seniority of the portfolio of transactions with that counterparty differs from the seniority of senior unsecured bonds issued by that counterparty;

(d) at each future time point, the simulated discounted future exposure of the portfolio of transactions with a counterparty is calculated with an exposure model by repricing all transactions in that portfolio, based on the simulated joint changes of the market risk factors that are material to those transactions using an appropriate number of scenarios, and discounting the prices to the date of calculation using risk-free interest rates;

(e) the regulatory CVA model is capable of modelling significant dependency between the simulated discounted future exposure of the portfolio of transactions and the counterparty credit spreads;

(f) where the transactions of the portfolio are included in a netting set subject to a margin agreement and daily mark-to-market valuation, the collateral posted and received as part of that agreement is recognised as a risk mitigant in the simulated discounted future exposure, where all of the following conditions are met: (i) the institution determines the margin period of risk relevant for that netting set in accordance with the requirements set out in Article 285(2) and (5), and reflects that margin period in the calculation of the simulated discounted future exposure; (ii) all applicable features of the margin agreement, including the frequency of margin calls, the type of contractually eligible collateral, the threshold amounts, the minimum transfer amounts, the independent amounts and the initial margins for both the institution and the counterparty are appropriately reflected in the calculation of the simulated discounted future exposure; (iii) the institution has established a collateral management unit that complies with Article 287 for all collateral recognised for calculating the own funds requirements for CVA risk using the standardised approach.

For the purposes of the first subparagraph, point (a), CVA shall have a positive sign and shall be calculated as a function of the counterparty’s expected loss given default, an appropriate set of the counterparty’s probabilities of default at future time points and an appropriate set of simulated discounted future exposures of the portfolio of transactions with that counterparty at future time points until the maturity of the longest transaction in that portfolio.

For the purposes of the demonstration referred to in the first subparagraph, point (c), collateral received from the counterparty shall not change the seniority of the exposure.

For the purposes of the first subparagraph, point (f)(iii), of this paragraph where the institution has already established a collateral management unit for using the internal model method referred to in Article 283, the institution shall not be required to establish an additional collateral management unit where that institution demonstrates to its competent authority that such a unit complies with the requirements set out in Article 287 for the collateral recognised for calculating the own funds requirements for CVA risk using the standardised approach.

For the purposes of paragraph 1, point (b), where the credit default swap spreads of the counterparty are observable in the market, an institution shall use those spreads. Where such credit default swap spreads are not available, an institution shall use one of the following:

(a) credit spreads from other instruments issued by the counterparty reflecting current market conditions;

(b) proxy spreads that are appropriate considering the rating, industry and region of the counterparty.

An institution using a regulatory CVA model shall comply with all of the following qualitative requirements:

(a) the exposure model referred to in paragraph 1 is part of the institution’s internal CVA risk management system that includes the identification, measurement, management, approval and internal reporting of CVA and CVA risk for accounting purposes;

(b) the institution has in place a process for ensuring compliance with a documented set of internal policies, controls, assessment of model performance and procedures concerning the exposure model referred to in paragraph 1;

(c) the institution shall have an independent validation unit that is responsible for the effective initial and ongoing validation of the exposure model referred to in paragraph 1 of this Article; that unit shall be independent from business credit and trading units, including the unit referred to in Article 383(1), point (a), and report directly to senior management; it shall have a sufficient number of staff with a level of skills that is appropriate to fulfil that purpose;

(d) the senior management shall be actively involved in the risk control process and shall regard CVA risk control as an essential aspect of the business, to which appropriate resources need to be devoted;

(e) the institution shall document the process for initial and ongoing validation of the exposure model referred to in paragraph 1 to a level of detail that would enable a third party to understand how the models operate, their limitations, and their key assumptions, and recreate the analysis; that documentation shall set out the minimum frequency with which ongoing validation will be conducted, as well as other circumstances, such as a sudden change in market behaviour, under which additional validation shall be conducted; it shall describe how the validation is conducted with respect to data flows and portfolios, what analyses are used and how representative counterparty portfolios are constructed;

(f) the pricing models used in the exposure model referred to in paragraph 1 for a given scenario of simulated market risk factors shall be tested against appropriate independent benchmarks for a wide range of market states as part of the initial and ongoing model validation process; pricing models for options shall account for the non-linearity of option value with respect to market risk factors;

(g) an independent review of the institution’s internal CVA risk management system referred to in point (a) of this paragraph shall be carried out by the institution’s internal auditing process on a regular basis; that review shall include the activities both of the unit referred to in Article 383(1), point (a), and of the independent validation unit referred to in point (c) of this paragraph;

(h) the regulatory CVA model used by the institution for calculating the simulated discounted future exposure referred to in paragraph 1, shall reflect transaction terms and specifications and margin agreements in a timely, complete, and conservative manner; the terms and specifications shall reside in a secure database subject to formal and periodic audit; the transmission of transaction terms and specifications data and margin agreements to the exposure model shall also be subject to internal audit, and formal reconciliation processes shall be in place between the internal model and source data systems to verify on an ongoing basis that transaction terms, specifications and margin agreements are being reflected in the exposure system correctly or, at least, conservatively;

(i) the current and historical market data inputs used in the model by the institution for calculating the simulated discounted future exposure referred to in paragraph 1 shall be acquired independently of the business lines and fed into that model in a timely and complete manner and maintained in a secure database subject to formal and periodic audit; an institution shall have a well-developed data integrity process to handle inappropriate data observations; where the model relies on proxy market data, an institution shall design internal policies to identify suitable proxies and shall demonstrate empirically on an ongoing basis that the proxies provide a conservative representation of the underlying risk;

(j) the exposure model referred to in paragraph 1 shall capture the transaction specific and contractual information necessary in order to aggregate exposures at the level of the netting set; an institution shall verify that transactions are assigned to the appropriate netting set within the model.

For the purpose of calculating the own funds requirements for CVA risk, the exposure model referred to in paragraph 1 of this Article may have different specifications and assumptions in order to meet all requirements laid down in Article 383a, except that its market data inputs and netting recognition shall remain the same as the ones used for accounting purposes.

EBA shall develop draft regulatory technical standards to specify:

(a) how proxy spreads referred to in paragraph 2, point (b), are to be determined by the institution for the purposes of calculating default probabilities;

(b) further technical elements that institutions are to take into account when calculating the counterparty’s expected loss given default, the counterparty’s probabilities of default and the simulated discounted future exposure of the portfolio of transactions with that counterparty and CVA, as referred to in paragraph 1;

(c) which other instruments referred to in paragraph 2, point (a), are appropriate to estimate the counterparty’s probabilities of default and how institutions are to make that estimate.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.

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

EBA shall develop draft regulatory technical standards to specify:

(a) the conditions for assessing the materiality of extensions and changes to the use of the standardised approach as referred to in Article 383(3);

(b) the assessment methodology under which competent authorities are to verify an institution’s compliance with the requirements set out in Articles 383 and 383a.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2028.

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

Article 383b

Own funds requirements for delta and vega risks

For the calculation of the vega risk sensitivities of the aggregate CVAs, sensitivities both to volatilities used in the exposure model to simulate risk factors and to volatilities used to reprice option transactions in the portfolio with the counterparty shall be included.

By way of derogation from paragraph 1 of this Article, subject to the permission of the competent authority, an institution may use alternative definitions of delta and vega risk sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets all of the following conditions:

(a) those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution;

(b) the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities of the position than the formulae set out in Articles 383i and 383j, and that the resulting delta and vega risk sensitivities do not materially differ from the ones obtained applying the formulae set out in Articles 383i and 383j, respectively.

An institution may introduce additional risk factors that correspond to qualified index instruments for the following risk classes:

(a) counterparty credit spread risk;

(b) reference credit spread risk; and

(c) equity risk.

For the purposes of delta risks, an index instrument shall be considered qualified where it meets the conditions set out in Article 325i. For vega risks, all index instruments shall be considered qualified.

An institution shall calculate sensitivities of CVA and eligible hedges to qualified index risk factors in addition to sensitivities to the non-index risk factors.

An institution shall calculate delta and vega risk sensitivities to a qualified index risk factor as a single sensitivity to the underlying qualified index. Where 75 % of the constituents of a qualified index are mapped to the same sector as set out in Articles 383p, 383s and 383v, the institution shall map the qualified index to that same sector. Otherwise, the institution shall map the sensitivity to the applicable qualified index bucket.

The weighted sensitivities of the aggregate CVA and of the market value of all eligible hedges to each risk factor shall be calculated by multiplying the respective net sensitivities by the corresponding risk weight, in accordance with the following formulae:

where:

k = the index that denotes the risk factor k;

= the weighted sensitivity of the aggregate CVA to risk factor k;

RWk = the risk weight applicable to the risk factor k;

= the net sensitivity of the aggregate CVA to risk factor k;

= the weighted sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k;

= the net sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k.

Institutions shall calculate the net-weighted sensitivity WSk of the CVA portfolio to risk factor k in accordance with the following formula:

The net-weighted sensitivities within the same bucket shall be aggregated in accordance with the following formula, using the corresponding correlations ρkl to weighted sensitivities within the same bucket set out in Articles 383l, 383t and 383q giving rise to the bucket-specific sensitivity Kb:

where:

Kb = the bucket-specific sensitivity of bucket b;

WSk = the net-weighted sensitivities;

ρkl = the corresponding intra-bucket correlation parameters;

R = the hedging disallowance parameter equal to 0,01 .

The bucket-specific sensitivity shall be calculated in accordance with paragraphs 5, 6 and 7 of this Article for each bucket within a risk class. Once the bucket-specific sensitivity has been calculated for all buckets, weighted sensitivities to all risk factors across buckets shall be aggregated in accordance with the following formula, using the corresponding correlations γbc for weighted sensitivities in different buckets set out in Articles 383l, 383o, 383r, 383u, 383w and 383z giving rise to the risk-class specific own funds requirements for delta or vega risk:

where:

mCVA = a multiplier factor which is equal to 1; the competent authority may increase the value of mCVA where the institution’s regulatory CVA model shows deficiencies preventing the appropriate measurement of the own funds requirements for CVA risk;

Kb = the bucket-specific sensitivity of bucket b;

γbc = the correlation parameter between buckets b and c;

for all risk factors in bucket b;

for all risk factors in bucket c.

Article 383c

Interest rate risk factors

The interest rate delta risk factors that are applicable to interest-rate sensitive instruments in the CVA portfolio shall be the risk-free rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years.

The interest rate delta risk factors applicable to inflation-rate sensitive instruments in the CVA portfolio shall be the inflation rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years.

Where the data on market-implied swap curves described in the first subparagraph are insufficient, the risk-free rates may be derived from the most appropriate sovereign bond curve for a given currency.

Article 383d

Foreign exchange risk factors

Article 383e

Counterparty credit spread risk factors

Article 383f

Reference credit spread risk factors

Article 383g

Equity risk factors

Article 383h

Commodity risk factors

Article 383i

Delta risk sensitivities

Institutions shall calculate delta sensitivities consisting of interest rate risk factors as follows:

(a) the delta sensitivities of the aggregate CVA to risk factors consisting of risk-free rates, as well as of an eligible hedge to those risk factors, shall be calculated as follows: where: = the sensitivities of the aggregate CVA to a risk-free rate risk factor; rkt = the value of the risk-free rate risk factor k with maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than rkt in VCVA; = the sensitivities of the eligible hedge i to a risk-free rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than rkt in the pricing function Vi;

(b) the delta sensitivities to risk factors consisting of inflation rates as well as of an eligible hedge to those risk factors, shall be calculated as follows: where: = the sensitivities of the aggregate CVA to an inflation rate risk factor; inflkt = the value of an inflation rate risk factor k with maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than inflkt in VCVA; = the sensitivities of the eligible hedge i to an inflation rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than inflkt in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of foreign exchange spot rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a foreign exchange spot rate risk factor;

FXk = the value of the foreign exchange spot rate risk factor k;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than FXk in VCVA;

= the sensitivities of the eligible hedge i to a foreign exchange spot rate risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than FXk in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of counterparty credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a counterparty credit spread rate risk factor;

ccskt = the value of the counterparty credit spread rate risk factor k at maturity t;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than ccskt in VCVA;

= the sensitivities of the eligible hedge i to a counterparty credit spread rate risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than ccskt in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of reference credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a reference credit spread rate risk factor;

rcskt = the value of the reference credit spread rate risk factor k at maturity t;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than ccskt in VCVA ;

= the sensitivities of the eligible hedge i to a reference credit spread rate risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than ccskt in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of equity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to an equity spot price risk factor;

EQ = the value of the equity spot price;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than EQ in VCVA;

= the sensitivities of the eligible hedge i to an equity spot price risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than EQ in the pricing function Vi.

Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of commodity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a commodity spot price risk factor;

CTY = the value of the commodity spot price;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than CTY in VCVA;

= the sensitivities of the eligible hedge i to a commodity spot price risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than CTY in the pricing function Vi.

Article 383j

Vega risk sensitivities

Institutions shall calculate the vega risk sensitivities of the aggregate CVA to risk factors consisting of implied volatility, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to an implied volatility risk factor;

volk = the value of the implied volatility risk factor;

VCVA = the aggregate CVA calculated by the regulatory CVA model;

x,y = risk factors other than volk in the pricing function VCVA;

= the sensitivities of the eligible hedge instrument i to an implied volatility risk factor;

Vi = the pricing function of the eligible hedge i;

w,z = risk factors other than volk in the pricing function Vi.

Article 383k

Risk weights for interest rate risk

For the currencies referred to in Article 383c(2), the risk weights of risk-free rate delta sensitivities for each bucket in Table 1 shall be the following:

| Bucket | Maturity | Risk weight |

| --- | --- | --- | | 1 | 1 year | 1,11  % | | 2 | 2 years | 0,93  % | | 3 | 5 years | 0,74  % | | 4 | 10 years | 0,74  % | | 5 | 30 years | 0,74  % |

Article 383l

Intra-bucket correlations for interest rate risk

For the currencies referred to in Article 383c(2), the correlation parameters that institutions shall apply to the aggregation of the risk-free rate delta sensitivities between the different buckets set out in Article 383k, Table 1, shall be the following:

Bucket	1	2	3	4	5
1	100 %	91 %	72 %	55 %	31 %
2		100 %	87 %	72 %	45 %
3			100 %	91 %	68 %
4				100 %	83 %
5					100 %

Article 383m

Correlation across buckets for interest rate risk

The cross-bucket correlation parameter for interest rate delta and vega risks shall be set at 0,5 for all currency pairs.

Article 383n

Risk weights for foreign exchange risk

The risk weight of the foreign exchange risk factors concerning currency pairs which are composed of the euro and the currency of a Member State participating in ERM II shall be one of the following:

(a) the risk weight referred to in paragraph 1, divided by 3;

(b) the maximum fluctuation within the fluctuation band formally agreed by the Member State and the ECB, if that fluctuation band is narrower than the fluctuation band defined under ERM II.

Article 383o

Correlations for foreign exchange risk

Article 383p

Risk weights for counterparty credit spread risk

The risk weights for the delta sensitivities to counterparty credit spread risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 1 and shall be the following:

Bucket number	Credit quality	Sector	Risk weight
1	All	Central government, including central banks, of Member States	0,5  %
2	Credit quality step 1 to 3	Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118	0,5  %
3	Regional government or local authority and public sector entities	1,0  %
4	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	5,0  %
5	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	3,0  %
6	Consumer goods and services, transportation and storage, administrative and support service activities	3,0  %
7	Technology, telecommunications	2,0  %
8	Health care, utilities, professional and technical activities	1,5  %
9	Covered bonds issued by credit institutions established in Member States	1,0  %
10	Credit quality step 1	Covered bonds issued by credit institutions in third countries	1,5  %
Credit quality steps 2 to 3	2,5  %
11	Credit quality steps 1 to 3	Other sector	5,0  %
12	Qualified indices	1,5  %
13	Credit quality step 4 to 6 and unrated	Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118	2,0  %
14	Regional government or local authority and public sector entities	4,0  %
15	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	12,0  %
16	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	7,0  %
17	Consumer goods and services, transportation and storage, administrative and support service activities	8,5  %
18	Technology, telecommunications	5,5  %
19	Health care, utilities, professional and technical activities	5,0  %
20	Other sector	12,0  %
21	Qualified indices	5,0  %

Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied.

Article 383q

Intra-bucket correlations for counterparty credit spread risk

Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 1 to 11 and 13 to 20, as set out in Article 383p(1), Table 1, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %;

shall be equal to 1 where the two names are both in buckets 1 to 11 or are both in buckets 13 to 20, otherwise it shall be equal to 80 %.

Between two sensitivities WSk and WSl resulting from risk exposures assigned to sector buckets 12 and 21, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %;

shall be equal to 1 where the two names are both in bucket 12 or both in bucket 21, otherwise it shall be equal to 80 %.

Article 383r

Correlations across buckets for counterparty credit spread risk

The cross-bucket correlations for counterparty credit spread delta risk shall be the following:

| Bucket | 1, 2, 3, 13 and 14 | 4 and 15 | 5 and 16 | 6 and 17 | 7 and 18 | 8 and 19 | 9 and 10 | 11 and 20 | 12 and 21 |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1, 2, 3, 13 and 14 | 100 % | 10 % | 20 % | 25 % | 20 % | 15 % | 10 % | 0 % | 45 % | | 4 and 15 | | 100 % | 5 % | 15 % | 20 % | 5 % | 20 % | 0 % | 45 % | | 5 and 16 | | | 100 % | 20 % | 25 % | 5 % | 5 % | 0 % | 45 % | | 6 and 17 | | | | 100 % | 25 % | 5 % | 15 % | 0 % | 45 % | | 7 and 18 | | | | | 100 % | 5 % | 20 % | 0 % | 45 % | | 8 and 19 | | | | | | 100 % | 5 % | 0 % | 45 % | | 9 and 10 | | | | | | | 100 % | 0 % | 45 % | | 11 and 20 | | | | | | | | 100 % | 0 % | | 12 and 21 | | | | | | | | | 100 % |

Article 383s

Risk weights for reference credit spread risk

The risk weights for the delta sensitivities to reference credit spread risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) and all reference credit spread exposures within each bucket in Table 1 and shall be the following:

Bucket number	Credit quality	Sector	Risk weight
1	All	Central government, including central banks, of Member States	0,5  %
2	Credit quality step 1 to 3	Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118	0,5  %
3	Regional government or local authority and public sector entities	1,0  %
4	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	5,0  %
5	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	3,0  %
6	Consumer goods and services, transportation and storage, administrative and support service activities	3,0  %
7	Technology, telecommunications	2,0  %
8	Health care, utilities, professional and technical activities	1,5  %
9	Covered bonds issued by credit institutions established in Member States	1,0  %
10	Credit quality step 1	Covered bonds issued by credit institutions in third countries	1,5  %
Credit quality steps 2 to 3	2,5  %
11	Credit Quality Step 1 to 3	Qualified indices	1,5  %
12	Credit quality step 4 to 6 and unrated	Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118	2,0  %
13	Regional government or local authority and public sector entities	4,0  %
14	Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	12,0  %
15	Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	7,0  %
16	Consumer goods and services, transportation and storage, administrative and support service activities	8,5  %
17	Technology, telecommunications	5,5  %
18	Health care, utilities, professional and technical activities	5,0  %
19	Qualified indices	5,0  %
20	Other sector	12,0  %

Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied.

Article 383t

Intra-bucket correlations for reference credit spread risk

Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 1 to 10, 12 to 18 and 20 of Article 383s(1), Table 1, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %;

shall be equal to 1 where the two names are both in buckets 1 to 10, are both in buckets 12 to 18, or are both in bucket 20, otherwise it shall be equal to 80 %.

Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 11 and 19, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %;

shall be equal to 1 where the two names are both in bucket 11 or both in bucket 19, otherwise it shall be equal to 80 %.

Article 383u

Correlations across buckets for reference credit spread risk

The cross-bucket correlations for reference credit spread delta risk and reference credit spread vega risk shall be the following:

| Bucket | 1, 2 and 12 | 3 and 14 | 4 and 15 | 5 and 16 | 6 and 17 | 7 and 18 | 8 and 19 | 9 and 10 | 20 | 11 | 19 |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1, 2, and 12 | 100 % | 75 % | 10 % | 20 % | 25 % | 20 % | 15 % | 10 % | 0 % | 45 % | 45 % | | 3 and 14 | | 100 % | 5 % | 15 % | 20 % | 15 % | 10 % | 10 % | 0 % | 45 % | 45 % | | 4 and 15 | | | 100 % | 5 % | 15 % | 20 % | 5 % | 20 % | 0 % | 45 % | 45 % | | 5 and 16 | | | | 100 % | 20 % | 25 % | 5 % | 5 % | 0 % | 45 % | 45 % | | 6 and 17 | | | | | 100 % | 25 % | 5 % | 15 % | 0 % | 45 % | 45 % | | 7 and 18 | | | | | | 100 % | 5 % | 20 % | 0 % | 45 % | 45 % | | 8 and 19 | | | | | | | 100 % | 5 % | 0 % | 45 % | 45 % | | 9 and 10 | | | | | | | | 100 % | 0 % | 45 % | 45 % | | 20 | | | | | | | | | 100 % | 0 % | 0 % | | 11 | | | | | | | | | | 100 % | 75 % | | 19 | | | | | | | | | | | 100 % |

Article 383v

Risk weight buckets for equity risk

The risk weights for the delta sensitivities to equity spot price risk factors shall be the same for all equity risk exposures within each bucket in Table 1 and shall be the following:

Bucket number	Market capitalisation	Economy	Sector	Risk weight for equity spot price
1	Large	Emerging market economy	Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities	55 %
2	Telecommunications, industrials	60 %
3	Basic materials, energy, agriculture, manufacturing, mining and quarrying	45 %
4	Financials, including government-backed financials, immovable property activities, technology	55 %
5	Advanced economy	Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities	30 %
6	Telecommunications, industrials	35 %
7	Basic materials, energy, agriculture, manufacturing, mining and quarrying	40 %
8	Financials, including government-backed financials, immovable property activities, technology	50 %
9	Small	Emerging market economy	All sectors described under bucket numbers 1, 2, 3 and 4	70 %
10	Advanced economy	All sectors described under bucket numbers 5, 6, 7 and 8	50 %
11	Other sector	70 %
12	Large	Advanced economy	Qualified indices	15 %
13	Other	Qualified indices	25 %

Article 383w

Correlations across buckets for equity risk

The cross-bucket correlation parameter for equity delta and vega risk shall be set at:

(a) 15 %, where the two buckets fall within buckets 1 to 10 in Article 383v(1), Table 1;

(b) 75 %, where the two buckets are buckets 12 and 13 in Article 383v(1), Table 1;

(c) 45 %, where one of the buckets is bucket 12 or 13 in Article 383v(1), Table 1, and the other bucket falls within buckets 1 to 10 in Article 383v(1), Table 1;

(d) 0 %, where one of the two buckets is bucket 11 in Article 383v(1), Table 1.

Article 383x

Risk weight buckets for commodity risk

The risk weights for the delta sensitivities to commodity spot price risk factors shall be the same for all commodity risk exposures within each bucket in Table 1 and shall be the following:

Bucket number	Bucket name	Risk weight for commodity spot price
1	Energy — solid combustibles	30 %
2	Energy — liquid combustibles	35 %
3	Energy — electricity	60 %
4	Energy — EU ETS carbon trading	40 %
5	Energy — non-EU ETS carbon trading	60 %
6	Freight	80 %
7	Metals — non-precious	40 %
8	Gaseous combustibles	45 %
9	Precious metals, including gold	20 %
10	Grains and oilseed	35 %
11	Livestock and dairy	25 %
12	Softs and other agricultural commodities	35 %
13	Other commodity	50 %

Article 383z

Correlations across buckets for commodity risk

The cross-bucket correlation parameter for commodity delta risk shall be set at:

(a) 20 %, where the two buckets fall within buckets 1 to 12 in Article 383x(1), Table 1;

(b) 0 %, where one of the two buckets is bucket 13 in Article 383x(1), Table 1.

The cross-bucket correlation parameter for commodity vega risk shall be set at:

(a) 20 %, where the two buckets fall within buckets 1 to 12 in Article 383x(1), Table 1;

(b) 0 %, where one of the two buckets is bucket 13 in Article 383x(1), Table 1.

Article 384

Basic approach

An institution shall calculate the own funds requirements for CVA risk in accordance with paragraph 2 or 3 of this Article, as applicable, for a portfolio of transactions with one or more counterparties by using one of the following formulae, as appropriate:

(a) the formula set out in paragraph 2 of this Article, where the institution includes in the calculation one or more eligible hedges recognised in accordance with Article 386;

(b) the formula set out in paragraph 3 of this Article, where the institution does not include in the calculation any eligible hedges recognised in accordance with Article 386.

The approaches set out in the first subparagraph, points (a) and (b), shall not be used in combination.

An institution that meets the condition referred to in paragraph 1, point (a), shall calculate the own funds requirements for CVA risk as follows:

BACVA^total = β · BACVA^{csr–unhedged} + DSCVA · (1 – β) · BACVA^csr–hedged

where:

BACVA^total = the own funds requirements for CVA risk under the basic approach;

BACVA^{csr–unhedged} = the own funds requirements for CVA risk under the basic approach as calculated in accordance with paragraph 3 for an institution that meets the condition set out in paragraph 1, point (b);

DSCVA = 0,65 ;

β = 0,25 ;

where:

α = 1,4 ;

ρ = 0,5 ;

c = the index that denotes all counterparties for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;

NS = the index that denotes all netting sets with a given counterparty for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;

h = the index that denotes all single-name instruments recognised as eligible hedges in accordance with Article 386 for a given counterparty for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;

I = the index that denotes all index instruments recognised as eligible hedges in accordance with Article 386 for all counterparties for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article;

RWc = the risk weight applicable to counterparty c; counterparty c shall be mapped to one of the risk weights based on a combination of sector and credit quality and determined in accordance with Table 1.

Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6; otherwise, the risk weights for unrated exposures shall be applied.

= the effective maturity for the netting set NS with counterparty c;

shall be calculated in accordance with Article 162; however, for that calculation, shall not be capped at five years, but at the longest contractual remaining maturity in the netting set;

= the counterparty credit risk exposure value of the netting set NS with counterparty c, including the effect of collateral in accordance with the methods set out in Title II, Chapter 6, Sections 3 to 6, as applicable to the calculation of the own funds requirements for counterparty credit risk referred to in Article 92(4), points (a) and (g);

= the supervisory discount factor for the netting set NS with counterparty c.

For an institution, using the methods set out in Title II, Chapter 6, Section 6, the supervisory discount factor shall be set at 1; in all other cases, the supervisory discount factor shall be calculated as follows:

rhc = the supervisory correlation factor between the credit spread risk of counterparty c and the credit spread risk of a single-name instrument recognised as an eligible hedge h for counterparty c, determined in accordance with Table 2;

= the residual maturity of a single-name instrument recognised as an eligible hedge;

= the notional of a single name instrument recognised as an eligible hedge;

= the supervisory discount factor for a single name instrument recognised as an eligible hedge, calculated as follows:

= the supervisory risk weight of a single-name instrument recognised as an eligible hedge; those risk weights shall be based on a combination of sector and credit quality of the reference credit spread of the hedging instrument and determined in accordance with Table 1;

= the residual maturity of one or more positions in the same index instrument recognised as an eligible hedge; in the case of more than one position in the same index instrument, shall be the notional-weighted maturity of all those positions;

= the full notional of one or more positions in the same index instrument recognised as an eligible hedge;

= the supervisory discount factor for one or more positions in the same index instrument recognised as an eligible hedge, calculated as follows:

= the supervisory risk weight of an index instrument recognised as an eligible hedge; shall be based on a combination of sector and credit quality of all index constituents, calculated as follows:

Sector of counterparty	Credit quality
Credit quality step 1 to 3	Credit quality step 4 to 6 and not rated
Central government, including central banks, multilateral development banks and international organisations referred to in Article 117(2) or Article 118	0,5  %	2,0  %
Regional government or local authority and public sector entities	1,0  %	4,0  %
Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders	5,0  %	12,0  %
Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying	3,0  %	7,0  %
Consumer goods and services, transportation and storage, administrative and support service activities	3,0  %	8,5  %
Technology, telecommunications	2,0  %	5,5  %
Health care, utilities, professional and technical activities	1,5  %	5,0  %
Other sector	5,0  %	12,0  %
Correlations between credit spread of counterparty and single-name hedge
---	---
Single-name hedge h of counterparty i	Value of rhc
Counterparties referred to in Article 386(3), point (a)(i)	100 %
Counterparties referred to in Article 386(3), point (a)(ii)	80 %
Counterparties referred to in Article 386(3), point (a)(iii)	50 %

An institution that meets the condition referred to in paragraph 1, point (b), shall calculate the own funds requirements for CVA risk as follows:

where all of the terms are the ones set out in paragraph 2.

Article 385

Simplified approach

For the purposes of the calculation referred to in paragraph 1, the following requirements shall apply:

(a) only transactions subject to the own funds requirements for CVA risk laid down in Article 382 are subject to that calculation;

(b) credit derivatives that are recognised as internal hedges against counterparty risk exposures are not included in that calculation.

Article 386

Eligible hedges

Positions in hedging instruments shall be recognised as eligible hedges for the calculation of the own funds requirements for CVA risk in accordance with Articles 383 and 384 where those positions meet all of the following requirements:

(a) they are used for the purpose of mitigating CVA risk and are managed as such;

(b) they can be entered into with third parties or with the institution’s trading book as an internal hedge, in which case they are to comply with Article 106(7);

(c) only positions in hedging instruments as referred to in paragraphs 2 and 3 of this Article can be recognised as eligible hedges for the calculation of the own funds requirements for CVA risk in accordance with Articles 383 and 384, respectively.

For the purpose of calculating the own funds requirements for CVA risk in accordance with Article 383, positions in hedging instruments shall be recognised as eligible hedges where, in addition to the conditions set out in points (a) to (c) of this paragraph, such hedging instruments form a single position in an eligible hedge and are not split into more than one position in more than one eligible hedge.

For the calculation of the own funds requirements for CVA risk in accordance with Article 383, only positions in the following hedging instruments shall be recognised as eligible hedges:

(a) instruments that hedge variability of the counterparty credit spread, with the exception of instruments referred to in Article 325(5);

(b) instruments that hedge variability of the exposure component of CVA risk, with the exception of the instruments referred to in Article 325(5).

For the calculation of the own funds requirements for CVA risk in accordance with Article 384, only positions in the following hedging instruments shall be recognised as eligible hedges:

(a) single-name credit default swaps and single-name contingent-credit default swaps, referencing: (i) the counterparty directly; (ii) an entity legally related to the counterparty, where legally related refers to cases where the reference name and the counterparty are either a parent undertaking and its subsidiary or two subsidiaries of a common parent; (iii) an entity that belongs to the same sector and region as the counterparty;

(b) index credit default swaps.

PART FOUR

LARGE EXPOSURES

Article 387

Subject matter

Institutions shall monitor and control their large exposures in accordance with this Part.

Article 389

Definition

For the purposes of this Part, ‘exposures’, means any asset or off-balance sheet item referred to in Part Three, Title II, Chapter 2, without applying the risk weights or degrees of risk.

Article 390

Calculation of the exposure value

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 instruments being calculated in accordance with the methods laid down in Chapter 2 of Title IV of Part Three;

(b) offset their long positions and short positions in different financial instruments issued by a given client, but only where the financial instrument underlying the short position is junior to the financial instrument underlying the long position or where the underlying instruments are of the same seniority.

For the purposes of points (a) and (b), financial instruments may be allocated into buckets on the basis of different degrees of seniority in order to determine the relative seniority of positions.

When calculating the exposure value for the contracts referred to in the first subparagraph, where those contracts are allocated to the trading book, institutions shall also comply with the principles set out in Article 299.

By way of derogation from the first subparagraph, institutions with permission to use the methods referred to in Section 4 of Chapter 4 of Title II of Part Three and Section 6 of Chapter 6 of Title II of Part Three may use those methods for calculating the exposure value for securities financing transactions.

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 two business 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 business days following payment or delivery of the securities, whichever is the earlier;

(c) in the case of the 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 activity 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 Common Equity Tier 1 items or Additional Tier 1 items in accordance with Articles 36 and 56 or any other deduction from those items that reduces the solvency ratio.

EBA shall develop draft regulatory technical standards to specify:

(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.

EBA shall submit those draft regulatory technical standards to 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 Articles 10 to 14 of Regulation (EU) No 1093/2010.

EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020.

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

Article 391

Definition of an institution for large exposures purposes

For the purposes of calculating the value of exposures in accordance with this Part the term ‘institution’ shall include a private or public undertaking, including its branches, which, were it established in the Union, would fulfil the definition of the term ‘institution’ and has been authorised in a third country that applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union.

For the purposes of the first paragraph, the Commission may adopt, by means of implementing acts, and subject to the examination procedure referred to in Article 464(2), decisions as to whether a third country applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union.

Article 392

Definition of a large exposure

An institution's exposure to a client or a group of connected clients shall be considered a large exposure where the value of the exposure is equal to or exceeds 10 % of its Tier 1 capital.

Article 393

Capacity to identify and manage large exposures

An institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with this Regulation.

Article 394

Reporting requirements

Institutions shall report the following information to their competent authorities for each large exposure that they hold, including large exposures exempted from the application of Article 395(1):

(a) the identity 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 type of funded or unfunded credit protection;

(d) the exposure value, after taking into account the effect of the credit risk mitigation calculated for the purposes of Article 395(1), where applicable.

Institutions that are subject to Chapter 3 of Title II of Part Three shall report their 20 largest exposures to their competent authorities on a consolidated basis, excluding the exposures exempted from the application of Article 395(1).

Institutions shall also report exposures of a value greater than or equal to EUR 300 million but less than 10 % of the institution's Tier 1 capital to their competent authorities on a consolidated basis.

In addition to the information referred to in paragraph 1 of this Article, institutions shall report the following information to their competent authorities in relation to their 10 largest exposures to institutions on a consolidated basis, as well as their 10 largest exposures to shadow banking entities on a consolidated basis, including large exposures exempted from the application of Article 395(1):

(a) the identity 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 type of funded or unfunded credit protection;

(d) the exposure value after taking into account the effect of the credit risk mitigation calculated for the purposes of Article 395(1), where applicable.

In addition to the information referred to in the first subparagraph, institutions shall report to their competent authorities their aggregate exposure to shadow banking entities.

In developing those draft 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 entity or a group of entities may carry risks to the institution's solvency or liquidity position;

(b) entities that are subject to solvency or liquidity requirements similar to those imposed by this Regulation and Directive 2013/36/EU should be entirely or partially excluded from the obligation to be reported referred to in paragraph 2 on shadow banking entities.

EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2020.

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

Article 395

Limits to large exposures

Where 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 Articles 399 to 403 of this Regulation, shall not exceed a reasonable limit in terms of that institution's Tier 1 capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of Directive 2013/36/EU in order to address and control concentration risk. That limit shall not exceed 100 % of the institution's Tier 1 capital.

Competent authorities may set a lower limit than EUR 150 million, in which case they shall inform EBA and the Commission thereof.

By way of derogation from the first subparagraph of this paragraph, a G-SII shall not incur an exposure to another G-SII or a non-EU G-SII, the value of which, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, exceeds 15 % of its Tier 1 capital. A G-SII shall comply with such limit no later than 12 months from the date on which it came to be identified as a G-SII. Where the G-SII has an exposure to another institution or group which comes to be identified as a G-SII or as a non-EU G-SII, it shall comply with such limit no later than 12 months from the date on which that other institution or group came to be identified as a G-SII or as a non-EU G-SII.

In developing those guidelines, EBA shall consider whether the introduction of additional limits would have a material detrimental impact on the risk profile of institutions established in the Union, on the provision of credit to the real economy or on the stability and orderly functioning of financial markets.

By 31 December 2015 the Commission shall assess the appropriateness and the impact of imposing limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework, taking into account Union and international developments in the area of shadow banking and large exposures as well as credit risk mitigation in accordance with Articles 399 to 403. The Commission shall submit the report to the European Parliament and the Council, together, if appropriate, with a legislative proposal on exposure limits to shadow banking entities which carry out banking activities outside a regulated framework.

In updating those guidelines, EBA shall take due account, among other considerations, of the contribution of shadow banking entities to the capital markets union, the potential adverse impact that any changes of those guidelines, including additional limits, could have on the business model and risk profile of the institutions and on the stability and the orderly functioning of financial markets.

In addition, by 31 December 2027, EBA, after consulting ESMA, shall submit a report to the Commission on the contribution of shadow banking entities to the capital markets union and on institutions’ exposures to such entities, including on the appropriateness of aggregate limits or tighter individual limits to those exposures, while taking due account of the regulatory framework and business models of such entities.

By 31 December 2028, the Commission shall, where appropriate, on the basis of that report, submit to the European Parliament and to the Council a legislative proposal on exposure limits to shadow banking entities.

The limits laid down in this Article may be exceeded for the exposures in the institution's trading book, provided that all the following conditions are met:

(a) the exposure in 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 capital, so that the excess arises entirely in the trading book;

(b) the institution meets an additional own funds requirement on the part of the exposure in excess of the limit laid down in paragraph 1 of this Article which is calculated in accordance with Articles 397 and 398;

(c) 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 does not exceed 500 % of the institution's Tier 1 capital;

(d) any excesses that have persisted for more than 10 days do not, in aggregate, exceed 600 % of the institution's Tier 1 capital.

Each time the limit has been exceeded, the institution shall report to the competent authorities without delay the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned.

Notwithstanding paragraph 1 of this Article and Article 400(1)(f), where Member States adopt national laws requiring structural measures to be taken within a banking group, competent authorities may require the institutions of the banking group which hold deposits that are covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes (³⁴) or an equivalent deposit guarantee scheme in a third country to apply a large exposure limit below 25 % but not lower than 15 % between 28 June 2013 and 30 June 2015, and than 10 % from 1 July 2015 on a sub-consolidated basis in accordance with Article 11(5) to intragroup exposures where these exposures consist of exposures to an entity that does not belong to the same subgroup as regards the structural measures.

For the purpose of this paragraph, the following conditions shall be met:

(a) all entities belonging to a same subgroup as regards the structural measures are considered as one client or group of connected clients;

(b) the competent authorities apply a uniform limit to the exposures referred to in the first subparagraph.

Applying this approach shall be without prejudice to effective supervision on a consolidated basis and shall not entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole or form or create an obstacle to the functioning of the internal market.

Before adopting the specific structural measures as referred to in paragraph 6 relating to large exposures, the competent authorities shall notify the Council, the Commission, the competent authorities concerned and EBA at least two months prior to the publication of the decision to adopt the structural measures, and submit relevant quantitative or qualitative evidence of all of the following:

(a) the scope of the activities that are subject to the structural measures;

(b) an explanation as to why such draft measures are deemed to be suitable, effective and proportionate to protect depositors;

(c) an assessment of the likely positive or negative impact of the measures on the internal market based on information which is available to the Member State.

Within one month of receiving the notification referred to in paragraph 7, EBA shall provide its opinion on the points mentioned in that paragraph to the Council, the Commission and the Member State concerned. Competent authorities concerned may also provide their opinions on the points mentioned in that paragraph to the Council, the Commission and the Member State concerned.

Taking utmost account of the opinions referred to in the second subparagraph and if there is robust and strong evidence that the measures have a negative impact on the internal market that outweighs the financial stability benefits, the Commission shall, within two months of receiving the notification, reject the proposed national measures. Otherwise, the Commission shall accept the proposed national measures for an initial period of 2 years and where appropriate the measures may be subject to amendment.

The Commission shall only reject the proposed national measures if it considers the proposed national measures entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole, thus forming or creating an obstacle to the functioning of the internal market or to the free movement of capital in accordance with the provisions of the TFEU.

The assessment of the Commission shall take account of the opinion of EBA and shall take into account the evidence presented in accordance with paragraph 7.

Before the expiry of the measures, the competent authorities may propose new measures for the extension of the period of application for an additional period of 2 years each time. In this case, they shall notify the Commission, the Council, the competent authorities concerned and EBA. Approval of the new measures shall be subject to the process set out in this Article. This Article shall be without prejudice to Article 458.

Article 396

Compliance with large exposures requirements

Where the amount of EUR 150 million referred to in Article 395(1) is applicable, the competent authorities may allow the 100 % limit in terms of the institution's Tier 1 capital to be exceeded on a case-by-case basis.

Where, in the exceptional cases referred to in the first and second subparagraph of this paragraph, a competent authority allows an institution to exceed the limit set out in Article 395(1) for a period longer than three months, the institution shall present a plan for a timely return to compliance with that limit to the satisfaction of the competent authority and shall carry out that plan within the period agreed with the competent authority. The competent authority shall monitor the implementation of the plan and shall require a more rapid return to compliance if appropriate.

For the purposes of paragraph 1, EBA shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 to specify how the competent authorities may determine:

(a) the exceptional cases referred to in paragraph 1 of this Article;

(b) the time considered appropriate for returning to compliance;

(c) the measures to be taken to ensure the timely return to compliance of the institution.

Article 397

Calculating additional own funds requirements for large exposures in the trading book

As from 10 days after the excess has occurred, the components of the excess, selected in accordance with paragraph 1, shall be allocated to the appropriate line in Column 1 of Table 1 in ascending order of specific-risk requirements in Part Three, Title IV, Chapter 2 and/or requirements in Article 299 and Part Three, Title V. The additional own funds requirement shall be equal to the sum of the specific-risk requirements in Part Three, Title IV, Chapter 2 and/or the Article 299 and Part Three, Title V requirements on these components, multiplied by the corresponding factor in Column 2 of Table 1.

| Column 1: Excess over the limits (on the basis of a percentage of  Tier 1 capital) | Column 2: Factors |

| --- | --- | | Up to 40 % | 200 % | | From 40 % to 60 % | 300 % | | From 60 % to 80 % | 400 % | | From 80 % to 100 % | 500 % | | From 100 % to 250 % | 600 % | | Over 250 % | 900 % |

Article 398

Procedures to prevent institutions from avoiding the additional own funds requirement

Institutions shall not deliberately avoid the additional own funds requirements set out in Article 397 that they would otherwise incur, on exposures exceeding the limit laid down in Article 395(1) once those exposures have been maintained for more than 10 days, by means of temporarily transferring the exposures in question to another company, whether within the same group or not, and/or by undertaking artificial transactions to close out the exposure during the 10-day period and create a new exposure.

Institutions shall maintain systems which ensure that any transfer which has the effect referred to in the first subparagraph is immediately reported to the competent authorities.

Article 399

Eligible credit mitigation techniques

For the purposes of Articles 400 to 403, the term ‘guarantee’ shall include credit derivatives recognised under Chapter 4 of Title II of Part Three other than credit linked notes.

Article 400

Exemptions

The following exposures shall be exempted from the application of Article 395(1):

(a) asset items constituting claims on central governments, central banks or public sector entities which, unsecured, would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;

(b) asset items constituting claims on international organisations or multilateral development banks which, unsecured, would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;

(c) asset items constituting claims carrying the explicit guarantees of central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity providing the guarantee would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;

(d) other exposures attributable to, or guaranteed by, central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity to which the exposure is attributable or by which it is guaranteed would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;

(e) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2;

(f) exposures to counterparties referred to in Article 113(6) or (7) if they would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2. Exposures that do not meet those criteria, whether or not exempted from Article 395(1) shall be treated as exposures to a third party;

(g) asset items and other exposures secured by collateral in the form of cash deposits placed with the lending institution or with an institution which is the parent undertaking or a subsidiary of the lending institution;

(h) asset items and other exposures secured by collateral in the form of certificates of deposit issued by the lending institution or by an institution which is the parent undertaking or a subsidiary of the lending institution and lodged with either of them;

(i) exposures arising from undrawn credit facilities that are classified as bucket 5 off-balance-sheet items in Annex I or contractual arrangements that meet the conditions for not being treated as commitments and provided that an agreement has been concluded with the client or group of connected clients under which the facility may be drawn only if it has been ascertained that it will not cause the limit applicable under Article 395(1) to be exceeded;

(j) clearing members' trade exposures and default fund contributions to qualified central counterparties;

(k) exposures to deposit guarantee schemes under Directive 94/19/EC arising from the funding of those schemes, if the member institutions of the scheme have a legal or contractual obligation to fund the scheme;

(l) clients' trade exposures referred to in Article 305(2) or (3);

(m) holdings by resolution entities, or by their subsidiaries which are not themselves resolution entities, of own funds instruments and eligible liabilities referred to in Article 45f(2) of Directive 2014/59/EU that have been issued by any of the following entities: (i) in respect of resolution entities, other entities belonging to the same resolution group; (ii) in respect of subsidiaries of a resolution entity that are not themselves resolution entities, the relevant subsidiary's subsidiaries belonging to the same resolution group;

(n) exposures arising from a minimum value commitment that meets all the conditions set out in Article 132c(3).

