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Official Journal |
EN L series |
2024/1623 |
19.6.2024 |
REGULATION (EU) 2024/1623 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
of 31 May 2024
amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinion of the European Central Bank (1),
Having regard to the opinion of the European Economic and Social Committee (2),
Acting in accordance with the ordinary legislative procedure (3),
Whereas:
(1) |
In response to the global financial crisis of 2008-2009, the Union embarked on a wide-ranging reform of the prudential framework for institutions, as defined in Regulation (EU) No 575/2013 of the European Parliament and of the Council (4) with a view to increasing the resilience of the Union banking sector. One of the main elements of the reform consisted of the implementation of the international standards agreed in 2010 by the Basel Committee on Banking Supervision (BCBS), specifically the so-called ‘Basel III reform’ and the resulting Basel III standards. Thanks to that reform, the Union banking sector entered the COVID-19 crisis on a resilient footing. However, while the overall level of capital in institutions in the Union is now generally satisfactory, some of the problems that were identified in the wake of the global financial crisis have yet to be addressed. |
(2) |
To address those problems, provide legal certainty and signal the commitment of the Union to its international partners in the G20, it is of utmost importance to implement faithfully in Union law the outstanding elements of the Basel III reform agreed in 2017 (the ‘finalised Basel III framework’). At the same time, the implementation should avoid a significant increase in overall capital requirements for the Union banking system as a whole and take into account specificities of the Union economy. Where possible, adjustments to the international standards should be applied on a transitional basis. The implementation should help avoid competitive disadvantages for institutions in the Union, in particular in the area of trading activities, where those institutions directly compete with their international peers. Moreover, with the implementation of the finalised Basel III framework, the Union completes a decade-long process of reform. In that context, the Union should carry out an overall assessment of its banking system, taking into account all relevant dimensions. The Commission should be mandated to perform a holistic review of the framework for prudential and supervisory requirements. That review should take into consideration the various types of corporate forms, structures and business models across the Union. That review should also take into account the implementation of the output floor as part of the prudential rules on capital and liquidity, as well as its level of application. The review should assess whether the output floor and its level of application ensure an adequate level of depositor protection and safeguard financial stability in the Union, taking into account both the Union-wide and banking union developments in all its dimensions. 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. |
(3) |
On 27 June 2023, the Commission committed to carrying out a holistic, fair and balanced assessment of the state of the banking system and applicable regulatory and supervisory frameworks in the single market. In doing so, it will take into account the impact of the amendments introduced to Regulation (EU) No 575/2013 by this Regulation, as well as of the state of the banking union in all its dimensions. Among the issues to be analysed, the Commission will examine the implementation of the output floor, including its level of application. It will carry out that assessment based on input from the European Supervisory Authority (European Banking Authority) (EBA) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (5) and from the European Central Bank and the single supervisory mechanism, and will consult with interested parties to ensure that the various perspectives are appropriately considered. The Commission will, where appropriate, submit a legislative proposal based on that report. |
(4) |
Regulation (EU) No 575/2013 enables institutions to calculate their own funds requirements either by using standardised approaches or by using internal model approaches. Standardised approaches require institutions to calculate the own funds requirements using fixed parameters, which are based on relatively conservative assumptions and laid down in Regulation (EU) No 575/2013. Internal model approaches, that are to be approved by competent authorities, allow institutions to estimate for themselves most or all of the parameters required to calculate the own funds requirements. The BCBS decided in December 2017 to introduce an aggregate output floor. That decision was based on an analysis carried out in the wake of the global financial crisis of 2008-2009, which revealed that internal models tend to underestimate the risks that institutions are exposed to, especially for certain types of exposures and risks, and hence, tend to result in insufficient own funds requirements. Compared to own funds requirements calculated using the standardised approaches, internal models produce, on average, lower own funds requirements for the same exposures. |
(5) |