Cash received under a credit linked note issued by the institution and loans and deposits of a counterparty to or with the institution which are subject to an on-balance sheet netting agreement recognised under Part Three, Title II, Chapter 4 shall be deemed to fall under point (g).

Competent authorities may fully or partially exempt the following exposures:

(a) covered bonds as referred to in Article 129;

(b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2;

(c) exposures incurred by an institution, including through participations or other kinds of holdings, to its parent undertaking, to other subsidiaries of that parent undertaking, or to its own subsidiaries and qualifying holdings, in so far as those undertakings are covered by the supervision on a consolidated basis to which the institution itself is subject, in accordance with this Regulation, Directive 2002/87/EC or with equivalent standards in force in a third country; exposures that do not meet those criteria, whether or not exempted from Article 395(1) of this Regulation, shall be treated as exposures to a third party;

(d) asset items constituting claims on and other exposures, including participations or other kinds of holdings, to regional or central credit institutions with which the credit institution is associated in a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network;

(e) asset items constituting claims on and other exposures to credit institutions incurred by credit institutions, one of which operates on a non-competitive basis and provides or guarantees loans under legislative programmes or its statutes, to promote specified sectors of the economy under some form of government oversight and restrictions on the use of the loans, provided that the respective exposures arise from such loans that are passed on to the beneficiaries via credit institutions or from the guarantees of these loans;

(f) asset items constituting claims on and other exposures to institutions, provided that those exposures do not constitute such institutions' own funds, do not last longer than the following business day and are not denominated in a major trading currency;

(g) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies;

(h) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the competent authority, the credit assessment of those central governments assigned by a nominated ECAI is investment grade;

(i) 50 % of bucket 4 off-balance-sheet documentary credits and of bucket 3 off-balance-sheet undrawn credit facilities referred to in Annex I with an original maturity of up to and including one year and subject to the competent authorities’ agreement, 80 % of guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions;

(j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk -weighted exposure amounts;

(k) exposures in the form of a collateral or a guarantee for residential loans, provided by an eligible protection provider referred to in Article 201 qualifying for the credit rating which is at least the lower of the following:

(i) credit quality step 2; (ii) the credit quality step corresponding to the central government foreign currency rating of the Member State where the protection provider's headquarters are located;

(l) exposures in the form of a guarantee for officially supported export credits, provided by an export credit agency qualifying for the credit rating which is at least the lower of the following:

(i) credit quality step 2; (ii) the credit quality step corresponding to the central government foreign currency rating of the Member State where the export credit agency's headquarters are located.

Competent authorities may only make use of the exemption provided for in paragraph 2 where the following conditions are met:

(a) the specific nature of the exposure, the counterparty or the relationship between the institution and the counterparty eliminate or reduce the risk of the exposure; and

(b) any remaining concentration risk can be addressed by other equally effective means such as the arrangements, processes and mechanisms provided for in Article 81 of Directive 2013/36/EU.

Competent authorities shall inform EBA of whether they 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 exemptions.

Article 401

Calculating the effect of the use of credit risk mitigation techniques

By way of derogation from paragraph 1, institutions with permission to use the methods referred to in Section 4 of Chapter 4 of Title II of Part Three and Section 6 of Chapter 6 of Title II of Part Three, may use those methods for calculating the exposure value of securities financing transactions.

The 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 those risks.

Institutions shall include the following in their strategies to address concentration risk:

(a) policies and procedures to address risks arising from maturity mismatches 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, in particular from large indirect credit exposures, for example, exposures to a single issuer of securities taken as collateral.

Article 402

Exposures arising from mortgage lending

For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is secured by residential property in accordance with Article 125(1) by the pledged amount of the property value, but by not more than 55 % of the property value, provided that all of the following conditions are met:

(a) the competent authorities have not set a risk weight higher than 20 % for exposures or parts of exposures secured by residential property in accordance with Article 124(9);

(b) the exposure or part of the exposure is fully secured by any of the following: (i) one or more mortgages on residential property; or (ii) a residential property in a leasing transaction under which the lessor retains full ownership of the residential property and the lessee has not yet exercised his or her option to purchase;

(c) the requirements laid down in Article 208 and Article 229(1) are met.

For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is secured by commercial immovable property in accordance with Article 126(1) by the pledged amount of the property value, but by not more than 55 % of the property value, provided that all of the following conditions are met:

(a) the competent authorities have not set a risk weight higher than 60 % for exposures or parts of exposures secured by commercial immovable property in accordance with Article 124(9);

(b) the exposure is fully secured by any of the following: (i) one or more mortgages on offices or other commercial premises; or (ii) one or more offices or other commercial premises and the exposures related to property leasing transactions;

(c) the requirements in Article 124(3), point (c), and in Article 208 and Article 229(1) are met;

(d) the commercial immovable property is fully constructed.

An institution may treat an exposure to a counterparty that results from a reverse repurchase agreement under which the institution has purchased from the counterparty non-accessory independent mortgage liens on immovable property of third parties as a number of individual exposures to each of those third parties, provided that all of the following conditions are met:

(a) the counterparty is an institution or an investment firm;

(b) the exposure is fully secured by liens on the immovable property of those third parties that have been purchased by the institution and the institution is able to exercise those liens;

(c) the institution has ensured that the requirements in Article 208 and Article 229(1) are met;

(d) the institution becomes beneficiary of the claims that the counterparty has against the third parties in the event of default, insolvency or liquidation of the counterparty;

(e) the institution reports to the competent authorities in accordance with Article 394 the total amount of exposures to each other institution or investment firm that are treated in accordance with this paragraph.

For these purposes, the institution shall assume that it has an exposure to each of those third parties for the amount of the claim that the counterparty has on the third party instead of the corresponding amount of the exposure to the counterparty. The remainder of the exposure to the counter party, if any, shall continue to be treated as an exposure to the counter party.

Article 403

Substitution approach

Where an exposure to a client is guaranteed by a third party or is secured by collateral issued by a third party, an institution shall:

(a) treat the portion of the exposure which is guaranteed as exposure to the guarantor rather than to the client, provided that the unsecured exposure to the guarantor would be assigned a risk weight that is equal to or lower than the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three;

(b) treat the portion of the exposure collateralised by the market value of recognised collateral as exposure to the third party rather than to the client, provided that the exposure is secured by collateral and provided that the collateralised portion of the exposure would be assigned a risk weight that is equal to or lower than the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three.

The approach referred to in point (b) of the first subparagraph shall not be used by an institution where there is a mismatch between the maturity of the exposure and the maturity of the protection.

For the purposes of this Part, an institution may use both the Financial Collateral Comprehensive Method and the treatment set out in point (b) of the first subparagraph of this paragraph only where it is permitted to use both the Financial Collateral Comprehensive Method and the Financial Collateral Simple Method for the purposes of Article 92.

Where an institution applies point (a) of paragraph 1, the institution:

(a) where the guarantee is denominated in a currency different from that in which the exposure is denominated, shall calculate the amount of the exposure that is deemed to be covered in accordance with the provisions on the treatment of currency mismatch for unfunded credit protection set out in Part Three;

(b) shall treat any mismatch between the maturity of the exposure and the maturity of the protection in accordance with the provisions on the treatment of maturity mismatch set out in Chapter 4 of Title II of Part Three;

(c) may recognise partial coverage in accordance with the treatment set out in Chapter 4 of Title II of Part Three.

For the purposes of point (b) of paragraph 1, an institution may replace the amount in point (a) of this paragraph with the amount in point (b) of this paragraph, provided that the conditions set out in points (c), (d) and (e) of this paragraph are met:

(a) the total amount of the institution's exposure to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent;

(b) the full amount of the limits that the institution has instructed the tri-party agent referred to in point (a) to apply to the securities issued by the collateral issuer referred to in that point;

(c) the institution has verified that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits referred to in point (b);

(d) the competent authority has not expressed to the institution any material concerns;

(e) the sum of the amount of the limit referred to in point (b) of this paragraph and any other exposures of the institution to the collateral issuer does not exceed the limit set out in Article 395(1).

EBA shall publish those guidelines by 31 December 2019.

PART SIX

LIQUIDITY

TITLE I

DEFINITIONS AND LIQUIDITY REQUIREMENTS

Article 411

Definitions

For the purposes of this Part, the following definitions apply:

(1) ‘financial customer’ means a customer, including a financial customer belonging to a non-financial corporate group, which performs one or more of the activities listed in Annex I to Directive 2013/36/EU as its main business, or which is one of the following: (a) a credit institution; (b) an investment firm; (c) a securitisation special purpose entity (SSPE); (d) a collective investment undertaking (CIU); (e) a non-open ended investment scheme; (f) an insurance undertaking; (g) a reinsurance undertaking; (h) a financial holding company or mixed-financial holding company; (i) a financial institution; (j) a pension scheme arrangement as defined in point (10) of Article 2 of Regulation (EU) No 648/2012;

(2) ‘retail deposit’ means a liability to a natural person or to a SME, where the SME would qualify for the retail exposure class under the standardised or IRB approaches for credit risk, or a liability to a company which is eligible for the treatment set out in Article 153(4), and where the aggregate deposits by that SME or company on a group basis do not exceed EUR 1 million;

(3) ‘personal investment company’ or ‘PIC’ means an undertaking or a trust, the owner or beneficial owner of which is either a natural person or a group of closely related natural persons which does not carry out any other commercial, industrial or professional activity and which was set up with the sole purpose of managing the wealth of the owner or owners, including 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 that those ancillary activities are connected to the main purpose of managing the owners' wealth;

(4) ‘deposit 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 customers, 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 outright sale or a repurchase agreement;

(6) ‘non-mandatory overcollateralisation’ 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 particular where 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;

(7) ‘asset coverage requirement’ means the ratio of assets to liabilities as determined in accordance with the national law of a Member State or a third country for credit enhancement purposes in relation to covered bonds;

(8) ‘margin loans’ means collateralised loans extended to customers for the purpose of taking leveraged trading positions;

(9) ‘derivative contracts’ means the derivative 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 days;

(11) ‘level 1 assets’ means assets of extremely high liquidity and credit quality as referred to in the second subparagraph of Article 416(1);

(12) ‘level 2 assets’ means assets of high liquidity and credit quality 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 as set out in the delegated act referred to in Article 460(1);

(13) ‘liquidity buffer’ means the amount of level 1 and level 2 assets that an institution holds in accordance with the delegated act referred to in Article 460(1);

(14) ‘net liquidity outflows’ means the amount which results from deducting an institution's liquidity inflows from its liquidity outflows;

(15) ‘reporting currency’ means the currency of the Member State where the head office of the institution is located;

(16) ‘factoring’ means a contractual agreement between a business (the ‘assignor’) and a financial entity (the ‘factor’) in which the assignor assigns or sells its receivables to the factor in exchange for the factor providing the assignor with one or more of the following services with regard to the receivables assigned:

(a) an advance of a percentage of the amount of the assigned receivables, generally short term, uncommitted and without automatic roll-over; (b) receivables management, collection and credit protection, whereby, in general, the factor administers the assignor's sales ledger and collects the receivables in the factor's own name; for the purposes of Title IV, factoring shall be treated as trade finance;

(17) ‘committed credit or liquidity facility’ means a credit or liquidity facility that is irrevocable or conditionally revocable.

Article 412

Liquidity coverage requirement

Unless specified otherwise in the delegated act referred to in Article 460(1), where an item can be counted in more than one outflow category, it shall be counted in the outflow category that produces the greatest contractual outflow for that item.

Article 413

Stable funding requirement

Article 414

Compliance with liquidity requirements

An institution that does not meet, or does not expect to meet, the requirements set out in Article 412 or in Article 413(1), including during times of stress, shall immediately notify the competent authorities thereof and shall submit to the competent authorities without undue delay a plan for the timely restoration of compliance with the requirements set out in Article 412 or Article 413(1), as appropriate. Until compliance has been restored, the institution shall report the items referred to in Title III, in Title IV, in the implementing act referred to in Article 415(3) or (3a) or in the delegated act referred to in Article 460(1), as appropriate, daily by the end of each business day, unless the competent authority authorises a lower reporting frequency and a longer reporting delay. Competent authorities shall only grant such authorisations on the basis of the individual situation of the institution, taking into account the scale and complexity of the institution's activities. Competent authorities shall monitor the implementation of such restoration plan and shall require a more rapid restoration of compliance where appropriate.

TITLE II

LIQUIDITY REPORTING

Article 415

Reporting obligation and reporting format

The reporting frequency shall be at least monthly for items referred to in the delegated act referred to in Article 460(1) and at least quarterly for items referred to in Titles III and IV.

An institution shall report separately to the competent authorities the items referred to in the implementing technical standards referred to in paragraph 3 or 3a of this Article, in Title III until such time as the reporting obligation and the reporting format for the net stable funding ratio set out in Title IV have been specified and introduced in Union law, in Title IV and in the delegated act referred to in Article 460(1), as appropriate, in accordance with the following:

(a) where items are denominated in a currency other than the reporting currency and the institution has aggregate liabilities denominated in such a currency which amount to or exceed 5 % of the institution's or the single liquidity sub-group's total liabilities, excluding own funds and off-balance-sheet items, reporting shall be done in the currency of denomination;

(b) where items are denominated in the currency of a host Member State where the institution has a significant branch as referred to in Article 51 of Directive 2013/36/EU and that host Member State uses another currency than the reporting currency, the reporting shall be done in the currency of the Member State in which the significant branch is located;

(c) where items are denominated in the reporting currency, and the aggregate amount of liabilities in other currencies than the reporting currency amounts to or exceeds 5 % of the institution's or the single liquidity subgroup's total liabilities, excluding own funds and off-balance-sheet items, the reporting shall be done in the reporting currency.

EBA shall develop draft implementing technical standards to specify the following:

(a) uniform formats and IT solutions with associated instructions for frequencies and reference and remittance dates; the reporting formats 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 liquidity monitoring metrics required, to allow competent authorities to obtain a comprehensive view of an institution's liquidity risk profile, proportionate to the nature, scale and complexity of an institution's activities.

EBA shall submit to the Commission those draft implementing technical standards for the items specified in point (a) by 28 July 2013 and for the items specified in point (b) by 1 January 2014.

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

EBA shall submit those draft implementing technical standards to the Commission by 28 June 2020.

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

Competent authorities that exercise supervision on a consolidated basis in accordance with Article 111 of Directive 2013/36/EU shall upon request provide in a timely manner and by electronic means the following authorities with all reporting submitted by the institution in accordance with the uniform reporting formats referred to in paragraph 3:

(a) the competent authorities and the national central bank of the host Member States in which there are significant branches in accordance with Article 51 of Directive 2013/36/EU of the parent institution or institutions controlled by the same parent financial holding company;

(b) the competent authorities that have authorised subsidiaries of the parent institution or institutions controlled by the same parent financial holding company and the central bank of the same Member State;

(c) EBA;

(d) ECB.

Article 416

Reporting on liquid assets

Institutions shall report the following as liquid assets unless excluded by paragraph 2 and only if the liquid assets fulfil the conditions in paragraph 3:

(a) cash and exposures to central banks to the extent that these exposures can be withdrawn at any time in times of stress. As regards deposits held with central banks, the competent authority and the central bank shall aim at reaching a common understanding regarding the extent to which minimum reserves can be withdrawn in times of stress;

(b) other transferable assets that are of extremely high liquidity and credit quality;

(c) transferable assets representing claims on or guaranteed by: (i) the central government of a Member State, a region with fiscal autonomy to raise and collect taxes, or of a third country in the domestic currency of the central or regional government, if the institution incurs a liquidity risk in that Member State or third country that it covers by holding those liquid assets; (ii) central banks and non-central government public sector entities in the domestic currency of the central bank and the public sector entity; (iii) the Bank for International Settlements, the International Monetary Fund, the Commission and multilateral development banks; (iv) the European Financial Stability Facility and the European Stability Mechanism;

(d) transferable assets that are of high liquidity and credit quality;

(e) standby credit facilities granted by central banks within the scope of monetary policy to the extent that these facilities are not collateralised by liquid assets and excluding emergency liquidity assistance;

(f) if the credit institution belongs to a network in accordance with legal or statutory provisions, the legal or statutory minimum deposits with the central credit institution and other statutory or contractually available liquid funding from the central credit institution or institutions that are members of the network referred to in Article 113(7), or eligible for the waiver provided in Article 10, to the extent that this funding is not collateralised by liquid assets.

Pending specification of a uniform definition in accordance with Article 460 of high and extremely high liquidity and credit quality, institutions shall identify themselves in a given currency transferable assets that are respectively of high or extremely high liquidity and credit quality. Pending specification of a uniform definition, competent authorities may, taking into account the criteria listed in Article 509(3), (4) and (5) provide general guidance that institutions shall follow in identifying assets of high and extremely high liquidity and credit quality. In the absence of such guidance, institutions shall use transparent and objective criteria to this end, including some or all of the criteria listed in Article 509(3), (4) and (5).

The following shall not be considered liquid assets:

(a) assets that are issued by a credit institution unless they fulfil one of the following conditions: (i) they are bonds eligible for the treatment set out in Article 129(4) or (5) or asset backed instruments if demonstrated to be of the highest credit quality as established by EBA pursuant to the criteria in Article 509 (3), (4) and (5); (ii) they are covered bonds as defined in point (1) Article 3 of Directive (EU) 2019/2162 other than those referred to in point (i) of this point; (iii) the credit institution has been set up by a Member State central or regional government and that government has an obligation to protect the economic basis of the institution and maintain its viability throughout its lifetime; or the asset is explicitly guaranteed by that government; or at least 90 % of the loans granted by the institution are directly or indirectly guaranteed by that government and the asset is predominantly used to fund promotional loans granted on a non-competitive, not for profit basis in order to promote that government's public policy objectives;

(b) assets that are provided as collateral to the institution under reverse repo and securities financing transactions and that are held by the institution only as a credit risk mitigant and that are not legally and contractually available for use by the institution;

(c) assets issued by any of the following: (i) an investment firm; (ii) an insurance undertaking; (iii) a financial holding company; (iv) a mixed financial holding company; (v) any other entity that performs one or more of the activities listed in Annex I to Directive 2013/36/EU as its main business.

In accordance with paragraph 1, institutions shall report assets that fulfil the following conditions as liquid assets:

(a) the assets are unencumbered or stand available within collateral pools to be used for obtaining 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;

(b) the assets are not issued by the institution itself, by its parent or subsidiary institutions, or by another subsidiary of its parent institution or parent financial holding company;

(c) the price of the assets is generally agreed upon by market participants and can easily be observed in the market or the price can be determined by a formula that is easy to calculate on the basis of publicly available inputs and that does not depend on strong assumptions, as is typically the case for structured or exotic products;

(d) the assets are listed on a recognised exchange or they are tradable by an 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 points (a), (e) and (f) of paragraph 1.

Notwithstanding the provisions of paragraphs 1, 2 and 3, pending the specification of a binding liquidity requirement in accordance with Article 460 and in accordance with the second subparagraph of paragraph 1 of this Article, institutions shall report on:

(a) other non-central bank eligible but tradable assets such as equities and gold based on transparent and objective criteria, including some or all of the criteria listed in Article 509(3), (4) and (5);

(b) other central bank eligible and tradable assets such as asset backed instruments of the highest credit quality as established by EBA pursuant to the criteria in Article 509(3), (4) and (5);

(c) other central bank eligible but non-tradable assets such as credit claims as established by EBA pursuant to the criteria in Article 509(3), (4) and (5).

The use or potential use by a CIU of derivative instruments to hedge risks of permitted investments shall not prevent that CIU from being eligible for the treatment referred to in the first subparagraph of this paragraph. Where 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 Article 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 Article 418(4), shares or units in that CIU shall not be treated as liquid assets.

Article 417

Operational requirements for holdings of liquid assets

The institution shall only report as liquid assets those holdings of liquid assets that meet the following conditions:

(a) they are appropriately diversified. Diversification is not required in terms of assets corresponding to points (a), (b) and (c) of Article 416(1);

(b) they are legally and practically readily available at any time during the next 30 days to be liquidated via outright sale or via a simple repurchase agreement on approved repurchase markets in order to meet obligations coming due. Liquid assets referred to in point (c) of Article 416(1) which are held in third countries where there are transfer restrictions or which are denominated in non-convertible currencies shall be considered available only to the extent that they correspond to outflows in the third country or currency in question, unless the institution can demonstrate to the competent authorities that it has appropriately hedged the ensuing currency risk;

(c) the liquid assets are controlled by a liquidity management function;

(d) a portion of the liquid assets except those referred to in points (a), (c), (e) and (f) of Article 416(1) is periodically and at least annually liquidated via outright sale or via simple repurchase agreements on an approved repurchase market for the following purposes: (i) to test the access to the market for these assets; (ii) to test the effectiveness of its processes for the liquidation of assets; (iii) to test the usability of the assets; (iv) to minimise the risk of negative signalling during a period of stress;

(e) price risks associated with the assets may be hedged but the liquid assets are subject to appropriate internal arrangements that ensure that they are readily available to the treasury when needed and especially that they are not used in other ongoing operations, including: (i) hedging or other trading strategies; (ii) providing credit enhancements in structured transactions; (iii) covering operational costs.

(f) the denomination of the liquid assets is consistent with the distribution by currency of liquidity outflows after the deduction of inflows.

Article 418

Valuation of liquid assets

Shares or units in CIUs as referred to in Article 416(6) shall be subject to haircuts, looking through to the underlying assets as follows:

(a) 0 % for the assets referred to in point (a) of Article 416(1);

(b) 5 % for the assets referred to in points (b) and (c) of Article 416(1);

(c) 20 % for the assets referred to in point (d) of Article 416(1).

The look-through approach referred to in paragraph 2 shall be applied as follows:

(a) where the institution is aware of the underlying exposures of a CIU, it may look through to those underlying exposures in order to assign them to points (a) to (d) of Article 416(1);

(b) where the institution is not aware of the underlying exposures of a CIU, it shall be assumed that the CIU invests, to the maximum extent allowed under its mandate, in descending order in the asset types referred to in points (a) to (d) of Article 416(1) until the maximum total investment limit is reached.

Institutions shall develop robust methodologies and processes to calculate and report the market value and haircuts for shares or units in CIUs. Only where they can demonstrate to the satisfaction of the competent authority that the materiality of the exposure does not justify the development of their own methodologies, institutions may rely on the following third parties to calculate and report the haircuts for shares or units in CIUs, in accordance with the methods set out in points (a) and (b) of paragraph 3:

(a) the depository institution of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository institution;

(b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3)(a).

The correctness of the calculations by the depository institution or the CIU management company shall be confirmed by an external auditor.

Article 419

Currencies with constraints on the availability of liquid assets

Where the justified needs for liquid assets in light of the requirement in Article 412 exceed the availability of those liquid assets in a currency, one or more of the following derogations shall apply:

(a) by way of derogation from point (f) of Article 417, the denomination of the liquid assets may be inconsistent with the distribution by currency of liquidity outflows 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 Member State or third country which are contractually irrevocably committed for the next 30 days and are fairly priced, independent of the amount currently drawn, provided that the competent authorities of that Member State or third country do the same and provided that that Member 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, subject to higher haircuts, and any cap applicable to those assets in accordance with the delegated act referred to in Article 460(1) may be amended.

EBA shall submit those draft implementing technical standards to the Commission by 31 March 2014.

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

EBA shall submit those draft regulatory technical standards to the Commission by 28 December 2019.

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

Article 420

Liquidity outflows

Pending the specification of a liquidity requirement in accordance with Article 460, liquidity outflows to be reported shall include:

(a) the current amount outstanding for retail deposits as set out in Article 421;

(b) the current amounts outstanding of other liabilities that come due, can be called for payout by the issuing institutions or by the provider of the funding or entail an implicit expectation of the provider of the funding that the institution would repay the liability during the next 30 days as set out in Article 422;

(c) the additional outflows referred to in Article 423;

(d) the maximum amount that can be drawn during the next 30 days from undrawn committed credit and liquidity facilities, as set out in Article 424;

(e) the additional outflows identified in the assessment in accordance with paragraph 2.

For this assessment, institutions shall take particular account of material reputational damage that could result from not providing liquidity support to such products or services. Institutions shall report not less than annually to the competent authorities those products and services for which the likelihood and potential volume of the liquidity outflows referred to in the first subparagraph are material and the competent authorities shall determine the outflows to be assigned. The competent authorities may apply an outflow rate up to 5 % for trade finance off-balance sheet related products, as referred to in Article 429 and Annex I.

The competent authorities shall at least annually report to EBA the types of products or services for which they have determined outflows on the basis of the reports from institutions. They shall in that report also explain the methodology applied to determine the outflows.

Article 421

Outflows on retail deposits

Institutions shall separately report the amount of retail deposits covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC or an equivalent deposit guarantee scheme in a third country, and multiply by at least 5 % where the deposit is either of the following:

(a) part of an established relationship making withdrawal highly unlikely;

(b) held in a transactional account, including accounts to which salaries are regularly credited.

Institutions may exclude from the calculation of outflows certain clearly circumscribed categories of retail deposits as long as in each and every instance the institution rigorously applies the following for the whole category of those deposits, unless in individually justified circumstances of hardship for the depositor:

(a) within 30 days, the depositor is not allowed to withdraw the deposit; or

(b) for early withdrawals within 30 days, the depositor has to pay a penalty that includes the loss of interest between the date of withdrawal and the contractual maturity date plus a material penalty that does not have to exceed the interest due for the time elapsed between the date of deposit and the date of withdrawal.

Article 422

Outflows on other liabilities

Institutions shall multiply liabilities resulting from secured lending and capital market-driven transactions as defined in point (3) of Article 192 by:

(a) 0 % up to the value of the liquid assets in accordance with Article 418 if they are collateralised by assets that would qualify as liquid assets in accordance with Article 416;

(b) 100 % over the value of the liquid assets in accordance with Article 418, if they are collateralized by assets that would qualify as liquid assets in accordance with Article 416;

(c) 100 % if they are collateralized by assets that would not qualify as liquid assets in accordance with Article 416, with the exception of transactions covered by points (d) and (e) of this paragraph;

(d) 25 % if they are collateralized by assets that would not qualify as liquid assets in accordance with Article 416 and the lender is the central government, a public sector entity of the Member State in which the credit institution has been authorised or has established a branch, or a multilateral development bank. Public sector entities that receive that treatment shall be limited to those that have a risk weight of 20 % or lower in accordance with Chapter 2, Title II of Part Three;

(e) 0 % if the lender is a central bank.

Institutions shall multiply liabilities resulting from deposits that have to be maintained:

(a) by the depositor in order to obtain clearing, custody or cash management or other comparable services from the institution;

(b) in the context of common task sharing within an institutional protection scheme meeting the requirements of Article 113(7) or as a legal or statutory minimum deposit by another entity being a Member of the same institutional protection scheme;

(c) by the depositor in the context of an established operational relationship other than that mentioned in point (a);

(d) by the depositor to obtain cash clearing and central credit institution services and where the credit institution belongs to a network in accordance with legal or statutory provisions;

by 5 % in the case of point (a) to the extent to which they are covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC or an equivalent deposit guarantee scheme in a third country and by 25 % otherwise.

Deposits from credit institutions placed at central credit institutions that are considered as liquid assets in accordance with Article 416(1)(f) shall be multiplied by 100 % outflow rate.

Pending a uniform definition of an established operational relationship as referred to in point (c) of paragraph 3, institutions shall themselves establish the criteria for identifying an established operational relationship for which they have evidence that the client is unable to withdraw amounts legally due over a 30-day time horizon without compromising its operational functioning and shall report those criteria to the competent authorities. In the absence of a uniform definition, competent authorities may provide general guidance that institutions are to follow in identifying deposits maintained by the depositor in a context of an established operational relationship.

Competent authorities may grant the permission to apply a lower outflow percentage to the liabilities referred to in paragraph 7 on a case-by-case basis, provided that all the following conditions are met:

(a) the counterparty is any of the following:

(i) a parent or subsidiary institution of the institution, or a parent or subsidiary investment firm of the institution, or another subsidiary of the same parent institution or parent investment firm; (ii) the counterparty is linked to the institution by a relationship within the meaning of Article 22(7) of Directive 2013/34/EU; (iii) an institution falling within the same institutional protection scheme meeting the requirements of Article 113(7); or (iv) the central institution or a member of a network compliant with point (d) of Article 400(2);

(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 Article 425;

(d) the institution and the counterparty are established in the same Member State.

EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2015.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 423

Additional outflows

EBA shall develop draft regulatory technical standards to specify the conditions under which the notion of materiality may be applied and specifying methods for the measurement of the additional outflow.

EBA shall submit those draft regulatory technical standards to the Commission by 31 March 2014.

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

The institution shall add an additional outflow corresponding to:

(a) the excess collateral the institution holds that can be contractually called at any time by the counterparty;

(b) collateral that is due to be returned to a counterparty;

(c) collateral that corresponds to assets that would qualify as liquid assets for the purposes of Article 416 that can be substituted for assets corresponding to assets that would not qualify as liquid assets for the purposes of Article 416 without the consent of the institution.

Article 424

Outflows from credit and liquidity facilities

The maximum amount that can be drawn of undrawn committed credit facilities and undrawn committed liquidity facilities within the next 30 days shall be multiplied by 10 % where they meet the following conditions:

(a) they do not qualify for the retail exposure class under the Standardised or IRB approaches for credit risk;

(b) they have been provided to clients that are not financial customers;

(c) they have not been provided for the purpose of replacing funding of the client in situations where he is unable to obtain its funding requirements in the financial markets.

The institutions shall report the maximum amount that can be drawn of other undrawn committed credit facilities and undrawn committed liquidity facilities within the next 30 days. This applies in particular to the following:

(a) liquidity facilities that the institution has granted to SSPEs other than those referred to in point (b) of paragraph 3;

(b) arrangements under which the institution is required to buy or swap assets from an SSPE;

(c) facilities extended to credit institutions;

(d) facilities extended to financial institutions and investment firms.

Article 425

Inflows

Institutions shall report their liquidity inflows. Liquidity inflows shall be capped at 75 % of liquidity outflows. Institutions may exempt liquidity inflows from deposits placed with other institutions that qualify for the treatment set out in Article 113(6) or (7) of this Regulation from that cap.

Institutions may exempt liquidity inflows from monies due from borrowers and bond investors where those inflows are related to mortgage lending funded by bonds eligible for the treatment set out in Article 129(4), (5) or (6) of this Regulation or by covered bonds as defined in point (1) of Article 3 of Directive (EU) 2019/2162 from that cap. Institutions may exempt inflows from promotional loans that the institutions have passed through. Subject to the prior approval of the competent authority responsible for supervision on an individual basis, the institution may fully or partially exempt inflows where the liquidity provider is a parent or subsidiary institution of the institution, a parent or subsidiary investment firm of the institution or another subsidiary of the same parent institution or parent investment firm or is related to the institution as set out in Article 22(7) of Directive 2013/34/EU.

The liquidity inflows shall be measured over the next 30 days. They shall comprise only contractual inflows from exposures that are not past due and for which the institution has no reason to expect non-performance within the 30-day time horizon. Liquidity inflows shall be reported in full with the following inflows reported separately:

(a) monies due from customers that are not financial customers for the purposes of principal payment shall be reduced by 50 % of their value or by the contractual commitments to those customers to extend funding, whichever is higher. This does not apply to monies due from secured lending and capital market-driven transactions as defined in point (3) of Article 192 that are collateralised by liquid assets in accordance with Article 416 as referred to in point (d) of this paragraph. By way of derogation from the first subparagraph of this point, institutions that have received a commitment referred to in Article 424(6) in order for them to disburse a promotional loan to a final recipient may take an inflow into account up to the amount of the outflow they apply to the corresponding commitment to extend those promotional loans;

(b) monies due from trade financing transactions referred to in point (b) of the second subparagraph of Article 162(3) with a residual maturity of up to 30 days, shall be taken into account in full as inflows;

(c) loans with an undefined contractual end date shall be taken into account with a 20 % inflow, provided that the contract allows the institution to withdraw and request payment within 30 days;

(d) monies due from secured lending and capital market-driven transactions as defined in point (3) of Article 192 if they are collateralised by liquid assets as referred to in Article 416(1), shall not be taken into account up to the value net of haircuts of the liquid assets and shall be taken into account in full for the remaining monies due;

(e) monies due that the institution owing those monies treats in accordance with Article 422(3) and (4), shall be multiplied by a corresponding symmetrical inflow;

(f) monies due from positions in major index equity instruments provided that there is no double counting with liquid assets;

(g) any undrawn credit or liquidity facilities and any other commitments received shall not be taken into account.

By way of derogation from point (g) of paragraph 2, competent authorities may grant the permission to apply a higher inflow on a case by case basis for credit and liquidity facilities when all of the following conditions are fulfilled:

(a) there are reasons to expect a higher inflow even under a combined market and idiosyncratic stress of the provider;

(b) the counterparty is a parent or subsidiary institution of the institution or another subsidiary of the same parent institution or linked to the institution by a relationship within the meaning of Article 22(7) of Directive 2013/34/EU or a member of the same institutional protection scheme referred to in Article 113(7) of this Regulation or the central institution or a member of a network that is subject to the waiver referred to in Article 10 of this Regulation;

(c) a corresponding symmetric or more conservative outflow is applied by the counterparty by way of derogation from Articles 422, 423 and 424;

(d) the institution and the counterparty are established in the same Member State.

EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2015.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 426

Updating Future liquidity requirements

Following, the adoption by the Commission of a delegated act to specify the liquidity requirement in accordance with Article 460, EBA may develop draft implementing technical standards to specify the conditions set out in Article 421(1), Article 422, with the exception of paragraphs 8, 9 and 10 of that Article, and Article 424 to take account of standards agreed internationally.

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

TITLE III

REPORTING ON STABLE FUNDING

Article 427

Items providing stable funding

Institutions shall report to the competent authorities, in accordance with the reporting requirements set out in Article 415(1) and the uniform reporting formats referred to in Article 415(3), the following items and their components in order to allow an assessment of the availability of stable funding:

(a) the following own funds, after deductions have been applied, where appropriate: (i) tier 1 capital instruments; (ii) tier 2 capital instruments; (iii) other preferred shares and capital instruments in excess of Tier 2 allowable amount having an effective maturity of one year or greater;

(b) the following liabilities not included in point (a): (i) retail deposits that qualify for the treatment set out in Article 421(1); (ii) retail deposits that qualify for the treatment set out in Article 421(2); (iii) deposits that qualify for the treatment set out in Article 422 (3) and (4); (iv) of the deposits referred to in point (iii), those that are subject to a deposit guarantee scheme in accordance with Directive 94/19/EC or an equivalent deposit guarantee scheme in a third country deposit guarantees within the terms of Article 421(1); (v) of the deposits referred to in point (iii), those that fall under point (b) of Article 422(3); (vi) of the deposits referred to in point (iii), those that fall under point (d) of Article 422(3); (vii) amounts deposited not falling under point (i), (ii) or (iii) if they are not deposited by financial customers; (viii) all funding obtained from financial customers; (ix) separately for amounts falling under points (vii) and (viii) respectively, funding from secured lending and capital market-driven transactions as defined in point (3) of Article 192: — collateralised by assets that would qualify as liquid assets in accordance with Article 416; — collateralised by any other assets; (x) liabilities resulting from securities issued that qualify for the treatment set out in Article 129(4) or (5) of this Regulation or from covered bonds as defined in point (1) of Article 3 of Directive (EU) 2019/2162; (xi) the following other liabilities resulting from securities issued that do not fall under point (a): — liabilities resulting from securities issued with an effective maturity of one year or greater; — liabilities resulting from securities issued with an effective maturity of less than one year; (xii) any other liabilities.

Where applicable, all items shall be presented in the following five buckets according to the closest of their maturity date and the earliest date at which they can contractually be called:

(a) within three months;

(b) between three and six months;

(c) between six and nine months;

(d) between nine and 12 months;

(e) after 12 months.

Article 428

Items requiring stable funding

Unless deducted from own funds, the following items shall be reported to competent authorities separately in order to allow an assessment of the needs for stable funding:

(a) the assets that would qualify as liquid assets in accordance with Article 416, broken down by asset type;

(b) the following securities and money market instruments not included in point (a): (i) assets qualifying for credit step 1 under Article 122; (ii) assets qualifying for credit step 2 under Article 122; (iii) other assets;

(c) equity securities of non-financial entities listed on a major index in a recognised exchange;

(d) other equity securities;

(e) gold;

(f) other precious metals;

(g) non-renewable loans and receivables, and separately those non-renewable loans and receivables for which borrowers are:

(i) natural persons other than commercial sole proprietors and partnerships; (ii) SMEs that qualify for the retail exposure class under the Standardised or IRB approaches for credit risk or to a company which is eligible for the treatment set out in Article 153(4) and where the aggregate deposit placed by that client or group of connected clients is less than EUR 1 million; (iii) sovereigns, central banks and public sector entities; (iv) clients not referred to in points (i) and (ii) other than financial customers; (v) clients not referred to in points (i), (ii) and (iii) that are financial customers, and thereof separately those that are credit institutions and other financial customers;

(h) non-renewable loans and receivables referred to in point (g), and thereof separately those that are:

(i) collateralised by commercial immovable property (CRE); (ii) collateralised by residential property (RRE); (iii) match funded (pass‐through) via bonds eligible for the treatment set out in Article 129(4) or (5) of this Regulation or via covered bonds as defined in point (1) of Article 3 of Directive (EU) 2019/2162;

(i) derivatives receivables;

(j) any other assets;

(k) undrawn credit facilities that qualify as bucket 4, bucket 3 or bucket 2 items under Annex I.

TITLE IV

THE NET STABLE FUNDING RATIO

CHAPTER 1

The net stable funding ratio

Article 428a

Application on a consolidated basis

Where the net stable funding ratio set out in this Title applies on a consolidated basis in accordance with Article 11(4), the following provisions shall apply:

(a) the assets and off-balance-sheet items of a subsidiary having its head office in a third country which are subject to required stable funding factors under the net stable funding requirement set out in the national law of that third country that are higher than those specified in Chapter 4 shall be subject to consolidation in accordance with the higher factors specified in the national law of that third country;

(b) the liabilities and own funds of a subsidiary having its head office in a third country which are subject to available stable funding factors under the net stable funding requirement set out in the national law of that third country that are lower than those specified in Chapter 3 shall be subject to consolidation in accordance with the lower factors specified in the national law of that third country;

(c) third-country assets which meet the requirements laid down in the delegated act referred to in Article 460(1) and which are held by a subsidiary having its head office in a third country shall not be recognised as liquid assets for consolidation purposes where they do not qualify as liquid assets under the national law of that third country which sets out the liquidity coverage requirement.

Article 428b

The net stable funding ratio

The net stable funding requirement laid down in Article 413(1) shall be equal to the ratio of the institution's available stable funding as referred to in Chapter 3 to the institution's required stable funding as referred to in Chapter 4, and shall be expressed as a percentage. Institutions shall calculate their net stable funding ratio in accordance with the following formula:

In determining the level of any restriction on currency mismatches that may be applied in accordance with this Article, 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 the ability to swap currencies and raise funds in foreign currency markets over the one-year horizon of the net stable funding ratio;

(b) the impact of adverse exchange rate movements on existing mismatched positions and on the effectiveness of any foreign currency exchange hedges that are in place.

Any restriction on currency mismatches imposed in accordance with this Article shall constitute a specific liquidity requirement as referred to in Article 105 of Directive 2013/36/EU.

CHAPTER 2

General rules for the calculation of the net stable funding ratio

Article 428c

Calculation of the net stable funding ratio

Unless otherwise specified in this Title, where an item can be allocated to more than one required stable funding category, it shall be allocated to the required stable funding category that produces the greatest contractual required stable funding for that item.

Article 428d

Derivative contracts

Competent authorities may decide, with the approval of the relevant central bank, to waive the impact of derivative contracts on the calculation of the net stable funding ratio, including through the determination of the required stable funding factors and of provisions and losses, provided that all the following conditions are met:

(a) those contracts have a residual maturity of less than six months;

(b) the counterparty is the ECB or the central bank of a Member State;

(c) the derivative contracts serve the monetary policy of the ECB or the central bank of a Member State.

Where a subsidiary having its head office 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.

Article 428e

Netting of secured lending transactions and capital market-driven transactions

Assets and liabilities resulting from securities financing transactions with a single counterparty shall be calculated on a net basis, provided that those assets and liabilities comply with the netting conditions set out in Article 429b(4).

Article 428f

Interdependent assets and liabilities

Subject to prior approval of the competent authorities, an institution may treat an asset and a liability as interdependent, provided that all the following conditions are met:

(a) the institution acts solely as a pass-through unit to channel the funding from the liability into the corresponding interdependent asset;

(b) the individual interdependent assets and liabilities are clearly identifiable and have the same principal amount;

(c) the asset and interdependent liability have substantially matched maturities, with a maximum delay of 20 days between the maturity of the asset and the maturity of the liability;

(d) the interdependent liability has been requested pursuant to a legal, regulatory or contractual commitment and is not used to fund other assets;

(e) the principal payment flows from the asset are not used for other purposes than repaying the interdependent liability;

(f) the counterparties for each pair of interdependent assets and liabilities are not the same.

Assets and liabilities shall be considered to meet the conditions set out in paragraph 1 and be considered as interdependent where they are directly linked to the following products or services:

(a) centralised regulated savings, provided that institutions are legally required to transfer regulated deposits to a centralised fund which is set up and controlled by the central government of a Member State and which provides loans to promote public interest objectives, and provided that the transfer of deposits to the centralised fund occurs on at least a monthly basis;

(b) promotional loans and credit and liquidity facilities that fulfil the criteria set out in the delegated act referred to in Article 460(1) for institutions acting as simple intermediaries that do not incur any funding risk;

(c) covered bonds that meet all the following conditions: (i) they are bonds referred to in Article 52(4) of Directive 2009/65/EC or they meet the eligibility requirements for the treatment set out in Article 129(4) or (5) of this Regulation; (ii) the underlying loans are fully match funded with the covered bonds that were issued or the covered bonds have non-discretionary extendable maturity triggers 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;

(d) derivative client clearing activities, provided that the institution does not provide to its clients guarantees of the performance of the CCP and, as a result, does not incur any funding risk.

Article 428g

Deposits in institutional protection schemes and cooperative networks

Where an institution belongs to an institutional protection scheme of the type referred to in Article 113(7), to a network that is eligible for the waiver provided for in Article 10, or to a cooperative network in a Member State, the sight deposits that the institution maintains with the central institution and that the depositing institution considers to be liquid assets pursuant to the delegated act referred to in Article 460(1) shall be subject to the following:

(a) the depositing institution shall apply the required stable funding factor under Section 2 of Chapter 4, depending on the treatment of those sight deposits as level 1, level 2A or level 2B assets pursuant to the delegated act referred to in Article 460(1) and depending on the relevant haircut applied to those sight deposits for the calculation of the liquidity coverage ratio;

(b) the central institution receiving the deposit shall apply the corresponding symmetric available stable funding factor.