The output floor represents one of the key measures of the Basel III reform. It aims to limit the unwarranted variability in the own funds requirements produced by internal models and the excessive reduction in capital that an institution using internal models can derive relative to an institution using the standardised approaches. By setting a lower limit on the own funds requirements that are produced by institutions’ internal models of 72,5 % of the own funds requirements that would apply if standardised approaches were used by those institutions, the output floor limits the risk of excessive reductions in capital. To that end, institutions using internal models should calculate two sets of total own funds requirements, with each set aggregating all own funds requirements without any double counting. Implementing the output floor faithfully would increase the comparability of institutions’ capital ratios, restore the credibility of internal models and ensure that there is a level playing field between institutions that use different approaches to calculate their own funds requirements. |
(6) |
In order to ensure that own funds are appropriately distributed and available to protect savings where needed, the output floor should apply at all levels of consolidation, unless a Member State considers that that objective can be effectively achieved in other ways, in particular as regards groups, such as cooperative groups with a central body and affiliated institutions situated in that Member State. In such cases, a Member State should be able to decide not to apply the output floor on an individual or sub-consolidated basis to institutions in that Member State, provided that, at the highest level of consolidation in that Member State, the parent institution of those institutions in that Member State complies with the output floor on the basis of its consolidated situation. |
(7) |
The BCBS has found the current Standardised Approach for credit risk (SA-CR) to be insufficiently risk sensitive in a number of areas, leading to inaccurate or inappropriate — either too high or too low — measurements of credit risk and hence, of own funds requirements. The provisions regarding the SA-CR should therefore be revised to increase the risk sensitivity of that approach in relation to several key aspects. |
(8) |
For rated exposures to other institutions, some of the risk weights should be recalibrated in accordance with the Basel III standards. In addition, the risk weight treatment for unrated exposures to institutions should be rendered more granular and decoupled from the risk weight applicable to the central government of the Member State in which the borrowing institution is established, as implicit government support for such institutions should no longer be assumed. |
(9) |
For subordinated and prudentially assimilated debt exposures, as well as for equity exposures, a more granular and stringent risk weight treatment is necessary to reflect the higher loss risk of subordinated debt and equity exposures as compared to debt exposures, and to prevent regulatory arbitrage between the non-trading book and the trading book. Institutions in the Union have long-standing, strategic equity investments in financial and non-financial corporates. As the standard risk weight for equity exposures increases over a five-year transitional period, existing strategic equity holdings in corporates and certain insurance undertakings under the control or significant influence of the institution should be grandfathered to avoid disruptive effects and to preserve the role of institutions in the Union as long-standing, strategic equity investors. Given the prudential safeguards and supervisory oversight to foster integration of the financial sector, for equity holdings in other institutions within the same group or covered by the same institutional protection scheme, the current regime should be maintained. In addition, to reinforce private and public initiatives to provide long-term equity to unlisted Union companies, investments undertaken directly or indirectly, for instance through venture capital firms, should not be considered speculative where those investments are made with the firm intention of the senior management to hold them for at least three years. |
(10) |
To stimulate certain sectors of the economy, the Basel III standards provide for a discretion of competent authorities in carrying out their supervisory tasks that enables institutions to apply, within certain limits, a preferential treatment to equity holdings acquired pursuant to legislative programmes that entail significant subsidies for the investment and involve government oversight and restrictions on the equity investments. Implementing that discretion in Union law should also help to foster long-term equity investments. |
(11) |
Corporate lending in the Union is predominantly provided by institutions which use the Internal Ratings Based Approach (the ‘IRB Approach’) for credit risk to calculate their own funds requirements. With the implementation of the output floor, those institutions will also need to apply the SA-CR, which relies on credit assessments provided by nominated external credit assessment institutions (ECAIs) to determine the credit quality of the corporate borrower. The mapping between external ratings and risk weights applicable to rated corporates should be more granular to bring such mapping in line with international standards on that matter. |
(12) |
Most Union corporates, however, do not seek external credit ratings. To avoid a disruptive impact on bank lending to unrated corporates and to provide enough time to establish public or private initiatives aiming to increase the coverage of external credit ratings, it is necessary to provide for a transitional period. During that transitional period, institutions using the IRB Approach should be able to apply a favourable treatment when calculating their output floor for investment grade exposures to unrated corporates, whilst initiatives to foster a widespread use of credit ratings should be established. Any extension of the transitional period should be substantiated and limited to four years at most. |
(13) |
After the transitional period, institutions should be able to refer to credit assessments by nominated ECAIs to calculate the own funds requirements for a significant part of their corporate exposures. EBA, 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 (6) and the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (7), (collectively the ‘European Supervisory Authorities’) should monitor the use of the transitional arrangement and should consider relevant developments and trends in the ECAI market, impediments to the availability of credit assessments by nominated ECAIs, in particular for corporates, and possible measures to address those impediments. The transitional period should be used to significantly expand the availability of ratings for Union corporates. To that end, rating solutions beyond the currently existing rating ecosystem should be developed to incentivise especially larger Union corporates, to become externally rated. In addition to the positive externalities generated by the rating process, a wider rating coverage will foster, inter alia, the capital markets union. In order to achieve that goal, it is necessary to consider the requirements related to external credit assessments, or the establishment of additional institutions providing such assessments, which might entail substantial implementation efforts. Member States, in close cooperation with their central banks, should assess whether a request for the recognition of their central bank as an ECAI in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council (8) and the provision of corporate ratings by the central bank for the purposes of Regulation (EU) No 575/2013 might be desirable in order to increase the coverage of external ratings. |
(14) |
For exposures secured by residential property and exposures secured by commercial immovable property, more risk-sensitive approaches have been developed by the BCBS to better reflect different funding models and stages in the construction process. |
(15) |
The global financial crisis of 2008-2009 revealed a number of shortcomings of the current treatment under the standardised approach of exposures secured by residential property and exposures secured by commercial immovable property. Those shortcomings have been addressed in the Basel III standards. The Basel III standards differentiate between exposures where the repayment is materially dependent on cash flows generated by the property and exposures where that is not the case. The former should be subject to a dedicated risk weight treatment to reflect more accurately the risk associated with those exposures, but also to improve consistency with the treatment of income producing real estate under the IRB Approach. |
(16) |
For exposures secured by residential property and exposures secured by commercial immovable property, the loan-splitting approach should be kept, as that approach is sensitive to the type of borrower and reflects the risk mitigating effects of the immovable property collateral in the applicable risk weights, even in the case of exposures featuring high loan-to-value ratios. However, the loan-splitting approach should be adjusted in accordance with the Basel III standards as it has been found to be too conservative for certain mortgages with very low loan-to-value ratios. |
(17) |
To ensure that the impact of the output floor on low-risk residential mortgage lending by institutions using the IRB Approach is spread over a sufficiently long period, and thus avoid the disruptions to that type of lending that could be caused by sudden increases in own funds requirements, it is necessary to provide for a specific transitional arrangement. For the duration of the transitional period, when calculating the output floor, institutions using the IRB Approach should be able to apply a lower risk weight to the part of their exposures secured by a mortgage on residential property under the SA-CR. To ensure that the transitional arrangement is available only to low-risk mortgage exposures, appropriate eligibility criteria, based on established concepts used under the SA-CR, should be set. Compliance with those criteria should be verified by competent authorities. Because residential property markets can differ from one Member State to another, the decision on whether to apply the transitional arrangement should be left to individual Member States. The use of the transitional arrangement should be monitored by EBA. Any extension of the transitional period should be substantiated and limited to four years at most. |
(18) |
Due to the lack of clarity and the risk sensitivity of the current treatment of speculative immovable property financing, own funds requirements for those exposures are often deemed to be too high or too low. That treatment should therefore be replaced by a dedicated treatment for land acquisition, development and construction exposures, comprising loans to companies or special purpose entities financing any land acquisition for development and construction purposes, or development and construction of any residential property or commercial immovable property. |