Article 428h

Preferential treatment within a group or within an institutional protection scheme

By way of derogation from Chapters 3 and 4, where Article 428g does not apply, competent authorities may authorise institutions on a case-by-case basis to apply a higher available stable funding factor or a lower required stable funding factor to assets, liabilities and committed credit or liquidity facilities, provided that all the following conditions are met:

(a) the counterparty is one of the following: (i) the parent or a subsidiary of the institution; (ii) another subsidiary of the same parent; (iii) an undertaking that is related to the institution within the meaning of Article 22(7) of Directive 2013/34/EU; (iv) a member of the same institutional protection scheme referred to in Article 113(7) of this Regulation as the institution; (v) the central body or an affiliated credit institution 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 facility received by the institution constitutes a more stable source of funding, or that the asset or committed credit or liquidity facility granted by the institution requires less stable funding over the one-year horizon of the net stable funding ratio than the same liability, asset or committed credit or liquidity facility received or granted by other counterparties;

(c) the counterparty applies a required stable funding factor that is equal to or higher than the higher available stable funding factor or applies an available stable funding factor that is equal to or lower than the lower required stable funding factor;

(d) the institution and the counterparty are established in the same Member State.

Where the institution and the counterparty are established in different Member States, competent authorities may waive the condition set out in point (d) of paragraph 1, provided that, in addition to the criteria set out in paragraph 1, the following criteria are met:

(a) there are legally binding agreements and commitments between group entities regarding the liability, asset or committed credit or liquidity facility;

(b) the funding provider presents a low funding risk profile;

(c) the funding risk profile of the recipient of the funding has been adequately taken into account in the liquidity risk management of the funding provider.

The competent authorities shall consult each other in accordance with point (b) of Article 20(1) to determine whether the additional criteria set out in this paragraph are met.

CHAPTER 3

Available stable funding

Section 1

General provisions

Article 428i

Calculation of the amount of available stable funding

Unless otherwise specified 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 own funds by the available stable funding factors to be applied under Section 2. The total amount of available stable funding shall be the sum of the weighted amounts of liabilities and own funds.

Bonds and other debt securities that are issued by the institution, sold exclusively in the retail market, and held in a retail account, may be treated as belonging to the appropriate retail deposit category. Limitations shall be in place, such that those instruments cannot be bought and held by parties other than retail customers.

Article 428j

Residual maturity of a liability or of own funds

Section 2

Available stable funding factors

Article 428k

0 % available stable funding factor

Unless otherwise specified in Articles 428l to 428o, all liabilities without a stated maturity, including short positions and open maturity positions, shall be subject to 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) minority interests, which shall be treated in accordance with the term of the instrument.

Deferred tax liabilities and minority interests as referred to in paragraph 1 shall be subject to one of the following factors:

(a) 0 %, where the effective residual maturity of the deferred tax liability or minority interest is less than six months;

(b) 50 %, where the effective residual maturity of the deferred tax liability or minority interest is a minimum of six months but less than one year;

(c) 100 %, where the effective residual maturity of the deferred tax liability or minority interest is one year or more.

The following liabilities and capital items or instruments shall be subject to a 0 % available stable funding factor:

(a) trade date payables arising from purchases of financial instruments, of foreign currencies and of commodities, that are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transactions, or that have failed to settle but are nonetheless expected to settle;

(b) liabilities that are categorised as being interdependent with assets in accordance with Article 428f;

(c) liabilities with a residual maturity of less than six months provided by:

(i) the ECB or the central bank of a Member 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 Articles 428l to 428o.

The following rules shall apply to the calculation referred to in the first subparagraph:

(a) variation margin received by institutions from their counterparties shall be deducted from the fair value of a netting set with positive fair value where the collateral received as variation margin qualifies as a level 1 asset pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified in that delegated act, and where institutions are legally entitled and operationally able to reuse that collateral;

(b) all variation margin posted by institutions with their counterparties shall be deducted from the fair value of a netting set with negative fair value.

Article 428l

50 % available stable funding factor

The following liabilities and capital items or instruments shall be subject to a 50 % available stable funding factor:

(a) deposits received that fulfil the criteria for operational deposits set out in the delegated act referred to in Article 460(1);

(b) liabilities with a residual maturity of less than one year provided by:

(i) the central government of a Member State or of a third country; (ii) regional governments or local authorities of a Member State or of a third country; (iii) public sector entities in a Member State or in a third country; (iv) multilateral development banks referred to in Article 117(2) and international organisations referred to in Article 118; (v) non-financial corporate customers; (vi) credit unions authorised by a competent authority, personal investment companies and clients that are deposit brokers to the extent that those liabilities do not fall under point (a) of this paragraph;

(c) liabilities with a residual contractual maturity of a minimum of six months but less than one year that are provided by:

(i) the ECB or the central bank of a Member State; (ii) the central bank of a third country; (iii) financial customers;

(d) any other liabilities and capital items or instruments with a residual maturity of a minimum of six months but less than one year not referred to in Articles 428m, 428n and 428o.

Article 428m

90 % available stable funding factor

Sight retail deposits, retail deposits with a fixed notice period of less than one year and term retail deposits having a residual maturity of less than one year that fulfil the relevant criteria for other retail deposits set out in the delegated act referred to in Article 460(1) shall be subject to a 90 % available stable funding factor.

Article 428n

95 % available stable funding factor

Sight retail deposits, retail deposits with a fixed notice period of less than one year and term retail deposits having a residual maturity of less than one year that fulfil the relevant criteria for stable retail deposits set out in the delegated act referred to in Article 460(1) shall be subject to a 95 % available stable funding factor.

Article 428o

100 % available stable funding factor

The following liabilities and capital items and instruments shall be subject to a 100 % available stable funding factor:

(a) the Common Equity Tier 1 items of the institution before the adjustments required pursuant to Articles 32 to 35, the deductions pursuant to Article 36 and the application of the exemptions and alternatives laid down in Articles 48, 49 and 79;

(b) the Additional Tier 1 items of the institution before the deduction of the items referred to in Article 56 and before Article 79 has been applied thereto, excluding any instruments with explicit or embedded options that, if exercised, would reduce the effective residual maturity to less than one year;

(c) the Tier 2 items of the institution before the deductions referred to in Article 66 and before the application of Article 79, having a residual maturity of one year or more, excluding any instruments with explicit or embedded options that, if exercised, would reduce the effective residual maturity to less than one year;

(d) 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 effective residual maturity to less than one year;

(e) any other secured and unsecured borrowings and liabilities with a residual maturity of one year or more, including term deposits, unless otherwise specified in Articles 428k to 428n.

CHAPTER 4

Required stable funding

Section 1

General provisions

Article 428p

Calculation of the amount of required stable funding

Assets that institutions have borrowed, including in securities financing transactions, shall be subject to the required stable funding factors to be applied under Section 2 where those assets are not accounted for on the balance sheet of the institution but the institution does have beneficial ownership of the assets.

Assets that have less than six months remaining in the encumbrance period shall be subject to the required stable funding factors to be applied under Section 2 to the same assets if they were held unencumbered.

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 that are available to the institution; those assets shall include assets placed by a credit institution with a central institution in a cooperative network or institutional protection scheme; institutions shall assume that assets in the pool are encumbered in order of increasing liquidity on the basis of the liquidity classification pursuant to the delegated act referred to in Article 460(1), starting with assets ineligible for the liquidity buffer;

(b) assets that the institution has received as collateral for credit risk mitigation purposes in secured lending, secured funding or collateral exchange transactions and that the institution may dispose of;

(c) assets attached as non-mandatory overcollateralisation to a covered bond issuance.

In the case of non-standard, temporary operations conducted by the ECB or the central bank of a Member State or the central bank of a third country in order to fulfil its mandate in a period of market-wide financial stress or in exceptional macroeconomic circumstances, the following assets may receive a reduced required stable funding factor:

(a) by way of derogation from point (f) of Article 428ad and from point (a) of Article 428ah(1), assets encumbered for the purposes of the operations referred to in this subparagraph;

(b) by way of derogation from points (d)(i) and (d)(ii) of Article 428ad, from point (b) of Article 428af and from point (c) of Article 428ag, monies that result from the operations referred to in this subparagraph.

Competent authorities shall determine, in agreement with the central bank that is the counterparty to the transaction the required stable funding factor to be applied to the assets referred to in points (a) and (b) of the first subparagraph. For encumbered assets as referred to in point (a) of the first subparagraph, the required stable funding factor to be applied shall not be lower than the required stable funding factor that would apply under Section 2 to those assets if they were held unencumbered.

When applying a reduced required stable funding factor in accordance with the second subparagraph, competent authorities shall closely monitor the impact of that reduced factor on institutions' stable funding positions and shall take appropriate supervisory measures where necessary.

Competent authorities shall report the types of off-balance-sheet exposures for which they have determined the required stable funding factors to EBA at least once a year. They shall include an explanation of the methodology applied to determine those factors in that report.

Article 428q

Residual maturity of an asset

Section 2

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 that are eligible as level 1 high quality liquid assets pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified in that delegated act, regardless of whether they comply with the operational requirements as set out in that delegated act;

(b) unencumbered shares or units in CIUs that are eligible for a 0 % haircut for the calculation of the liquidity coverage ratio pursuant to the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer set out in that delegated act;

(c) all reserves held by the institution in the ECB or in the central bank of a Member State or the central bank of a third country, including required reserves and excess reserves;

(d) all claims on the ECB, the central bank of a Member State or the central bank of a third country that have a residual maturity of less than six months;

(e) trade date receivables arising from sales of financial instruments, foreign currencies or commodities that are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction, or that have failed to settle but are nonetheless expected to settle;

(f) assets that are categorised as being interdependent with liabilities in accordance with Article 428f;

(g) monies due from securities financing transactions with financial customers, where those transactions have a residual maturity of less than six months, where those monies due are collateralised by assets that qualify as level 1 assets pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified therein, and where the institution would be legally entitled and operationally able to reuse those assets for the duration of the transaction.

Institutions shall take the monies due referred to in point (g) of the first subparagraph of this paragraph into account on a net basis where Article 428e applies.

For subsidiaries having their head office in a third country, where the required central bank reserves are subject to a higher required stable funding factor under the net stable funding requirement set out in the national law of that third country, that higher required stable funding factor shall be taken into account for consolidation purposes.

Article 428s

5 % required stable funding factor

The following assets and off-balance-sheet items shall be subject to a 5 % required stable funding factor:

(a) unencumbered shares or units in CIUs that are eligible for a 5 % haircut for the calculation of the liquidity coverage ratio in accordance with the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act;

(b) monies due from securities financing transactions with financial customers, where those transactions have a residual maturity of less than six months, other than those referred to in point (g) of Article 428r(1);

(c) the undrawn portion of committed credit and liquidity facilities pursuant to the delegated act referred to in Article 460(1);

(d) trade finance off-balance-sheet related products as referred to in Annex I with a residual maturity of less than six months.

Institutions shall take the monies due referred to in point (b) of the first subparagraph of this paragraph into account on a net basis where Article 428e applies.

Article 428t

7 % required stable funding factor

Unencumbered assets that are eligible as level 1 extremely high quality covered bonds pursuant to the delegated act referred to in Article 460(1) shall be subject to a 7 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428u

7,5 % required stable funding factor

Trade finance off-balance-sheet related products as referred to in Annex I with a residual maturity of at least six months but less than one year shall be subject to a 7,5 % required stable funding factor.

Article 428v

10 % required stable funding factor

The following assets and off-balance-sheet items shall be subject to a 10 % required stable funding factor:

(a) monies due from transactions with financial customers that have a residual maturity of less than six months other than those referred to in point (g) of Article 428r(1) and in point (b) of Article 428s(1);

(b) trade finance on-balance-sheet related products with a residual maturity of less than six months;

(c) trade finance off-balance-sheet related products as referred to in Annex I with a residual maturity of one year or more.

Article 428w

12 % required stable funding factor

Unencumbered shares or units in CIUs that are eligible for a 12 % haircut for the calculation of the liquidity coverage ratio in accordance with the delegated act referred to in Article 460(1) shall be subject to a 12 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428x

15 % required stable funding factor

Unencumbered assets that are eligible as level 2A assets pursuant to the delegated act referred to in Article 460(1) shall be subject to a 15 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428y

20 % required stable funding factor

Unencumbered shares or units in CIUs that are eligible for a 20 % haircut for the calculation of the liquidity coverage ratio in accordance with the delegated act referred to in Article 460(1) shall be subject to a 20 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428z

25 % required stable funding factor

Unencumbered level 2B securitisations pursuant to the delegated act referred to in Article 460(1) shall be subject to a 25 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428aa

30 % required stable funding factor

The following assets shall be subject to a 30 % required stable funding factor:

(a) unencumbered high quality covered bonds pursuant to the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act;

(b) unencumbered shares or units in CIUs that are eligible for a 30 % haircut for the calculation of the liquidity coverage ratio in accordance with the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428ab

35 % required stable funding factor

The following assets shall be subject to a 35 % required stable funding factor:

(a) unencumbered level 2B securitisations pursuant to the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act;

(b) unencumbered shares or units in CIUs that are eligible for a 35 % haircut for the calculation of the liquidity coverage ratio pursuant to the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428ac

40 % required stable funding factor

Unencumbered shares or units in CIUs that are eligible for a 40 % haircut for the calculation of the liquidity coverage ratio pursuant to the delegated act referred to in Article 460(1) shall be subject to a 40 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428ad

50 % required stable funding factor

The following assets shall be subject to a 50 % required stable funding factor:

(a) unencumbered assets that are eligible as level 2B assets pursuant to the delegated act referred to in Article 460(1), excluding level 2B securitisations and high quality covered bonds pursuant to that delegated act, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act;

(b) deposits held by the institution in another financial institution that fulfil the criteria for operational deposits as set out in the delegated act referred to in Article 460(1);

(c) monies due from transactions with a residual maturity of less than one year with:

(i) the central government of a Member State or of a third country; (ii) regional governments or local authorities in a Member State or in a third country; (iii) public sector entities of a Member State or of a third country; (iv) multilateral development banks referred to in Article 117(2) and international organisations referred to in Article 118; (v) non-financial corporates, retail customers and SMEs; (vi) 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;

(d) monies due from transactions with a residual maturity of at least six months but less than one year with: (i) the European Central Bank or the central bank of a Member State; (ii) the central bank of a third country; (iii) financial customers;

(e) trade finance on-balance-sheet related products with a residual maturity of at least six months but less than one year;

(f) assets encumbered for a residual maturity of at least six months but less than one year, except where those assets would be assigned a higher required stable funding factor in accordance with Articles 428ae to 428ah if they were held unencumbered, in which case the higher required stable funding factor that would apply to those assets if they were held unencumbered shall apply;

(g) any other assets with a residual maturity of less than one year, unless otherwise specified in Articles 428r to 428ac.

Article 428ae

55 % required stable funding factor

Unencumbered shares or units in CIUs that are eligible for a 55 % haircut for the calculation of the liquidity coverage ratio in accordance with the delegated act referred to in Article 460(1) shall be subject to a 55 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428af

65 % required stable funding factor

The following assets shall be subject to a 65 % required stable funding factor:

(a) unencumbered loans secured by mortgages on residential property 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 Chapter 2 of Title II of Part Three;

(b) unencumbered loans with a residual maturity of one year or more, excluding loans to financial customers and loans referred to in Articles 428r to 428ad, provided that those loans are assigned a risk weight of 35 % or less in accordance with Chapter 2 of Title II of Part Three.

Article 428ag

85 % required stable funding factor

The following assets and off-balance-sheet items shall be subject to a 85 % required stable funding factor:

(a) any assets and off-balance-sheet items, including cash, posted as initial margin for derivative contracts, unless those assets would be assigned a higher required stable funding factor in accordance with Article 428ah if held unencumbered, in which case the higher required stable funding factor that would apply to those assets if they were held unencumbered shall apply;

(b) any assets and off-balance-sheet items, 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 Article 428ah if held unencumbered, in which case the higher required stable funding factor to be applied to the unencumbered asset shall apply;

(c) unencumbered loans with a residual maturity of one year or more, excluding loans to financial customers and loans referred to in Articles 428r to 428af, which are not past due for more than 90 days and which are assigned a risk weight of more than 35 % in accordance with Chapter 2 of Title II of Part Three;

(d) trade finance on-balance-sheet related products, with a residual maturity of one year or more;

(e) unencumbered securities with a residual maturity of one year or more that are not in default in accordance with Article 178 and that are not eligible as liquid assets pursuant to the delegated act referred to in Article 460(1);

(f) unencumbered exchange-traded equities that are not eligible as level 2B assets pursuant to the delegated act referred to in Article 460(1);

(g) physically traded commodities, including gold but excluding commodity derivatives;

(h) assets encumbered for a residual maturity of one year or more in a cover pool funded by covered bonds as referred to in Article 52(4) of Directive 2009/65/EC or covered bonds which meet the eligibility requirements for the treatment as set out in Article 129(4) or (5) of this Regulation.

Article 428ah

100 % required stable funding factor

The following assets shall be subject to a 100 % required stable funding factor:

(a) unless otherwise specified in this Chapter, any assets encumbered for a residual maturity of one year or more;

(b) any assets other than those referred to in Articles 428r to 428ag, including loans to financial customers having a residual contractual maturity of one year or more, non-performing exposures, items deducted from own funds, fixed assets, non-exchange-traded equities, retained interest, insurance assets, defaulted securities.

The following rules shall apply to the calculation referred to in the first subparagraph:

(a) variation margin received by institutions from their counterparties shall be deducted from the fair value of a netting set with positive fair value where the collateral received as variation margin qualifies as a level 1 asset pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified in that delegated act, and where institutions are legally entitled and operationally able to reuse that collateral;

(b) all variation margin posted by institutions with their counterparties shall be deducted from the fair value of a netting set with negative fair value.

CHAPTER 5

Derogation for small and non-complex institutions

Article 428ai

Derogation for small and non-complex institutions

By way of derogation from Chapters 3 and 4, small and non-complex institutions may choose, with the prior permission of their competent authority, to calculate the ratio between an institution's available stable funding as referred to in Chapter 6, and the institution's required stable funding as referred to in Chapter 7, expressed as a percentage.

A competent authority may require a small and non-complex institution to comply with the net stable funding requirement based on an institution's available stable funding as referred to in Chapter 3 and the required stable funding as referred to in Chapter 4 where it considers that the simplified methodology is not adequate to capture the funding risks of that institution.

CHAPTER 6

Available stable funding for the simplified calculation of the net stable funding ratio

Section 1

General provisions

Article 428aj

Simplified calculation of the amount of available stable funding

Article 428ak

Residual maturity of a liability or own funds

Section 2

Available stable funding factors

Article 428al

0 % available stable funding factor

Unless otherwise specified in this Section, all liabilities without a stated maturity, including short positions and open maturity positions, shall be subject to 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) minority interests, which shall be treated in accordance with the term of the instrument concerned.

Deferred tax liabilities and minority interests as referred to in paragraph 1 shall be subject to one of the following factors:

(a) 0 %, where the effective residual maturity of the deferred tax liability or minority interest is less than one year;

(b) 100 %, where the effective residual maturity of the deferred tax liability or minority interest is one year or more.

The following liabilities, and capital items or instruments shall be subject to a 0 % available stable funding factor:

(a) trade date payables arising from purchases of financial instruments, of foreign currencies and of commodities, that are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction, or that have failed to settle but are nonetheless expected to settle;

(b) liabilities that are categorised as being interdependent with assets in accordance with Article 428f;

(c) liabilities with a residual maturity of less than one year provided by:

(i) the ECB or the central bank of a Member 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 this Article and Articles 428am to 428ap.

The following rules shall apply to the calculation referred to in the first subparagraph:

(a) variation margin received by institutions from their counterparties shall be deducted from the fair value of a netting set with positive fair value where the collateral received as variation margin qualifies as a level 1 asset pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified in that delegated act, and where institutions are legally entitled and operationally able to reuse that collateral;

(b) all variation margin posted by institutions with their counterparties shall be deducted from the fair value of a netting set with negative fair value.

Article 428am

50 % available stable funding factor

The following liabilities and capital items or instruments shall be subject to a 50 % available stable funding factor:

(a) deposits received that fulfil the criteria for operational deposits set out in the delegated act referred to in Article 460(1);

(b) liabilities and capital items or instruments with a residual maturity of less than one year provided by: (i) the central government of a Member State or of a third country; (ii) regional governments or local authorities in a Member State or in a third country; (iii) public sector entities of a Member State or of a third country; (iv) multilateral development banks referred to in Article 117(2) and international organisations referred to in Article 118; (v) non-financial corporate customers; (vi) credit unions authorised by a competent authority, personal investment companies and clients that are deposit brokers, with the exception of deposits received, that fulfil the criteria for operational deposits as set out in the delegated act referred to in Article 460(1).

Article 428an

90 % available stable funding factor

Sight retail deposits, retail deposits with a fixed notice period of less than one year and term retail deposits having a residual maturity of less than one year that fulfil the relevant criteria for other retail deposits set out in the delegated act referred to in Article 460(1) shall be subject to a 90 % available stable funding factor.

Article 428ao

95 % available stable funding factor

Sight retail deposits, retail deposits with a fixed notice period of less than one year and term retail deposits having a residual maturity of less than one year that fulfil the relevant criteria for stable retail deposits set out in the delegated act referred to in Article 460(1) shall be subject to a 95 % available stable funding factor.

Article 428ap

100 % available stable funding factor

The following liabilities and capital items and instruments shall be subject to a 100 % available stable funding factor:

(a) the Common Equity Tier 1 items of the institution before the adjustments required pursuant to Articles 32 to 35, the deductions pursuant to Article 36 and the application of the exemptions and alternatives laid down in Articles 48, 49 and 79;

(b) the Additional Tier 1 items of the institution before the deduction of the items referred to in Article 56 and before Article 79 has been applied thereto, excluding any instruments with explicit or embedded options that, if exercised, would reduce the effective residual maturity to less than one year;

(c) the Tier 2 items of the institution before the deductions referred to in Article 66 and before the application of Article 79, having a residual maturity of one year or more, excluding any instruments with explicit or embedded options that, if exercised, would reduce the effective residual maturity to less than one year;

(d) 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 effective residual maturity to less than one year;

(e) any other secured and unsecured borrowings and liabilities with a residual maturity of one year or more, including term deposits, unless otherwise specified in Articles 428al to 428ao.

CHAPTER 7

Required stable funding for the simplified calculation of the net stable funding ratio

Section 1

General provisions

Article 428aq

Simplified calculation of the amount of required stable funding

Assets that institutions have borrowed, including in securities financing transactions, that are not accounted for in their balance sheet but on which they have beneficial ownership shall be subject to the required stable funding factors to be applied under Section 2.

Assets that have less than six months remaining in the encumbrance period shall be subject to the required stable funding factors to be applied under Section 2 to the same assets if they were held unencumbered.

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, including assets placed by a credit institution with the central institution in a cooperative network or institutional protection scheme;

(b) assets that the institution has received as collateral for credit risk mitigation purposes in secured lending, secured funding or collateral exchange transactions and that the institution may dispose of;

(c) assets attached as non-mandatory over-collateralisation to a covered bond issuance.

For the purposes of point (a) of the first subparagraph of this paragraph, 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 the delegated act referred to in Article 460(1), starting with assets ineligible for the liquidity buffer.

In the case of non-standard, temporary operations conducted by the ECB or the central bank of a Member State or the central bank of a third country in order to fulfil its mandate in a period of market-wide financial stress or exceptional macroeconomic circumstances, the following assets may receive a reduced required stable funding factor:

(a) by way of derogation from Article 428aw and from point (a) of Article 428az(1), assets encumbered for the operations referred to in this subparagraph;

(b) by way of derogation from Article 428aw and from point (b) of Article 428ay, monies resulting from the operations referred to in this subparagraph.

Competent authorities shall determine, in agreement with the central bank that is the counterparty to the transaction the required stable funding factor to be applied to the assets referred to in points (a) and (b) of the first subparagraph. For encumbered assets referred to in point (a) of the first subparagraph, the required stable funding factor to be applied shall not be lower than the required stable funding factor that would apply under Section 2 to those assets if they were held unencumbered.

When applying a reduced required stable funding factor in accordance with the second subparagraph, competent authorities shall closely monitor the impact of that reduced factor on institutions' stable funding positions and take appropriate supervisory measures where necessary.

Competent authorities shall report to EBA the types of off-balance-sheet exposures for which they have determined the 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 428ar

Residual maturity of an asset

Section 2

Required stable funding factors

Article 428as

0 % required stable funding factor

The following assets shall be subject to a 0 % required stable funding factor:

(a) unencumbered assets that are eligible as level 1 high quality liquid assets pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified in that delegated act, regardless of whether they comply with the operational requirements as set out in that delegated act;

(b) all reserves held by the institution in the ECB or in the central bank of a Member State or the central bank of a third country, including required reserves and excess reserves;

(c) all claims on the ECB, the central bank of a Member State or the central bank of a third country that have a residual maturity of less than six months;

(d) assets that are categorised as being interdependent with liabilities in accordance with Article 428f.

For subsidiaries having their head office in a third country, where the required central bank reserves are subject to a higher required stable funding factor under the net stable funding requirement set out in the national law of that third country, that higher required stable funding factor shall be taken into account for consolidation purposes.

Article 428at

5 % required stable funding factor

Article 428au

10 % required stable funding factor

The following assets and off-balance-sheet items shall be subject to a 10 % required stable funding factor:

(a) unencumbered assets that are eligible as level 1 extremely high quality covered bonds pursuant to the delegated act referred to in Article 460(1), regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act;

(b) trade finance off-balance-sheet related products as referred to in Annex I.

Article 428av

20 % required stable funding factor

Unencumbered assets that are eligible as level 2A assets pursuant to the delegated act referred to in Article 460(1), and unencumbered shares or units in CIUs pursuant to that delegated act shall be subject to a 20 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act.

Article 428aw

50 % required stable funding factor

The following assets shall be subject to a 50 % required stable funding factor:

(a) secured and unsecured loans with a residual maturity of less than one year and provided that they are encumbered less than one year;

(b) any other assets with a residual maturity of less than one year, unless otherwise specified in Articles 428as to 428av;

(c) assets encumbered for a residual maturity of at least six months but less than one year, except where those assets would be assigned a higher required stable funding factor in accordance with Articles 428ax, 428ay and 428az if they were held unencumbered, in which case the higher required stable funding factor that would apply to those assets if they were held unencumbered shall apply.

Article 428ax

55 % required stable funding factor

Assets that are eligible as level 2B assets pursuant to the delegated act referred to in Article 460(1), and shares or units in CIUs pursuant to that delegated act shall be subject to a 55 % required stable funding factor, regardless of whether they comply with the operational requirements and with the requirements on the composition of the liquidity buffer as set out in that delegated act, provided that they are encumbered less than one year.

Article 428ay

85 % required stable funding factor

The following assets and off-balance-sheet items shall be subject to a 85 % required stable funding factor:

(a) any assets and off-balance-sheet items, including cash, posted as initial margin for derivative contracts or posted as contribution to the default fund of a CCP, unless those assets would be assigned a higher required stable funding factor in accordance with Article 428az if held unencumbered, in which case the higher required stable funding factor that would apply to those assets if they were held unencumbered shall apply;

(b) unencumbered loans with a residual maturity of one year or more, excluding loans to financial customers, which are not past due for more than 90 days;

(c) trade finance on-balance-sheet related products, with a residual maturity of one year or more;

(d) unencumbered securities with a residual maturity of one year or more that are not in default in accordance with Article 178 and that are not eligible as liquid assets pursuant to the delegated act referred to in Article 460(1);

(e) unencumbered exchange-traded equities that are not eligible as level 2B assets pursuant to the delegated act referred to in Article 460(1);

(f) physically traded commodities, including gold but excluding commodity derivatives.

Article 428az

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 Articles 428as to 428ay, including loans to financial customers having a residual contractual maturity of one year or more, non-performing exposures, items deducted from own funds, fixed assets, non-exchange traded equities, retained interest, insurance assets, defaulted securities.

The following rules shall apply to the calculation referred to in the first subparagraph:

(a) variation margin received by institutions from their counterparties shall be deducted from the fair value of a netting set with positive fair value where the collateral received as variation margin qualifies as a level 1 asset pursuant to the delegated act referred to in Article 460(1), excluding extremely high quality covered bonds specified in that delegated act, and where institutions are legally entitled and operationally able to reuse that collateral;

(b) all variation margin posted by institutions with their counterparties shall be deducted from the fair value of a netting set with negative fair value.

PART SEVEN

LEVERAGE

Article 429

Calculation of the leverage ratio

Institutions shall calculate the leverage ratio at the reporting reference date.

For the purposes of paragraph 2, the total exposure measure shall be the sum of the exposure values of:

(a) assets, excluding derivative contracts listed in Annex II, credit derivatives and the positions referred to in Article 429e, calculated in accordance with Article 429b(1);

(b) derivative contracts listed in Annex II and credit derivatives, including those contracts and credit derivatives that are off-balance-sheet, calculated in accordance with Articles 429c and 429d;

(c) add-ons for counterparty credit risk of securities financing transactions, including those that are off-balance-sheet, calculated in accordance with Article 429e;

(d) off-balance-sheet items, excluding derivative contracts listed in Annex II, credit derivatives, securities financing transactions and positions referred to in Articles 429d and 429g, calculated in accordance with Article 429f;

(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 exposure values referred to in points (a) and (d) of the first subparagraph by the corresponding amount of general credit risk adjustments to on- and off-balance-sheet items, respectively, subject to a floor of 0 where the credit risk adjustments have reduced the Tier 1 capital.

By way of derogation from point (d) of paragraph 4, the following provisions shall apply:

(a) an off-balance-sheet item in accordance with point (d) of paragraph 4 that is treated as a derivative in accordance with the applicable accounting framework shall be subject to the treatment set out in point (b) of that paragraph;

(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 arising from that 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 client's trade exposures.

For the purposes of the first subparagraph, point (b), and of the second subparagraph of this paragraph, institutions may consider an affiliated entity as a client only where that entity is outside the regulatory scope of consolidation at the level at which the requirement set out in Article 92(4), point (e), is applied.

Unless otherwise expressly provided for in this Part, institutions shall calculate the total exposure measure in accordance with the following principles:

(a) physical or financial collateral, guarantees or credit risk mitigation purchased shall not be used to reduce the total exposure measure;

(b) assets shall not be netted with liabilities.

By way of derogation from point (b) of paragraph 7, institutions may reduce the exposure value of a pre-financing loan or an intermediate loan by the positive balance on the savings account of the debtor to which the loan was granted and only include the resulting amount in the total exposure measure, provided that all the following conditions are met:

(a) the granting of the loan is conditional upon the opening of the savings account at the institution granting the loan and both the loan and the savings account are regulated by the same sectoral law;

(b) the balance on the savings account cannot be withdrawn, in part or in full, by the debtor for the entire duration of the loan;

(c) the institution can unconditionally and irrevocably use the balance on the savings account to settle any claim originating under the loan agreement in cases regulated by the sectoral law referred to in point (a), including the case of non-payment by or the insolvency of the debtor.

‘Pre-financing loan’ or ‘intermediate loan’ means a loan that is granted to the borrower for a limited period of time in order to bridge the borrower's financing gaps until the final loan is granted in accordance with the criteria laid down in the sectoral law regulating such transactions.

Article 429a

Exposures excluded from the total exposure measure

By way of derogation from Article 429(4), an institution may exclude any of the following exposures from its total exposure measure:

(a) the amounts deducted from Common Equity Tier 1 items in accordance with point (d) of Article 36(1);

(b) the assets deducted in the calculation of the capital measure referred to in Article 429(3);

(c) exposures that are assigned a risk weight of 0 % in accordance with Article 113(6) or (7);

(ca) where the institution is a member of the network referred to in Article 113(7), the exposures that are assigned a risk weight of 0 % in accordance with Article 114 and arising from assets being an equivalent of deposits in the same currency of other members of that network stemming from legal or statutory minimum deposit in accordance with Article 422(3), point (b); in such a case exposures of other members of that network being legal or statutory minimum deposit are not subject to point (c) of this paragraph;

(d) where the institution is a public development credit institution, the exposures arising from assets that constitute claims on central governments, regional governments, local authorities or public sector entities in relation to public sector investments, and promotional loans;

(da) the institution’s exposures to its shareholders, provided that such exposures are collateralised to the level of at least 125 % by assets referred to in Article 129(1), points (d) and (e), and those assets are accounted for in the shareholders’ leverage ratio requirement, where the institution is not a public development credit institution but it meets the following conditions: (i) its shareholders are credit institutions and do not exercise control over the institution; (ii) it complies with paragraph 2, points (a), (b), (c) and (e), of this Article; (iii) its exposures are located in the same Member State; (iv) it is subject to some form of oversight by a Member State’s central government on an ongoing basis; (v) its business model is limited to the pass-through of the amount corresponding to the proceeds raised through the issuance of covered bonds to its shareholders, in the form of debt instruments;

(e) where the institution is not a public development credit institution, the parts of exposures arising from passing-through promotional loans to other credit institutions;

(f) the guaranteed parts of exposures arising from export credits that meet both of the following conditions: (i) the guarantee is provided by an eligible provider of unfunded credit protection in accordance with Articles 201 and 202, including by export credit agencies or by central governments; (ii) a 0 % risk weight applies to the guaranteed part of the exposure in accordance with Article 114(2) or (4) or Article 116(4);

(g) 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 set out in point (c) of Article 306(1);

(h) where the institution is a higher-level client within a multi-level client structure, the trade exposures to the clearing member or to an entity that serves as a higher-level client to that institution, provided that the conditions set out in Article 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 or the QCCP;

(i) fiduciary assets which meet all the following conditions: (i) they are recognised on the institution's balance sheet by national generally accepted accounting principles, in accordance with Article 10 of Directive 86/635/EEC; (ii) they meet the criteria for non-recognition set out in International Financial Reporting Standard (IFRS) 9, as applied in accordance with Regulation (EC) No 1606/2002; (iii) they meet the criteria for non-consolidation set out in IFRS 10, as applied in accordance with Regulation (EC) No 1606/2002, where applicable;

(j) exposures that meet all the following conditions: (i) they are exposures to a public sector entity; (ii) they are treated in accordance with Article 116(4); (iii) they arise from deposits that the institution is legally obliged to transfer to the public sector entity referred to in point (i) for the purpose of funding general interest investments;

(k) the excess collateral deposited at tri-party agents that has not been lent out;

(l) where under the applicable accounting framework an institution recognises the variation margin paid in cash to its counterparty as a receivable asset, the receivable asset, provided that the conditions set out in points (a) to (e) of Article 429c(3) are met;

(m) the securitised exposures from traditional securitisations that meet the conditions for significant risk transfer set out in Article 244(2);

(n) the following exposures to the institution’s central bank, subject to the conditions set out in paragraphs 5 and 6: (i) coins and banknotes constituting legal currency in the jurisdiction of the central bank; (ii) assets representing claims on the central bank, including reserves held at the central bank;

(o) where the institution is authorised in accordance with Article 16 and point (a) of Article 54(2) of Regulation (EU) No 909/2014, the institution's exposures due to banking-type ancillary services listed in point (a) of Section C of the Annex to that Regulation which are directly related to the core or ancillary services listed in Sections A and B of that Annex;

(p) where the institution is designated in accordance with point (b) of Article 54(2) of Regulation (EU) No 909/2014, the institution's exposures due to banking-type ancillary services listed in point (a) of Section C of the Annex to that Regulation which are directly related to the core or ancillary services of a central securities depository, authorised in accordance with Article 16 of that Regulation, listed in Sections A and B of that Annex;

(q) the exposures that are subject to the treatment set out in Article 72e(5), first subparagraph.

For the purposes of point (m) of the first subparagraph, institutions shall include any retained exposure in the total exposure measure.

For the purposes of points (d) and (e) of paragraph 1, ‘public development credit institution’ means a credit institution that meets all the following conditions:

(a) it has been established by a Member State's central government, regional government or local authority;

(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, including articles of association, on a non-competitive basis;

(c) its goal is not to maximise profit or market share;

(d) subject to Union State aid rules, the central government, regional government or local authority has an obligation to protect the credit institution's viability or directly or indirectly guarantees at least 90 % of the credit institution's own funds requirements, funding requirements or promotional loans granted;

(e) it does not take covered deposits as defined in point (5) of Article 2(1) of Directive 2014/49/EU or in national law implementing that Directive that may be classified as fixed term or savings deposits from consumers as defined in point (a) of Article 3 of Directive 2008/48/EC of the European Parliament and of the Council (³⁵).

For the purposes of point (b) of the first subparagraph, public policy objectives may include the provision of financing for promotional or development purposes to specified economic sectors or geographical areas of the relevant Member State.

For the purposes of points (d) and (e) of paragraph 1, and without prejudice to the Union State aid rules and the obligations of the Member States thereunder, competent authorities may, upon request of an institution, treat an organisationally, structurally and financially independent and autonomous unit of that institution as a public development credit institution, provided that the unit fulfils all the conditions listed in the first subparagraph and that such treatment does not affect the effectiveness of the supervision of that institution. Competent authorities shall without delay notify the Commission and EBA of any decision to treat, for the purposes of this subparagraph, a unit of an institution as a public development credit institution. The competent authority shall annually review such decision.

Institutions may exclude the exposures listed in point (n) of paragraph 1 where all of the following conditions are met:

(a) the institution's competent authority has determined, after consultation with the relevant central bank, and publicly declared that exceptional circumstances exist that warrant the exclusion in order to facilitate the implementation of monetary policies;

(b) the exemption is granted for a limited period of time not exceeding one year;

(c) the institution’s competent authority has determined, after consultation with the relevant central bank, the date when the exceptional circumstances are deemed to have started and publicly announced that date; that date shall be set at the end of a quarter.

The exposures to be excluded under point (n) of paragraph 1 shall meet both of the following conditions:

(a) they are denominated in the same currency as the deposits taken by the institution;

(b) their average maturity does not significantly exceed the average maturity of the deposits taken by the institution.

By way of derogation from point (d) of Article 92(1), where an institution excludes the exposures referred to in point (n) of paragraph 1 of this Article, it shall at all times satisfy the following adjusted leverage ratio requirement for the duration of the exclusion:

where:

Article 429b

Calculation of the exposure value of assets

Institutions shall calculate the exposure value of assets, excluding derivative contracts listed in Annex II, credit derivatives and the positions referred to in Article 429e in accordance with the following principles:

(a) the exposure values of assets means an exposure value as referred to in the first sentence of Article 111(1);

(b) securities financing transactions shall not be netted.

A cash pooling arrangement offered by an institution does not violate the condition set out in point (b) of Article 429(7) 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 entities of a group 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 subparagraph on a daily basis.

For the purposes of this paragraph and paragraph 3, cash pooling arrangement means an arrangement whereby the credit or debit balances of several individual accounts are combined for the purposes of cash or liquidity management.

By way of derogation from paragraph 2 of this Article, a cash pooling arrangement that does not meet the condition set out in point (b) of that paragraph, but meets the condition set out in point (a) of that paragraph, does not violate the condition set out in point (b) of Article 429(7), provided that the arrangement meets all the following conditions:

(a) the institution has a legally enforceable right to set off the balances of the original accounts through the transfer into a single account at any point in time;

(b) there are no maturity mismatches between the balances of the original accounts;

(c) the institution charges or pays interest based on the combined balance of the original accounts;

(d) the competent authority 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 total exposure measure.

By way of derogation from point (b) of paragraph 1, institutions may calculate the exposure value of cash receivable and cash payable under securities financing transactions with the 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 the normal course of business and in the event of default, insolvency and bankruptcy;

(c) the counterparties intend to settle on a net basis or to settle simultaneously, or the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement.

For the purposes of point (c) of paragraph 4, institutions may consider 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 the following conditions are met:

(a) the transactions are settled through the same settlement system or settlement systems using a common settlement infrastructure;

(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 of the business day;

(c) any issues arising from the securities legs of the securities financing transactions do not interfere with the completion of the net settlement of the cash receivables and payables.

The condition set out in point (c) of the first subparagraph is met only where the failure of any securities financing transaction 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.

Where there is a failure of the securities leg of a securities financing transaction in the settlement 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 them on a gross basis.

Article 429c

Calculation of the exposure value of derivatives

When calculating the exposure value, institutions may take into account the effects of contracts for novation and other netting agreements in accordance with Article 295. Institutions 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 where they are subject to a contractual cross-product netting agreement as referred to in point (c) of Article 295.

Institutions shall include in the total 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).

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 the following conditions are met:

(a) for trades not cleared through a QCCP, the cash received by the recipient counterparty is not segregated from the assets of the institution;

(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 contract subject to the threshold and minimum transfer amounts that are applicable to the counterparty;

(e) the derivative contract and the variation margin between the institution and the counterparty to that contract are covered by a single netting agreement that the institution may treat as risk-reducing in accordance with Article 295.

Where an institution provides cash collateral to a counterparty and that collateral meets the conditions set out in points (a) to (e) of the first subparagraph, the institution shall consider that collateral as the variation margin posted with the counterparty and shall include it in the calculation of the replacement cost.

For the purposes of point (b) of the first subparagraph, an institution shall be considered to have met the condition set out therein where the variation margin is exchanged on the morning of the trading day following the trading day on which the derivative contract was stipulated, provided that the exchange is based on the value of the contract at the end of the trading day on which the contract was stipulated.

For the purposes of point (d) of the first subparagraph, where a margin dispute arises, institutions may recognise the amount of non-disputed collateral that has been exchanged.

By way of derogation from paragraphs 3 and 4, an institution may recognise any collateral received in accordance with Part Three, Title II, Chapter 6, Section 3 where all of the following conditions are met:

(a) the collateral is received from a client for a derivative contract cleared by the institution on behalf of that client;

(b) the contract referred to in point (a) is cleared through a QCCP;

(c) where the collateral has been received in the form of initial margin, that collateral is segregated from the assets of the institution.

By way of derogation from paragraph 1 of this Article, institutions may use the method set out in Part Three, Title II, Chapter 6, Section 4 or 5 to determine the exposure value of the following:

(a) derivative contracts listed in Annex II and credit derivatives, 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 Article 92(1), points (a), (b) and (c);

(b) credit derivatives to which they apply the treatment set out in Article 273(3) or (5), where the conditions to use that method are met.

Where institutions apply one of the methods referred to in the first subparagraph, they shall not reduce the total exposure measure by the amount of margin they have received.

Article 429d

Additional provisions on the calculation of the exposure value of written credit derivatives

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 transaction.

Institutions may fully or partly reduce the exposure value calculated in accordance with paragraph 2 by the effective notional amount of purchased credit derivatives, provided that all the following conditions are met:

(a) the remaining maturity of the purchased credit derivative is equal to or greater than the remaining maturity 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 Article 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 capital;

(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 multi-level client structure and for which the effective notional amount referenced by the corresponding written credit derivative is excluded from the total exposure measure in accordance with point (g) or (h) of the first subparagraph of Article 429a(1), as applicable.

For the purpose of calculating the potential future exposure 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 total exposure measure.

Article 429e

Counterparty credit risk add-on for securities financing transactions

Institutions shall calculate the add-on for transactions with a counterparty that are not subject to a master netting agreement that meets the conditions set out in Article 206 on a transaction-by-transaction basis in accordance with the following formula:

where:

Institutions may set

equal to zero where Ei 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).

Institutions shall calculate the add-on for transactions with a counterparty that are subject to a master netting agreement that meets the conditions set out in Article 206 on an agreement-by-agreement basis in accordance with the following formula:

where:

Where an institution acts as an agent between two parties in a securities financing transaction, including an off-balance-sheet transaction, the following provisions shall apply to the calculation of the institution's total exposure measure:

(a) where the institution provides an indemnity or guarantee to one of the parties in the securities financing transaction and the indemnity or guarantee is limited to any difference between the value of the security or cash the party has lent and the value of collateral the borrower has provided, the institution shall only include the add-on calculated in accordance with paragraph 2 or 3, as applicable, in the total 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 total 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 total exposure measure also the full amount of the 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 a securities financing transaction, the institution shall calculate its total exposure measure in accordance with points (a), (b) and (c) separately for each party involved in the transaction.

Article 429f

Calculation of the exposure value of off-balance-sheet items

Where a commitment refers to the extension of another off-balance-sheet item, Article 111(3) shall apply.

Article 429g

Calculation of the exposure value of regular-way purchases and sales awaiting settlement

Institutions may offset the full nominal value of the commitments to pay related to regular-way purchases by the full nominal value of cash receivables related to regular-way sales awaiting settlement only where both of the following conditions are met:

(a) both the regular-way purchases and sales are settled on a delivery-versus-payment basis;

(b) the financial assets bought and sold that are associated with cash payables and receivables are fair valued through profit and loss and included in the institution's trading book.

PART SEVEN A

REPORTING REQUIREMENTS

Article 430

Reporting on prudential requirements and financial information

Institutions shall report to their competent authorities on:

(a) own funds requirements, including the leverage ratio, as set out in Article 92 and Part Seven;

(b) the requirements laid down in Articles 92a and 92b, for institutions that are subject to those requirements;

(c) large exposures as set out in Article 394;

(d) liquidity requirements as set out in Article 415;

(e) the aggregate data for each national immovable property market as set out in Article 430a(1);

(f) the requirements and guidance set out in Directive 2013/36/EU qualified for standardised reporting, except for any additional reporting requirement under point (j) of Article 104(1) of that Directive;

(g) the level of asset encumbrance, including a breakdown by the type of asset encumbrance, such as repurchase agreements, securities lending, securitised exposures or loans;

(h) their exposures to ESG risks, including: (i) their existing and new exposures to fossil fuel sector entities; (ii) their exposures to physical risks and transition risks;

(i) their crypto-asset exposures;

Institutions exempted in accordance with Article 6(5) shall not be subject to the reporting requirement on the leverage ratio set out in point (a) of the first subparagraph of this paragraph on an individual basis.

In addition to the reporting on prudential requirements referred to in paragraph 1 of this Article, institutions shall report financial information to their competent authorities where they are one of the following:

(a) an institution that is subject to 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 point (b) of Article 5 of Regulation (EC) No 1606/2002.

Any new reporting requirements set out in such implementing technical standards shall not be applicable earlier than six months from the date of their entry into force.

For the purposes of paragraph 2, the draft implementing technical standards shall specify which components of the leverage ratio shall be reported using day-end or month-end values. For that purpose, EBA shall take into account both of the following:

(a) how susceptible a component is to significant temporary reductions in transaction volumes that could result in an underrepresentation of the risk of excessive leverage at the reporting reference date;

(b) developments and findings at international level.

EBA shall submit to the Commission the draft implementing technical standards referred to in this paragraph by 28 June 2021, except in relation to the following:

(a) the leverage ratio, which shall be submitted by 28 June 2020;

(b) the obligations laid down in Articles 92a and 92b, which shall be submitted by 28 June 2020;

(c) exposures to ESG risks, which shall be submitted by 10 July 2025.

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

EBA shall assess the costs and benefits of the reporting requirements laid down in Commission Implementing Regulation (EU) No 680/2014 (³⁶) in accordance with this paragraph and report its findings to the Commission by 28 June 2020. That assessment shall be carried out in particular in relation to small and non-complex institutions. For those purposes, the report shall:

(a) classify institutions into categories based on their size, complexity and the nature and level of risk of their activities;

(b) measure the reporting costs 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: (i) the reporting costs shall be measured as the ratio of the reporting costs relative to the institution's total costs during the relevant period; (ii) the reporting costs shall comprise all expenditure related to the implementation and operation on an on-going 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 reporting costs to prepare for the implementation of the reporting requirements laid down in Implementing Regulation (EU) No 680/2014 and to continue operating the reporting systems on an on-going basis;

(c) assess whether the reporting costs incurred by each category of institutions were proportionate with regard to the benefits delivered by the reporting requirements for the purposes of prudential supervision;

(d) assess the effects of a reduction of reporting requirement on costs and supervisory effectiveness; and

(e) make recommendations on how to reduce reporting requirements at least for small and non-complex institutions, to which end EBA shall target an expected average cost reduction of at least 10 % but ideally a 20 % cost reduction. EBA shall, in particular, assess whether: (i) the reporting requirements referred to in point (g) of paragraph 1 could be waived for small and non-complex institutions where asset encumbrance was below a certain threshold; (ii) the reporting frequency required in accordance with points (a), (c), and (g) of paragraph 1 could be reduced for small and non-complex institutions.

EBA shall accompany that report by draft implementing technical standards referred to in paragraph 7.

Competent authorities shall consult EBA on whether institutions, other than those referred to in paragraphs 3 and 4, should report on financial information on a consolidated basis in accordance with paragraph 3, provided that all the following conditions are met:

(a) the relevant institutions are not already reporting on a consolidated basis;

(b) the relevant institutions are subject to an accounting framework in accordance with Directive 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 draft implementing technical standards to specify the formats and templates 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.

Competent authorities, resolution authorities and designated authorities shall make use of data exchange wherever possible to reduce reporting requirements. The provisions on the exchange of information and professional secrecy as laid down in Section II of Chapter I of Title VII of Directive 2013/36/EU shall apply.

Article 430a

Specific reporting obligations

Institutions shall report to their competent authorities on an annual basis the following aggregate data for each national immovable property market to which they are exposed:

(a) losses stemming from exposures for which an institution has recognised residential property as collateral, in each case up to the lower of the pledged amount and 55 % of the property value of the residential property, unless otherwise decided under Article 124(9), where applicable;

(b) overall losses stemming from exposures for which an institution has recognised residential property as collateral, in each case up to the lower of the pledged amount and 100 % of the property value of the residential property;

(c) the exposure value of all outstanding exposures for which an institution has recognised residential property as collateral, in each case up to the lower of the pledged amount and 100 % of the property value of the residential property;

(d) losses stemming from exposures for which an institution has recognised commercial immovable property as collateral, in each case up to the lower of the pledged amount and 55 % of the property value of the commercial immovable property, unless otherwise decided under Article 124(9), where applicable;

(e) overall losses stemming from exposures for which an institution has recognised commercial immovable property as collateral in each case up to the lower of the pledged amount and 100 % of the property value of the commercial immovable property;

(f) the exposure value of all outstanding exposures for which an institution has recognised commercial immovable property as collateral, in each case up to the lower of the pledged amount and 100 % of the property value of the commercial immovable property.

Article 430c

Feasibility report on the integrated reporting system

When drafting the feasibility report, EBA shall involve competent authorities, as well as authorities that are responsible for deposit guarantee schemes, resolution and in particular the ESCB. The report shall take into account the previous work of the ESCB regarding integrated data collections and shall be based on an overall cost and benefit analysis including as a minimum:

(a) an overview of the quantity and scope of the current data collected by the competent authorities in their jurisdiction and of its origins and granularity;

(b) the establishment of a standard dictionary of the data to be collected, in order to increase the convergence of reporting requirements as regards regular reporting obligations, and to avoid unnecessary queries;

(c) the establishment of a joint committee, including as a minimum EBA and the ESCB, for the development and implementation of the integrated reporting system;

(d) the feasibility and possible design of a central data collection point for the integrated reporting system, including requirements to ensure strict confidentiality of the data collected, strong authentication and management of access rights to the system and cybersecurity, which:

(i) contains a central data register with all statistical data, resolution data and prudential data in the necessary granularity and frequency for the particular institution and is updated at necessary intervals; (ii) serves as a point of contact for the competent authorities, where they receive, process and pool all data queries, where queries can be matched with existing collected reported data and which allows the competent authorities quick access to the requested information; (iii) provides additional support to the competent authorities for the transmission of data queries to the institutions and enters the requested data into the central data register; (iv) holds a coordinating role for the exchange of information and data between competent authorities; and (v) takes into account the proceedings and processes of competent authorities and transfers them into a standardised system.

PART EIGHT

DISCLOSURE BY INSTITUTIONS

TITLE I

GENERAL PRINCIPLES

Article 431

Disclosure requirements and policies

Information to be disclosed in accordance with this Part shall be subject to the same level of internal verification as that applicable to the management report included in the institution's financial report.

Institutions shall also have policies in place to verify that their disclosures convey their risk profile comprehensively to market participants. Where 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. Nonetheless, institutions shall only be required to disclose information that is material and not proprietary or confidential as referred to in Article 432.

Article 432

Non-material, proprietary or confidential information

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 issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on how institutions have to apply materiality in relation to the disclosure requirements of Titles II and III.

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 would render the investments of institutions therein less valuable, if shared with competitors.

Information shall be regarded as confidential where the institutions are obliged by customers or other counterparty relationships to keep that information confidential.

EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, on how institutions have to apply proprietary and confidentiality in relation to the disclosure requirements of Titles II and III.

Article 433

Frequency and scope of disclosures

Institutions shall disclose the information required under Titles II and III in the manner set out in this Article, Articles 433a, 433b, 433c and 434.

EBA shall publish annual disclosures on its website on the same day as the institutions publish their financial statements or as soon as possible thereafter.

EBA shall publish semi-annual and quarterly disclosures on its website on the same day as the institutions publish their financial reports for the corresponding period, where applicable, or as soon as possible thereafter.

Any delay between 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 106 of Directive 2013/36/EU.

Article 433a

Disclosures by large institutions

Large institutions shall disclose the information outlined below with the following frequency:

(a) all the information required under this Part on an annual basis;

(b) on a semi-annual basis the information referred to in:

(i) point (a) of Article 437; (ii) point (e) of Article 438; (iii) points (e) to (l) of Article 439; (iv) Article 440; (v) points (c), (e), (f) and (g) of Article 442; (vi) point (e) of Article 444; (vii) Article 445; (viii) point (a) and (b) of Article 448(1); (ix) point (j) to (l) of Article 449; (x) points (a) and (b) of Article 451(1); (xi) Article 451a(3); (xii) point (g) of Article 452; (xiii) points (f) to (j) of Article 453; (xiv) Article 455(2), points (a), (b) and (c); (xv) Article 449a; (xvi) Article 449b;

(c) on a quarterly basis the information referred to in: (i) Article 438, points (d), (da) and (h); (ii) the key metrics referred to in Article 447; (iii) Article 451a(2).

By way of derogation from paragraph 1, large institutions other than G-SIIs that are non-listed institutions shall disclose the information outlined below with the following frequency:

(a) all the information required under this Part on an annual basis;

(b) the key metrics referred to in Article 447 on a semi-annual basis.

Article 433b

Disclosures by small and non-complex institutions

Small and non-complex institutions shall disclose the information referred to in the following provisions on an annual basis:

(a) Article 435(1), points (a), (e) and (f);

(b) Article 438, points (c), (d) and (da);

(c) Article 442, points (c) and (d);

(d) the key metrics referred to in Article 447;

(e) Article 449a;

(f) Article 449b;

(g) Article 450(1), points (a) to (d), (h), (i) and (j).

Article 433c

Disclosures by other institutions

Institutions that are not subject to Article 433a or 433b shall disclose the information outlined below with the following frequency:

(a) all the information required under this Part on an annual basis;

(b) the key metrics referred to in Article 447 on a semi-annual basis.

By way of derogation from paragraph 1 of this Article, other institutions that are non-listed institutions shall disclose the following information on an annual basis:

(a) points (a), (e) and (f) of Article 435(1);

(b) points (a, (b) and (c) of Article 435(2);

(c) point (a) of Article 437;

(d) Article 438, points (c), (d) and (da):

(da) Article 442, points (c) and (d);

(e) the key metrics referred to in Article 447;

(ea) the information referred to in Article 449a;

(eb) the information referred to in Article 449b;

(f) points (a) to (d), (h) to (k) of Article 450(1).

Article 434

Means of disclosures

EBA shall ensure that disclosures made on its website contain information identical to that which institutions submitted to EBA. Institutions shall have the right to resubmit to EBA the information in accordance with the technical standards referred to in Article 434a. EBA shall make available on its website the date when the resubmission took place.

EBA shall prepare and keep up-to-date a tool that specifies the mapping of the templates and tables for disclosures with those on supervisory reporting. The mapping tool shall be accessible to the public on the EBA website.

Institutions may continue to publish a standalone document that 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 reports containing the required disclosures and being easily identifiable to those users. Institutions may include in their website a link to the EBA website where the prudential information is published in a centralised manner.

Article 434a

Uniform disclosure formats

EBA shall develop draft implementing technical standards to specify uniform disclosure formats, and information on the resubmission policy, and shall develop IT solutions, including instructions, for disclosures required under Titles II and III.

Those uniform disclosure formats 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 Parts One to Seven. To facilitate the comparability of information, the implementing technical standards shall seek to maintain consistency of disclosure formats with international standards on disclosures.

Uniform disclosure formats shall be tabular where appropriate.

EBA shall submit those draft implementing technical standards to the Commission by 10 July 2025.

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

Article 434b

Accessibility of information on the European single access point

That information shall comply with the following requirements:

(a) be submitted in a data extractable format as defined in Article 2, point (3), of Regulation (EU) 2023/2859 or, where required by Union law, in a machine-readable format, as defined in Article 2, point (4), of that Regulation;

(b) be accompanied by the following metadata: (i) all the names of the institution to which the information relates; (ii) the legal entity identifier of the institution, as specified pursuant to Article 7(4), point (b), of Regulation (EU) 2023/2859; (iii) the size of the institution by category, as specified pursuant to Article 7(4), point (d), of that Regulation; (iv) the type of information, as classified pursuant to Article 7(4), point (c), of that Regulation; (v) an indication of whether the information contains personal data.

For the purpose of ensuring the efficient collection and management of information submitted in accordance with paragraph 1, EBA shall develop draft implementing technical standards to specify:

(a) any other metadata to accompany the information;

(b) the structuring of data in the information;

(c) for which information a machine-readable format is required and, in such cases, which machine-readable format is to be used.

For the purposes of point (c), EBA shall assess the advantages and disadvantages of different machine-readable formats and conduct appropriate field tests.

EBA shall submit those draft implementing technical standards to the Commission.

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.

Article 434c

Report on the feasibility of the use of information reported by institutions other than small and non-complex institutions to publish an extended set of disclosures on the EBA website

EBA shall prepare a report on the feasibility of using information reported by institutions other than small and non-complex institutions to competent authorities in accordance with Article 430 in order to publish that information on its website thereby reducing the disclosure burden for such institutions.

That report shall consider the previous work of EBA regarding integrated data collections, shall be based on an overall cost and benefit analysis, including costs incurred by competent authorities, institutions and EBA, and shall consider any potential technical, operational and legal challenges.

EBA shall submit that report to the European Parliament, to the Council, and to the Commission by 10 July 2027.

On the basis of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2031.

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. Those 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 authority, its powers and accountability in accordance with the institution's incorporation and governing documents;

(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 institution's 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 institution's management of risk, including how the risk profile of the institution interacts with the risk tolerance set by the management body; (ii) information on intragroup transactions and transactions with related parties that may have a material impact of the risk profile of the consolidated group.

Institutions shall disclose the following information regarding governance arrangements:

(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 extent to which those objectives and targets have been achieved;

(d) whether or not the institution has set up a separate risk committee and the number of times the risk committee has met;

(e) the description of the information flow on risk to the management body.

Article 436

Disclosure of the scope of application

Institutions shall disclose the following information regarding the scope of application of this Regulation as follows:

(a) the name of the institution to which this Regulation applies;

(b) a reconciliation between 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 Sections 2 and 3 of Title II of Part One; that reconciliation shall outline the differences between the accounting and regulatory scopes of consolidation and the legal entities included within the regulatory scope of consolidation where it differs from the accounting scope of consolidation; the outline of the legal entities included within the regulatory scope of consolidation shall describe the method of regulatory consolidation where it is different from the accounting consolidation method, whether those entities are fully or proportionally consolidated and whether the holdings in those legal entities are deducted from own funds;

(c) a breakdown of assets and liabilities of the consolidated financial statements prepared in accordance with the requirements on regulatory consolidation pursuant to Sections 2 and 3 of Title II of Part One, broken down by type of risks as referred to under this Part;

(d) a reconciliation identifying the main sources of differences between the carrying value amounts in the financial statements under the regulatory scope of consolidation as defined in Sections 2 and 3 of Title II of Part One, and the exposure amount used for regulatory purposes; that reconciliation shall be supplemented by qualitative information on those main sources of differences;

(e) for exposures from the trading book and the non-trading book that are adjusted in accordance with Article 34 and Article 105, a breakdown of the amounts of the constituent elements of an institution's prudent valuation adjustment, by type of risks, and the total of constituent elements separately for the trading book and non-trading book positions;

(f) any current or expected material practical or legal impediment to the prompt transfer of own funds or to the repayment of liabilities between the parent undertaking and its subsidiaries;

(g) 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;

(h) where applicable, the circumstances under which use is made of the derogation referred to in Article 7 or the individual consolidation method laid down in Article 9.

Article 437

Disclosure of own funds

Institutions shall disclose the following information regarding their own funds:

(a) a full reconciliation of Common Equity Tier 1 items, Additional Tier 1 items, Tier 2 items and the filters and deductions applied to own funds of the institution pursuant to Articles 32 to 36, 56, 66 and 79 with the balance sheet in the audited financial statements of the institution;

(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;

(c) the full terms and conditions of all Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments;

(d) a separate disclosure of the nature and amounts of the following: (i) each prudential filter applied pursuant to Articles 32 to 35; (ii) items deducted pursuant to Articles 36, 56 and 66; (iii) items not deducted pursuant to Articles 47, 48, 56, 66 and 79;

(e) a description of all restrictions applied to the calculation of own funds in accordance with this Regulation and the instruments, prudential filters and deductions to which those restrictions apply;

(f) 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 own funds and eligible liabilities

Institutions that are subject to Article 92a or 92b shall disclose the following information regarding their own funds and eligible liabilities:

(a) the composition of their own funds and eligible liabilities, their maturity and their main features;

(b) the ranking of eligible liabilities in the creditor hierarchy;

(c) the total amount of each issuance of eligible liabilities instruments referred to in Article 72b and the amount of those issuances that is included in eligible liabilities items within the limits specified in Article 72b(3) and (4);

(d) the total amount of excluded liabilities referred to in Article 72a(2).

Article 438

Disclosure of own funds requirements and risk-weighted exposure amounts

Institutions shall disclose the following information regarding their compliance with Article 92 of this Regulation and with the requirements laid down in Article 73 and in point (a) of Article 104(1) 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 amount of the additional own funds requirements based on the supervisory review process as referred to in Article 104(1), point (a), of Directive 2013/36/EU to address risks other than the risk of excessive leverage and its composition;

(c) upon demand from the relevant competent authority, the result of the institution's internal capital adequacy assessment process;

(d) the total risk exposure amount as calculated in accordance with Article 92(3) and the corresponding own funds requirements as determined in accordance with Article 92(2), to be broken down by the different risk categories or risk exposure classes, as applicable, set out in Part Three and, where applicable, an explanation of the effect on the calculation of the own funds and risk-weighted exposure amounts that results from applying capital floors and not deducting items from own funds;

(da) where required to calculate the un-floored total risk exposure amount as calculated in accordance with Article 92(4), and the standardised total risk exposure amount as calculated in accordance with Article 92(5), to be broken down by the different risk categories or risk exposure classes, as applicable, set out in Part Three 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;

(e) the on- and off-balance-sheet exposures, the risk-weighted exposure amounts and associated expected losses for each category of specialised lending referred to in Article 153(5), Table 1, and the on- and off-balance-sheet exposures and risk-weighted exposure amounts for the categories of equity exposures set out in Article 133(3) to (6), and Article 495a(3);

(f) the exposure value and the risk-weighted exposure amount of own funds instruments held in any insurance undertaking, reinsurance undertaking or insurance holding company that the institutions do not deduct from their own funds in accordance with Article 49 when calculating their capital requirements on an individual, sub-consolidated and consolidated basis;

(g) the supplementary own funds requirement and the capital adequacy ratio of the financial conglomerate calculated in accordance with Article 6 of Directive 2002/87/EC and Annex I to that Directive where method 1 or 2 set out in that Annex is applied;

(h) the variations in the risk-weighted exposure amounts of the current disclosure period compared to the immediately preceding disclosure period that result from the use of internal models, including an outline of the key drivers explaining those variations.

Article 439

Disclosure of exposures to counterparty credit risk

Institutions shall disclose the following information regarding their exposure to counterparty credit risk as referred to in Chapter 6 of Title II of Part Three:

(a) a description of the methodology used to assign internal capital and credit limits for counterparty 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 respect to General Wrong-Way risk and Specific Wrong-Way risk as defined in Article 291;

(d) the amount of collateral the institution would have to provide if its credit rating was downgraded;

(e) the amount of segregated and unsegregated collateral received and posted per type of collateral, further broken down between collateral used for derivatives and securities financing transactions;

(f) for derivative transactions, the exposure values before and after the effect of the credit risk mitigation as determined under the methods set out in Sections 3 to 6 of Chapter 6 of Title II of Part Three, whichever method is applicable, and the associated risk exposure amounts broken down by applicable method;

(g) for securities financing transactions, the exposure values before and after the effect of the credit risk mitigation as determined under the methods set out in Chapters 4 and 6 of Title II of Part Three, whichever method is used, and the associated risk exposure amounts broken down by applicable method;

(h) the exposure values after credit risk mitigation effects and the associated risk exposures for credit valuation adjustment capital charge, separately for each method as set out in Title VI of Part Three;

(i) the exposure value to central counterparties and the associated risk exposures within the scope of Section 9 of Chapter 6 of Title II of Part Three, separately for qualifying and non-qualifying central counterparties, and broken down by types of exposures;

(j) the notional amounts and fair value of credit derivative transactions; credit derivative transactions shall be broken down by product type; within each product type, credit derivative transactions shall be broken down further by credit protection bought and credit protection sold;

(k) the estimate of alpha where the institution has received the permission of the competent authorities to use its own estimate of alpha in accordance with Article 284(9);

(l) separately, the disclosures included in point (e) of Article 444 and point (g) of Article 452;

(m) for institutions using the methods set out in Sections 4 to 5 of Chapter 6 of Title II Part Three, the size of their on- and off-balance-sheet derivative business as calculated in accordance with Article 273a(1) or (2), as applicable.

Where the central bank of a Member State provides liquidity assistance in the form of collateral swap transactions, the competent authority may exempt institutions from the requirements in points (d) and (e) of the first subparagraph where that competent authority considers that the disclosure of the information referred to therein could reveal that emergency liquidity assistance has been provided. For those purposes, the competent authority shall set out appropriate thresholds and objective criteria.

Article 440

Disclosure of countercyclical capital buffers

Institutions shall disclose the following information in relation to their compliance with the requirement for a countercyclical capital buffer as referred to in Chapter 4 of Title VII of Directive 2013/36/EU:

(a) the geographical distribution of the exposure amounts and 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.

Article 441

Disclosure of indicators of global systemic importance

G-SIIs shall disclose, on an annual basis, the values of the indicators used for determining their score in accordance with the identification methodology referred to in Article 131 of Directive 2013/36/EU.

Article 442

Disclosure of exposures to credit risk and dilution risk

Institutions shall disclose the following information regarding their exposures to credit risk and dilution risk:

(a) the scope and definitions that they use for accounting purposes of ‘past due’ and ‘impaired’ and the differences, if any, between the definitions of ‘past due’ and ‘default’ for accounting and regulatory purposes;

(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 for loans, debt securities and off-balance-sheet 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 past due exposures;

(e) the gross carrying amounts of both defaulted and non-defaulted exposures, the accumulated specific and general credit risk adjustments, the accumulated write-offs taken against those exposures and the net carrying amounts and their distribution by geographical area and industry type and for loans, debt securities and off-balance-sheet exposures;

(f) any changes in the gross amount of defaulted on- 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 write-off;

(g) the breakdown of loans and debt securities by residual maturity.

Article 443

Disclosure of encumbered and unencumbered assets

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 quality 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 central banks.

Article 444

Disclosure of the use of the Standardised Approach

Institutions calculating their risk-weighted exposure amounts in accordance with Chapter 2 of Title II of Part Three shall disclose the following information for each of the exposure classes set out in Article 112:

(a) 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 ratings 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 to the credit quality steps as set out in Chapter 2 of Title II of Part Three, taking into account that it is not necessary to disclose that information where the institutions comply with the standard association published by EBA;

(e) the exposure values and the exposure values after credit risk mitigation associated with each credit quality step as set out in Chapter 2 of Title II of Part Three, by exposure class, as well as the exposure values deducted from own funds.

Article 445

Disclosure of exposures to market risk under the standardised approach

Institutions calculating their own funds requirements in accordance with Part Three, Title IV, Chapter 1a, shall disclose their total own funds requirements, own funds requirements for the sensitivities-based method, default risk charge and own funds requirements for residual risks. The disclosure of own funds requirements for the measures of the sensitivities-based method and for default risk shall be broken down into the following instruments:

(a) financial instruments other than securitisation instruments held in the trading book, with a breakdown by risk class, and a separate identification of the own funds requirements for default risk;

(b) securitisation instruments not held in the ACTP, with a separate identification of the own funds requirements for credit spread risk and of the own funds requirements for default risk;

(c) securitisation instruments held in the ACTP, with a separate identification of the own funds requirements for credit spread risk and of the own funds requirements for default risk.

Article 445a

Disclosure of CVA risk

Institutions subject to the own funds requirements for CVA risk shall disclose the following information:

(a) an overview of their processes to identify, measure, hedge and monitor their CVA risk;

(b) whether institutions meet all of the conditions set out in Article 273a(2); where those conditions are met, whether institutions have chosen to calculate the own funds requirements for CVA risk using the simplified approach set out in Article 385; where institutions have chosen to calculate the own funds requirements for CVA risk using the simplified approach, the own funds requirements for CVA risk in accordance with that approach;

(c) the total number of counterparties for which the standardised approach is used, with a breakdown by counterparty types.

Institutions using the standardised approach set out in Article 383 for calculating the own funds requirements for CVA risk shall disclose, in addition to the information referred to in paragraph 1 of this Article, the following information:

(a) the structure and the organisation of their internal CVA risk management function and governance;

(b) their total own funds requirements for CVA risk under the standardised approach with a breakdown by risk class;

(c) an overview of the eligible hedges used in that calculation, with a breakdown by type of instruments set out in Article 386(2).

Institutions using the basic approach set out in Article 384 for calculating the own funds requirements for CVA risk shall disclose, in addition to the information referred to in paragraph 1 of this Article, the following information:

(a) their total own funds requirements for CVA risk under the basic approach, and the components BACVA^total and BACVA^csr-hedged;

(b) an overview of the eligible hedges used in that calculation, with a breakdown by type of instruments set out in Article 386(3).

Article 446

Disclosure of operational risk

Institutions shall disclose the following information:

(a) the main characteristics and elements of their operational risk management framework;

(b) their own funds requirement for operational risk equal to the business indicator component calculated in accordance with Article 313;

(c) the business indicator, calculated in accordance with Article 314(1), and the amounts of each of the business indicator components and their sub-components for each of the three years relevant for the calculation of the business indicator;

(d) the amount of the reduction of the business indicator for each exclusion from the business indicator in accordance with Article 315(2), as well as the corresponding justifications for such exclusions.

Institutions that calculate their annual operational risk losses in accordance with Article 316(1) shall disclose the following information in addition to the information referred to in paragraph 1 of this Article:

(a) their annual operational risk losses for each of the last 10 financial years, calculated in accordance with Article 316(1);

(b) the number of exceptional operational risk events and the amounts of the corresponding aggregated net operational risk losses that were excluded from the calculation of the annual operational risk loss in accordance with Article 320(1), for each of the last 10 financial years, and the corresponding justifications for those exclusions.

Article 447

Disclosure of key metrics

Institutions shall disclose the following key metrics in a tabular format:

(a) the composition of their own funds and their risk-based capital ratios as calculated in accordance with Article 92(2);

(aa) where applicable, the risk-based capital ratios as calculated in accordance with Article 92(2), by using the un-floored total risk exposure amount instead of the total risk exposure amount;

(b) the total risk exposure amount as calculated in accordance with Article 92(3) and, where applicable, the un-floored total risk exposure amount as calculated in accordance with Article 92(4);

(c) where applicable, the amount and composition of additional own funds which the institutions are required to hold in accordance with point (a) of Article 104(1) of Directive 2013/36/EU;

(d) the combined buffer requirement which the institutions are required to hold in accordance with Chapter 4 of Title VII of Directive 2013/36/EU;

(e) their leverage ratio and the total exposure measure as calculated in accordance with Article 429;

(f) the following information in relation to their liquidity coverage ratio as calculated in accordance with the delegated act referred to in Article 460(1): (i) the average or averages, as applicable, of their liquidity coverage ratio based on end-of-the-month observations over the preceding 12 months for each quarter of the relevant disclosure period; (ii) the average or averages, as applicable, of total liquid assets, after applying the relevant haircuts, included in the liquidity buffer pursuant to the delegated act referred to in Article 460(1), based on end-of-the-month observations over the preceding 12 months for each quarter of the relevant disclosure period; (iii) the averages of their liquidity outflows, inflows and net liquidity outflows as calculated pursuant to the delegated act referred to in Article 460(1), based on end-of-the-month observations over the preceding 12 months for each quarter of the relevant disclosure period;

(g) the following information in relation to their net stable funding requirement as calculated in accordance with Title IV of Part Six: (i) the net stable funding ratio at the end of each quarter of the relevant disclosure period; (ii) the available stable funding at the end of each quarter of the relevant disclosure period; (iii) the required stable funding at the end of each quarter of the relevant disclosure period;

(h) their own funds and eligible liabilities ratios and their components, numerator and denominator, as calculated in accordance with Articles 92a and 92b and broken down at the level of each resolution group, where applicable.

Article 448

Disclosure of exposures to interest rate risk on positions not held in the trading book

As from 28 June 2021, 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 book activities referred to in Article 84 and Article 98(5) of Directive 2013/36/EU:

(a) the changes in the economic value of equity calculated under the six supervisory shock scenarios referred to in Article 98(5) of Directive 2013/36/EU for the current and previous disclosure periods;

(b) the changes in the net interest income calculated under the two supervisory shock scenarios referred to in Article 98(5) of Directive 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 points (b) and (c) of Article 98(5a) 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 points (a) and (b) of this paragraph and of any significant variations of those risk measures since the previous disclosure reference date;

(e) the description of how institutions define, measure, mitigate and control the interest rate risk of their non-trading book activities for the purposes of the competent authorities' review in accordance with Article 84 of Directive 2013/36/EU, including: (i) a description of the specific risk measures that the institutions use to evaluate changes in their economic value of equity 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 Directive 2013/36/EU for the purpose of calculating changes to the economic value of equity and to the net interest income, including the rationale for those differences; (iii) a description of the interest rate shock scenarios that institutions use to estimate the interest rate risk; (iv) the recognition of the effect of hedges against those interest rate risks, including internal hedges that meet the requirements laid down in Article 106(3); (v) an outline of how often the evaluation of the interest rate risk occurs;

(f) the description of the overall risk management and mitigation strategies for those risks;

(g) average and longest repricing maturity assigned to non-maturity deposits.

Article 449

Disclosure of exposures to securitisation positions

Institutions calculating risk-weighted exposure amounts in accordance with Chapter 5 of Title II of Part Three or own funds requirements in accordance with Article 337 or 338 shall disclose the following information separately for their trading book 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, whether they use the simple, transparent and standardised securitisation (STS) as defined in point (10) of Article 242, and the extent to which they use securitisation transactions to transfer the credit risk of the securitised exposures to third parties with, where applicable, a separate description of their synthetic securitisation risk transfer policy;

(b) the type of risks they are exposed to in their securitisation and re-securitisation activities by level of seniority of the relevant securitisation positions providing a distinction between STS and non-STS positions and: (i) the risk retained in own-originated transactions; (ii) the risk incurred in relation to transactions originated by third parties;

(c) their approaches for calculating the risk-weighted exposure amounts that they apply to their securitisation activities, including the types of securitisation positions to which each approach applies and with a distinction between STS and non-STS positions;

(d) a list of SSPEs falling into any of the following categories, with a description of their types of exposures to those SSPEs, including derivative contracts: (i) SSPEs which acquire exposures originated by the institutions; (ii) SSPEs sponsored by the institutions; (iii) SSPEs and other legal entities for which the institutions provide securitisation-related services, such as advisory, asset servicing or management services; (iv) SSPEs included in the institutions' regulatory scope of consolidation;

(e) a list of any legal entities in relation to which the institutions have disclosed that they have provided support in accordance with Chapter 5 of Title II of Part Three;

(f) 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 sponsored by the institutions;

(g) a summary of their accounting policies for securitisation activity, including where relevant a distinction between securitisation and re-securitisation positions;

(h) the names of the ECAIs used for securitisations and the types of exposure for which each agency is used;

(i) where applicable, a description of the Internal Assessment Approach as set out in Chapter 5 of Title II of Part Three, including the structure of the internal assessment process and the relation between internal assessment and external ratings of the relevant ECAI disclosed in accordance with point (h), the control mechanisms for the internal assessment process including discussion of independence, accountability, and internal assessment process review, the exposure types to which the internal assessment process is applied and the stress factors used for determining credit enhancement levels;

(j) separately for the trading book and the non-trading book, the carrying amount of securitisation exposures, including information on whether institutions have transferred significant credit risk in accordance with Articles 244 and 245, for which institutions act as originator, sponsor or investor, separately for traditional and synthetic securitisations, and for STS and non-STS transactions and broken down by type of securitisation exposures;

(k) for the non-trading book activities, the following information: (i) the aggregate amount of securitisation positions where institutions act as originator or sponsor and the associated risk-weighted assets and capital requirements by regulatory approaches, including exposures deducted from own funds or risk weighted at 1 250 %, broken down between traditional and synthetic securitisations and between securitisation and re-securitisation exposures, separately for STS and non-STS positions, and further broken down into a meaningful number of risk-weight or capital requirement bands and by approach used to calculate the capital requirements; (ii) the aggregate amount of securitisation positions where institutions act as investor and the associated risk-weighted assets and capital requirements by regulatory approaches, including exposures deducted from own funds or risk weighted at 1 250 %, broken down between traditional and synthetic securitisations, securitisation and re-securitisation positions, and STS and non-STS positions, and further broken down into a meaningful number of risk weight or capital requirement bands and by approach used to calculate the capital requirements;

(l) for exposures securitised by the institution, the amount of exposures in default and the amount of the specific credit risk adjustments made by the institution during the current period, both broken down by exposure type.

Article 449a

Disclosure of environmental, social and governance risks (ESG risks)

For the purposes of paragraph 1, institutions shall disclose information on ESG risks, including:

(a) the total amount of exposures to fossil fuel sector entities;

(b) how institutions integrate the identified ESG risks in their business strategy and processes, and governance and risk management.

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.

Article 449b

Disclosure of aggregate exposure to shadow banking entities

Institutions shall disclose the information concerning their aggregate exposure to shadow banking entities, as referred to in Article 394(2), second subparagraph.

Article 450

Disclosure of remuneration policy

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 the risk profile of the institutions:

(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 consultant whose services have been used for the determination of the remuneration policy and the role of the relevant stakeholders;

(b) information about the link between pay of the staff and their performance;

(c) the most important design characteristics of the remuneration system, including information on the criteria used for performance measurement and risk adjustment, deferral policy and vesting criteria;

(d) the ratios between fixed and variable remuneration set in accordance with point (g) of Article 94(1) of Directive 2013/36/EU;

(e) information on the performance criteria on which the entitlement to shares, options or variable components of remuneration is based;

(f) the main parameters and rationale for any variable component scheme and any other non-cash benefits;

(g) aggregate quantitative information on remuneration, broken down by business area;

(h) aggregate quantitative information on remuneration, broken down by senior management and members of staff whose professional activities have a material impact on the risk profile of the institutions, indicating the following:

(i) 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-linked instruments and other types 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 of those 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 between EUR 1 million and EUR 5 million broken down into pay bands of EUR 500 000 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 Article 94(3) of Directive 2013/36/EU.

For the purposes of point (k) of the first subparagraph of this paragraph, institutions that benefit from such a derogation shall indicate whether they benefit from that derogation on the basis of point (a) or (b) of Article 94(3) of Directive 2013/36/EU. They 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 remuneration.

Institutions shall comply with the requirements set out in this Article in a manner that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities and without prejudice to Regulation (EU) 2016/679 of the European Parliament and of the Council (³⁸).

Article 451

Disclosure of the leverage ratio

Institutions that are subject to Part Seven shall disclose the following information regarding their leverage ratio as calculated in accordance with Article 429 and their management of the risk of excessive leverage:

(a) the leverage ratio and how the institutions apply Article 499(2);

(b) a breakdown of the total exposure measure referred to in Article 429(4), 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 exposures calculated in accordance with Articles 429(8) and 429a(1) and the adjusted leverage ratio calculated in accordance with Article 429a(7);

(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;

(f) the amount of the additional own funds requirements based on the supervisory review process as referred to in Article 104(1), point (a), of Directive 2013/36/EU to address the risk of excessive leverage and its composition.

Article 451a

Disclosure of liquidity requirements

Institutions shall disclose the following information in relation to their liquidity coverage ratio as calculated in accordance with the delegated act referred to in Article 460(1):

(a) the average or averages, as applicable, of their liquidity coverage ratio based on end-of-the-month observations over the preceding 12 months for each quarter of the relevant disclosure period;

(b) the average or averages, as applicable, of total liquid assets, after applying the relevant haircuts, included in the liquidity buffer pursuant to the delegated act referred to in Article 460(1), based on end-of-the-month observations over the preceding 12 months for each quarter of the relevant disclosure period, and a description of the composition of that liquidity buffer;

(c) the averages of their liquidity outflows, inflows and net liquidity outflows as calculated in accordance with the delegated act referred to in Article 460(1), based on end-of-the-month observations over the preceding 12 months for each quarter of the relevant disclosure period and the description of their composition.

Institutions shall disclose the following information in relation to their net stable funding ratio as calculated in accordance with Title IV of Part Six:

(a) quarter-end figures of their net stable funding ratio calculated in accordance with Chapter 2 of Title IV of Part Six for each quarter of the relevant disclosure period;

(b) an overview of the amount of available stable funding calculated in accordance with Chapter 3 of Title IV of Part Six;

(c) an overview of the amount of required stable funding calculated in accordance with Chapter 4 of Title IV of Part Six.

Article 451b

Disclosure of crypto-asset exposures and related activities

Institutions shall disclose the following information on crypto-assets and crypto-asset services as well as any other activities related to crypto-assets:

(a) the direct and indirect exposure amounts in relation to crypto-assets, including the gross long and short components of net exposures;

(b) the total risk exposure amount for operational risk;

(c) the accounting classification for crypto-asset exposures;

(d) a description of the business activities related to crypto-assets and their impact on the risk profile of the institution;

(e) a specific description of their risk management policies related to crypto-asset exposures and crypto-asset services.

For the purposes of the first subparagraph, point (d), of this paragraph, institutions shall provide more detailed information on material business activities, including on the issuance of significant asset-referenced tokens and of significant e-money tokens and on the provision of crypto-asset services under Articles 60 and 61 of Regulation (EU) 2023/1114.

TITLE III

QUALIFYING REQUIREMENTS FOR THE USE OF PARTICULAR INSTRUMENTS OR METHODOLOGIES

Article 452

Disclosure of the use of the IRB Approach to credit risk

Institutions calculating the risk-weighted exposure amounts under the IRB Approach to credit risk shall disclose the following information:

(a) the competent authority'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 subject to the Standardised Approach laid down in Chapter 2 of Title II of Part Three or to the IRB Approach laid down in Chapter 3 of Title II of Part Three, as well as the part of each exposure class subject to a roll-out plan; where institutions have received permission to use own LGDs and conversion 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;

(c) the control mechanisms for rating systems at the different stages of model development, controls and changes, which shall include information on: (i) the relationship between the risk management function and the internal audit function; (ii) the rating system review; (iii) the procedure to ensure the independence of the function in charge of reviewing the models from the functions responsible for the development of the models; (iv) the procedure to ensure the accountability of the functions in charge of developing and reviewing the models;

(d) the role of the functions involved in the development, approval and subsequent changes of the credit risk models;

(e) the scope and main content of the reporting related to credit risk models;

(f) a description of the internal ratings process by exposure class, including the number of key models used with respect to each portfolio and a brief discussion of the main differences between the models within the same portfolio, covering: (i) the definitions, methods and data for estimation and validation of PD, which shall include information on how PDs are estimated for low default portfolios, whether there are regulatory floors and the drivers for differences observed between PD and actual default rates at least for the last three periods; (ii) where applicable, the definitions, methods and data for estimation and validation of LGD, such as methods to calculate downturn LGD, how LGDs are estimated for low default portfolio and the time lapse between the default event and the closure of the exposure; (iii) where applicable, the definitions, methods and data for estimation and validation of conversion factors, including assumptions employed in the derivation of those variables;

(g) as applicable, the following information in relation to each exposure class referred to in Article 147: (i) their gross on-balance-sheet exposure; (ii) their off-balance-sheet exposure values prior to the relevant conversion factor; (iii) their exposure after applying the relevant conversion factor and credit risk mitigation; (iv) any model, parameter or input relevant for the understanding of the risk weighting and the resulting risk exposure amounts disclosed across a sufficient number of obligor grades (including default) to allow for a meaningful differentiation of credit risk; (v) separately for those exposure classes in relation to which institutions have received permission to use own LGDs and conversion factors for the calculation of risk-weighted exposure amounts, and for exposures for which the institutions do not use such estimates, the values referred to in points (i) to (iv) subject to that permission;

(h) institutions' estimates of PDs against the actual default rate for each exposure class over a longer period, with separate disclosure of the PD range, the external rating equivalent, the weighted average and arithmetic average PD, the number of obligors at the end of the previous year and of the year under review, the number of defaulted obligors, including the new defaulted obligors, and the annual average historical default rate.

For the purposes of point (b) of this Article, institutions shall use the exposure value as defined in Article 166.

Article 453

Disclosure of the use of credit risk mitigation techniques

Institutions using credit risk mitigation techniques shall disclose the following information:

(a) the core features of the policies and processes for on- and off-balance-sheet netting and an indication of the extent to which institutions make use of balance sheet netting;

(b) the core features of the policies and processes for eligible collateral evaluation and management;

(c) a description of the main types of collateral taken by the institution to mitigate credit risk;

(d) for guarantees and credit derivatives used as credit protection, the main types of guarantor and credit derivative counterparty and their creditworthiness used for the purpose of reducing capital requirements, excluding those used as part of synthetic securitisation structures;

(e) information about market or credit risk concentrations within the credit risk mitigation taken;

(f) for institutions calculating risk-weighted exposure amounts under the Standardised Approach or the IRB Approach, 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 loans and debt securities and including a breakdown of defaulted exposures;

(g) the corresponding conversion factor and the credit risk mitigation associated with the exposure and the incidence of credit risk mitigation techniques with and without substitution effect;

(h) for institutions calculating risk-weighted exposure amounts under the Standardised Approach, the on- and off-balance-sheet exposure value by exposure class before and after the application of conversion factors and any associated credit risk mitigation;

(i) for institutions calculating risk-weighted exposure amounts under the Standardised Approach, the risk-weighted exposure amount and the ratio between 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 IRB Approach, the risk-weighted exposure amount before and after recognition of the credit risk mitigation impact of credit derivatives; where institutions have received permission to use own LGDs and conversion factors for the calculation of risk-weighted exposure amounts, they shall make the disclosure set out in this point separately for the exposure classes subject to that permission.

Article 454

Disclosure of the use of the Advanced Measurement Approaches to operational risk

The institutions using the Advanced Measurement Approaches set out in Articles 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

Use of internal models for market risk

An institution using the internal models referred to in Article 325az for the calculation of the own funds requirements for market risk shall disclose:

(a) its objectives in undertaking trading activities and the processes implemented to identify, measure, monitor and control the market risk;

(b) the policies referred to in Article 104(1) for determining which position is to be included in the trading book;

(c) a general description of the structure of the trading desks covered by the internal models, including for each desk a broad description of the desk’s business strategy, the instruments permitted therein and the main risk types in relation to that desk;

(d) an overview of the trading book positions not covered by the internal models, including a general description of the desk structure and of types of instruments included in the desks or in the desk categories in accordance with Article 104b;

(e) the structure and organisation of the market risk management function and governance;

(f) 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, and a description of the extent to which those internal models represent the models used at the consolidated level, including, where applicable, a broad description of the following:

(i) the modelling approach used to calculate the expected shortfall referred to in Article 325ba(1), point (a), including the frequency of data update; (ii) the methodology used to calculate the stress scenario risk measure referred to in Article 325ba(1), point (b), other than the specifications provided for in Article 325bk(3); (iii) the modelling approach used to calculate the default risk charge referred to in Article 325ba(2), including the frequency of data update.