(19) |
It is important to reduce the impact of cyclical effects on the valuation of immovable property securing a loan and to keep own funds requirements for mortgages more stable. In the case of a revaluation above the value at the time the loan was granted, provided that there is sufficient data, the value of the immovable property recognised for prudential purposes should therefore not exceed the average value of a comparable property measured over a sufficiently long period, unless modifications to that property unequivocally increase its value. To avoid unintended consequences for the functioning of the covered bond markets, competent authorities should be able to allow institutions to revalue immovable property on a regular basis without applying those limits to value increases. Modifications that improve the energy performance or the resilience, protection and adaptation to physical risks of buildings and housing units could be considered as increasing the value of the immovable property. |
(20) |
The specialised lending business is conducted with special purpose entities that typically serve as borrowing entities, for which the return on investment is the primary source of repayment of the financing obtained. The contractual arrangements of the specialised lending model provide the lender with a substantial degree of control over the assets being financed, while the primary source of repayment for the obligation is the income generated by those assets. To reflect the associated risk more accurately, that form of lending should therefore be subject to specific own funds requirements for credit risk. In line with the Basel III standards on assigning risk weights to specialised lending exposures, a dedicated specialised lending exposures class should be introduced under the SA-CR, thereby improving consistency with the already existing specific treatment of specialised lending exposures under the IRB Approach. A specific treatment for specialised lending exposures should be introduced, whereby a distinction should be made between ‘project finance’, ‘object finance’ and ‘commodity finance’ to better reflect the inherent risks of those sub-classes of the specialised lending exposures class. |
(21) |
While the new treatment under the standardised approach for unrated specialised lending exposures laid down in the Basel III standards is more granular than the current standardised treatment of exposures to corporates, the former is not sufficiently risk-sensitive to be able to reflect the effects of comprehensive security packages and pledges usually associated with those exposures in the Union, which enable lenders to control the future cash flows to be generated over the life of the project or asset. Due to the lack of external rating coverage of specialised lending exposures in the Union, that new treatment might also create incentives for institutions to stop financing certain projects or take on higher risks in otherwise similarly treated exposures which have different risk profiles. Whereas the specialised lending exposures are mostly financed by institutions using the IRB Approach that have in place internal models for those exposures, the impact might be particularly significant in the case of object finance exposures, which could be at risk of discontinuation of the activities, in the particular context of the application of the output floor. To avoid unintended consequences of the lack of risk sensitivity in the Basel III standards for unrated object finance exposures, object finance exposures that comply with a set of criteria capable of lowering their risk profile to high quality standards compatible with prudent and conservative management of financial risks, should benefit from a reduced risk weight on a transitional basis. That transitional arrangement should be assessed in a report prepared by EBA. |
(22) |
The classification of retail exposures under the SA-CR and the IRB Approach should be further aligned to ensure a consistent application of the corresponding risk weights to the same set of exposures. In line with the Basel III standards, rules should be laid down for a differentiated treatment of revolving retail exposures that meet a set of conditions of repayment or usage capable of lowering their risk profile. Those exposures should be defined as transactor exposures. Exposures to one or more natural persons that do not meet all of the conditions to be considered retail exposures should be assigned a risk weight of 100 % under the SA-CR. |
(23) |
The Basel III standards introduce a credit conversion factor of 10 % for unconditionally cancellable commitments in the SA-CR. That is likely to result in a significant impact on obligors that rely on the flexible nature of unconditionally cancellable commitments to finance their activities when dealing with seasonal fluctuations in their business or when managing unexpected short-term changes in working capital needs, especially during the recovery from the COVID-19 pandemic. It is therefore appropriate to provide for a transitional period during which institutions should be able to continue to apply a lower credit conversion factor to their unconditionally cancellable commitments, and, afterwards, to assess whether a potential gradual increase of the applicable credit conversion factors is warranted to allow institutions to adjust their operational practices and products without hampering credit availability to institutions’ obligors. |