Institutions shall disclose on an aggregate basis for all trading desks covered by the internal models referred to in Article 325az the following components, where applicable:

(a) the most recent value as well as the highest, lowest and mean value for the previous 60 business days of:

(i) the unconstrained expected shortfall measure referred to in Article 325bb(1); (ii) the unconstrained expected shortfall measure referred to in Article 325bb(1) for each regulatory broad risk factor category;

(b) the most recent value as well as the mean value for the previous 60 business days of: (i) the expected shortfall risk measure referred to in Article 325bb(1); (ii) the stress scenario risk measure referred to in Article 325ba(1), point (b); (iii) the own funds requirement for default risk referred to in Article 325ba(2); (iv) the sum of the own funds requirements referred to in Article 325ba(3), including all components of the formula and the applicable multiplier factor;

(c) the number of back-testing overshootings over the most recent 250 business days at the 99th percentile as referred to in Article 325bf(6).

PART NINE

DELEGATED AND IMPLEMENTING ACTS

Article 456

Delegated acts

The Commission shall be empowered to adopt delegated acts in accordance with Article 462, concerning the following matters:

(a) clarification of the definitions set out in Articles 4, 5, 142, 153, 192, 242, 272, 300, 381 and 411 to ensure uniform application of this Regulation;

(b) clarification of the definitions set out in Articles 4, 5, 142, 153, 192, 242, 272, 300, 381 and 411 in order to take account, in the application of this Regulation, of developments on financial markets;

(c) amendment of the list of exposure classes in Articles 112 and 147 in order to take account of developments on financial markets;

(d) the amount specified in Article 123(1), point (b), Article 147(5), point (a), Article 153(4) and Article 162(4), to take into account the effects of inflation;

(e) the list and classification of the off-balance sheet items in Annexes I and II, in order to take account of developments on financial markets;

(h) amendment of the own funds requirements as set out in Articles 301 to 311 of this Regulation and Articles 50a to 50d of Regulation (EU) No 648/2012 to take account of developments or amendments of the international standards for exposures to a central counterparty;

(i) clarification of the terms referred to in the exemptions provided for in Article 400;

(j) amendment of the capital measure and the total exposure measure of the leverage ratio referred to in Article 429(2) in order to correct any shortcomings discovered on the basis of the reporting referred to in Article 430(1) before the leverage ratio has to be published by institutions as set out in Article 451(1)(a);

(k) amendments to the disclosure requirements laid down in Titles II and III of Part Eight to take account of developments or amendments of the international standards on disclosure.

EBA shall monitor the own funds requirements for credit valuation adjustment risk and by 1 January 2015 submit a report to the Commission. In particular, the report shall assess:

(a) the treatment of CVA risk as a stand-alone charge versus an integrated component of the market risk framework;

(b) the scope of the CVA risk charge including the exemption in Article 482;

(c) eligible hedges;

(d) calculation of capital requirements of CVA risk.

On the basis of that report and where the findings are that such action is necessary the Commission shall also be empowered to adopt a delegated act in accordance with Article 462 to amend Article 381, Article 382(1) to (3) and Articles 383 to 386 concerning those items.

Article 457

Technical adjustments and corrections

The Commission shall be empowered to adopt delegated acts in accordance with Article 462, to make technical adjustment and corrections of non-essential elements in the following provisions in order to take account of developments in new financial products or activities, to make adjustments taking into account developments after the adoption of this Regulation in other legislative acts of the Union on financial services and accounting including accounting standards based on Regulation (EC) No 1606/2002:

(a) the own funds requirements for credit risk laid down in Articles 111 to 134, and in Articles 143 to 191;

(b) the effects of credit risk mitigation in accordance with Articles 193 to 241;

(c) the own funds requirements for securitisation laid down in Articles 242 to 270a;

(d) the own funds requirements for counterparty credit risks in accordance with Articles 272 to 311;

(e) the own funds requirements for operational risk laid down in Articles 315 to 324;

(f) the own funds requirements for market risk laid down in Articles 325 to 377;

(g) the own funds requirements for settlement risk laid down in Articles 378 and 379;

(h) the own funds requirements for credit valuation adjustment risk laid down in Articles 383, 384 and 386;

(i) Part Two and Article 430 only as a result of developments in accounting standards or requirements which take account of Union legislative acts.

Article 458

Macroprudential or systemic risk identified at the level of a Member State

The notification shall be accompanied by the following documents and include, where appropriate, relevant quantitative or qualitative evidence on:

(a) the changes in the intensity of macroprudential or systemic risk;

(b) the reasons why such changes could pose a threat to financial stability at national level or to the real economy;

(c) an explanation as to why the authority considers that the macroprudential tools set out in Articles 124 and 164 of this Regulation and Articles 133 and 136 of Directive 2013/36/EU would be less suitable and effective to deal with those risks than the draft national measures referred to in point (d) of this paragraph;

(d) the draft national measures for domestically authorised institutions, or a subset of those institutions, intended to mitigate the changes in the intensity of risk and concerning: (i) the level of own funds laid down in Article 92; (ii) the requirements for large exposures laid down in Article 392 and Articles 395 to 403; (iii) liquidity requirements laid down in Part Six; (iv) risk weights for targeting asset bubbles in the residential property and commercial immovable property sector; (v) the public disclosure requirements laid down in Part Eight; (vi) the level of the capital conservation buffer laid down in Article 129 of Directive 2013/36/EU; or (vii) intra-financial sector exposures;

(e) an explanation as to why the draft measures are considered by the authority designated in accordance with paragraph 1 to be suitable, effective and proportionate to address the situation; and

(f) an assessment of the likely positive or negative impact of the draft measures on the internal market based on information which is available to the Member State concerned.

Within one month of receipt of the notification referred to in paragraph 2, the ESRB and EBA shall provide their opinions on the matters referred to in points (a) to (f) of that paragraph to the Council, to the Commission and to the Member State concerned.

Taking utmost account of the opinions referred to in the second subparagraph and if there is robust, strong and detailed evidence that the measure will have a negative impact on the internal market that outweighs the financial stability benefits resulting in a reduction of the macroprudential or systemic risk identified, the Commission may, within one month, propose to the Council an implementing act to reject the draft national measures.

In the absence of a Commission proposal within that period of one month, the Member State concerned may immediately adopt the draft national measures for a period of up to two years or until the macroprudential or systemic risk ceases to exist if that occurs sooner.

The Council shall decide on the proposal by the Commission within one month after receipt of the proposal and state its reasons for rejecting or not rejecting the draft national measures.

The Council shall only reject the draft national measures if it considers that one or more of the following conditions are not met:

(a) the changes in the intensity of macroprudential or systemic risk are of such nature as to pose risk to financial stability at national level;

(b) the macroprudential tools set out in this Regulation and in Directive 2013/36/EU are less suitable or effective than the draft national measures to deal with the macroprudential or systemic risk identified;

(c) the draft national measures do not entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole, thus forming or creating an obstacle to the functioning of the internal market; and

(d) the issue concerns only one Member State.

The assessment of the Council shall take into account the opinion of the ESRB and EBA and shall be based on the evidence presented in accordance with paragraph 2 by the authority designated in accordance with paragraph 1.

In the absence of a Council implementing act to reject the draft national measures within one month of receipt of the proposal by the Commission, the Member State concerned may adopt the measures and apply them for a period of up to two years or until the macroprudential or systemic risk ceases to exist if that occurs sooner.

Article 459

Prudential requirements

The Commission shall be empowered to adopt delegated acts in accordance with Article 462, to impose, for a period of one year, stricter prudential requirements for exposures where this is necessary to address changes in the intensity of microprudential and macroprudential risks which arise from market developments in the Union or outside the Union affecting all Member States, and where the instruments of this Regulation and Directive 2013/36/EU are not sufficient to address these risks, in particular upon the recommendation or opinion of the ESRB or EBA, concerning:

(a) the level of own funds laid down in Article 92;

(b) the requirements for large exposures laid down in Article 392 and Articles 395 to 403;

(c) the public disclosure requirements laid down in Articles 431 to 455.

The Commission, assisted by the ESRB shall, at least on an annual basis, submit to the European Parliament and the Council, a report on market developments potentially requiring the use of this Article.

Article 460

Liquidity

In particular, the Commission is empowered to supplement this Regulation by adopting delegated acts specifying the detailed liquidity requirements for the purposes of the application of Article 8(3), Articles 411 to 416, 419, 422, 425, 428a, 428f, 428g, 428j to 428n, 428p, 428r, 428s, 428w, 428ae, 428ag, 428ah, 428ak and 451a.

The liquidity coverage requirement referred to in Article 412 shall be introduced in accordance with the following phasing-in:

(a) 60 % of the liquidity coverage requirement in 2015;

(b) 70 % as from 1 January 2016;

(c) 80 % as from 1 January 2017;

(d) 100 % as from 1 January 2018.

For this purpose the Commission shall take into account the reports referred to in Article 509(1), (2) and (3) and international standards developed by international fora as well as Union specificities.

The Commission shall adopt the delegated act referred to in paragraph 1 by 30 June 2014. It shall enter into force by 31 December 2014, but shall not apply before 1 January 2015.

The Commission shall adopt the delegated act referred to in the first subparagraph by 28 June 2024.

Article 461

Review of the phasing-in of the liquidity coverage requirement

EBA shall in its report assess in particular a deferred introduction of the 100 % minimum binding standard, until 1 January 2019. The report shall take into account the annual reports referred to in Article 509(1), relevant market data and the recommendations of all competent authorities.

For the purposes of assessing the necessity of deferral the Commission shall take into account the report and assessment referred to in paragraph 1.

A delegated act adopted in accordance with this Article shall not apply before 1 January 2018 and shall enter into force by 30 June 2017.

Article 461a

Own funds requirements for market risk

Where significant differences in such implementation are observed, the Commission shall be empowered to adopt delegated acts in accordance with Article 462 to amend this Regulation by:

(a) applying, until the date of application of the legislative act referred to in paragraph 3 of this Article or for up to three years in the absence of such an act, and where necessary to preserve a level playing field and to offset those observed differences, targeted operational relief measures or targeted multipliers equal to or greater than 0 and lower than 1 in the calculation of the institutions’ own funds requirements for market risk, for specific risk classes and specific risk factors, using one of the approaches referred to in Article 325(1), and laid out in: (i) Articles 325c to 325ay, specifying the alternative standardised approach; (ii) Articles 325az to 325bp, specifying the alternative internal model approach; (iii) Articles 326 to 361, specifying the simplified standardised approach;

(b) postponing for up to two years the date from which institutions shall apply the own funds requirements for market risk set out in Part Three, Title IV, or any of the approaches to calculate the own funds requirements for market risk referred to in Article 325(1).

Where the Commission adopts the delegated act referred to in the first subparagraph, the Commission shall, where appropriate, submit a legislative proposal to the European Parliament and to the Council to adjust the implementation in the Union of international standards on own funds requirements for market risk to preserve in a more permanent manner a level playing field with third countries, in terms of own funds requirements and the impact of those requirements.

On the basis of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal, in order to ensure a global level playing field.

Article 462

Exercise of the delegation

The delegation of power referred to in Articles 244(6) and 245(6), in Articles 456, 457, 459, 460 and 461a may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of the delegated acts already in force.

Article 463

Objections to regulatory technical standards

Where the Commission adopts a regulatory technical standard pursuant to this Regulation which is the same as the draft regulatory technical standard submitted by EBA, the period during which the European Parliament and the Council may object to that regulatory technical standard shall be one month from the date of notification. At the initiative of the European Parliament or the Council that period shall be extended by one month. By way of derogation from the second subparagraph of Article 13(1) of Regulation (EU) No 1093/2010, the period during which the European Parliament or the Council may object to that regulatory technical standard may, where appropriate, be further extended by one month.

Article 464

European Banking Committee

PART TEN

TRANSITIONAL PROVISIONS, REPORTS, REVIEWS AND AMENDMENTS

TITLE I

TRANSITIONAL PROVISIONS

CHAPTER 1

Own funds requirements, unrealised gains and losses measured at fair value and deductions

Section 1

Own funds requirements

Article 465

Transitional arrangements for the output floor

By way of derogation from Article 92(3), first subparagraph, and without prejudice to the derogation set out in Article 92(3), second subparagraph, institutions may apply the following factor x where calculating TREA:

(a) 50 % during the period from 1 January 2025 to 31 December 2025;

(b) 55 % during the period from 1 January 2026 to 31 December 2026;

(c) 60 % during the period from 1 January 2027 to 31 December 2027;

(d) 65 % during the period from 1 January 2028 to 31 December 2028;

(e) 70 % during the period from 1 January 2029 to 31 December 2029.

By way of derogation from Article 92(3), first subparagraph, and without prejudice to the derogation set out in Article 92(3), second subparagraph, institutions may, until 31 December 2029, apply the following formula where calculating TREA:

For the purposes of that calculation, institutions shall take into account the applicable factor x referred to in paragraph 1.

EBA and ESMA, in cooperation with EIOPA, shall monitor the use of the transitional treatment laid down in the first subparagraph and assess, in particular:

(a) the availability of credit assessments by nominated ECAIs for corporates and the extent to which that affects institutions’ lending towards corporates;

(b) the development of credit rating agencies, barriers to entry to the market for new credit rating agencies, the rate of uptake by corporates choosing to be rated by one or more of those agencies, and impediments to the availability of credit assessments for corporates by ECAIs;

(c) possible measures to address the impediments, taking into account differences across economic sectors and geographical areas and the development of private or publicly led solutions such as credit scoring, private ratings mandated by institutions, as well as central bank ratings;

(d) the appropriateness of the risk-weighted exposure amounts of unrated corporate exposures and their implications for financial stability;

(e) the approaches of third countries concerning the application of the output floor to corporate exposures and long-term level playing field considerations that could arise as a result;

(f) compliance with related internationally agreed standards developed by the BCBS.

EBA and ESMA, in cooperation with EIOPA, shall submit a report with their findings to the Commission by 10 July 2029.

On the basis of that report and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2031.

By way of derogation from Article 92(5), point (a)(ii), and without prejudice to the derogation set out in Article 92(3), second subparagraph, and provided that all conditions set out in paragraph 8 of this Article are met, Member States may allow institutions to assign:

(a) until 31 December 2032, a risk weight of 10 % to the part of the exposures secured by mortgages on residential property up to 55 % of the property value determined in accordance with Article 125(1), first subparagraph; and

(b) until 31 December 2029, a risk weight of 45 % to any remaining part of the exposures secured by mortgages on residential property up to 80 % of the property value determined in accordance with Article 125(1), first subparagraph, provided that the adjustment to own funds requirements for credit risk referred to in Article 501 is not applied.

Where liens not held by the institution rank pari passu with the lien held by the institution, to determine the part of the institution’s exposure that is eligible for the 10 % risk weight, the amount of 55 % of the property value, reduced by the amount of any more senior liens not held by the institution, shall be reduced by the product of:

(a) 55 % of the property value, reduced by the amount of more senior liens, if any, both held by the institution and held by other institutions; and

(b) the amount of liens not held by the institution that rank pari passu with the lien held by the institution divided by the sum of all pari passu liens.

Where liens not held by the institution rank pari passu with the lien held by the institution, to determine the part of the institution’s exposure that is eligible for the 45 % risk weight, the amount of 80 % of the property value, reduced by the amount of any more senior liens not held by the institution, shall be reduced by the product of:

(a) 80 % of the property value, reduced by the amount of more senior liens, if any, both held by the institution and held by other institutions; and

(b) the amount of liens not held by the institution that rank pari passu with the lien held by the institution divided by the sum of all pari passu liens.

For the purposes of paragraph 5 of this Article, all of the following conditions shall be met:

(a) the exposures qualify for the treatment pursuant to Article 125(1);

(b) the qualifying exposures are risk weighted in accordance with Part Three, Title II, Chapter 3;

(c) the residential property securing the qualifying exposures is located in the Member State that has exercised the discretion;

(d) over the last eight years the institution’s losses in any given year, as reported by the institution pursuant to Article 430a(1), points (a) and (c), or pursuant to Article 101(1), points (a) and (c), in the version of those points applicable on 27 June 2021, on the part of the exposures secured by mortgages on residential property up to the lower of the pledged amount and 55 % of the property value, unless otherwise determined under Article 124(9), do not exceed on average 0,25  % of the sum of the exposure values of all outstanding exposures secured by mortgages on residential property;

(e) for the qualifying exposures the institution has the following enforceable rights in the event of the default or non-payment of the obligor: (i) a right on the residential property securing the exposure or the right to take a mortgage on the residential property in accordance with Article 108(5), point (g); (ii) a right on other assets and income of the obligor either contractually or by applicable national law;

(f) the competent authority has verified that the conditions set out in points (a) to (e) are met.

Where the discretion referred to in paragraph 5 has been exercised and provided that all conditions set out in paragraph 8 are met, institutions may assign the following risk weights to any remaining part of the exposures secured by mortgages on residential property referred to in paragraph 5, point (b), until 31 December 2032:

(a) 52,5  % during the period from 1 January 2030 to 31 December 2030;

(b) 60 % during the period from 1 January 2031 to 31 December 2031;

(c) 67,5  % during the period from 1 January 2032 to 31 December 2032.

On the basis of that report and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2031.

By way of derogation from Article 92(5), point (a)(iii) or (b)(ii), and without prejudice to the derogation set out in Article 92(3), second subparagraph, for exposures that are risk weighted using the SEC-IRBA or the Internal Assessment Approach in accordance with Article 92(4), where the part of the standardised total risk-weighted exposure amount for credit risk, dilution risk, counterparty credit risk or for market risk arising from the trading book business is calculated using the SEC-SA in accordance with Article 261 or 262, institutions shall, until 31 December 2032, apply the following factor p:

(a) p = 0,25 for a position in a securitisation to which Article 262 applies;

(b) p = 0,5 for a position in a securitisation to which Article 261 applies.

Article 466

First time application of International Financial Reporting Standards

By way of derogation from Article 24(2), competent authorities shall grant institutions which are required to effect the valuation of assets and off-balance sheet items and the determination of own funds in accordance with the international accounting standards as applicable under Regulation (EC) No 1606/2002 for the first time a lead time of 24 months for the implementation of the necessary internal processes and technical requirements.

Section 2

Unrealised gains and losses measured at fair value

Article 468

Temporary treatment of unrealised gains and losses measured at fair value through other comprehensive income

By way of derogation from Article 35, until 31 December 2025 (the ‘period of temporary treatment’), institutions may remove from the calculation of their Common Equity Tier 1 items the amount A, determined in accordance with the following formula:

A = a · f

where:

a = the amount of unrealised gains and losses accumulated since 31 December 2019 accounted for as ‘fair value changes of debt instruments measured at fair value through other comprehensive income’ in the balance sheet, corresponding to exposures to central governments, to regional governments or to local authorities referred to in Article 115(2) of this Regulation and to public sector entities referred to in Article 116(4) of this Regulation, excluding those financial assets that are credit-impaired as defined in Appendix A to the Annex to Commission Regulation (EC) No 1126/2008 (‘Annex relating to IFRS 9’); and

f = the factor applicable for each reporting year during the period of temporary treatment in accordance with paragraph 2.

Where an institution removes an amount of unrealised losses from its Common Equity Tier 1 items in accordance with paragraph 1 of this Article, it shall recalculate all requirements laid down in this Regulation and in Directive 2013/36/EU that are calculated using any of the following items:

(a) the amount of deferred tax assets that is deducted from Common Equity Tier 1 items in accordance with point (c) of Article 36(1) or risk weighted in accordance with Article 48(4);

(b) the amount of specific credit risk adjustments.

When recalculating the relevant requirement, the institution shall not take into account the effects that the expected credit loss provisions relating to exposures to central governments, to regional governments or to local authorities referred to in Article 115(2) of this Regulation and to public sector entities referred to in Article 116(4) of this Regulation, excluding those financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9, have on those items.

Section 3

Deductions

Sub-Section 1

Deductions from Common Equity Tier 1 items

Article 469

Deductions from Common Equity Tier 1 items

By way of derogation from Article 36(1), during the period from 1 January 2014 to 31 December 2017, the following shall apply:

(a) institutions shall deduct from Common Equity Tier 1 items the applicable percentage specified in Article 478 of the amounts required to be deducted pursuant to points (a) to (h) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences;

(b) institutions shall apply the relevant provisions laid down in Article 472 to the residual amounts of items required to be deducted pursuant to points (a) to (h) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences;

(c) institutions shall deduct from Common Equity Tier 1 items the applicable percentage specified in Article 478 of the total amount required to be deducted pursuant to points (c) and (i) of Article 36(1) after applying Article 470;

(d) institutions shall apply the requirements laid down in Article 472(5) or (11), as applicable, to the total residual amount of items required to be deducted pursuant to points (c) and (i) of Article 36(1) after applying Article 470.

Institutions shall determine the portion of the total residual amount referred to in point (d) of paragraph 1, that is subject to Article 472(5), by dividing the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

(a) the amount of deferred tax assets that are dependent on future profitability and arise from temporary differences referred to in point (a) of Article 470(2);

(b) the sum of the amounts referred to in points (a) and (b) of Article 470(2).

Institutions shall determine the portion of the total residual amount referred to point (d) of paragraph 1 that is subject to Article 472(11) by dividing the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

(a) the amount of direct and indirect holdings of the Common Equity Tier 1 instruments referred to in point (b) of Article 470(2);

(b) the sum of the amounts referred to in points (a) and (b) of Article 470(2).

Article 469a

Derogation from deductions from Common Equity Tier 1 items for non-performing exposures

By way of derogation from point (m) Article 36(1), institutions shall not deduct from Common Equity Tier 1 items the applicable amount of insufficient coverage for non-performing exposures where the exposure was originated prior to 26 April 2019.

Where the terms and conditions of an exposure which was originated prior to 26 April 2019 are modified by the institution in a way that increases the institution's exposure to the obligor, the exposure shall be considered as having been originated on the date when the modification applies and shall cease to be subject to the derogation provided for in the first subparagraph.

Article 470

Exemption from deduction from Common Equity Tier 1 items

By way of derogation from Article 48(1), during the period from 1 January 2014 to 31 December 2017, institutions shall not deduct the items listed in points (a) and (b) of this paragraph which in aggregate are equal to or less than 15 % of relevant Common Equity Tier 1 items of the institution:

(a) deferred tax assets that are dependent on future profitability and arise from temporary differences and in aggregate are equal to or less than 10 % of relevant Common Equity Tier 1 items;

(b) where an institution has a significant investment in a financial sector entity, the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of that entity that in aggregate are equal to or less than 10 % of relevant Common Equity Tier 1 items.

Article 471

Exemption from Deduction of Equity Holdings in Insurance Companies from Common Equity Tier 1 Items

By way of derogation from Article 49(1), during the period from 31 December 2018 to 31 December 2024, institutions may choose not to deduct equity holdings in insurance undertakings, reinsurance undertakings and insurance holding companies where the following conditions are met:

(a) the conditions set out in points (a), and (e) of Article 49(1);

(b) the competent authorities are satisfied with the level of risk control and financial analysis procedures specifically adopted by the institution in order to supervise the investment in the undertaking or holding company;

(c) the equity holdings of the institution in the insurance undertaking, reinsurance undertaking or insurance holding company do not exceed 15 % of the Common Equity Tier 1 instruments issued by that insurance entity as at 31 December 2012 and during the period from 1 January 2013 to 31 December 2024;

(d) the amount of the equity holding which is not deducted does not exceed the amount held in the Common Equity Tier 1 instruments in the insurance undertaking, reinsurance undertaking or insurance holding company as at 31 December 2012.

Article 472

Items not deducted from Common Equity Tier 1

Institutions shall apply the following to the residual amount of losses of the current financial year referred to in point (a) of Article 36(1):

(a) losses that are material are deducted from Tier 1 items;

(b) losses that are not material are not deducted.

Institutions shall apply the following to the residual amount of holdings of own Common Equity Tier 1 instruments referred to in point (f) of Article 36(1):

(a) the amount of direct holdings is deducted from Tier 1 items;

(b) the amount of indirect and synthetic holdings, including own Common Equity Tier 1 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation, is not deducted and is subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable.

Institutions shall apply the following to the residual amount of holdings of Common Equity Tier 1 instruments of a financial sector entity where the institution has reciprocal cross holdings with that entity referred to in point (g) of Article 36(1):

(a) where an institution does not have a significant investment in that financial sector entity, the amount of its holding of the Common Equity Tier 1 instruments of that entity is treated as falling under point (h) of Article 36(1);

(b) where an institution has a significant investment in that financial sector entity, the amount of its holdings of Common Equity Tier 1 instruments of that entity is treated as falling under point (i) of Article 36(1).

Institutions shall apply the following to the residual amounts of items referred to in point (h) of Article 36(1):

(a) the amounts required to be deducted that relate to direct holdings are deducted half from Tier 1 items and half from Tier 2 items;

(b) the amounts that relate to indirect and synthetic holdings are not deducted and are subject to a risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable.

Institutions shall apply the following to the residual amounts of the items referred to in point (i) of Article 36(1):

(a) the amounts required to be deducted that relate to direct holdings are deducted half from Tier 1 items and half from Tier 2 items;

(b) the amounts that relate to indirect and synthetic holdings are not deducted and are subject to risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements laid down in Title IV of Part Three, as applicable.

Article 473

Introduction of amendments to IAS 19

The applicable amount shall be calculated by deducting from the sum derived in accordance with point (a) the sum derived in accordance with point (b):

(a) institutions shall determine the values of the assets of their defined benefit pension funds or plans, as applicable, in accordance with Regulation (EC) No 1126/2008 (⁴⁰) as amended by Regulation (EU) No 1205/2011 (⁴¹). Institutions shall then deduct from the values of these assets the values of the obligations under the same funds or plans determined according to the same accounting rules;

(b) institutions shall determine the values of the assets of their defined pension funds or plans, as applicable, in accordance with the rules set out in Regulation (EC) No 1126/2008. Institutions shall then deduct from the values of those assets, the values of the obligations under the same funds or plans determined in accordance with the same accounting rules.

The following factors apply:

(a) 1 in the period from 1 January 2014 to 31 December 2014;

(b) 0,8 in the period from 1 January 2015 to 31 December 2015;

(c) 0,6 in the period from 1 January 2016 to 31 December 2016;

(d) 0,4 in the period from 1 January 2017 to 31 December 2017;

(e) 0,2 in the period from 1 January 2018 to 31 December 2018.

Article 473a

Introduction of IFRS 9

By way of derogation from Article 50 and until the end of the transitional periods set out in paragraphs 6 and 6a of this Article, the following may include in their Common Equity Tier 1 capital the amount calculated in accordance with this paragraph:

(a) institutions that prepare their accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of Regulation (EC) No 1606/2002;

(b) institutions that, pursuant to Article 24(2) of this Regulation, effect the valuation of assets and off-balance sheet items and the determination of own funds in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of Regulation (EC) No 1606/2002;

(c) institutions that effect the valuation of assets and off-balance sheet items in conformity with accounting standards under Directive 86/635/EEC and that use an expected credit loss model that is the same as the one used in international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of Regulation (EC) No 1606/2002.

The amount referred to in the first subparagraph shall be calculated as the sum of the following:

(a) for exposures which are subject to risk weighting in accordance with Chapter 2 of Title II of Part Three, the amount (ABSA) calculated in accordance with the following formula:

where:

;

(b) for exposures which are subject to risk weighting in accordance with Chapter 3 of Title II of Part Three, the amount (ABIRB) calculated in accordance with the following formula:

where:

;

Institutions shall calculate the amounts A2,SA and A2,IRB referred to, respectively, in points (a) and (b) of the second subparagraph of paragraph 1 as the greater of the amounts referred to in points (a) and (b) of this paragraph separately for their exposures which are subject to risk weighting in accordance with Chapter 2 of Title II of Part Three and for their exposures which are subject to risk weighting in accordance with Chapter 3 of Title II of Part Three:

(a) zero;

(b) the amount calculated in accordance with point (i) reduced by the amount calculated in accordance with point (ii): (i) the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of IFRS 9 as set out in the Annex to Commission Regulation (EC) No 1126/2008 (‘Annex relating to IFRS 9’) and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9 as of 1 January 2018 or on the date of initial application of IFRS 9; (ii) the total amount of impairment losses on financial assets classified as loans and receivables, held-to-maturity investments and available-for-sale financial assets, as defined in paragraph 9 of IAS 39, other than equity instruments and units or shares in collective investment undertakings, determined in accordance with paragraphs 63, 64, 65, 67, 68 and 70 of IAS 39 as set out in the Annex to Regulation (EC) No 1126/2008 as of 31 December 2017 or the day before the date of initial application of IFRS 9.

Institutions shall calculate the amount by which the amount referred to in point (a) exceeds the amount referred to in point (b) separately for their exposures which are subject to risk weighting in accordance with Chapter 2 of Title II of Part Three and for their exposures which are subject to risk weighting in accordance with Chapter 3 of Title II of Part Three:

(a) the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9, on the reporting date and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9;

(b) the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired as defined in Appendix A to the Annex relating to IFRS 9 and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9, on 1 January 2020 or on the date of the initial application of IFRS 9, whichever is later.

For exposures which are subject to risk weighting in accordance with Chapter 3 of Title II of Part Three, where the amount specified in accordance with point (a) of paragraph 3, after applying point (b) of paragraph 5, exceeds the amount for these exposures as specified in point (b) of paragraph 3, after applying point (c) of paragraph 5, institutions shall set A4,IRB as equal to the difference between those amounts, otherwise they shall set A4,IRB as equal to zero.

For exposures which are subject to risk weighting in accordance with Chapter 3 of Title II of Part Three, institutions shall apply paragraphs 2 to 4 as follows:

(a) for the calculation of A2,IRB institutions shall reduce each of the amounts calculated in accordance with points (b)(i) and (ii) of paragraph 2 of this Article by the sum of expected loss amounts calculated in accordance with Article 158(5), (6) and (10) as of 31 December 2017 or the day before the date of initial application of IFRS 9. Where for the amount referred to in point (b)(i) of paragraph 2 of this Article the calculation results in a negative number, the institution shall set the value of that amount as equal to zero. Where for the amount referred to in point (b)(ii) of paragraph 2 of this Article the calculation results in a negative number, the institution shall set the value of that amount as equal to zero;

(b) institutions shall replace the amount calculated in accordance with point (a) of paragraph 3 of this Article with the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired, as defined in Appendix A to the Annex relating to IFRS 9, and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9, reduced by the sum of related expected loss amounts for the same exposures calculated in accordance with Article 158(5), (6) and (10) of this Regulation on the reporting date. Where the calculation results in a negative number, the institution shall set the value of the amount referred to in point (a) of paragraph 3 of this Article as equal to zero;

(c) institutions shall replace the amount calculated in accordance with point (b) of paragraph 3 of this Article with the sum of the 12-month expected credit losses determined in accordance with paragraph 5.5.5 of the Annex relating to IFRS 9 and the amount of the loss allowance for lifetime expected credit losses determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9, excluding the loss allowance for lifetime expected credit losses for financial assets that are credit-impaired, as defined in Appendix A to the Annex relating to IFRS 9, and, where Article 468 of this Regulation applies, excluding expected credit losses determined for exposures measured at fair value through other comprehensive income in accordance with paragraph 4.1.2 A of the Annex relating to IFRS 9, on 1 January 2020 or on the date of the initial application of IFRS 9, whichever is later, reduced by the sum of related expected loss amounts for the same exposures calculated in accordance with Article 158(5), (6) and (10) of this Regulation on 1 January 2020 or on the date of the initial application of IFRS 9, whichever is later. Where the calculation results in a negative number, the institution shall set the value of the amount referred to in point (b) of paragraph 3 of this Article as equal to zero.

Institutions shall apply the following factors f1 to calculate the amounts ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of paragraph 1 respectively:

(a) 0,7 during the period from 1 January 2020 to 31 December 2020;

(b) 0,5 during the period from 1 January 2021 to 31 December 2021;

(c) 0,25 during the period from 1 January 2022 to 31 December 2022;

(d) 0 during the period from 1 January 2023 to 31 December 2024.

Institutions whose financial year commences after 1 January 2020 but before 1 January 2021 shall adjust the dates in points (a) to (d) of the first subparagraph so that they correspond to their financial year, shall report the adjusted dates to their competent authority and shall publicly disclose them.

Institutions which start to apply accounting standards as referred to in paragraph 1 on or after 1 January 2021 shall apply the relevant factors in accordance with points (b) to (d) of the first subparagraph starting with the factor corresponding to the year of the first application of those accounting standards.

Institutions shall apply the following factors f2 to calculate the amounts ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of paragraph 1 respectively:

(a) 1 during the period from 1 January 2020 to 31 December 2020;

(b) 1 during the period from 1 January 2021 to 31 December 2021;

(c) 0,75 during the period from 1 January 2022 to 31 December 2022;

(d) 0,5 during the period from 1 January 2023 to 31 December 2023;

(e) 0,25 during the period from 1 January 2024 to 31 December 2024.

Institutions whose financial year commences after 1 January 2020 but before 1 January 2021 shall adjust the dates in points (a) to (e) of the first subparagraph so that they correspond to their financial year, shall report the adjusted dates to their competent authority and shall publicly disclose them.

Institutions which start to apply accounting standards as referred to in paragraph 1 on or after 1 January 2021 shall apply the relevant factors in accordance with points (b) to (e) of the first subparagraph starting with the factor corresponding to the year of the first application of those accounting standards.

Where an institution includes in its Common Equity Tier 1 capital an amount in accordance with paragraph 1 of this Article, it shall recalculate all requirements laid down in this Regulation and in Directive 2013/36/EU that use any of the following items by not taking into account the effects that the expected credit loss provisions that it included in its Common Equity Tier 1 capital have on those items:

(a) the amount of deferred tax assets that is deducted from Common Equity Tier 1 capital in accordance with point (c) of Article 36(1) or risk weighted in accordance with Article 48(4);

(b) the exposure value as determined in accordance with Article 111(1) whereby the specific credit risk adjustments by which the exposure value shall be reduced shall be multiplied by the following scaling factor (sf):

where: ABSA = the amount calculated in accordance with point (a) of the second subparagraph of paragraph 1; RASA = the total amount of specific credit risk adjustments;

(c) the amount of Tier 2 items calculated in accordance with point (d) of Article 62.

Institutions may choose only once whether to use the calculation set out in point (b) of paragraph 7 or the calculation set out in the first subparagraph of this paragraph. Institutions shall disclose their decision.

An institution that has decided to apply the transitional arrangements set out in this Article may decide not to apply paragraph 4 in which case it shall inform the competent authority of its decision by 1 February 2018. In such a case, the institution shall set A4,SA, A4,IRB, , , t2 and t3 referred to in paragraph 1 as equal to zero. Where an institution has received the prior permission of the competent authority, it may reverse its decision during the transitional period. Institutions shall publicly disclose any decision taken in accordance with this subparagraph.

An institution that has decided to apply the transitional arrangements set out in this Article may decide not to apply paragraph 2 in which case it shall inform the competent authority of its decision without delay. In such a case, the institution shall set A2,SA, A2,IRB and t1 referred to in paragraph 1 as equal to zero. An institution may reverse its decision during the transitional period provided it has received the prior permission of the competent authority.

Competent authorities shall notify EBA at least on an annual basis of the application of this Article by institutions under their supervision.

Sub-Section 2

Deductions from Additional Tier 1 items

Article 474

Deductions from Additional Tier 1 items

By way of derogation from Article 56, during the period from 1 January 2014 to 31 December 2017, the following shall apply:

(a) institutions shall deduct from Additional Tier 1 items the applicable percentage specified in Article 478 of the amounts required to be deducted pursuant to Article 56;

(b) institutions shall apply the requirements laid down in Article 475 to the residual amounts of the items required to be deducted pursuant to Article 56.

Article 475

Items not deducted from Additional Tier 1 items

Institutions shall apply the following to the residual amount of the items referred to in point (a) of Article 56:

(a) direct holdings of own Additional Tier 1 instruments are deducted at book value from Tier 1 items;

(b) indirect and synthetic holdings of own Additional Tier 1 instruments, including own Additional Tier 1 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation, are not deducted and are risk weighted in accordance with Chapter 2 or 3 of Title II of Part Three and subject to the requirements of Title IV of Part Three, as applicable.

Institutions shall apply the following to the residual amount of the items referred to in point (b) of Article 56:

(a) where an institution does not have a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of its direct, indirect and synthetic holdings of those Additional Tier 1 instruments of that entity is treated as falling within point (c) of Article 56;

(b) where the institution has a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of its direct, indirect and synthetic holdings of those Additional Tier 1 instruments of that entity is treated as falling within point (d) of Article 56.

Institutions shall apply the following to the residual amount of the items referred to in points (c) and (d) of Article 56:

(a) the amount relating to direct holdings required to be deducted in accordance with points (c) and (d) of Article 56 are deducted half from Tier 1 items and half from Tier 2 items;

(b) the amount relating to indirect and synthetic holdings required to be deducted in accordance with points (c) and (d) of Article 56 shall not be deducted and shall be subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three and to the requirements of Title IV of Part Three, as applicable.

Sub-Section 3

Deductions from Tier 2 items

Article 476

Deductions from Tier 2 items

By way of derogation from Article 66, during the period from 1 January 2014 to 31 December 2017, the following shall apply:

(a) institutions shall deduct from Tier 2 items the applicable percentage specified in Article 478 of the amounts required to be deducted pursuant to Article 66;

(b) institutions shall apply the requirements laid down in Article 477 to the residual amounts required to be deducted pursuant to Article 66.

Article 477

Deductions from Tier 2 items

Institutions shall apply the following to the residual amount of items referred to in point (a) of Article 66:

(a) direct holdings of own Tier 2 instruments are deducted at book value from Tier 2 items;

(b) indirect and synthetic holdings of own Tier 2 instruments, including own Tier 2 instruments that an institution could be obliged to purchase by virtue of an existing or contingent contractual obligation are not deducted and are risk weighted in accordance with Chapter 2 or 3 of Title II of Part Three and subject to the requirements of Title IV of Part Three, as applicable.

Institutions shall apply the following to the residual amount of the items referred to in point (b) of Article 66:

(a) where an institution does not have a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of its direct, indirect and synthetic holdings of the Tier 2 instruments of that entity is treated as falling within point (c) of Article 66;

(b) where the institution has a significant investment in a financial sector entity with which it has reciprocal cross holdings, the amount of direct, indirect and synthetic holdings of the Tier 2 instruments of that financial sector entity are treated as falling within point (d) of Article 66.

Institutions shall apply the following to the residual amount of the items referred to in points (c) and (d) of Article 66:

(a) the amount relating to direct holdings that is required to be deducted in accordance with points (c) and (d) of Article 66 is deducted half from Tier 1 items and half from Tier 2 items;

(b) the amount relating to indirect and synthetic holdings that is required to be deducted in accordance with points (c) and (d) of Article 66 is not be deducted and is subject to a risk weight under Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable.

Sub-Section 3a

Deductions from eligible liabilities items

Article 477a

Deductions from eligible liabilities items

By way of derogation from Article 72e(4) and until 31 December 2024, the resolution authority of a parent institution, after duly considering the opinion of the resolution authorities or relevant third-country authorities of any subsidiaries concerned, may permit that the adjusted amount mi be calculated by using the following definition of ri, and wi:

The resolution authority may grant the permission referred to in paragraph 1 where the subsidiary is established in a third country that does not yet have in place an applicable local resolution regime if at least one of the following conditions is met:

(a) there is no current or foreseen material practical or legal impediment to the prompt transfer of assets from the subsidiary to the parent institution;

(b) the relevant third-country authority of the subsidiary has provided an opinion to the resolution authority of the parent institution that assets equal to the amount to be deducted by the subsidiary in accordance with Article 72e(4), second subparagraph, could be transferred from the subsidiary to the parent institution.

Sub-Section 4

Applicable percentages for deduction

Article 478

Applicable percentages for deduction from Common Equity Tier 1, Additional Tier 1 and Tier 2 items

The applicable percentage for the purposes of Article 468(4), points (a) and (c) of Article 469(1), point (a) of Article 474 and point (a) of Article 476 shall fall within the following ranges:

(a) 20 % to 100 % for the period from 1 January 2014 to 31 December 2014;

(b) 40 % to 100 % for the period from 1 January 2015 to 31 December 2015;

(c) 60 % to 100 % for the period from 1 January 2016 to 31 December 2016;

(d) 80 % to 100 % for the period from 1 January 2017 to 31 December 2017.

By way of derogation from paragraph 1, for the items referred in point (c) of Article 36(1) that existed prior to 1 January 2014, the applicable percentage for the purpose of point (c) of Article 469(1) shall fall within the following ranges:

(a) 0 % to 100 % for the period from 1 January 2014 to 31 December 2014;

(b) 10 % to 100 % for the period from 1 January 2015 to 31 December 2015;

(c) 20 % to 100 % for the period from 1 January 2016 to 31 December 2016;

(d) 30 % to 100 % for the period from 1 January 2017 to 31 December 2017;

(e) 40 % to 100 % for the period from 1 January 2018 to 31 December 2018;

(f) 50 % to 100 % for the period from 1 January 2019 to 31 December 2019;

(g) 60 % to 100 % for the period from 1 January 2020 to 31 December 2020;

(h) 70 % to 100 % for the period from 1 January 2021 to 31 December 2021;

(i) 80 % to 100 % for the period from 1 January 2022 to 31 December 2022;

(j) 90 % to 100 % for the period from 1 January 2023 to 31 December 2023.

Competent authorities shall determine and publish an applicable percentage in the ranges specified in paragraphs 1 and 2 for each of the following deductions:

(a) the individual deductions required pursuant to points (a) to (h) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences;

(b) the aggregate amount of deferred tax assets that rely on future profitability and arise from temporary differences and the items referred to in point (i) of Article 36(1) that is required to be deducted pursuant to Article 48;

(c) each deduction required pursuant to points (b) to (d) of Article 56;

(d) each deduction required pursuant to points (b) to (d) of Article 66.

Section 4

minority interest and additional Tier 1 and Tier 2 instruments issued by subsidiaries

Article 479

Recognition in consolidated Common Equity Tier 1 capital of instruments and items that do not qualify as minority interests

By way of derogation from Title II of Part Two, during the period from 1 January 2014 to 31 December 2017, recognition in consolidated own funds of the items that would qualify as consolidated reserves in accordance with national transposition measures for Article 65 of Directive 2006/48/EC that do not qualify as consolidated Common Equity Tier 1 capital for any of the following reasons shall be determined by the competent authorities in accordance with paragraphs 2 and 3 of this Article:

(a) the instrument does not qualify as a Common Equity Tier 1 instrument, and the related retained earnings and share premium accounts consequently do not qualify as consolidated Common Equity Tier 1 items;

(b) the items do not qualify as a result of Article 81(2);

(c) the items do not qualify because the subsidiary is not an institution or an entity that is subject by virtue of applicable national law to the requirements of this Regulation and Directive 2013/36/EU;

(d) the items do not qualify because the subsidiary is not included fully in the consolidation pursuant to Chapter 2 of Title II of Part One.

For the purposes of paragraph 2, the applicable percentages shall fall within the following ranges:

(a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014;

(b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015;

(c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016;

(d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017.

Article 480

Recognition in consolidated own funds of minority interests and qualifying Additional Tier 1 and Tier 2 capital

For the purposes of paragraph 1, the applicable factor shall fall within the following ranges:

(a) 0,2 to 1 in the period from 1 January 2014 to 31 December 2014;

(b) 0,4 to 1 in the period from 1 January 2015 to 31 December 2015;

(c) 0,6 to 1 in the period from 1 January 2016 to 31 December 2016; and

(d) 0,8 to 1 in the period from 1 January 2017 to 31 December 2017.

Section 5

Additional filters and deductions

Article 481

Additional filters and deductions

For the purposes of paragraph 1, the applicable percentage shall fall within the following ranges:

(a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014;

(b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015;

(c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016;

(d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017.

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 482

Scope of application for derivatives transactions with pension funds

In respect of those transactions referred to in Article 89 of Regulation (EU) No 648/2012 and entered into with a pension scheme arrangement as defined in Article 2 of that Regulation, institutions shall not calculate own funds requirements for CVA risk as provided for in Article 382(4)(c) of this Regulation.

CHAPTER 2

Grandfathering of capital instruments

Section 1

Instruments constituting State aid

Article 483

Grandfathering of State aid instruments

By way of derogation from Articles 26 to 29, 51, 52, 62 and 63, during the period from 1 January 2014 to 31 December 2017 this Article applies to capital instruments and items where the following conditions are met:

(a) the instruments were issued prior to 1 January 2014;

(b) the instruments were issued within the context of recapitalisation measures pursuant to State aid rules. Insofar as part of the instruments are privately subscribed, they must be issued prior to 30 June 2012 and in conjunction with those parts that are subscribed by the Member State;

(c) the instruments were considered compatible with the internal market by the Commission under Article 107 TFEU.

Where the instruments are subscribed by both the Member State and private investors and there is a partial redemption of the instruments subscribed by the Member State, a corresponding share of the privately subscribed part of the instruments shall be grandfathered in accordance with Article 484. When all the instruments subscribed by the Member State have been redeemed, the remaining instruments subscribed by private investors shall be grandfathered in accordance with Article 484.

Instruments that qualified in accordance with the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding either of the following:

(a) the conditions laid down in Article 28 of this Regulation are not met;

(b) the instruments were issued by an undertaking referred to in Article 27 of this Regulation and the conditions laid down in Article 28 of this Regulation or, where applicable, Article 29 of this Regulation are not met.

Instruments that qualify as Common Equity Tier 1 pursuant to the first subparagraph shall not qualify as Additional Tier 1 instruments or Tier 2 instruments under paragraph 5 or 7.

Instruments that qualify as Additional Tier 1 instruments pursuant to the first subparagraph shall not qualify as Common Equity Tier 1 instruments or Tier 2 instruments under paragraph 3 or 7.

Instruments that qualify as Tier 2 instruments pursuant to the first subparagraph shall not qualify as Common Equity Tier 1 instruments or Additional Tier 1 instruments under paragraph 3 or 5.

Section 2

Instruments not constituting State aid

Sub-Section 1

Grandfathering eligibility and limits

Article 484

Eligibility for grandfathering of items that qualified as own funds under national transposition measures for Directive 2006/48/EC

Article 485

Eligibility for inclusion in the Common Equity Tier 1 of share premium accounts related to items that qualified as own funds under national transposition measures for Directive 2006/48/EC

Article 486

Limits for grandfathering of items within Common Equity Tier 1, Additional Tier 1 and Tier 2 items

The amount of items referred to in Article 484(3) that shall qualify as Common Equity Tier 1 items is limited to the applicable percentage of the sum of the amounts specified in points (a) and (b) of this paragraph:

(a) the nominal amount of capital referred to in Article 484(3) that were in issue on 31 December 2012;

(b) the share premium accounts related to the items referred to in point (a).

The amount of items referred to in Article 484(4) that shall qualify as Additional Tier 1 items is limited to the applicable percentage multiplied by the result of subtracting from the sum of the amounts specified in points (a) and (b) of this paragraph the sum of the amounts specified in points (c) to (f) of this paragraph:

(a) the nominal amount of instruments referred to in Article 484(4), that remained in issue on 31 December 2012;

(b) the share premium accounts related to the instruments referred to in point (a);

(c) the amount of instruments referred to in Article 484(4) which on 31 December 2012 exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) and Article 66(1a) of Directive 2006/48/EC;

(d) the share premium accounts related to the instruments referred to in point (c);

(e) the nominal amount of instruments referred to Article 484(4) that were in issue on 31 December 2012 but do not qualify as Additional Tier 1 instruments pursuant to Article 489(4);

(f) the share premium accounts related to the instruments referred to in point (e).

The amount of items referred to in Article 484(5) that shall qualify as Tier 2 items is limited to the applicable percentage of the result of subtracting from the sum of the amounts specified in points (a) to (d) of this paragraph the sum of amounts specified in points (e) to (h) of this paragraph:

(a) the nominal amount of instruments referred to in Article 484(5) that remained in issue on 31 December 2012;

(b) the share premium accounts related to the instruments referred to in point (a);

(c) the nominal amount of subordinated loan capital that remained in issue on 31 December 2012, reduced by the amount required pursuant to national transposition measures for point (c) of Article 64(3) of Directive 2006/48/EC;

(d) the nominal amount of items referred to in Article 484(5), other than the instruments and subordinated loan capital referred to in points (a) and (c) of this paragraph, that were in issue on 31 December 2012;

(e) the nominal amount of instruments and items referred to in Article 484(5) that were in issue on 31 December 2012 that exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) of Directive 2006/48/EC;

(f) the share premium accounts related to the instruments referred to in point (e);

(g) the nominal amount of instruments referred to in Article 484(5) that were in issue on 31 December 2012 that do not qualify as Tier 2 items pursuant to Article 490(4);

(h) the share premium accounts related to the instruments referred to in point (g).

For the purposes of this Article, the applicable percentages referred to in paragraphs 2 to 4 shall fall within the following ranges:

(a) 60 % to 80 % during the period from 1 January 2014 to 31 December 2014;

(b) 40 % to 70 % during the period from 1 January 2015 to 31 December 2015;

(c) 20 % to 60 % during the period from 1 January 2016 to 31 December 2016;

(d) 0 % to 50 % during the period from 1 January 2017 to 31 December 2017;

(e) 0 % to 40 % during the period from 1 January 2018 to 31 December 2018;

(f) 0 % to 30 % during the period from 1 January 2019 to 31 December 2019;

(g) 0 % to 20 % during the period from 1 January 2020 to 31 December 2020;

(h) 0 % to 10 % during the period from 1 January 2021 to 31 December 2021.

Article 487

Items excluded from grandfathering in Common Equity Tier 1 or Additional Tier 1 items in other elements of own funds

From 1 January 2014 to 31 December 2021, institutions may, by way of derogation from Articles 51, 52, 62 and 63, treat the following as items referred to in Article 484(5), to the extent that their inclusion does not exceed the applicable percentage limit referred to in Article 486(4):

(a) capital, and the related share premium accounts, referred to in Article 484(3) that are excluded from Common Equity Tier 1 items because they exceed the applicable percentage specified in Article 486(2);

(b) instruments, and the related share premium accounts, referred to in Article 484(4) that exceed the applicable percentage referred to in Article 486(3).

EBA shall submit those draft regulatory technical standards to the Commission by 28 July 2013.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Article 488

Amortisation of items grandfathered as Tier 2 items

The items referred to in Article 484(5) that qualify as Tier 2 items referred to in Article 484(5) or Article 486(4) shall be subject to the requirements laid down in Article 64.

Sub-Section 2

Inclusion of instruments with a call and incentive to redeem in additional Tier 1 and Tier 2 items

Article 489

Hybrid instruments with a call and incentive to redeem

The instruments shall qualify as Additional Tier 1 instruments provided that the following conditions are met:

(a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013;

(b) the institution did not exercise the call;

(c) the conditions laid down in Article 52 are met from 1 January 2013.

The instruments shall qualify as Additional Tier 1 instruments with their recognition reduced in accordance with Article 484(4) until the date of their effective maturity and thereafter shall qualify as Additional Tier 1 items without limit provided that:

(a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013;

(b) the institution did not exercise the call on the date of the effective maturity of the instruments;

(c) the conditions laid down in Article 52 are met from the date of the effective maturity of the instruments.

The instruments shall not qualify as Additional Tier 1 instruments, and shall not be subject to Article 484(4), from 1 January 2014 where the following conditions are met:

(a) the institution was able to exercise a call with an incentive to redeem between 31 December 2011 and 1 January 2013;

(b) the institution did not exercise the call on the date of the effective maturity of the instruments;

(c) the conditions laid down in Article 52 are not met from the date of the effective maturity of the instruments.

The instruments shall qualify as Additional Tier 1 instruments with their recognition reduced in accordance with Article 484(4) until the date of their effective maturity, and shall not qualify as Additional Tier 1 instruments thereafter, where the following conditions are met:

(a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013;

(b) the institution did not exercise the call on the date of the effective maturity of the instruments;

(c) the conditions laid down in Article 52 are not met from the date of the effective maturity of the instruments.

The instruments shall qualify as Additional Tier 1 instruments in accordance with Article 484(4) where the following conditions are met:

(a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011;

(b) the institution did not exercise the call on the date of the effective maturity of the instruments;

(c) the conditions laid down in Article 52 were not met from the date of the effective maturity of the instruments.

Article 490

Tier 2 items with an incentive to redeem

The items shall qualify as Tier 2 instruments provided that:

(a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013;

(b) the institution did not exercise the call;

(c) from 1 January 2013 the conditions laid down in Article 63 are met.

The items shall qualify as Tier 2 items in accordance with Article 484(5) until the date of their effective maturity, and shall qualify thereafter as Tier 2 items without limit, provided that the following conditions are met:

(a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013;

(b) the institution did not exercise the call on the date of the effective maturity of the items;

(c) the conditions laid down in Article 63 are met from the date of the effective maturity of the items.

The items shall not qualify as Tier 2 items from 1 January 2014 where the following conditions are met:

(a) the institution was able to exercise a call with an incentive to redeem only between 31 December 2011 and 1 January 2013;

(b) the institution did not exercise the call on the date of the effective maturity of the items;

(c) the conditions laid down in Article 63 are not met from the date of the effective maturity of the items.

The items shall qualify as Tier 2 items with their recognition reduced in accordance with Article 484(5) until the date of their effective maturity, and shall not qualify as Tier 2 items thereafter, where:

(a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013;

(b) the institution did not exercise the call on the date of their effective maturity;

(c) the conditions set out in Article 63 are not met from the date of effective maturity of the items.

The items shall qualify as Tier 2 items in accordance with Article 484(5) where:

(a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011;

(b) the institution did not exercise the call on the date of the effective maturity of the items;

(c) the conditions laid down in Article 63 are not met from the date of the effective maturity of the items.

Article 491

Effective maturity

For the purposes of Articles 489 and 490, effective maturity shall be determined as follows:

(a) for the items referred to in paragraphs 3 and 5 of those Articles, the date of the first call with an incentive to redeem occurring on or after 1 January 2013;

(b) for the items referred to in paragraph 4 of those Articles, the date of the first call with an incentive to redeem occurring between 31 December 2011 and 1 January 2013;

(c) for the items referred to in paragraph 6 of those Articles, the date of the first call with an incentive to redeem prior to 31 December 2011.

CHAPTER 3

Transitional provisions for disclosure of own funds

Article 492

Disclosure of own funds

From 1 January 2014 to 31 December 2017, institutions shall disclose the following additional information about their own funds:

(a) the nature and effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds of the individual filters and deductions applied in accordance with Articles 467 to 470, 474, 476 and 479;

(b) the amounts of minority interests and Additional Tier 1 and Tier 2 instruments, and related retained earnings and share premium accounts, issued by subsidiaries that are included in consolidated Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds in accordance with 4 of Chapter 1;

(c) the effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds of the individual filters and deductions applied in accordance with Article 481;

(d) the nature and amount of items that qualify as Common Equity Tier 1 items, Tier 1 items and Tier 2 items by virtue of applying the derogations specified in Section 2 of Chapter 2.

EBA shall submit those draft implementing technical standards to the Commission by 28 July 2013.

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

CHAPTER 4

Large exposures, own funds requirements, leverage and the Basel I Floor

Article 493

Transitional provisions for large exposures

By way of derogation from Article 400(2) and (3), Member States may, for a transitional period until the entry into force of any legal act following the review in accordance with Article 507, but not after 31 December 2028, fully or partially exempt the following exposures from the application of Article 395(1):

(a) covered bonds as referred to in Article 129;

(b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2;

(c) exposures, including participations or other kinds of holdings, incurred by an institution to its parent undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries and qualifying holdings, in so far as those undertakings are covered by the supervision on a consolidated basis to which the institution itself is subject, in accordance with this Regulation, Directive 2002/87/EC or with equivalent standards in force in a third country; exposures that do not meet those criteria, whether or not exempted from Article 395(1) of this Regulation, shall be treated as exposures to a third party;

(d) asset items constituting claims on and other exposures, including participations or other kinds of holdings, to regional or central credit institutions with which the credit institution belongs to a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network;

(e) asset items constituting claims on and other exposures to credit institutions incurred by credit institutions, one of which operates on a non-competitive basis and provides or guarantees loans under legislative programmes or its statutes, to promote specified sectors of the economy under some form of government oversight and restrictions on the use of the loans, provided that the respective exposures arise from such loans that are passed on to the beneficiaries via credit institutions or from the guarantees of these loans;

(f) asset items constituting claims on and other exposures to institutions, provided that those exposures do not constitute such institutions' own funds, do not last longer than the following business day and are not denominated in a major trading currency;

(g) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies;

(h) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the competent authority, the credit assessment of those central governments assigned by a nominated ECAI is investment grade;

(i) 50 % of bucket 4 off-balance-sheet documentary credits and of bucket 3 off-balance-sheet undrawn credit facilities referred to in Annex I with an original maturity of up to and including one year and subject to the competent authorities’ agreement, 80 % of guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions;

(j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk- weighted exposure amounts;

(k) assets items constituting claims on and other exposures to recognised exchanges.

By way of derogation from Article 395(1), competent authorities may allow institutions to incur any of the exposures provided for in paragraph 5 of this Article meeting the conditions set out in paragraph 6 of this Article, up to the following limits:

(a) 100 % of the institution’s Tier 1 capital until 31 December 2018;

(b) 75 % of the institution’s Tier 1 capital until 31 December 2019;

(c) 50 % of the institution’s Tier 1 capital until 31 December 2020.

The limits referred to in points (a), (b) and (c) of the first subparagraph shall apply to exposure values after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403.

The transitional arrangements set out in paragraph 4 shall apply to the following exposures:

(a) asset items constituting claims on central governments, central banks, or public sector entities of Member States;

(b) asset items constituting claims expressly guaranteed by central governments, central banks, or public sector entities of Member States;

(c) other exposures to, or guaranteed by, central governments, central banks, or public sector entities of Member States;

(d) asset items constituting claims on regional governments or local authorities of Member States treated as exposures to a central government in accordance with Article 115(2);

(e) other exposures to, or guaranteed by, regional governments or local authorities of Member States treated as exposures to a central government in accordance with Article 115(2).

For the purposes of points (a), (b) and (c) of the first subparagraph, the transitional arrangements set out in paragraph 4 of this Article shall apply only to asset items and other exposures to, or guaranteed by, public sector entities which are treated as exposures to a central government, a regional government or a local authority in accordance with Article 116(4). Where asset items and other exposures to, or guaranteed by, public sector entities are treated as exposures to a regional government or a local authority in accordance with Article 116(4), the transitional arrangements set out in paragraph 4 of this Article shall apply only where exposures to that regional government or local authority are treated as exposures to a central government in accordance with Article 115(2).

The transitional arrangements set out in paragraph 4 of this Article shall apply only where an exposure referred to in paragraph 5 of this Article meets all of the following conditions:

(a) the exposure would be assigned a risk weight of 0 % in accordance with the version of Article 495(2) in force on 31 December 2017;

(b) the exposure was incurred on or after 12 December 2017.

Article 494

Transitional provisions concerning the requirement for own funds and eligible liabilities

By way of derogation from Article 92a, as from 27 June 2019 until 31 December 2021, institutions identified as resolution entities that are G-SII entities shall at all times satisfy the following requirements for own funds and eligible liabilities:

(a) 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 Article 92(3) and (4);

(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 referred to in Article 429(4).

Article 494a

Grandfathering of issuances through special purpose entities

By way of derogation from Article 52, capital instruments not issued directly by an institution shall qualify as Additional Tier 1 instruments until 31 December 2021 only where all the following conditions are met:

(a) the conditions set out in Article 52(1), except for the condition requiring that the instruments are directly issued by the institution;

(b) the instruments are issued through an entity within the consolidation pursuant to Chapter 2 of Title II of Part One;

(c) the proceeds are immediately available to the institution without limitation and in a form that satisfies the conditions set out in this paragraph.

By way of derogation from Article 63, capital instruments not issued directly by an institution shall qualify as Tier 2 instruments until 31 December 2021 only where all the following conditions are met:

(a) the conditions set out in Article 63, except for the condition requiring that the instruments are directly issued by the institution;

(b) the instruments are issued through an entity within the consolidation pursuant to Chapter 2 of Title II of Part One;

(c) the proceeds are immediately available to the institution without limitation and in a form that satisfies the conditions set out in this paragraph.

Article 494b

Grandfathering of own funds instruments and eligible liabilities instruments

Article 494c

Grandfathering of senior securitisation positions

By way of derogation from Article 270, an originator institution may calculate the risk-weighted exposure amounts of a senior securitisation position in accordance with Article 260, 262 or 264 where both the following conditions are met:

(a) the securitisation was issued before 9 April 2021;

(b) the securitisation met, on 8 April 2021, the conditions laid down in Article 270 as applicable at that date.

Article 494d

Reversion to less sophisticated approaches

By way of derogation from Article 149, an institution may from 9 July 2024 until 10 July 2027, revert to less sophisticated approaches for one or more of the exposure classes referred to in Article 147(2), where all of the following conditions are met:

(a) the institution already existed on 8 July 2024 and was authorised by its competent authority to treat those exposure classes under the IRB Approach;

(b) the institution requests a reversion to a less sophisticated approach only once during that three-year period;

(c) the request to revert to a less sophisticated approach is not made with a view to engaging in regulatory arbitrage;

(d) the institution has formally notified the competent authority that it wishes to revert to a less sophisticated approach for those exposure classes at least six months before it effectively does revert to that approach;

(e) the competent authority has not objected to the institution’s request to such reversion within three months of the receipt of the notification referred to in point (d).

Article 495

Treatment of equity exposures under the IRB Approach

By way of derogation from Article 107(1), institutions that have been granted permission to apply the IRB Approach to calculate the risk-weighted exposure amount for equity exposures shall, until 31 December 2029 and without prejudice to Article 495a(3), calculate the risk-weighted exposure amount for each equity exposure for which they have been granted permission to apply the IRB Approach as the higher of the following:

(a) the risk-weighted exposure amount calculated in accordance with Article 495a(1) and (2);

(b) the risk-weighted exposure amount calculated under this Regulation in the version applicable on 8 July 2024.

Where institutions apply the first subparagraph of this paragraph, Article 495a(1) and (2) shall not apply.

For the purposes of this paragraph, the conditions to revert to the use of less sophisticated approaches set out in Article 149 shall not apply.

Article 495a

Transitional arrangements for equity exposures

By way of derogation from the treatment laid down in Article 133(3), equity exposures shall be assigned the higher of the risk weight applicable on 8 July 2024, capped at 250 %, and the following risk-weights:

(a) 100 % during the period from 1 January 2025 to 31 December 2025;

(b) 130 % during the period from 1 January 2026 to 31 December 2026;

(c) 160 % during the period from 1 January 2027 to 31 December 2027;

(d) 190 % during the period from 1 January 2028 to 31 December 2028;

(e) 220 % during the period from 1 January 2029 to 31 December 2029.

By way of derogation from the treatment laid down in Article 133(4), equity exposures shall be assigned the higher of the risk weight applicable on 8 July 2024 and the following risk weights:

(a) 100 % during the period from 1 January 2025 to 31 December 2025;

(b) 160 % during the period from 1 January 2026 to 31 December 2026;

(c) 220 % during the period from 1 January 2027 to 31 December 2027;

(d) 280 % during the period from 1 January 2028 to 31 December 2028;

(e) 340 % during the period from 1 January 2029 to 31 December 2029.

Article 495b

Transitional arrangements for specialised lending exposures

By way of derogation from Article 161(4), the LGD input floors applicable to specialised lending exposures treated under the IRB Approach where own estimates of LGD are used, shall be the applicable LGD input floors provided for in Article 161(4), multiplied by the following factors:

(a) 50 % during the period from 1 January 2025 to 31 December 2027;

(b) 80 % during the period from 1 January 2028 to 31 December 2028;

(c) 100 % during the period from 1 January 2029 to 31 December 2029.

EBA shall submit that report to the European Parliament to the Council and to the Commission by 10 July 2026.

On the basis of that report and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2027.

By way of derogation from Article 122a(3), point (a), specialised lending exposures as referred to in that point for which a directly applicable credit assessment by a nominated ECAI is not available may, until 31 December 2032, be assigned a risk weight of 80 %, where the adjustment to own funds requirements for credit risk referred to in Article 501a is not applied and the exposure is deemed to be of high quality when taking into account all of the following criteria:

(a) the obligor can meet its financial obligations even under severely stressed conditions due to the presence of all of the following features: (i) adequate exposure-to-value of the exposure; (ii) conservative repayment profile of the exposure; (iii) commensurate remaining lifetime of the assets upon full pay-out of the exposure or alternatively recourse to a protection provider with high creditworthiness; (iv) low refinancing risk of the exposure by the obligor or that risk is adequately mitigated by a commensurate residual asset value or recourse to a protection provider with high creditworthiness; (v) the obligor has contractual restrictions over its activity and funding structure; (vi) the obligor uses derivatives only for risk-mitigation purposes; (vii) material operating risks are properly managed;

(b) the contractual arrangements on the assets provide lenders with a high degree of protection, including the following features: (i) the lenders have a legally enforceable first-ranking right over the assets financed and, where applicable, over the income that they generate; (ii) there are contractual restrictions on the ability of the obligor to make changes to the asset which would have a negative impact on its value; (iii) where the asset is under construction, the lenders have a legally enforceable first-ranking right over the assets and the underlying construction contracts;

(c) the assets being financed meet all of the following standards to operate in a sound and effective manner: (i) the technology and design of the asset are tested; (ii) all necessary permits and authorisations for the operation of the assets have been obtained; (iii) where the asset is under construction, the obligor has adequate safeguards on the agreed specifications, budget and completion date of the asset, including strong completion guarantees or the involvement of an experienced constructor and adequate contract provisions for liquidated damages.

EBA shall prepare a report, analysing the following:

(a) the evolution of the trends and conditions in markets for object finance in the Union;

(b) the effective riskiness of the object finance exposures over a full economic cycle;

(c) the impact on own funds requirements of the treatment set out in Article 122a(3), point (a), for object finance exposures, without taking into account Article 465(1);

(d) the appropriateness of the definition of the sub-class of ‘high quality object finance’ and to assign to that sub-class of exposures a different prudential treatment.

EBA shall submit that report to the European Parliament, to the Council and to the Commission by 31 December 2030.

On the basis of that report and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2031.

Article 495c

Transitional arrangements for leasing exposures as a credit risk mitigation technique

By way of derogation from Article 230, the applicable value of Hc corresponding to ‘other physical collateral’ for exposures referred to in Article 199(7) where the asset leased corresponds to the ‘other physical collateral’ type of funded credit protection, shall be the value of Hc for ‘other physical collateral’ provided for in Article 230(2), Table 1, multiplied by the following factors:

(a) 50 % during the period from 1 January 2025 to 31 December 2027;

(b) 80 % during the period from 1 January 2028 to 31 December 2028;

(c) 100 % during the period from 1 January 2029 to 31 December 2029.

EBA shall submit that report to the European Parliament, to the Council and to the Commission by 10 July 2027.

On the basis of that report, and taking into account the internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2028.

Article 495d

Transitional arrangements for unconditional cancellable commitments

By way of derogation from Article 111(2), institutions shall calculate the exposure value of an off-balance-sheet item in the form of unconditionally cancellable commitment by multiplying the percentage provided for in that Article by the following factors:

(a) 0 % during the period from 1 January 2025 to 31 December 2029;

(b) 25 % during the period from 1 January 2030 to 31 December 2030;

(c) 50 % during the period from 1 January 2031 to 31 December 2031;

(d) 75 % during the period from 1 January 2032 to 31 December 2032.

EBA shall submit that report to the European Parliament, to the Council and to the Commission by 31 December 2028.

On the basis of that report and taking due account of the related internationally agreed standards developed by the BCBS and the impact of those standards on financial stability, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2031.

Article 495e

Transitional arrangements for ECAI credit assessments of institutions

By way of derogation from Article 138, point (g), competent authorities may allow institutions to continue using an ECAI credit assessment in relation to an institution which incorporates assumptions of implicit government support until 31 December 2029.

Article 495f

Transitional arrangements for property revaluation requirements

By way of derogation from Article 229(1), points (a) to (d), for exposures secured by residential property or commercial immovable property granted before 1 January 2025, institutions may continue to value residential property or commercial immovable property at or less than the market value, or in those Member States that have provided for rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, the mortgage lending value of that property, until a review of the property value is required in accordance with Article 208(3), or 31 December 2027, whichever is earlier.

Article 495g

Transitional arrangements for certain public guarantees schemes

By way of derogation from Articles 183(1) and 213(1), a guarantee that can be cancelled in the event of fraud by the obligor or the extent of credit protection of which can be diminished in such event, shall be considered to meet the requirements referred to in Article 183(1), point (d), and in Article 213(1), point (c), where the guarantee was provided by an entity referred to in Article 214(2), point (a), no later than 31 December 2024.

Article 495h

Transitional arrangements for the use of the alternative internal model approach for market risk

By way of derogation from Article 325az(2), point (d), institutions may use, until 1 January 2026, the alternative internal model approach to calculate their own funds requirements for market risk for trading desks that do not meet the requirements laid down in Article 325bg.

Article 497

Own funds requirements for exposures to CCPs

Where a third-country CCP applies for recognition in accordance with Article 25 of Regulation (EU) No 648/2012, institutions may consider that CCP as a QCCP 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 Regulation (EU) No 648/2012 in relation to the third country in which the CCP is established and that implementing act has entered into force, two years after 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 Regulation (EU) No 648/2012 in relation to the third country in which the CCP is established or where that implementing act has not yet entered into force, the earlier of the following dates:

(i) two years after the date of entry into force of the implementing act; (ii) for CCPs that submitted the application after 27 June 2019, two years after the date of submission of the application; (iii) for those CCPs that submitted the application before 27 June 2019, 28 June 2021.

Until the expiration of the deadline referred to in paragraph 1 of this Article, where a CCP referred to in that paragraph does not have a default fund and 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 its clearing members as if they were pre-funded contributions, the institution shall substitute the formula for calculating the own funds requirement in Article 308(2) with the following one:

where:

Article 498

Exemption for Commodities dealers

Until 26 June 2021, the provisions on own funds requirements as set out in this Regulation shall not apply to investment firms the main business of which 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 (11) of Section C of Annex I to Directive 2014/65/EU and to which Directive 2004/39/EC did not apply on 31 December 2006.

Article 499

Leverage

By way of derogation from Articles 429 and 430, during the period between 1 January 2014 and 31 December 2021, institutions shall calculate and report the leverage ratio by using both of the following as the capital measure:

(a) Tier 1 capital;

(b) Tier 1 capital, subject to the derogations laid down in Chapters 1 and 2 of this Title.

Article 500

Adjustment for massive disposals

By way of derogation from point (a) of Article 181(1), an institution may adjust its LGD estimates by partly or fully offsetting the effect of massive disposals of defaulted exposures on realised LGDs up to the difference between the average estimated LGDs for comparable exposures in default that have not been finally liquidated and the average realised LGDs including on the basis of the losses realised due to massive disposals, as soon as all the following conditions are met:

(a) the institution has notified the competent authority of a plan providing the scale, composition and the dates of the disposals of defaulted exposures;

(b) the dates of the disposals of defaulted exposures are after 23 November 2016 but not later than 31 December 2024;

(c) the cumulative amount of defaulted exposures disposed of since the date of the first disposal in accordance with the plan referred to in point (a) has surpassed 20 % of the outstanding amount of all defaulted exposures as of the date of the first disposal referred to in points (a) and (b).

The adjustment referred to in the first subparagraph may only be carried out until 31 December 2024 and its effects may last for as long as the corresponding exposures are included in the institution’s own LGD estimates.

The Commission shall review the appropriateness of the derogation set out in paragraph 1 and shall, where appropriate, submit a legislative proposal to the European Parliament and to the Council to extend, reintroduce or amend, as needed, the adjustment provided for in this Article.

Article 500a

Temporary treatment of public debt issued in the currency of another Member State

By way of derogation from Article 114(2), until 31 December 2026, for exposures to the central governments and central banks of Member States, where those exposures are denominated and funded in the domestic currency of another Member State, the following apply:

(a) until 31 December 2024, the risk weight applied to the exposure values shall be 0 % of the risk weight assigned to those exposures in accordance with Article 114(2);

(b) in 2025, the risk weight applied to the exposure values shall be 20 % of the risk weight assigned to those exposures in accordance with Article 114(2);

(c) in 2026, the risk weight applied to the exposure values shall be 50 % of the risk weight assigned to those exposures in accordance with Article 114(2).

By way of derogation from Articles 395(1) and 493(4), competent authorities may allow institutions to incur exposures referred to in paragraph 1 of this Article, up to the following limits:

(a) 100 % of the institution’s Tier 1 capital until 31 December 2025;

(b) 75 % of the institution’s Tier 1 capital between 1 January and 31 December 2026;

(c) 50 % of the institution’s Tier 1 capital between 1 January and 31 December 2027.

The limits referred to in points (a), (b) and (c) of the first subparagraph of this paragraph shall apply to exposure values after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403.

Article 500b

Temporary exclusion of certain exposures to central banks from the total exposure measure in view of the COVID-19 pandemic

By way of derogation from Article 429(4), until 27 June 2021, an institution may exclude from its total exposure measure the following exposures to the institution’s central bank, subject to the conditions set out in paragraphs 2 and 3 of this Article:

(a) coins and banknotes constituting legal currency in the jurisdiction of the central bank;

(b) assets representing claims on the central bank, including reserves held at the central bank.

The amount excluded by the institution shall not exceed the daily average amount of the exposures listed in points (a) and (b) of the first subparagraph over the most recent full reserve maintenance period of the institution’s central bank.

An institution may exclude the exposures listed in paragraph 1 where the institution’s competent authority has determined, after consultation with the relevant central bank, and publicly declared that exceptional circumstances exist that warrant the exclusion in order to facilitate the implementation of monetary policies.

The exposures to be excluded under paragraph 1 shall meet both of the following conditions:

(a) they are denominated in the same currency as the deposits taken by the institution;

(b) their average maturity does not significantly exceed the average maturity of the deposits taken by the institution.

An institution that excludes exposures to its central bank from its total exposure measure in accordance with paragraph 1 shall also disclose the leverage ratio it would have if it did not exclude those exposures.

Article 500c

Exclusion of overshootings from the calculation of the back-testing addend in view of the COVID-19 pandemic

By way of derogation from Article 325bf, competent authorities may, in exceptional circumstances and in individual cases, permit institutions to exclude the overshootings evidenced by the institution’s back-testing on hypothetical or actual changes from the calculation of the addend set out in Article 325bf, provided that those overshootings do not result from deficiencies in the internal model and provided that they occurred between 1 January 2020 and 31 December 2021.

Article 500d

Temporary calculation of the exposure value of regular-way purchases and sales awaiting settlement in view of the COVID-19 pandemic

Institutions that, in accordance with the applicable accounting framework, apply settlement date accounting to regular-way purchases and sales which are awaiting settlement shall include in the total exposure measure the full nominal value of commitments to pay related to regular-way purchases.

Institutions may offset the full nominal value of commitments to pay related to regular-way purchases by the full nominal value of cash receivables related to regular-way sales awaiting settlement only where both of the following conditions are met:

(a) both the regular-way purchases and sales are settled on a delivery-versus-payment basis;

(b) the financial assets bought and sold that are associated with cash payables and receivables are measured at fair value through profit or loss and included in the institution’s trading book.

Article 501

Adjustment of risk-weighted non-defaulted SME exposures

Institutions shall adjust the risk-weighted exposure amounts for non-defaulted exposures to an SME (RWEA), which are calculated in accordance with Chapter 2 or 3 of Title II of Part Three, as applicable, in accordance with the following formula:

where:

For the purposes of this Article:

(a) the exposure to an SME shall be included either in the retail or in the corporates or secured by mortgages on immovable property exposure classes but excluding ADC exposures;

(b) an SME shall have the meaning laid down in Article 5, point (9);

(c) institutions shall take reasonable steps to correctly determine E* and obtain the information required under point (b).

Article 501a

Adjustment to own funds requirements for credit risk for exposures to entities that operate or finance physical structures or facilities, systems and networks that provide or support essential public services

Own funds requirements for credit risk calculated in accordance with Title II of Part III shall be multiplied by a factor of 0,75, provided that the exposure complies with all the following criteria:

(a) the exposure is assigned to the exposure class referred to in Article 112, point (g), or to any of the exposure classes referred to in Article 147(2), point (c)(i), (ii) or (iii), 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 networks that provide or support essential public services;

(c) the source of repayment of the obligation is represented for not less than two thirds of its amount by the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise, or by subsidies, grants or funding provided by one or more of the entities listed in points (b)(i) and (b)(ii) of paragraph 2;

(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 of the loan;

(f) the obligor’s refinancing risk is low or adequately mitigated, taking into account any subsidies, grants or funding provided by one or more of the entities listed in paragraph 2, points (b)(i) and (ii);

(g) the contractual arrangements provide lenders with a high degree of protection including the following: (i) 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; (ii) 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 the lifetime of the assets referred to in point (b) of this paragraph; (iii) the lenders have a substantial degree of control over the assets and the income generated by the obligor; (iv) the lenders have the benefit of security to the extent permitted by applicable law in assets and contracts critical to the infrastructure business or have alternative mechanisms in place to secure their position; (v) equity is pledged to lenders such that they are able to take control of the entity upon default; (vi) the use of net operating cash flows after mandatory payments from the project for purposes other than servicing debt obligations is restricted; (vii) there are contractual restrictions on the ability of the 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 providers;

(h) the obligation is senior to all other claims other than statutory claims and claims from derivatives counterparties;

(i) 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 equity investors as a whole: (i) the equity investors have a history of successfully overseeing infrastructure projects, the financial strength and the relevant expertise; (ii) the equity investors have a low risk of default, or there is a low risk of material losses for the obligor as a result of their default; (iii) there are adequate mechanisms in place to align the interest of the equity investors with the interests of lenders;

(j) the obligor has adequate safeguards to ensure completion of the project according to the agreed specification, budget or completion date; including strong completion guarantees or the involvement of an experienced constructor and adequate contract provisions for liquidated damages;

(k) where operating risks are material, they are properly managed;

(l) the obligor uses tested technology and design;

(m) all necessary permits and authorisations have been obtained;

(n) the obligor uses derivatives only for risk-mitigation purposes;

(o) for exposures originated after 1 January 2025 the obligor has carried out an assessment that the assets being financed contribute positively to one or more of the environmental objectives set out in Article 9 of Regulation (EU) 2020/852 and do not significantly harm the other objectives set out in that Article, or that the assets being financed do not significantly harm any of the environmental objectives set out in that Article.

For the purposes of point (e) of paragraph 1, the cash flows generated shall not be considered predictable unless a substantial part of the revenues satisfies the following conditions:

(a) one of the following criteria is met:

(i) the revenues are availability-based; (ii) the revenues are subject to a rate-of-return regulation; (iii) the revenues are subject to a take-or-pay contract; (iv) the level of output or the usage and the price shall independently meet one of the 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 party which agrees to purchase the goods or services provided by the obligor shall be one of the following:

(i) a central bank, a central government, a regional government or a local authority, provided that they are assigned a risk weight of 0 % in accordance with Articles 114 and 115 or are assigned an ECAI rating with a credit quality step of at least 3; (ii) a public sector entity, provided that it is assigned a risk weight of 20 % or below in accordance with Article 116 or is assigned an ECAI rating with a credit quality step of at least 3; (iii) a multilateral development bank referred to in Article 117(2); (iv) an international organisation referred to in Article 118; (v) a corporate entity which has been assigned an ECAI rating with a credit quality step of at least 3; (vi) an entity that is replaceable without a significant change in the level and timing of revenues.

For the purposes of paragraph 4, EBA shall report on the following to the Commission:

(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 point (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) of this paragraph.

Article 501b

Derogation from reporting requirements

By way of derogation from Article 430, during the period between the date of application of the relevant provisions of this Regulation and the date of the first remittance of reports specified in the implementing technical standards referred to in that Article, a competent authority may waive the requirement to report information in the format specified in the templates contained in the implementing act referred to in Article 430(7) where those templates have not been updated to reflect the provisions of this Regulation.

TITLE II

REPORTS AND REVIEWS

Article 501c

Prudential treatment of exposures to environmental or social factors

EBA, after consulting the ESRB, shall, on the basis of available data, assess whether the dedicated prudential treatment of exposures related to assets or liabilities, subject to the impact of environmental or social factors is to be adjusted. In particular, EBA shall assess:

(a) the availability and accessibility of reliable and consistent ESG data for each exposure class determined in accordance with Part Three, Title II;

(b) in consultation with EIOPA, the feasibility of introducing a standardised methodology to identify and qualify the exposures, for each exposure class determined in accordance with Part Three, Title II, based on a common set of principles to ESG risk classification, using the information on transition risk and physical risk indicators made available by sustainability disclosure reporting frameworks adopted in the Union and where available internationally, the guidance and conclusions coming from the supervisory stress-testing or scenario analysis of climate-related financial risks conducted by EBA or the competent authorities and if appropriately reflecting the ESG risks, the relevant ESG score of the credit risk rating by a nominated ECAI;

(c) the effective riskiness of exposures related to assets and activities subject to the impact of environmental or social factors compared to the riskiness of other exposures and the possible additional and more comprehensive revisions to the framework that should be considered, taking into consideration the developments agreed at international level by the BCBS;

(d) the potential short, medium and long-term effects of an adjusted dedicated prudential treatment of exposures related to assets and activities subject to the impact of environmental or social factors on financial stability and bank lending in the Union;

(e) the targeted enhancements that could be considered within the current prudential framework.

EBA shall submit successive reports on its findings to the European Parliament, to the Council and to the Commission by the following dates:

(a) 9 July 2024 for the assessments required under paragraph 1, point (e);

(b) 31 December 2024 for the assessments required under paragraph 1, points (a) and (b);

(c) 31 December 2025 for the assessments required under paragraph 1, points (c) and (d).

On the basis of those EBA reports, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2026.

Article 501d

Transitional provisions on the prudential treatment of crypto-assets

By 30 June 2025, the Commission shall, where appropriate, submit a legislative proposal to the European Parliament and to the Council to introduce a dedicated prudential treatment for crypto-asset exposures, taking into account the international standards and Regulation (EU) 2023/1114. That legislative proposal shall include the following:

(a) criteria for assigning crypto-assets to different crypto-asset categories based on their risk characteristics and compliance with specific conditions;

(b) specific own funds requirements for all risks entailed by different crypto-assets;

(c) an aggregate limit for exposures to specific types of crypto-assets;

(d) specific leverage ratio requirements for crypto-asset exposures;

(e) specific supervisory powers as regards crypto-asset exposure assignment, monitoring and calculation of the own funds requirements;

(f) specific liquidity requirements for crypto-asset exposures;

(g) disclosure and reporting requirements.

Until the date of application of the legislative act referred to in paragraph 1, institutions shall calculate their own funds requirements for crypto-asset exposures as follows:

(a) crypto-asset exposures to tokenised traditional assets shall be treated as exposures to the traditional assets that they represent;

(b) exposures to asset-referenced tokens whose issuers comply with Regulation (EU) 2023/1114 and that reference one or more traditional assets shall be assigned a risk weight of 250 %;

(c) crypto-asset exposures other than those referred to in points (a) and (b) shall be assigned a risk weight of 1 250 %.

By way of derogation from the first subparagraph, point (a), crypto-asset exposures to tokenised traditional assets whose values depend on any other crypto-assets shall be assigned to point (c).

In developing those draft regulatory technical standards, EBA shall take into consideration the related internationally agreed standards developed by the BCBS as well as existing authorisations in the Union under Regulation (EU) 2023/1114.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.

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

Article 502

Cyclicality of capital requirements

The Commission, in cooperation with EBA, ESRB and the Member States, and taking into account the opinion of the ECB, shall periodically monitor whether this Regulation taken as a whole, together with Directive 2013/36/EU, has significant effects on the economic cycle and, in the light of that examination, shall consider whether any remedial measures are justified.

By 31 December 2013, EBA shall report to the Commission on whether, and if so how, methodologies of institutions under the IRB Approach should converge with a view to more comparable capital requirements while mitigating pro-cyclicality.

Based on that analysis and taking into account the opinion of the ECB, the Commission shall draw up a biennial report and submit it to the European Parliament and to the Council, together with any appropriate proposals. Contributions from credit taking and credit lending parties shall be adequately acknowledged when the report is drawn up.

By 31 December 2014, the Commission shall review, and report on, the application of Article 33(1)(c) and shall submit that report to the European Parliament and the Council, together with a legislative proposal, if appropriate.

With respect to the potential deletion of Article 33(1)(c) and its potential application at the Union level, the review shall in particular ensure that sufficient safeguards are in place to ensure financial stability in all Member States.

Article 503

Own funds requirements for exposures in the form of covered bonds

The report and the proposals referred to in paragraph 1 shall take into account:

(a) the extent to which the current regulatory capital requirements applicable to covered bonds adequately differentiate between variances in the credit quality of covered bonds and the collateral against which they are secured, including the extent of variations across Member States;

(b) the transparency of the covered bond market and the extent to which this facilitates comprehensive internal analysis by investors in respect of the credit risk of covered bonds and the collateral against which they are secured and the asset segregation in case of the issuer's insolvency, including the mitigating effects of the underlying strict national legal framework in accordance with Article 129 of this Regulation and Article 52(4) of Directive 2009/65/EC on the overall credit quality of a covered bond and its implications on the level of transparency needed by investors; and

(c) the extent to which covered bond issuance by a credit institution impacts on the credit risk to which other creditors of the issuing institution are exposed.

Article 504

Capital instruments subscribed by public authorities in emergency situations

The Commission shall, by 31 December 2016, after consulting EBA, report to the European Parliament and the Council, together with any appropriate proposals, whether the treatment set out in Article 31 needs to be amended or deleted.

Article 504a

Holdings of eligible liabilities instruments

By 28 June 2022, EBA shall report to the Commission on the amounts and distribution of holdings of eligible liabilities instruments among institutions identified as G-SIIs or O-SIIs and on potential impediments to resolution and the risk of contagion in relation to those holdings.

Based on the report by EBA the Commission shall, by 28 June 2023, report to the European Parliament and to the Council on the appropriate treatment of such holdings, accompanied by a legislative proposal, where appropriate.

Article 505

Review of agricultural financing

By 31 December 2030, EBA shall prepare a report on the impact of the requirements of this Regulation on agricultural financing, including on:

(a) the appropriateness of a dedicated risk weight for own funds requirements for credit risk calculated in accordance with Part Three, Title II, for exposures to an agricultural enterprise;

(b) where applicable, prudentially justified criteria for the application of such a dedicated risk weight, including farming practices, as well as the inclusion of exposures in the corporates, retail or secured by mortgages on immovable property exposure classes;

(c) the alignment with the ‘farm to fork’ strategy set out in the communication of the Commission of 20 May 2020 entitled ‘A Farm to Fork Strategy for a fair, healthy and environmentally-friendly food system’ and the respective environmental impact within the meaning of Regulation (EU) 2020/852, in particular with the indicators as collected in the Union’s Farm Accountancy Data Network, showing contribution scores with regard to: (i) net greenhouse gas emissions per hectare; (ii) pesticides and fertilisers usage per hectare; (iii) soil’s minerals efficiency ratios, including carbon, ammonia, phosphate and nitrogen per hectare; (iv) water use efficiency; (v) a confirmation of positive impact on the indicators referred to in points (i) to (iv) of this point with an organic production logo of the European Union referred to in Regulation (EU) 2018/848 of the European Parliament and of the Council (⁴³).

Article 506

Credit risk — credit insurance

By 30 June 2024, EBA shall, in close cooperation with EIOPA, report to the Commission on the eligibility and use of credit insurance policy as a credit risk mitigation technique, including on:

(a) the appropriateness of the associated risk parameters referred to in Part Three, Title II, Chapters 3 and 4;

(b) an analysis of the effective and observed riskiness of credit risk exposures where a credit insurance was recognised as a credit risk mitigation technique;

(c) the consistency of own funds requirements laid down in this Regulation with the outcomes of the analysis under points (a) and (b).

On the basis of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal to amend the treatment applicable to credit insurance referred to in Part Three, Title II, by 31 December 2024.

Article 506a

CIUs with an underlying portfolio of euro area sovereign bonds

In close cooperation with the ESRB and EBA, the Commission shall publish a report by 31 December 2021 in which it shall assess whether changes to the regulatory framework are needed to promote the market for, and bank purchases of, exposures in the form of units or shares in CIUs with an underlying portfolio consisting exclusively of sovereign bonds of Member States whose currency is the euro, where the relative weight of each Member States’ sovereign bonds in the total portfolio of the CIU is equal to the relative weight of each Member States’ capital contribution to the ECB.

Article 506b

NPE securitisations

Article 506c

Credit risk — interaction between Common Equity Tier 1 capital reductions and credit risk parameters

By 31 December 2026, EBA shall report to the Commission on the consistency between the current measurement of credit risk and the individual credit risk parameters and on the treatment of any adjustments for the purpose of the computation of the IRB shortfall or IRB excess as referred to in Article 159, and on its consistency with the determination of the exposure value in accordance with Article 166 and with the estimation of LGD.

That report shall consider the maximum possible economic loss arising from a default event along with its achieved coverage in terms of Common Equity Tier 1 capital reductions, taking into account any accounting-based Common Equity Tier 1 capital reductions, including from expected credit losses or fair value adjustments, and any discounts on received exposures, and their implications for regulatory deductions.

Article 506d

Prudential treatment of securitisation

Article 506e

Recognition of capped or floored unfunded credit protection

By 10 July 2026, EBA shall submit a report to the Commission on the following:

(a) the conditions that guarantees featuring caps or floors determined at the level of a portfolio of exposures (‘portfolio guarantees’) need to meet to qualify as a securitisation;

(b) the regulatory treatment applicable under Part Three, Title II, Chapter 4, to portfolio guarantees where those do not qualify as a securitisation;

(c) the application of the requirements set out in Part Three, Title II, Chapter 5, of this Regulation and in Chapter 2 of Regulation (EU) 2017/2402 for portfolio guarantees where those guarantees qualify as a securitisation;

(d) the application of Article 234 for single guarantees that lead to tranching.

In the report referred to in paragraph 1, EBA shall assess in particular the following:

(a) in relation to paragraph 1, point (a), the conditions under which portfolio guarantees give rise to a tranched transfer of risk;

(b) in relation to paragraph 1, point (b): (i) the relevant eligibility criteria of portfolio guarantees under Part Three, Title II, Chapter 4; (ii) the application of the requirements set out in Part Three, Title II, Chapter 4;

(c) in relation to paragraph 1, point (d), the application of the requirements set out in Chapter 2 of Regulation (EU) 2017/2402 and in Part Three, Title II, Chapter 5, of this Regulation.

On the basis of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2027.

Article 506f

Prudential treatment of securities financing transactions

By 10 July 2026, EBA shall report to the Commission on the impact of the new framework for securities financing transactions in terms of own funds requirements attributed to the corresponding securities financing transactions which are by nature very short-term activities, with a particular focus on its possible impact on sovereign debt markets in terms of market making capacity and cost.

EBA shall assess whether a recalibration of the associated risk weights in the standardised approach is appropriate, given the associated risks with respect to short-term maturities, specifically for residual maturities below one year.

On the basis of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2027.

Article 507

Large exposures

EBA shall monitor the use of exemptions set out in point (b) of Article 390(6), points (f) to (m) of Article 400(1), point (a) and points (c) to (g), (i), (j) and (k) of Article 400(2) and by 28 June 2021 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. That report shall assess, in particular, for each exemption provided for in those Articles:

(a) the number of large exposures exempted in each Member State;

(b) the number of institutions that make use of the exemption in each Member State;

(c) the aggregate amount of exposures exempted in each Member State.

Article 508

Level of application

Article 509

Liquidity requirements

The report referred to in the first subparagraph shall take due account of markets and international regulatory developments as well as of the interactions of the liquidity coverage requirement with other prudential requirements under this Regulation such as the risk-based capital ratios as set out in Article 92 and the leverage ratio.

The European Parliament and the Council shall be given the opportunity to state their views on the report referred to in the first subparagraph.

EBA shall, in the report referred to in paragraph 1, assess the following, in particular:

(a) the provision of mechanisms restricting the value of liquidity inflows, in particular with a view to determining an appropriate inflow cap and the conditions for its application, taking into account different business models including pass through financing, factoring, leasing, covered bonds, mortgages, issuance of covered bonds, and the extent to which that cap should be amended or removed to cater for the specificities of specialised financing;

(b) the calibration of inflows and outflows referred to in Part Six, Title II, in particular under Article 422(7) and Article 425(2);

(c) the provision of mechanisms restricting the coverage of liquidity requirements by certain categories of liquid assets, in particular assessing the appropriate minimum percentage for liquid assets referred to in points (a), (b) and (c) of Article 416(1) to the total of liquid assets, testing a threshold of 60 % and taking into account international regulatory developments. Assets owed and due or callable within 30 calendar days should not count towards the limit unless the assets have been obtained against collateral that also qualifies under points (a), (b) and (c) of Article 416(1);

(d) the provision of specific lower outflow and/or higher inflow rates for intragroup flows, specifying under which conditions such specific in- or outflow rates would be justified from a prudential point of view and setting out the high level outline of a methodology using objective criteria and parameters in order to determine specific levels of inflows and outflows between the institution and the counterparty when they are not established in the same Member State;

(e) the calibration of the draw-down rates applicable to the undrawn committed credit and liquidity facilities that fall under Article 424(3) and (5). In particular, EBA shall test a draw-down rate of 100 %;

(f) the definition of retail deposit in point (2) of Article 411, in particular the appropriateness of introducing a threshold on deposits of natural persons;

(g) the need to introduce a new retail deposit category with a lower outflow in the light of the specific characteristics of such deposits that could justify a lower outflow rate and taking into account international developments;

(h) derogations from requirements on the composition of the liquid assets institutions will be required to hold, where in a given currency the institutions' collective justified needs for liquid assets are exceeding the availability of those liquid assets and conditions to which such derogations should be subject;

(i) the definition of Shari'ah-compliant financial products as an alternative to assets that would qualify as liquid assets for the purposes of Article 416, for the use of Shari'ah-compliant banks;

(j) the definition of circumstances of stress, including principles for the use of the stock of liquid assets and the necessary supervisory reactions under which institutions would be able to use their liquid assets to meet liquidity outflows and how to address non-compliance;

(k) the definition of an established operational relationship for non-financial customer as referred to in Article 422(3)(c);

(l) the calibration of the outflow rate applicable to correspondent banking and prime brokerage services as referred to in the first subparagraph of Article 422(4);

(m) mechanisms for the grandfathering of government guaranteed bonds issued to credit institutions as part of government support measures with Union State aid approval, such as bonds issued by the National Asset Management Agency (NAMA) in Ireland and by the Spanish Asset Management Company in Spain, designed to remove problem assets from the balance sheets of credit institutions, as assets of extremely high liquidity and credit quality until at least December 2023.

The European Parliament and the Council shall be given the opportunity to state their views on that report.

The report referred to in the first subparagraph shall also consider:

(a) other categories of assets, in particular residential mortgage-backed securities of high liquidity and credit quality;

(b) other categories of central bank eligible securities or loans, such as local government bonds and commercial paper; and

(c) other non-central bank eligible but tradable assets, such as equities listed on a recognised exchange, gold, major index linked equity instruments, guaranteed bonds, covered bonds, corporate bonds and funds based on those assets.

EBA shall in particular test the adequacy of the following criteria and the appropriate levels for such definitions:

(a) minimum trade volume of the assets;

(b) minimum outstanding volume of the assets;

(c) transparent pricing and post-trade information;

(d) credit quality steps referred to in Part Three, Title II, Chapter 2;

(e) proven record of price stability;

(f) average volume traded and average trade size;

(g) maximum bid/ask spread;

(h) remaining time to maturity;

(i) minimum turnover ratio.

By 31 January 2014, EBA shall also report on the following:

(a) uniform definitions of high and extremely high liquidity and credit quality;

(b) the possible unintended consequences of the definition of liquid assets on the conduct of monetary policy operation and the extent to which: (i) a list of liquid assets that is disconnected from the list of central bank eligible assets may incentivise institutions to submit eligible assets which are not included in the definition of liquid assets in refinancing operations; (ii) regulation of liquidity may disincentivise institutions from lending or borrowing on the unsecured money market and whether this may lead to question the targeting of EONIA in monetary policy implementation; (iii) the introduction of the liquidity coverage requirement may make it more difficult for central banks to ensure price stability by using the existing monetary policy framework and instruments;

(c) the operational requirements for the holdings of liquid assets, as referred in points (b) to (f) of Article 417, in line with international regulatory developments.

Article 510

Net Stable Funding Requirements

By 31 December 2015, EBA shall also report to the Commission, on the basis of the items to be reported in accordance with Part Six, Title III and, in accordance with the uniform reporting formats referred to in point (a) of Article 415(3) and after consulting the ESRB, on methodologies for determining the amount of stable funding available to and required by institutions and on appropriate uniform definitions for calculating such a net stable funding requirement, examining in particular the following:

(a) the categories and weightings applied to sources of stable funding in Article 427(1);

(b) the categories and weightings applied to determine the requirement for stable funding in Article 428(1);

(c) methodologies shall provide incentives and disincentives as appropriate to encourage a more stable longer term funding of assets, business activities, investment and funding of institutions;

(d) the need to develop different methodologies for different types of institutions.

EBA shall monitor the amount of required stable funding covering the funding risk linked to the derivative contracts listed in Annex II and credit derivatives over the one-year horizon of the net stable funding ratio, in particular the future funding risk for those derivative contracts set out in Articles 428s(2) and 428at(2), and report to the Commission on the opportunity to adopt a higher required stable funding factor or a more risk-sensitive measure by 28 June 2024. That report shall at least assess:

(a) the opportunity to distinguish between margined and unmargined derivative contracts;

(b) the opportunity to remove, increase or replace the requirement set out in Articles 428s(2) and 428at(2);

(c) the opportunity to change more broadly the treatment of derivative contracts in the calculation of the net stable funding ratio, as set out in Article 428d, Articles 428k(4) and 428s(2), points (a) and (b) of Article 428ag, Articles 428ah(2), 428al(4) and 428at(2), points (a) and (b) of Article 428ay and Article 428az(2), to better capture the funding risk linked to those contracts over the one-year horizon of the net stable funding ratio;

(d) the impact of the proposed changes on the amount of stable funding required for institutions' derivative contracts.

EBA shall monitor the amount of stable funding required to cover the funding risk linked to securities financing transactions, including to the assets received or given in those transactions, and to unsecured transactions with a residual maturity of less than six months with financial customers and report to the Commission on the appropriateness of that treatment by 28 June 2023. That report shall at least assess:

(a) the opportunity to apply higher or lower stable funding factors to securities financing transactions with financial customers and to unsecured transactions with a residual maturity 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 between financial customers;

(b) the opportunity to apply the treatment set out in point (g) of Article 428r(1) to securities financing transactions collateralised by other types of assets;

(c) the opportunity to apply stable funding factors to off-balance-sheet items used in securities financing transactions as an alternative to the treatment set out in Article 428p(5);

(d) the adequacy of the asymmetric treatment between liabilities with a residual maturity of less than six months provided by financial customers that are subject to a 0 % available stable funding factor in accordance with point (c) of Article 428k(3) and assets resulting from transactions with a residual maturity of less than six months with financial customers that are subject to a 0 %, 5 % or 10 % required stable funding factor in accordance with point (g) of Article 428r(1), point (c) of Article 428s(1) and point (b) of Article 428v;

(e) the impact of the introduction of higher or lower required stable funding factors for securities financing transactions, in particular with a residual maturity of less than six months with financial customers, on the market liquidity of assets received as collateral in those transactions, in particular of sovereign and corporate bonds;

(f) the impact of the proposed changes on the amount of stable funding required for those institutions' transactions, in particular for securities financing transactions with a residual maturity of less than six months with financial customers where sovereign bonds are received as collateral in those transactions.

EBA shall monitor the amount of stable funding required to cover the funding risk linked to institutions' holdings of securities to hedge derivative contracts. EBA shall report on the appropriateness of the treatment by 28 June 2023. That report shall at least assess:

(a) the possible impact of the treatment on investors' ability to gain exposure to assets and the impact of the treatment on credit supply in the capital markets union;

(b) the opportunity to apply adjusted stable funding requirements to securities that are held to hedge derivatives which are funded by initial margin, either wholly or in part;

(c) the opportunity to apply adjusted stable funding requirements to securities that are held to hedge derivatives which are not funded by initial margin.

Article 511

Leverage

The Commission shall by 31 December 2020 submit a report to the European Parliament and to the Council on whether:

(a) it is appropriate to introduce a leverage ratio surcharge for O-SIIs; and

(b) the definition and calculation of the total exposure measure referred to in Article 429(4), including the treatment of central bank reserves, is appropriate.

Article 512

Exposures to transferred credit risk

By 31 December 2014, the Commission shall report to the European Parliament and the Council on the application and effectiveness of the provisions of Part Five in the light of international market developments.

Article 513

Macroprudential rules

By 30 June 2022, and every five years thereafter, the Commission shall, after consulting the ESRB and EBA, review whether the macroprudential rules contained in this Regulation and in Directive 2013/36/EU are sufficient to mitigate systemic risks in sectors, regions and Member States including assessing:

(a) whether the current macroprudential tools in this Regulation and in Directive 2013/36/EU are effective, efficient and transparent;

(b) whether the coverage and the possible degrees of overlap between different macroprudential tools for targeting similar risks in this Regulation and in Directive 2013/36/EU are adequate and, if appropriate, propose new macroprudential rules;

(c) how internationally agreed standards for systemic institutions interact with the provisions in this Regulation and in Directive 2013/36/EU and, if appropriate, propose new rules taking into account those internationally agreed standards;

(d) whether other types of instruments, such as borrower-based instruments, should be added to the macroprudential tools provided for in this Regulation and in Directive 2013/36/EU to complement capital-based instruments and to allow for the harmonised use of the instruments in the internal market; taking into account whether harmonised definitions of those instruments and the reporting of respective data at Union level are a prerequisite for the introduction of such instruments;

(e) whether the leverage ratio buffer requirement as referred to in Article 92(1a) should be extended to systemically important institutions other than G-SIIs, whether its calibration should be different from the calibration for G-SIIs, and whether its calibration should depend on the level of systemic importance of the institution;

(f) whether the current voluntary reciprocity of macroprudnetial measures should be turned into mandatory reciprocity and whether the current ESRB framework for voluntary reciprocity is an appropriate basis for that;

(g) how relevant Union and national macroprudential authorities can be mandated with tools to address new emerging systemic risks arising from credit institutions exposures to the non-banking sector, in particular from derivatives and securities financing transactions markets, the asset management sector and the insurance sector.

Article 514

Method for the calculation of the exposure value of derivative transactions

Article 515

Monitoring and evaluation

Article 516

Long-term financing

By 31 December 2015, the Commission shall report on the impact of this Regulation on the encouragement of long-term investments in growth promoting infrastructure.

Article 517

Definition of eligible capital

By 31 December 2014, the Commission shall review, and report on, the appropriateness of the definition of eligible capital being applied for the purposes of Title III of Part Two and Part Four and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

Article 518

Review of capital instruments which may be written down or converted at the point of non-viability

By 31 December 2015, the Commission shall review, and report on, whether this Regulation should contain a requirement that Additional Tier 1 or Tier 2 capital instruments are to be written down in the event of a determination that an institution is no longer viable. The Commission shall submit that report to the European Parliament and the Council, together with a legislative proposal, if appropriate.

Article 518a

Review of cross-default provisions

By 28 June 2022, the Commission shall review and assess whether it is appropriate to require that eligible liabilities may be bailed-in without triggering cross-default clauses in other contracts, with a view to reinforcing as much as possible the effectiveness of the bail-in tool and to assessing whether a no-cross-default provision referring to eligible liabilities should be included in the terms or contracts governing other liabilities. Where appropriate, that review and assessment shall be accompanied by a legislative proposal.

Article 518b

Report on overshootings and supervisory powers to limit distributions

By 31 December 2021, the Commission shall report to the European Parliament and to the Council on whether exceptional circumstances that trigger serious economic disturbance in the orderly functioning and integrity of financial markets justify:

(a) during such periods, permitting competent authorities to exclude from institutions’ market risk internal models overshootings that do not result from deficiencies in those models;

(b) during such periods, granting additional binding powers to competent authorities to impose restrictions on distributions by institutions.

The Commission shall consider further measures, if appropriate.

Article 518c

Review of the framework for prudential requirements

By 31 December 2028, the Commission shall assess the overall situation of the banking system in the single market, in close cooperation with EBA and the ECB, and report to the European Parliament and to the Council on the appropriateness of the Union regulatory and supervisory frameworks for banking.

That report shall take stock of the reforms to the banking sector which took place after the great financial crisis and assess whether these ensure an adequate level of depositor protection and safeguard financial stability at Member State, banking union and Union level.

That report shall also consider all banking union dimensions, as well as the implementation of the output floor as part of capital and liquidity requirements more generally. In that regard, the Commission shall duly consider the corresponding statements and conclusions on the banking union of both the European Parliament and the European Council.

Article 519

Deduction of defined benefit pension fund assets from Common Equity Tier 1 items

By 30 June 2014, EBA shall prepare a report on whether the revised IAS 19 in conjunction with the deduction of net pension assets as set out in Article 36(1)(e) and changes in the net pension liabilities lead to undue volatility of institutions' own funds.

Taking into account the EBA report, the Commission shall by, 31 December 2014 prepare a report for the European Parliament and the Council on the issue referred to in the first paragraph, together with a legislative proposal, if appropriate, to introduce a treatment which adjusts defined net benefit pension fund assets or liabilities for the calculation of own funds.

Article 519a

Reporting and review

By 1 January 2022, the Commission shall report to the European Parliament and the Council on the application of the provisions in Chapter 5 of Title II of Part Three in the light of developments in securitisation markets, including from a macroprudential and economic perspective. That report shall, if appropriate, be accompanied by a legislative proposal and shall, in particular, assess the following points:

(a) the impact of the hierarchy of methods set out in Article 254 and of the calculation of the risk-weighted exposure amounts of securitisation positions set out in Articles 258 to 266 on issuance and investment activity by institutions in securitisation markets in the Union;

(b) the effects on the financial stability of the Union and Member States, with a particular focus on potential immovable property market speculation and increased interconnection between financial institutions;

(c) what measures would be warranted to reduce and counter any negative effects of securitisation on financial stability while preserving its positive effect on financing, including the possible introduction of a maximum limit on exposure to securitisations; and

(d) the effects on the ability of financial institutions to provide a sustainable and stable funding channel to the real economy, with particular attention to SMEs; and

(e) how environmental sustainability criteria could be integrated into the securitisation framework, including for exposures to NPE securitisations.

The report shall also take into account regulatory developments in international fora, in particular those relating to international standards on securitisation.

Article 519b

Own funds requirements for market risk

TITLE IIA

IMPLEMENTATION OF RULES

Article 519c

Compliance tool

The tool referred to in paragraph 1 shall at least enable each institution to:

(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 legislative acts and in the related implementing provisions, guidelines and templates.

Article 519d

Minimum haircut floor framework for securities financing transactions

The report referred to in paragraph 1 shall consider all of the following:

(a) the degree of leverage outside the banking system in the Union and the extent to which the minimum haircut floor framework could reduce that leverage if it became excessive;

(b) the materiality of the securities financing transactions held by institutions in the Union that are subject to the minimum haircut floor framework, including the breakdown of those securities financing transactions which do not comply with the minimum haircut floors;

(c) the estimated impact of the minimum haircut floor framework for institutions in the Union under the two implementation approaches recommended by the Financial Stability Board, namely a market regulation or more punitive own funds requirement under this Regulation, under a scenario in which institutions in the Union would not adjust haircuts to their securities financing transactions to comply with minimum haircut floors, and the estimated impact of the minimum haircut floor framework under an alternative scenario in which institutions in the Union would adjust those haircuts to comply with minimum haircut floors;

(d) the main drivers behind those estimated impacts, as well as the potential unintended consequences of introducing a minimum haircut floor framework on the functioning of the securities financing transaction markets in the Union;

(e) the implementation approach that would be most effective in meeting the regulatory objectives of the minimum haircut floor framework in light of the considerations referred to in points (a) to (d) and taking into account the level playing field across the financial sector in the Union.

Article 519 e

Operational risk

By 10 January 2028, EBA shall report to the Commission on the following:

(a) the use of insurance in the context of the calculation of the own funds requirement for operational risk;

(b) whether the recognition of insurance recoveries might lead to regulatory arbitrage by reducing the annual operational risk loss without a commensurate reduction in the actual operational loss exposure;

(c) whether the recognition of insurance recoveries has a different impact on the appropriate coverage of recurring losses and of potential tail losses;

(d) the availability and quality of data used by institutions when calculating their own funds requirement for operational risk.

On the basis of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 10 January 2029.

Article 519f

Proportionality

EBA shall prepare a report assessing the overall prudential framework for small and non-complex institutions, in particular:

(a) assessing those requirements also in relation to banking groups and specific business models;

(b) taking into account the relevance of small and non-complex institutions at institution level and by region for maintaining financial stability and credit provision in local communities.

In considering options for changes in the prudential framework, EBA shall base itself on the overarching principle that any simplified requirements are to be more conservative.

EBA shall submit that report to the Commission by 31 December 2027.

TITLE III

AMENDMENTS

Article 520

Amendment of Regulation (EU) No 648/2012

Regulation (EU) No 648/2012 is amended as follows:

(1) the following Chapter is added in Title IV:

‘CHAPTER 4 Calculations and reporting for the purposes of Regulation (EU) No 575/2013

Article 50a

Calculation of KCCP

where:

EBRMi

exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member; IMi = the initial margin posted to the CCP by clearing member i; DFi = the pre-funded contribution of clearing member i; RW = a risk weight of 20 %; capital ratio = 8 %. All values in the formula in the first subparagraph 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.

(a) the frequency and dates of the calculation laid down in paragraph 2; (b) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than those referred to in point (a). EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

Article 50b

General rules for the calculation of KCCP For the purposes of the calculation laid down in Article 50a(2), the following shall apply: (a) a CCP shall calculate the value of the exposures it has to its clearing members as follows: (i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof; (ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply; (iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation; (b) for institutions that fall under the scope of Regulation (EU) No 575/2013 the netting sets are the same as those defined in Part Three, Title II of that Regulation; (c) when calculating the values referred to in point (a), the CCP shall subtract from its exposures the collateral posted by its clearing members, appropriately reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of Regulation (EU) No 575/2013; (e) where a CCP has exposures to one or more CCPs it shall treat any such 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 KCCP; (f) where a CCP has in place a binding contractual 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 CCP shall consider that initial margin as prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin; (h) when applying the Mark-to-Market Method as set out in Article 274 of Regulation (EU) No 575/2013, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of that Regulation with the following: where the numerator of NGR is calculated in accordance with Article 274(1) of that Regulation and just before the variation margin is actually exchanged at the end of the settlement period, and the denominator is gross replacement cost; (i) where a CCP cannot calculate the value of NGR as set out in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013, it shall: (i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation; (ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCEred specified in point (h) of this Article; (j) where, at the end of the period specified in point (ii) of point (i), the CCP would still be unable to calculate the value of NGR, it shall do the following: (i) stop calculating KCCP; (ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating KCCP;

(l) where a CCP has more than one default fund, it shall carry out the calculation laid down in Article 50a(2) for each default fund separately.

Article 50c

Reporting of information

(a) the hypothetical capital (KCCP); (b) the sum of pre-funded contributions (DFCM); (c) the amount of its pre-funded financial resources that it is required to use — by law or due to a contractual agreement with its clearing members — to cover its losses following the default of one or more of its clearing members before using the default fund contributions of the remaining clearing members (DFCCP); (d) the total number of its clearing members (N); (e) the concentration factor (β), as set out in Article 50d. Where the CCP has more than one default fund, it shall report the information in the first subparagraph for each default fund separately.

(a) the uniform template for the purpose of the reporting specified in paragraph 1; (b) the frequency and dates of the reporting specified in paragraph 2; (c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of reporting than those referred to in point (b). EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

Article 50d

Calculation of specific items to be reported by the CCP For the purposes of Article 50c, the following shall apply: (a) where the rules of a CCP provide that it use part or all of its financial resources in parallel to the pre-funded contributions of its clearing members in a manner that makes those resources equivalent to pre-funded contributions of a clearing member in terms of how they absorb the losses incurred by the CCP in the case of the default or insolvency of one or more of its clearing members, the CCP shall add the corresponding amount of those resources to DFCM;

(c) a CCP shall calculate the concentration factor (β) in accordance with the following formula:

where: PCEred,i = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i; PCEred,1 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCEred value; PCEred,2 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCEred value.

(2) in Article 11(15), point (b) is deleted;

(3) in Article 89, the following paragraph is inserted: ‘5a. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 25, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 14 on the authorisation of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 25 on the recognition of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Until the deadlines defined in the first two subparagraphs of this paragraph, and subject to the fourth subparagraph of this paragraph, where a CCP 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 information it is to report in accordance with Article 50c(1) shall include the total amount of initial margin it has received from its clearing members. The deadlines referred to in the first and second subparagraphs of this paragraph may be extended by six months in accordance with a Commission implementing act adopted pursuant to Article 497(3) of Regulation (EU) No 575/2013.’

Article 520a

Application of own funds requirements for market risk

Until 1 January 2026, institutions shall continue to apply Part Three, Title IV, and the market risk requirements of Articles 430, 430b, 445 and 455 of this Regulation in the version in force on 8 July 2024.

PART ELEVEN

FINAL PROVISIONS

Article 521

Entry into force and date of application

This Regulation shall apply from 1 January 2014, with the exception of:

(a) Article 8(3), Article 21 and Article 451(1), which shall apply from 1 January 2015;

(b) Article 413(1), which shall apply from 1 January 2016;

(c) the provisions of this Regulation that require the ESAs to submit to the Commission draft technical standards and the provisions of this Regulation that empower the Commission to adopt delegated acts or implementing acts, which shall apply from 28 June 2013.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

ANNEX I

Bucket	Items
1	(a) Credit derivatives and general guarantees of indebtedness, including standby letters of credit serving as financial guarantees for loans and securities, and acceptances, including endorsements with the character of acceptances, as well as any other direct credit substitutes; (b) Sale and repurchase agreements and asset sales with recourse where the credit risk remains with the institution; (c) Securities lent by the institution or securities posted by the institution as collateral, including instances where those arise out of repo-style transactions; (d) Forward asset purchases, forward deposits and partly paid shares and securities, which represent commitments with certain drawdown; (e) Off-balance-sheet items constituting a credit substitute where not explicitly included in any other category; (f) Other off-balance-sheet items carrying similar risk and as communicated to EBA.
2	(a) Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs) regardless of the maturity of the underlying facility; (b) Performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions and similar transaction-related contingent items, excluding trade finance off-balance-sheet items referred to in bucket 4; (c) Other off-balance-sheet items carrying similar risk, as communicated to EBA.
3	(a) The undrawn amount of commitments, regardless of the maturity of the underlying facility, unless they fall under another category; (b) Other off-balance-sheet items carrying similar risk, as communicated to EBA.
4	(a) Trade finance off-balance-sheet items: (i) warranties, including tender and performance bonds and associated advance payment and retention guarantees, and guarantees not having the character of credit substitutes; (ii) irrevocable standby letters of credit not having the character of credit substitutes; (iii) short-term, self-liquidating trade letters of credit arising from the movement of goods, in particular documentary credits collateralised by the underlying shipment, in case of an issuing institution or a confirming institution; (b) Other off-balance-sheet items carrying similar risk, as communicated to EBA.
5	(a) The undrawn amount of unconditionally cancellable commitments; (b) The undrawn amount of retail credit lines for which the terms permit the institution to cancel them to the full extent allowable under consumer protection and related legal acts; (c) Undrawn credit facilities for tender and performance guarantees which may be cancelled unconditionally at any time without prior notice, or that do effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness; (d) Other off-balance-sheet items carrying similar risk, as communicated to EBA.

ANNEX II

Types of derivatives

1.Interest-rate contracts:

(a) single-currency interest rate swaps;

(b) basis-swaps;

(c) forward rate agreements;

(d) interest-rate futures;

(e) interest-rate options;

(f) other contracts of similar nature.

2.Foreign-exchange contracts and contracts concerning gold:

(a) cross-currency interest-rate swaps;

(b) forward foreign-exchange contracts;

(c) currency futures;

(d) currency options;

(e) other contracts of a similar nature;

(f) contracts of a nature similar to (a) to (e) concerning gold.

3.Contracts of a nature similar to those in points 1(a) to (e) and 2(a) to (d) of this Annex concerning other reference items or indices. This includes as a minimum all instruments specified in points (4) to (7), (9), (10) and (11) of Section C of Annex I to Directive 2014/65/EU not otherwise included in point 1 or 2 of this Annex.

ANNEX III

Items subject to supplementary reporting of liquid assets

1.Cash.

2.Central bank exposures, to the extent that these exposures can be drawn down in times of stress.

3.Transferable securities representing claims on or claims guaranteed by sovereigns, central banks, non-central government public sector entities, regions with fiscal autonomy to raise and collect taxes and local authorities, the Bank for International Settlements, the International Monetary Fund, the European Union, the European Financial Stability Facility, the European Stability Mechanism or multilateral development banks and satisfying all of the following conditions:

(a) they are assigned a 0 % risk-weight under Chapter 2, Title II of Part Three;

(b) they are not an obligation of an institution or investment firm or any of its affiliated entities.

4.Transferable securities other than those referred to in point 3 representing claims on or claims guaranteed by sovereigns or central banks issued in domestic currencies by the sovereign or central bank in the currency and country in which the liquidity risk is being taken or issued in foreign currencies, to the extent that holding of such debt matches the liquidity needs of the bank's operations in that third country.

5.Transferable securities representing claims on or claims guaranteed by sovereigns, central banks, non-central government public sector entities, regions with fiscal autonomy to raise and collect taxes and local authorities, or multilateral development banks and satisfying all of the following conditions:

(a) they are assigned a 20 % risk-weight under Chapter 2, Title II of Part Three;

(b) they are not an obligation of an institution or investment firm or any of its affiliated entities.

6.Transferable securities other than those referred to in points 3, 4 and 5 that qualify for a 20 % or better risk weight under Chapter 2, Title II of Part Three or are internally rated as having an equivalent credit quality, and fulfil any of the following conditions:

(a) they do not represent a claim on an SSPE, an institution or investment firm or any of its affiliated entities;

(b) they are bonds eligible for the treatment set out in Article 129(4) or (5);

(c) they are covered bonds as defined in point (1) of Article 3 of Directive (EU) 2019/2162 other than those referred to in point (b) of this point.

7.Transferable securities other than those referred to in points 3 to 6 that qualify for a 50 % or better risk weight under Chapter 2 of Title II of Part Three or are internally rated as having an equivalent credit quality, and do not represent a claim on an SSPE, an institution or investment firm or any of its affiliated entities.

8.Transferable securities other than those referred to in points 3 to 7 that are collateralised by assets that qualify for a 35 % or better risk weight under Chapter 2, Title II of Part Three or are internally rated as having an equivalent credit quality, and are fully and completely secured by mortgages on residential property in accordance with Article 125.

9.Standby credit facilities granted by central banks within the scope of monetary policy to the extent that these facilities are not collateralised by liquid assets and excluding emergency liquidity assistance.

10.Legal or statutory minimum deposits with the central credit institution and other statutory or contractually available liquid funding from the central credit institution or institutions that are members of the network referred to in Article 113(7), or eligible for the waiver provided in Article 10, to the extent that this funding is not collateralised by liquid assets, if the credit institution belongs to a network in accordance with legal or statutory provisions.

11.Exchange traded, centrally cleared common equity shares that are a constituent of a major stock index, denominated in the domestic currency of the Member State and not issued by an institution or investment firm or any of its affiliates.

12.Gold listed on a recognised exchange, held on an allocated basis.

All items with the exception of those referred to in points 1, 2 and 9 must satisfy all of the following conditions:

(a) they are traded in simple repurchase agreements or cash markets characterised by a low level of concentration;

(b) they have a proven record as a reliable source of liquidity by either repurchase agreement or sale even during stressed market conditions;

(c) they are unencumbered.

ANNEX IV

Correlation table

This Regulation	Directive 2006/48/EC	Directive 2006/49/EC
Article 1
Article 2
Article 3
Point (1) of Article 4(1)	Article 4 (1)
Point (2) of Article 4(1)		Article 3(1)b
Point (3) of Article 4(1)		Article 3(1)c
Point (4) of Article 4(1)		Article 3(1)p
Points (5)-(7) of Article 4(1)
Point (8) of Article 4(1)	Article 4(18)
Points (9)-(12) of Article 4(1)
Point (13) of Article 4(1)	Article 4(41)
Point (14) of Article 4(1)	Article 4(42)
Point (15) of Article 4(1)	Article 4(12)
Point (16) of Article 4(1)	Article 4(13)
Point (17) of Article 4(1)	Article 4(3)
Point (18) of Article 4(1)	Article 4(21)
Point (19) of Article 4(1)
Point (20) of Article 4(1)	Article 4(19)
Point (21) of Article 4(1)
Point (22) of Article 4(1)	Article 4(20)
Point (23) of Article 4(1)
Point (24) of Article 4(1)
Point (25) of Article 4(1)		Article 3(1)c
Point (26) of Article 4(1)	Article 4(5)
Point (27) of Article 4(1)
Point (28) of Article 4(1)	Article 4(14)
Point (29) of Article 4(1)	Article 4(16)
Point (30) of Article 4(1)	Article 4(15)
Point (31) of Article 4(1)	Article 4(17)
Points (32)-(34) of Article 4(1)
Point (35) of Article 4(1)	Article 4(10)
Point (36) of Article 4(1)
Point (37) of Article 4(1)	Article 4(9)
Point (38) of Article 4(1)	Article 4(46)
Point (39) of Article 4(1)	Article 4(45)
Point (40) of Article 4(1)	Article 4(4)
Point (41) of Article 4(1)	Article 4(48)
Point (42) of Article 4(1)	Article 4(2)
Point (43) of Article 4(1)	Article 4(7)
Point (44) of Article 4(1)	Article 4(8)
Point (45) of Article 4(1)
Point (46) of Article 4(1)	Article 4(23)
Points (47)-(49) of Article 4(1)
Point (50) of Article 4(1)		Article 3(1)e
Point (51) of Article 4(1)
Point (52) of Article 4(1)	Article 4(22)
Point (53) of Article 4(1)	Article 4(24)
Point (54) of Article 4(1)	Article 4(25)
Point (55) of Article 4(1)	Article 4(27)
Point (56) of Article 4(1)	Article 4(28)
Point (57) of Article 4(1)	Article 4(30)
Point (58) of Article 4(1)	Article 4(31)
Point (59) of Article 4(1)	Article 4(32)
Point (60) of Article 4(1)	Article 4(35)
Point (61) of Article 4(1)	Article 4(36)
Point (62) of Article 4(1)	Article 4(40)
Point (63) of Article 4(1)	Article 4(40a)
Point (64) of Article 4(1)	Article 4(40b)
Point (65) of Article 4(1)	Article 4(43)
Point (66) of Article 4(1)	Article 4(44)
Point (67) of Article 4(1)	Article 4(39)
Points (68)-(71) of Article 4(1)
Point (72) of Article 4(1)	Article 4(47)
Point (73) of Article 4(1)	Article 4(49)
Points (74)-(81) of Article 4(1)
Point (82) of Article 4(1)		Article 3(1)m
Point (83) of Article 4(1)	Article 4(33)
Points (84)-(91) of Article 4(1)
Point (92) of Article 4(1)		Article 3(1)i
Points (93)-(117) of Article 4(1)
Point (118) of Article 4(1)		Article 3(1)r
Points (119)-(128) of Article 4(1)
Article 4(2)
Article 4(3)
Article 6(1)	Article 68(1)
Article 6(2)	Article 68(2)
Article 6(3)	Article 68(3)
Article 6(4)
Article 6(5)
Article 7(1)	Article 69(1)
Article 7(2)	Article 69(2)
Article 7(3)	Article 69(3)
Article 8(1)
Article 8(2)
Article 8(3)
Article 9(1)	Article 70(1)
Article 9(2)	Article 70(2)
Article 9(3)	Article 70(3)
Article 10(1)	Article 3(1)
Article 10(2)
Article 11(1)	Article 71(1)
Article 11(2)	Article 71(2)
Article 11(3)
Article 11(4)	Article 3(2)
Article 11(5)
Article 12
Article 13(1)	Article 72(1)
Article 13(2)	Article 72(2)
Article 13(3)	Article 72(3)
Article 13(4)
Article 14(1)	Article 73(3)
Article 14(2)
Article 14(3)
Article 15		Article 22
Article 16
Article 17(1)		Article 23
Article 17(2)
Article 17(3)
Article 18(1)	Article 133(1) subparagraph 1
Article 18(2)	Article 133(1) subparagraph 2
Article 18(3)	Article 133(1) subparagraph 3
Article 18(4)	Article 133(2)
Article 18(5)	Article 133(3)
Article 18(6)	Article 134(1)
Article 18(7)
Article 18(8)	Article 134(2)
Article 19(1)	Article 73(1) (b)
Article 19(2)	Article 73(1)
Article 19(3)	Article 73(1) subparagraph 2
Article 20(1)	Article 105(3) Article 129(2) and Annex X, Part 3, points 30 and 31
Article 20(2)	Article 129(2) subparagraph 3
Article 20(3)	Article 129(2) subparagraph 4
Article 20(4)	Article 129(2) subparagraph 5
Article 20(5)
Article 20(6)	Article 84(2)
Article 20(7)	Article 129(2) subparagraph 6
Article 20(8)	Article 129(2) subparagraphs 7 and 8
Article 21(1)
Article 21(2)
Article 21(3)
Article 21(4)
Article 22	Article 73(2)
Article 23		Article 3(1) 2. Subparagraph
Article 24	Article 74 (1)
Article 25
Article 26 (1)	Article 57(a)
Article 26 (1)(a)	Article 57(a)
Article 26 (1)(b)	Article 57(a)
Article 26 (1)(c)	Article 57(b)
Article 26 (1)(d)
Article 26 (1)(e)	Article 57(b)
Article 26 (1)(f)	Article 57(c)
Article 26 (1) first subparagraph 1	Article 61 subparagraph 2
Article 26 (2)(a)	Article 57 subparagraphs 2, 3 and 4
Article 26 (2)(b)	Article 57 subparagraphs 2, 3 and 4
Article 26 (3)
Article 26 (4)
Article 27
Article 28(1)(a)
Article 28(1)(b)	Article 57(a)
Article 28(1)(c)	Article 57(a)
Article 28(1)(d)
Article 28(1)(e)
Article 28(1)(f)
Article 28(1)(g)
Article 28(1)(h)
Article 28(1)(i)	Article 57(a)
Article 28(1)(j)	Article 57(a)
Article 28(1)(k)
Article 28(1)(l)
Article 28(1)(m)
Article 28(2)
Article 28(3)
Article 28(4)
Article 28(5)
Article 29
Article 30
Article 31
Article 32(1)(a)
Article 32(1)(b)	Article 57 subparagraph 4
Article 32(2)
Article 33(1)(a)	Article 64(4)
Article 33(1)(b)	Article 64(4)
Article 33(1)(c)
Article 33(2)
Article 33(3)(a)
Article 33(3)(b)
Article 33(3)(c)
Article 33(3)(d)
Article 33(4)
Article 34	Article 64(5)
Article 35
Article 36(1)(a)	Article 57(k)
Article 36(1)(b)	Article 57(j)
Article 36(1)(c)
Article 36(1)(d)	Article 57(q)
Article 36(1)(e)
Article 36(1)(f)	Article 57(i)
Article 36(1)(g)
Article 36(1)(h)	Article 57(n)
Article 36(1)(i)	Article 57(m)
Article 36(1)(j)	Article 66(2)
Article 36(1)(k)(i)
Article 36(1)(k)(ii)	Article 57(r)
Article 36(1)(k)(iii)
Article 36(1)(k)(iv)
Article 36(1)(k)(v)
Article 36(1)(l)	Article 61 subparagraph 2
Article 36(2)
Article 36(3)
Article 37
Article 38
Article 39
Article 40
Article 41
Article 42
Article 43
Article 44
Article 45
Article 46
Article 47
Article 48
Article 49(1)	Article 59
Article 49(2)	Article 60
Article 49(3)
Article 49(4)
Article 49(5)
Article 49(6)
Article 50	Article 66, Article 57(ca), Article 63a
Article 51	Article 66, Article 57(ca), Article 63a
Article 52	Article 63a
Article 53
Article 54
Article 55
Article 56
Article 57
Article 58
Article 59
Article 60
Article 61	Article 66, Article 57(ca), Article 63a
Article 62(a)	Article 64(3)
Article 62(b)
Article 62(c)
Article 62(d)	Article 63(3)
Article 63	Article 63(1), Article 63(2), Article 64(3)
Article 64	Article 64 (3) (c)
Article 65
Article 66	Article 57, Article 66(2)
Article 67	Article 57, Article 66(2)
Article 68
Article 69	Article 57, Article 66(2)
Article 70	Article 57, Article 66(2)
Article 71	Article 66, Article 57(ca), Article 63a
Article 72	Article 57, Article 66
Article 73
Article 74
Article 75
Article 76
Article 77	Article 63a(2)
Article 78(1)	Article 63a(2)
Article 78(2)
Article 78(3)
Article 78(4)	Article 63a(2) subparagraph 4
Article 78(5)
Article 79	Article 58
Article 80
Article 81	Article 65
Article 82	Article 65
Article 83
Article 84	Article 65
Article 85	Article 65
Article 86	Article 65
Article 87	Article 65
Article 88	Article 65
Article 89	Article 120
Article 90	Article 122
Article 91	Article 121
Article 92	Article 66, Article 75
Article 93(1)-(4)	Article 10(1)-(4)
Article 93(5)
Article 94		Article 18(2)-(4)
Article 95
Article 96
Article 97
Article 98		Article 24
Article 99(1)	Article 74(2)
Article 99(2)
Article 100
Article 101(1)
Article 101(2)
Article 101(3)
Article 102(1)		Article 11(1)
Article 102(2)		Article 11(3)
Article 102(3)		Article 11(4)
Article 102(4)		Annex VII, Part C, point 1
Article 103		Annex VII, Part A, point 1
Article 104(1)		Annex VII, Part D, point 1
Article 104(2)		Annex VII, Part D, point 2
Article 105(1)		Article 33(1)
Article 105(2)-(10)		Annex VII, Part B, points 1-9
Article 105(11)-(13)		Annex VII, Part B, points 11-13
Article 106		Annex VII, Part C, points 1-3
Article 107	Article 76, Article 78(4) and Annex III, Part 2, point 6
Article 108(1)	Article 91
Article 108(2)
Article 109	Article 94
Article 110
Article 111	Article 78(1)-(3)
Article 112	Article 79(1)
Article 113(1)	Article 80(1)
Article 113(2)	Article 80(2)
Article 113(3)	Article 80(4)
Article 113(4)	Article 80(5)
Article 113(5)	Article 80(6)
Article 113(6)	Article 80(7)
Article 113(7)	Article 80(8)
Article 114	Annex VI, Part I, points 1-5
Article 115(1) (4)	Annex VI, Part I, points 8-11
Article 115(5)
Article 116(1)	Annex VI, Part I, point 14
Article 116(2)	Annex VI, Part I, point 14
Article 116(3)
Article 116(4)	Annex VI, Part I, point 15
Article 116(5)	Annex VI, Part I, point 17
Article 116(6)	Annex VI, Part I, point 17
Article 117(1)	Annex VI, Part I, point 18 and 19
Article 117(2)	Annex VI, Part I, point 20
Article 117(3)	Annex VI, Part I, point 21
Article 118	Annex VI, Part I, point 22
Article 119(1)
Article 119(2)	Annex VI, Part I, points 37 and 38
Article 119(3)	Annex VI, Part I, point 40
Article 119(4)
Article 119(5)
Article 120(1)	Annex VI, Part I, point 29
Article 120(2)	Annex VI, Part I, point 31
Article 120(3)	Annex VI, Part I, points 33-36
Article 121(1)	Annex VI, Part I, point 26
Article 121(2)	Annex VI, Part I, point 25
Article 121(3)	Annex VI, Part I, point 27
Article 122	Annex VI, Part I, points 41 and 42
Article 123	Article 79(2), 79(3) and Annex VI, Part I, point 43
Article 124(1)	Annex VI, Part I, point 44
Article 124(2)
Article 124(3)
Article 125(1)-(3)	Annex VI, Part I, points 45-49
Article 125(4)
Article 126(1) and (2)	Annex VI, Part I, points 51-55
Article 126(3) and (4)	Annex VI, Part I, points 58 and 59
Article 127(1) and (2)	Annex VI, Part I, points 61 and 62
Article 127(3) and (4)	Annex VI, Part I, points 64 and 65
Article 128(1)	Annex VI, Part I, points 66 and 76
Article 128(2)	Annex VI, Part I, point 66
Article 128(3)
Article 129(1)	Annex VI, Part I, point 68, paragraphs 1 and 2
Article 129(2)	Annex VI, Part I, point 69
Article 129(3)	Annex VI, Part I, point 71
Article 129(4)	Annex VI, Part I, point 70
Article 129(5)
Article 130	Annex VI, Part I, point 72
Article 131	Annex VI, Part I, point 73
Article 132(1)	Annex VI, Part I, point 74
Article 132(2)	Annex VI, Part I, point 75
Article 132(3)	Annex VI, Part I, points 77 and 78
Article 132(4)	Annex VI, Part I, point 79
Article 132(5)	Annex VI, Part I, point 80 and point 81
Article 133(1)	Annex VI, Part I, point 86
Article 133(2)
Article 133(3)
Article 134(1)-(3)	Annex VI, Part I, points 82-84
Article 134(4)-(7)	Annex VI, Part I, points 87-90
Article 135	Article 81(1), (2) and (4)
Article 136(1)	Article 82(1)
Article 136(2)	Annex VI, Part 2, points 12-16
Article 136(3)	Article 150(3)
Article 137(1)	Annex VI, Part I, point 6
Article 137(2)	Annex VI, Part I, point 7
Article 137(3)
Article 138	Annex VI, Part III, points 1-7
Article 139	Annex VI, Part III, points 8-17
Article 140(1)
Article 140(2)
Article 141
Article 142(1)
Article 142(2)
Article 143(1)	Article 84 (1) and Annex VII, Part 4, point 1
Article 143(1)	Article 84(2)
Article 143(1)	Article 84(3)
Article 143(1)	Article 84(4)
Article 143(1)
Article 144
Article 145
Article 146
Article 147(1)	Article 86(9)
Article 147(2)-(9)	Article 86(1)-(8)
Article 148(1)	Article 85(1)
Article 148(2)	Article 85(2)
Article 148(3)
Article 148(4)	Article 85(3)
Article 148(5)
Article 148(1)
Article 149	Article 85(4) and (5)
Article 150(1)	Article 89(1)
Article 150(2)	Article 89(2)
Article 150(3)
Article 150(4)
Article 151	Article 87(1)-(10)
Article 152(1) and (2)	Article 87(11)
Article 152(3) and (4)	Article 87(12)
Article 152(5)
Article 153(1)	Annex VII, Part I, point 3
Article 153(2)
Article 153(3)-(8)	Annex VII, Part I, points 4-9
Article 153(9)
Article 154	Annex VII, Part I, points 10-16
Article 155(1)	Annex VII, Part I, points 17 and 18
Article 155(2)	Annex VII, Part I, points 19 to 21
Article 155(3)	Annex VII, Part I, points 22 to 24
Article 155(4)	Annex VII, Part I, points 25 to 26
Article 156
Article 156	Annex VII, Part I, point 27
Article 157(1)	Annex VII, Part I, point 28
Article 157(2)-(5)
Article 158(1)	Article 88(2)
Article 158(2)	Article 88(3)
Article 158(3)	Article 88(4)
Article 158(4)	Article 88(6)
Article 158(5)	Annex VII, Part I, point 30
Article 158(6)	Annex VII, Part I, point 31
Article 158(7)	Annex VII, Part I, point 32
Article 158(8)	Annex VII, Part I, point 33
Article 158(9)	Annex VII, Part I, point 34
Article 158(10)	Annex VII, Part I, point 35
Article 158(11)
Article 159	Annex VII, Part I, point 36
Article 160(1)	Annex VII, Part II, point 2
Article 160(2)	Annex VII, Part II, point 3
Article 160(3)	Annex VII, Part II, point 4
Article 160(4)	Annex VII, Part II, point 5
Article 160(5)	Annex VII, Part II, point 6
Article 160 (6)	Annex VII, Part II, point 7
Article 160(7)	Annex VII, Part II, point 7
Article 161(1)	Annex VII, Part II, point 8
Article 161(2)	Annex VII, Part II, point 9
Article 161(3)	Annex VII, Part II, point 10
Article 161(4)	Annex VII, Part II, point 11
Article 162(1)	Annex VII, Part II, point 12
Article 162(2)	Annex VII, Part II, point 13
Article 162(3)	Annex VII, Part II, point 14
Article 162(4)	Annex VII, Part II, point 15
Article 162(5)	Annex VII, Part II, point 16
Article 163(1)	Annex VII, Part II, point 17
Article 163(2)	Annex VII, Part II, point 18
Article 163(3)	Annex VII, Part II, point 19
Article 163(4)	Annex VII, Part II, point 20
Article 164(1)	Annex VII, Part II, point 21
Article 164(2)	Annex VII, Part II, point 22
Article 164(3)	Annex VII, Part II, point 23
Article 164(4)
Article 165(1)	Annex VII, Part II, point 24
Article 165(2)	Annex VII, Part II, point 25 and 26
Article 165(3)	Annex VII, Part II, point 27
Article 166(1)	Annex VII, Part III, point 1
Article 166(2)	Annex VII, Part III, point 2
Article 166(3)	Annex VII, Part III, point 3
Article 166(4)	Annex VII, Part III, point 4
Article 166(5)	Annex VII, Part III, point 5
Article 166(6)	Annex VII, Part III, point 6
Article 166(7)	Annex VII, Part III, point 7
Article 166(8)	Annex VII, Part III, point 9
Article 166(9)	Annex VII, Part III, point 10
Article 166(10)	Annex VII, Part III, point 11
Article 167(1)	Annex VII, Part III, point 12
Article 167(2)
Article 168	Annex VII, Part III, point 13
Article 169(1)	Annex VII, Part IV, point 2
Article 169(2)	Annex VII, Part IV, point 3
Article 169(3)	Annex VII, Part IV, point 4
Article 170(1)	Annex VII, Part IV, point 5-11
Article 170(2)	Annex VII, Part IV, point 12
Article 170(3)	Annex VII, Part IV, points 13-15
Article 170(4)	Annex VII, Part IV, point 16
Article 171(1)	Annex VII, Part IV, point 17
Article 171(2)	Annex VII, Part IV, point 18
Article 172(1)	Annex VII, Part IV, point 19-23
Article 172(2)	Annex VII, Part IV, point 24
Article 172(3)	Annex VII, Part IV, point 25
Article 173(1)	Annex VII, Part IV, points 26-28
Article 173(2)	Annex VII, Part IV, point 29
Article 173(3)
Article 174	Annex VII, Part IV, point 30
Article 175(1)	Annex VII, Part IV, point 31
Article 175(2)	Annex VII, Part IV, point 32
Article 175(3)	Annex VII, Part IV, point 33
Article 175(4)	Annex VII, Part IV, point 34
Article 175(5)	Annex VII, Part IV, point 35
Article 176(1)	Annex VII, Part IV, point 36
Article 176(2)	Annex VII, Part IV, point 37 first subparagraph
Article 176(3)	Annex VII, Part IV, point 37 second subparagraph
Article 176(4)	Annex VII, Part IV, point 38
Article 176(5)	Annex VII, Part IV, point 39
Article 177(1)	Annex VII, Part IV, point 40
Article 177(2)	Annex VII, Part IV, point 41
Article 177(3)	Annex VII, Part IV, point 42
Article 178(1)	Annex VII, Part IV, point 44
Article 178(2)	Annex VII, Part IV, point 44
Article 178(3)	Annex VII, Part IV, point 45
Article 178(4)	Annex VII, Part IV, point 46
Article 178(5)	Annex VII, Part IV, point 47
Article 178(6)
Article 178(7)
Article 179(1)	Annex VII, Part IV, points 43 and 49-56
Article 179(2)	Annex VII, Part IV, point 57
Article 180(1)	Annex VII, Part IV, points 59-66
Article 180(2)	Annex VII, Part IV, points 67-72
Article 180(3)
Article 181(1)	Annex VII, Part IV, points 73-81
Article 181(2)	Annex VII, Part IV, point 82
Article 181(3)
Article 182(1)	Annex VII, Part IV, points 87-92
Article 182(2)	Annex VII, Part IV, point 93
Article 182(3)	Annex VII, Part IV, points 94 and 95
Article 182(4)
Article 183(1)	Annex VII, Part IV, points 98-100
Article 183(2)	Annex VII, Part IV, points 101 and 102
Article 183(3)	Annex VII, Part IV, point 103 and point 104
Article 183(4)	Annex VII, Part IV, point 96
Article 183(5)	Annex VII, Part IV, point 97
Article 183(6)
Article 184(1)
Article 184(2)	Annex VII, Part IV, point 105
Article 184(3)	Annex VII, Part IV, point 106
Article 184(4)	Annex VII, Part IV, point 107
Article 184(5)	Annex VII, Part IV, point 108
Article 184(6)	Annex VII, Part IV, point 109
Article 185	Annex VII, Part IV, points 110-114
Article 186	Annex VII, Part IV, point 115
Article 187	Annex VII, Part IV, point 116
Article 188	Annex VII, Part IV, points 117-123
Article 189(1)	Annex VII, Part IV, point 124
Article 189(2)	Annex VII, Part IV, points 125 and 126
Article 189(3)	Annex VII, Part IV, point 127
Article 190(1)	Annex VII, Part IV, point 128
Article 190(2)	Annex VII, Part IV, point 129
Article 190(3) (4)	Annex VII, Part IV, point 130
Article 191	Annex VII, Part IV, point 131
Article 192	Article 90 and Annex VIII, Part 1, point 2
Article 193(1)	Article 93 (2)
Article 193(2)	Article 93 (3)
Article 193(3)	Article 93(1) and Annex VIII, Part 3, point 1
Article 193(4)	Annex VIII, Part 3, point 2
Article 193(5)	Annex VIII, Part 5, point 1
Article 193(6)	Annex VIII, Part 5, point 2
Article 194(1)	Article 92(1)
Article 194(2)	Article 92(2)
Article 194(3)	Article 92(3)
Article 194(4)	Article 92(4)
Article 194(5)	Article 92(5)
Article 194(6)	Article 92(5)
Article 194(7)	Article 92(6)
Article 194(8)	Annex VIII, Part 2, point 1
Article 194(9)	Annex VIII, Part 2, point 2
Article 194(10)
Article 195	Annex VIII, Part 1, points 3 and 4
Article 196	Annex VIII, Part 1, point 5
Article 197(1)	Annex VIII, Part 1, point 7
Article 197(2)	Annex VIII, Part 1, point 7
Article 197(3)	Annex VIII, Part 1, point 7
Article 197(4)	Annex VIII, Part 1, point 8
Article 197(5)	Annex VIII, Part 1, point 9
Article 197(6)	Annex VIII, Part 1, point 9
Article 197(7)	Annex VIII, Part 1, point 10
Article 197(8)
Article 198(1)	Annex VIII, Part 1, point 11
Article 198(2)	Annex VIII, Part 1, point 11
Article 199(1)	Annex VIII, Part 1, point 12
Article 199(2)	Annex VIII, Part 1, point 13
Article 199(3)	Annex VIII, Part 1, point 16
Article 199(4)	Annex VIII, Part 1, points 17 and 18
Article 199(5)	Annex VIII, Part 1, point 20
Article 199(6)	Annex VIII, Part 1, point 21
Article 199(7)	Annex VIII, Part 1, point 22
Article 199(8)
Article 200	Annex VIII, Part 1, points 23 to 25
Article 201(1)	Annex VIII, Part 1, points 26 and 28
Article 201(2)	Annex VIII, Part 1, point 27
Article 202	Annex VIII, Part 1, point 29
Article 203
Article 204(1)	Annex VIII, Part 1, point 30 and point 31
Article 204(2)	Annex VIII, Part 1, point 32
Article 205	Annex VIII, Part 2, point 3
Article 206	Annex VIII, Part 2, points 4 to 5
Article 207(1)	Annex VIII, Part 2, point 6
Article 207(2)	Annex VIII, Part 2, point 6(a)
Article 207(3)	Annex VIII, Part 2, point 6(b)
Article 207(4)	Annex VIII, Part 2, point 6(c)
Article 207(5)	Annex VIII, Part 2, point 7
Article 208(1)	Annex VIII, Part 2, point 8
Article 208(2)	Annex VIII, Part 2, point 8(a)
Article 208(3)	Annex VIII, Part 2, point 8(b)
Article 208(4)	Annex VIII, Part 2, point 8(c)
Article 208(5)	Annex VIII, Part 2, point 8(d)
Article 209(1)	Annex VIII, Part 2, point 9
Article 209(2)	Annex VIII, Part 2, point 9(a)
Article 209(3)	Annex VIII, Part 2, point 9(b)
Article 210	Annex VIII, Part 2, point 10
Article 211	Annex VIII, Part 2, point 11
Article 212(1)	Annex VIII, Part 2, point 12
Article 212(2)	Annex VIII, Part 2, point 13
Article 213 (1)	Annex VIII, Part 2, point 14
Article 213(2)	Annex VIII, Part 2, point 15
Article 213(3)
Article 214(1)	Annex VIII, Part 2, point 16(a) to (c)
Article 214(2)	Annex VIII, Part 2, point 16
Article 214(3)	Annex VIII, Part 2, point 17
Article 215(1)	Annex VIII, Part 2, point 18
Article 215(2)	Annex VIII, Part 2, point 19
Article 216(1)	Annex VIII, Part 2, point 20
Article 216(2)	Annex VIII, Part 2, point 21
Article 217(1)	Annex VIII, Part 2, point 22
Article 217(2)	Annex VIII, Part 2, point 22(c)
Article 217(3)	Annex VIII, Part 2, point 22(c)
Article 218	Annex VIII, Part 3, point 3
Article 219	Annex VIII, Part 3, point 4
Article 220(1)	Annex VIII, Part 3, point 5
Article 220(2)	Annex VIII, Part 3, points 6, 8 to 10
Article 220(3)	Annex VIII, Part 3, point 11
Article 220(4)	Annex VIII, Part 3, points 22 and 23
Article 220(5)	Annex VIII, Part 3, point 9
Article 221(1)	Annex VIII, Part 3, point 12
Article 221(2)	Annex VIII, Part 3, point 12
Article 221(3)	Annex VIII, Part 3, points 13 to 15
Article 221(4)	Annex VIII, Part 3, point16
Article 221(5)	Annex VIII, Part 3, points 18 and 19
Article 221(6)	Annex VIII, Part 3, points 20 and 21
Article 221(7)	Annex VIII, Part 3, point 17
Article 221(8)	Annex VIII, Part 3, points 22 and 23
Article 221(9)
Article 222(1)	Annex VIII, Part 3, point 24
Article 222(2)	Annex VIII, Part 3, point 25
Article 222(3)	Annex VIII, Part 3, point 26
Article 222(4)	Annex VIII, Part 3, point 27
Article 222(5)	Annex VIII, Part 3, point 28
Article 222(6)	Annex VIII, Part 3, point 29
Article 222(7)	Annex VIII, Part 3, points 28 and 29
Article 223(1)	Annex VIII, Part 3, points 30 to 32
Article 223(2)	Annex VIII, Part 3, point 33
Article 223(3)	Annex VIII, Part 3, point 33
Article 223(4)	Annex VIII, Part 3, point 33
Article 223(5)	Annex VIII, Part 3, point 33
Article 223(6)	Annex VIII, Part 3, points 34 and 35
Article 223(7)	Annex VIII, Part 3, point 35
Article 224(1)	Annex VIII, Part 3, point 36
Article 224(2)	Annex VIII, Part 3, point 37
Article 224(3)	Annex VIII, Part 3, point 38
Article 224(4)	Annex VIII, Part 3, point 39
Article 224(5)	Annex VIII, Part 3, point 40
Article 224(6)	Annex VIII, Part 3, point 41
Article 225(1)	Annex VIII, Part 3, points 42 to 46
Article 225(2)	Annex VIII, Part 3, points 47 to 52
Article 225(3)	Annex VIII, Part 3, points 53 to 56
Article 226	Annex VIII, Part 3, point 57
Article 227(1)	Annex VIII, Part 3, point 58
Article 227(2)	Annex VIII, Part 3, point 58(a) to (h)
Article 227(3)	Annex VIII, Part 3, point 58(h)
Article 228(1)	Annex VIII, Part 3, point 60
Article 228(2)	Annex VIII, Part 3, point 61
Article 229(1)	Annex VIII, Part 3, points 62 to 65
Article 229(2)	Annex VIII, Part 3, point 66
Article 229(3)	Annex VIII, Part 3, points 63 and 67
Article 230(1)	Annex VIII, Part 3, points 68 to 71
Article 230(2)	Annex VIII, Part 3, point 72
Article 230(3)	Annex VIII, Part 3, points 73 and 74
Article 231(1)	Annex VIII, Part 3, point 76
Article 231(2)	Annex VIII, Part 3, point 77
Article 231(3)	Annex VIII, Part 3, point 78
Article 231(1)	Annex VIII, Part 3, point 79
Article 231(2)	Annex VIII, Part 3, point 80
Article 231(3)	Annex VIII, Part 3, point 80a
Article 231(4)	Annex VIII, Part 3, points 81 to 82
Article 232(1)	Annex VIII, Part 3, point 83
Article 232(2)	Annex VIII, Part 3, point 83
Article 232(3)	Annex VIII, Part 3, point 84
Article 232(4)	Annex VIII, Part 3, point 85
Article 234	Annex VIII, Part 3, point 86
Article 235(1)	Annex VIII, Part 3, point 87
Article 235(2)	Annex VIII, Part 3, point 88
Article 235(3)	Annex VIII, Part 3, point 89
Article 236(1)	Annex VIII, Part 3, point 90
Article 236(2)	Annex VIII, Part 3, point 91
Article 236(3)	Annex VIII, Part 3, point 92
Article 237(1)	Annex VIII, Part 4, point 1
Article 237(2)	Annex VIII, Part 4, point 2
Article 238(1)	Annex VIII, Part 4, point 3
Article 238(2)	Annex VIII, Part 4, point 4
Article 238(3)	Annex VIII, Part 4, point 5
Article 239(1)	Annex VIII, Part 4, point 6
Article 239(2)	Annex VIII, Part 4, point 7
Article 239(3)	Annex VIII, Part 4, point 8
Article 240	Annex VIII, Part 6, point 1
Article 241	Annex VIII, Part 6, point 2
Article 242(1) to (9)	Annex IX, Part I, point 1
Article 242(10)	Article 4 point 37
Article 242(11)	Article 4 point 38
Article 242(12)
Article 242(13)
Article 242(14)
Article 242(15)
Article 243(1)	Annex IX, Part II, point 1
Article 243(2)	Annex IX, Part II, point 1a
Article 243(3)	Annex IX, Part II, point 1b
Article 243(4)	Annex IX, Part II, point 1c
Article 243(5)	Annex IX, Part II, point 1d
Article 243(6)
Article 244(1)	Annex IX, Part II, point 2
Article 244(2)	Annex IX, Part II, point 2a
Article 244(3)	Annex IX, Part II, point 2b
Article 244(4)	Annex IX, Part II, point 2c
Article 244(5)	Annex IX, Part II, point 2d
Article 244(6)
Article 245(1)	Article 95(1)
Article 245(2)	Article 95(2)
Article 245(3)	Article 96(2)
Article 245(4)	Article 96(4)
Article 245(5)
Article 245(6)
Article 246(1)	Annex IX, Part IV, points 2 and 3
Article 246(2)	Annex IX, Part IV, point 5
Article 246(3)	Annex IX, Part IV, point 5
Article 247(1)	Article 96(3), Annex IX, Part IV, point 60
Article 247(2)	Annex IX, Part IV, point 61
Article 247(3)
Article 247(4)
Article 248(1)	Article 101(1)
Article 248(2)
Article 248(3)	Article 101(2)
Article 249	Annex IX, Part II, points 3 and 4
Article 250	Annex IX, Part II, points 5-7
Article 251	Annex IX, Part IV, point 6-7
Article 252	Annex IX, Part IV, point 8
Article 253(1)	Annex IX, Part IV, point 9
Article 253(2)	Annex IX, Part IV, point 10
Article 254	Annex IX, Part IV, point 11-12
Article 255(1)	Annex IX, Part IV, point 13
Article 255(2)	Annex IX, Part IV, point 15
Article 256(1)	Article 100(1)
Article 256(2)	Annex IX, Part IV, point 17-20
Article 256(3)	Annex IX, Part IV, point 21
Article 256(4)	Annex IX, Part IV, points 22-23
Article 256(5)	Annex IX, Part IV, point 24-25
Article 256(6)	Annex IX, Part IV, point 26-29
Article 256(7)	Annex IX, Part IV, point 30
Article 256(8)	Annex IX, Part IV, point 32
Article 256(9)	Annex IX, Part IV, point 33
Article 257	Annex IX, Part IV, point 34
Article 258	Annex IX, Part IV, point 35-36
Article 259(1)	Annex IX, Part IV, points 38-41
Article 259(2)	Annex IX, Part IV, point 42
Article 259(3)	Annex IX, Part IV, point 43
Article 259(4)	Annex IX, Part IV, point 44
Article 259(5)
Article 260	Annex IX, Part IV, point 45
Article 261(1)	Annex IX, Part IV, point 46-47, 49
Article 261(2)	Annex IX, Part IV, point 51
Article 262(1)	Annex IX, Part IV, point 52, 53
Article 262(2)	Annex IX, Part IV, point 53
Article 262(3)
Article 262(4)	Annex IX, Part IV, point 54
Article 263(1)	Annex IX, Part IV, point 57
Article 263(2)	Annex IX, Part IV, point 58
Article 263(3)	Annex IX, Part IV, point 59
Article 264(1)	Annex IX, Part IV, point 62
Article 264(2)	Annex IX, Part IV, points 63-65
Article 264(3)	Annex IX, Part IV, points 66 and 67
Article 264(4)
Article 265(1)	Annex IX, Part IV, point 68
Article 265(2)	Annex IX, Part IV, point 70
Article 265(3)	Annex IX, Part IV, point 71
Article 266(1)	Annex IX, Part IV, point 72
Article 266(2)	Annex IX, Part IV, point 73
Article 266(3)	Annex IX, Part IV, point 74-75
Article 266(4)	Annex IX, Part IV, point 76
Article 267(1)	Article 97(1)
Article 267(3)	Article 97(3)
Article 268	Annex IX, Part III, point 1
Article 269	Annex IX, Part III, point 2-7
Article 270	Article 98 (1) and Annex IX, Part III, points 8 and 9
Article 271(1)	Annex III, Part II, point 1 Annex VII, Part III, point 5
Article 271(2)	Annex VII, Part III, point 7
Article 272(1)	Annex III, Part I, point 1
Article 272(2)	Annex III, Part I, point 3
Article 272(3)	Annex III, Part I, point 4
Article 272 (4)	Annex III, Part I, point 5
Article 272(5)	Annex III, Part I, point 6
Article 272(6)	Annex III, Part I, point 7
Article 272(7)	Annex III, Part I, point 8
Article 272(8)	Annex III, Part I, point 9
Article 272(9)	Annex III, Part I, point 10
Article 272(10)	Annex III, Part I, point 11
Article 272(11)	Annex III, Part I, point 12
Article 272(12)	Annex III, Part I, point 13
Article 272(13)	Annex III, Part I, point 14
Article 272(14)	Annex III, Part I, point 15
Article 272(15)	Annex III, Part I, point 16
Article 272(16)	Annex III, Part I, point 17
Article 272(17)	Annex III, Part I, point 18
Article 272(18)	Annex III, Part I, point 19
Article 272(19)	Annex III, Part I, point 20
Article 272(20)	Annex III, Part I, point 21
Article 272(21)	Annex III, Part I, point 22
Article 272(22)	Annex III, Part I, point 23
Article 272(23)	Annex III, Part I, point 26
Article 272(24)	Annex III, Part VII, point a)
Article 272(25)	Annex III, Part VII, point a)
Article 272(26)	Annex III; Part V, point 2
Article 273(1)	Annex III, Part II, point 1
Article 273(2)	Annex III, Part II, point 2
Article 273(3)	Annex III, Part II, point 3 first and second subparagraph
Article 273(4)	Annex III, Part II, point 3 third subparagraph
Article 273(5)	Annex III, Part II, point 4
Article 273(6)	Annex III, Part II, point 5
Article 273(7)	Annex III, Part II, point 7
Article 273(8)	Annex III, Part II, point 8
Article 274(1)	Annex III, Part III
Article 274(2)	Annex III, Part III
Article 274(3)	Annex III, Part III
Article 274(4)	Annex III, Part III
Article 275(1)	Annex III, Part IV
Article 275(2)	Annex III, Part IV
Article 276(1)	Annex III, Part V, point 1
Article 276(2)	Annex III, Part V, point 1
Article 276(3)	Annex III, Part V, points 1-2
Article 277(1)	Annex III, Part V, point 3-4
Article 277(2)	Annex III, Part V, point 5
Article 277(3)	Annex III, Part V, point 6
Article 277(4)	Annex III, Part V, point 7
Article 278(1)
Article 278(2)	Annex III, Part V, point 8
Article 278(3)	Annex III, Part V, point 9
Article 279	Annex III, Part V, point 10
Article 280(1)	Annex III, Part V, point 11
Article 280(2)	Annex III, Part V, point 12
Article 281(1)
Article 281(2)	Annex III, Part V, point 13
Article 281(3)	Annex III, Part V, point 14
Article 282(1)
Article 282(2)	Annex III, Part V, point 15
Article 282(3)	Annex III, Part V, point 16
Article 282(4)	Annex III, Part V, point 17
Article 282(5)	Annex III, Part V, point 18
Article 282(6)	Annex III, Part V, point 19
Article 282(7)	Annex III, Part V, point 20
Article 282(8)	Annex III, Part V, point 21
Article 283(1)	Annex III, Part VI, point 1
Article 283(2)	Annex III, Part VI, point 2
Article 283(3)	Annex III, Part VI, point 2
Article 283(4)	Annex III, Part VI, point 3
Article 283(5)	Annex III, Part VI, point 4
Article 283(6)	Annex III, Part VI, point 4
Article 284(1)	Annex III, Part VI, point 5
Article 284(2)	Annex III, Part VI, point 6
Article 284(3)
Article 284(4)	Annex III, Part VI, point 7
Article 284(5)	Annex III, Part VI, point 8
Article 284(6)	Annex III, Part VI, point 9
Article 284(7)	Annex III, Part VI, point 10
Article 284(8)	Annex III, Part VI, point 11
Article 284(9)	Annex III, Part VI, point 12
Article 284(10)	Annex III, Part VI, point 13
Article 284(11)	Annex III, Part VI, point 9
Article 284(12)
Article 284(13)	Annex III, Part VI, point 14
Article 285(1)	Annex III, Part VI, point 15
Article 285(2)-(8)
Article 286(1)	Annex III, Part VI, points 18 and 25
Article 286(2)	Annex III, Part VI, point 19
Article 286(3)
Article 286(4)	Annex III, Part VI, point 20
Article 286(5)	Annex III, Part VI, point 21
Article 286(6)	Annex III, Part VI, point 22
Article 286(7)	Annex III, Part VI, point 23
Article 286(8)	Annex III, Part VI, point 24
Article 287(1)	Annex III, Part VI, point 17
Article 287(2)	Annex III, Part VI, point 17
Article 287(3)
Article 287(4)
Article 288	Annex III, Part VI, point 26
Article 289(1)	Annex III, Part VI, point 27
Article 289(2)	Annex III, Part VI, point 28
Article 289(3)	Annex III, Part VI, point 29
Article 289(4)	Annex III, Part VI, point 29
Article 289(5)	Annex III, Part VI, point 30
Article 289(6)	Annex III, Part VI, point 31
Article 290(1)	Annex III, Part VI, point 32
Article 290(2)	Annex III, Part VI, point 32
Article 290(3)-(10)
Article 291(1)	Annex I, Part I, points 27-28
Article 291(2)	Annex III, Part VI, point 34
Article 291(3)
Article 291(4)	Annex III, Part VI, point 35
Article 291(5)
Article 291(6)
Article 292(1)	Annex III, Part VI, point 36
Article 292(2)	Annex III, Part VI, point 37
Article 292(3)
Article 292(4)
Article 292(5)
Article 292(6)	Annex III, Part VI, point 38
Article 292(7)	Annex III, Part VI, point 39
Article 292(8)	Annex III, Part VI, point 40
Article 292(9)	Annex III, Part VI, point 41
Article 292(10)
Article 293(1)	Annex III, Part VI, point 42
Article 293(2)-(6)
Article 294(1)	Annex III, Part VI, point 42
Article 294(2)
Article 294(3)	Annex III, Part VI, point 42
Article 295	Annex III, Part VII, point a)
Article 296(1)	Annex III, Part VII, point b)
Article 296(2)	Annex III, Part VII, point b)
Article 296(3)	Annex III, Part VII, point b)
Article 297(1)	Annex III, Part VII, point b)
Article 297(2)	Annex III, Part VII, point b)
Article 297(3)	Annex III, Part VII, point b)
Article 297(4)	Annex III, Part VII, point b)
Article 298(1)	Annex III, Part VII, point c)
Article 298(2)	Annex III, Part VII, point c)
Article 298(3)	Annex III, Part VII, point c)
Article 298(4)	Annex III, Part VII, point c)
Article 299(1)		Annex II, point 7
Article 299(2)		Annex II, points 7-11
Article 300
Article 301	Annex III, Part 2, point 6
Article 302
Article 303
Article 304
Article 305
Article 306
Article 307
Article 308
Article 309
Article 310
Article 311
Article 312(1)	Article 104(3) and (6) and Annex X, Part 2, points 2, 5 and 8
Article 312(2)	Article 105(1) and 105(2) and Annex X, Part 3, point 1
Article 312(3)
Article 312(4)	Article 105(1)
Article 313(1)	Article 102(2)
Article 313(2)	Article 102(3)
Article 313(3)
Article 314(1)	Article 102(4)
Article 314(2)	Annex X, Part 4, point 1
Article 314(3)	Annex X, Part 4, point 2
Article 314(4)	Annex X, Part 4, points 3 and 4
Article 314(5)
Article 315(1)	Article 103 and Annex X, Part 1, points 1 to 3
Article 315(2)
Article 315(3)
Article 315(4)	Annex X, Part 1, point 4
Article 316(1)	Annex X, Part 1, points 5 to 8
Article 316(2)	Annex X, Part 1, point 9
Article 316(3)
Article 317(1)	Article 104 (1)
Article 317(2)	Article 104(2) and (4) and Annex X, Part 2, point 1
Article 317(3)	Annex X, Part 2, point 1
Article 317(4)	Annex X, Part 2, point 2
Article 318(1)	Annex X, Part 2, point 4
Article 318(2)	Annex X, Part 2, point 4
Article 318(3)
Article 319(1)	Annex X, Part 2, points 6 to 7
Article 319(2)	Annex X, Part 2, points 10 and 11
Article 320	Annex X, Part 2, points 9 and 12
Article 321	Annex X, Part 3, points 2 to 7
Article 322(1)
Article 322(2)	Annex X, Part 3, points 8 to 12
Article 322(3)	Annex X, Part 3, points 13 to 18
Article 322(4)	Annex X, Part 3, point 19
Article 322(5)	Annex X, Part 3, point 20
Article 322(6)	Annex X, Part 3, points 21 to 24
Article 323(1)	Annex X, Part 3, point 25
Article 323(2)	Annex X, Part 3, point 26
Article 323(3)	Annex X, Part 3, point 27
Article 323(4)	Annex X, Part 3, point 28
Article 323(5)	Annex X, Part 3, point 29
Article 324	Annex X, Part 5
Article 325(1)		Article 26
Article 325(2)		Article 26
Article 325(3)
Article 326
Article 327(1)		Annex I point 1
Article 327(2)		Annex I point 2
Article 327(3)		Annex I point 3
Article 328(1)		Annex I point 4
Article 328(2)
Article 329(1)		Annex I point 5
Article 329(2)
Article 330		Annex I point 7
Article 331(1)		Annex I point 9
Article 331(2)		Annex I point 10
Article 332(1)		Annex I point 8
Article 332(2)		Annex I point 8
Article 333		Annex I point 11
Article 334		Annex I point 13
Article 335		Annex I point 14
Article 336(1)		Annex I point 14
Article 336(2)		Annex I point 14
Article 336(3)		Annex I point 14
Article 336(4)		Article 19(1)
Article 337(1)		Annex I point 16a
Article 337(2)		Annex I point 16a
Article 337(3)		Annex I point 16a
Article 337(4)		Annex I point 16a
Article 337(4)		Annex I point 16a
Article 338(1)		Annex I point 14a
Article 338(2)		Annex I point 14b
Article 338(3)		Annex I point 14c
Article 338(4)		Annex I point 14a
Article 339(1)		Annex I point 17
Article 339(2)		Annex I point 18
Article 339(3)		Annex I point 19
Article 339(4)		Annex I point 20
Article 339(5)		Annex I point 21
Article 339(6)		Annex I point 22
Article 339(7)		Annex I point 23
Article 339(8)		Annex I point 24
Article 339(9)		Annex I point 25
Article 340(1)		Annex I point 26
Article 340(2)		Annex I point 27
Article 340(3)		Annex I point 28
Article 340(4)		Annex I point 29
Article 340(5)		Annex I point 30
Article 340(6)		Annex I point 31
Article 340(7)		Annex I point 32
Article 341(1)		Annex I point 33
Article 341(2)		Annex I point 33
Article 341(3)
Article 342		Annex I point 34
Article 343		Annex I point 36
Article 344(1)
Article 344(2)		Annex I point 37
Article 344(3)		Annex I point 38
Article 345(1)		Annex I point 41
Article 345(2)		Annex I point 41
Article 346(1)		Annex I point 42
Article 346(2)
Article 346(3)		Annex I point 43
Article 346(4)		Annex I point 44
Article 346(5)		Annex I point 45
Article 346(6)		Annex I point 46
Article 347		Annex I point 8
Article 348(1)		Annex I points 48-49
Article 348(2)		Annex I point 50
Article 349		Annex I point 51
Article 350(1)		Annex I point 53
Article 350(2)		Annex I point 54
Article 350(3)		Annex I point 55
Article 350(4)		Annex I point 56
Article 351		Annex III point 1
Article 352(1)		Annex III point 2(1)
Article 352(2)		Annex III point 2(1)
Article 352(3)		Annex III point 2(1)
Article 352(4)		Annex III point 2(2)
Article 352(5)
Article 353(1)		Annex III point 2(1)
Article 353(2)		Annex III point 2(1)
Article 353(3)		Annex III point 2(1)
Article 354(1)		Annex III point 3(1)
Article 354(2)		Annex III point 3(2)
Article 354(3)		Annex III point 3(2)
Article 354(4)
Article 355
Article 356
Article 357(1)		Annex IV point 1
Article 357(2)		Annex IV point 2
Article 357(3)		Annex IV point 3
Article 357(4)		Annex IV point 4
Article 357(5)		Annex IV point 6
Article 358(1)		Annex IV point 8
Article 358(2)		Annex IV point 9
Article 358(3)		Annex IV point 10
Article 358(4)		Annex IV point 12
Article 359(1)		Annex IV point 13
Article 359(2)		Annex IV point 14
Article 359(3)		Annex IV point 15
Article 359(4)		Annex IV point 16
Article 359(5)		Annex IV point 17
Article 359(6)		Annex IV point 18
Article 360(1)		Annex IV point 19
Article 360(2)		Annex IV point 20
Article 361		Annex IV point 21
Article 362
Article 363(1)		Annex V point 1
Article 363(2)
Article 363(3)
Article 364(1)		Annex V point 10b
Article 364(2)
Article 364(3)
Article 365(1)		Annex V point 10
Article 365(2)		Annex V point 10a
Article 366(1)		Annex V point 7
Article 366(2)		Annex V point 8
Article 366(3)		Annex V point 9
Article 366(4)		Annex V point 10
Article 366(5)		Annex V point 8
Article 367(1)		Annex V point 11
Article 367(2)		Annex V point 12
Article 367(3)		Annex V point 12
Article 368(1)		Annex V point 2
Article 368(2)		Annex V point 2
Article 368(3)		Annex V point 5
Article 368(4)
Article 369(1)		Annex V point 3
Article 369(2)
Article 370(1)		Annex V point 5
Article 371(1)		Annex V point 5
Article 371(2)
Article 372		Annex V point 5a
Article 373		Annex V point 5b
Article 374(1)		Annex V point 5c
Article 374(2)		Annex V point 5d
Article 374(3)		Annex V point 5d
Article 374(4)		Annex V point 5d
Article 374(5)		Annex V point 5d
Article 374(6)		Annex V point 5d
Article 374(7)
Article 375(1)		Annex V point 5a
Article 375(2)		Annex V point 5e
Article 376(1)		Annex V point 5f
Article 376(2)		Annex V point 5g
Article 376(3)		Annex V point 5h
Article 376(4)		Annex V point 5h
Article 376(5)		Annex V point 5i
Article 376(6)		Annex V point 5
Article 377		Annex V point 5l
Article 378		Annex II point 1
Article 379(1)		Annex II point 2
Article 379(2)		Annex II point 3
Article 379(3)		Annex II point 2
Article 380		Annex II point 4
Article 381
Article 382
Article 383
Article 384
Article 385
Article 386
Article 387		Article 28(1)
Article 388
Article 389	Article 106 (1) subparagraph 1
Article 390(1)	Article 106(1) subparagraph 2
Article 390(2)
Article 390(3)		Article 29(1)
Article 390(4)		Article 30(1)
Article 390(5)		Article 29(2)
Article 390(6)	Article 106(2) subparagraph 1
Article 390(7)	Article 106(3)
Article 390(8)	Article 106(2) subparagraphs 2 and 3
Article 391	Article 107
Article 392	Article 108
Article 393	Article 109
Article 394(1)	Article 110(1)
Article 394(2)	Article 110(1)
Article 394(3) and (4)	Article 110 (2)
Article 394(4)	Article 110 (2)
Article 395(1)	Article 111(1)
Article 395(2)
Article 395(3)	Article 111 (4) subparagraph 1
Article 395(4)		Article 30 (4)
Article 395(5)		Article 31
Article 395(6)
Article 395(7)
Article 395(8)
Article 396(1)	Article 111 (4) subparagraphs 1 and 2
Article 396 (2)
Article 397(1)		Annex VI, point 1
Article 397(2)		Annex VI, point 2
Article 397(3)		Annex VI, point 3
Article 398		Article 32(1)
Article 399(1)	Article 112(1)
Article 399(2)	Article 112(2)
Article 399(3)	Article 112(3)
Article 399(4)	Article 110 (3)
Article 400(1)	Article 113(3)
Article 400(2)	Article 113(4)
Article 400(3)
Article 401(1)	Article 114(1)
Article 401(2)	Article 114(2)
Article 401(3)	Article 114(3)
Article 402(1)	Article 115(1)
Article 402(2)	Article 115(2)
Article 402(3)
Article 403(1)	Article 117(1)
Article 403(2)	Article 117(2)
Article 404	Article 122a(8)
Article 405(1)	Article 122a(1)
Article 405(2)	Article 122a(2)
Article 405(3)	Article 122a(3) subparagraph 1
Article 405(4)	Article 122a(3) subparagraph 1
Article 406(1)	Article 122a(4) and Article 122a (5) subparagraph 2
Article 406(2)	Article 122a(5) subparagraph 1 and Article 122a(6) subparagraph 1
Article 407	Article 122a(5) subparagraph 1
Article 408	Article 122a(6) subparagraphs 1 and 2
Article 409	Article 122a(7)
Article 410	Article 122a(10)
Article 411
Article 412
Article 413
Article 414
Article 415
Article 416
Article 417
Article 418
Article 419
Article 420
Article 421
Article 422
Article 423
Article 424
Article 425
Article 426
Article 427
Article 428
Article 429
Article 430
Article 431(1)	Article 145(1)
Article 431(2)	Article 145(2)
Article 431(3)	Article 145(3)
Article 431(4)	Article 145(4)
Article 432(1)	Annex XII, Part I, point 1 and Article 146(1)
Article 432(2)	Article 146(2) and Annex XII, Part I, points 2 and 3
Article 432(3)	Article 146(3)
Article 433	Article 147 and Annex XII, Part I, point 4
Article 434(1)	Article 148
Article 434(2)
Article 435(1)	Annex XII, Part II, point 1
Article 435(2)
Article 436	Annex XII, Part II, point 2
Article 437
Article 438	Annex XII, Part II, points 4, 8
Article 439	Annex XII, Part II, point 5
Article 440
Article 441
Article 442	Annex XII, Part II, point 6
Article 443
Article 444	Annex XII, Part II, point 7
Article 445	Annex XII, Part II, point 9
Article 446	Annex XII, Part II, point 11
Article 447	Annex XII, Part II, point 12
Article 448	Annex XII, Part II, point 13
Article 449	Annex XII, Part II, point 14
Article 450	Annex XII, Part II, point 15
Article 451
Article 452	Annex XII, Part III, point 1
Article 453	Annex XII, Part III, point 2
Article 454	Annex XII, Part III, point 3
Article 455
Article 456, subparagraph 1	Article 150(1)	Article 41
Article 456, subparagraph 2
Article 457
Article 458
Article 459
Article 460
Article 461
Article 462(1)	Article 151a
Article 462(2)	Article 151a
Article 462(3)	Article 151a
Article 462(4)
Article 462(5)
Article 463
Article 464
Article 465
Article 466
Article 467
Article 468
Article 469
Article 470
Article 471
Article 472
Article 473
Article 474
Article 475
Article 476
Article 477
Article 478
Article 479
Article 480
Article 481
Article 482
Article 483
Article 484
Article 485
Article 486
Article 487
Article 488
Article 489
Article 490
Article 491
Article 492
Article 493(1)
Article 493 (2)
Article 494
Article 495
Article 496
Article 497
Article 498
Article 499
Article 500
Article 501
Article 502
Article 503
Article 504
Article 505
Article 506
Article 507
Article 508
Article 509
Article 510
Article 511
Article 512
Article 513
Article 514
Article 515
Article 516
Article 517
Article 518
Article 519
Article 520
Article 521
Annex I	Annex II
Annex II	Annex IV
Annex III