(24) |
Institutions should play a key role in contributing to the recovery from the COVID-19 pandemic also by extending proactive debt restructuring measures towards worthy debtors facing or about to face difficulties in meeting their financial commitments. In that regard, institutions should not be discouraged from extending meaningful concessions to obligors where deemed appropriate as a result of a potential and unwarranted classification of counterparties as being in default where such concessions might restore the likelihood of those obligors paying the remainder of their debt obligations. When developing guidelines on the definition of default of an obligor or credit facility, EBA should duly consider the need for providing adequate flexibility to institutions. |
(25) |
The global financial crisis of 2008-2009 has revealed that, in some cases, institutions have also used the IRB Approach on portfolios unsuitable for modelling due to insufficient data, which had detrimental consequences for the reliability of the results. It is therefore appropriate not to oblige institutions to use the IRB Approach for all of their exposures and to apply the roll-out requirement at the level of exposure classes. It is also appropriate to restrict the use of the IRB Approach for exposure classes where robust modelling is more difficult in order to increase the comparability and robustness of own funds requirements for credit risk under the IRB Approach. |
(26) |
Institutions’ exposures to other institutions, other financial sector entities and large corporates typically exhibit low levels of default. For such low-default portfolios, it is difficult for institutions to obtain reliable estimates of the loss given default (LGD), due to an insufficient number of observed defaults in those portfolios. That difficulty has resulted in an undesirable level of dispersion across institutions in the level of estimated risk. Institutions should therefore use regulatory LGD values rather than internal LGD estimates for those low-default portfolios. |
(27) |
Institutions that use internal models to estimate the own funds requirements for credit risk with regard to equity exposures typically base their risk assessment on publicly available data, to which all institutions can be presumed to have identical access. Under those circumstances, differences in own funds requirements cannot be justified. In addition, equity exposures held in the non-trading book form a very small component of institutions’ balance sheets. Therefore, to increase the comparability of institutions’ own funds requirements and to simplify the regulatory framework, institutions should calculate their own funds requirements for credit risk with regard to equity exposures using the SA-CR, and the use of the IRB Approach should not be allowed for that purpose. |
(28) |
It should be ensured that the estimates of the probability of default, the LGD and the credit conversion factors of individual exposures of institutions that are allowed to use internal models to calculate own funds requirements for credit risk do not reach unsuitably low levels. It is therefore appropriate to introduce minimum values for own estimates and to oblige institutions to use the higher of their own estimates of risk parameters and the minimum values for those own estimates. Such minimum values for risk parameters (‘input floors’) should constitute a safeguard to ensure that own funds requirements do not fall below prudent levels. In addition, such input floors should mitigate model risk due to factors such as incorrect model specification, measurement error and data limitations. Input floors would also improve the comparability of capital ratios across institutions. In order to achieve those results, input floors should be calibrated in a sufficiently conservative manner. |
(29) |
Input floors that are calibrated too conservatively might discourage institutions from adopting the IRB Approach and the associated risk management standards. Institutions might also be incentivised to shift their portfolios to higher risk exposures to avoid the constraints imposed by input floors. To avoid such unintended consequences, input floors should appropriately reflect certain risk characteristics of the underlying exposures, in particular by taking on different values for different types of exposures, where appropriate. |
(30) |
Specialised lending exposures have risk characteristics that differ from those of general corporate exposures. It is thus appropriate to provide for a transitional period during which the LGD input floor applicable to specialised lending exposures is reduced. Any extension of the transitional period should be substantiated and limited to four years at most. |
(31) |
In accordance with the Basel III standards, the IRB Approach for the sovereign exposure class should remain largely untouched, due to the special nature of and risks related to the underlying obligors. In particular, sovereign exposures should not be subject to input floors. |
(32) |
To ensure a consistent approach for all exposures to regional governments, local authorities and public sector entities, two new regional governments, local authorities and public sector entities exposure classes should be created, independent from both sovereign and institutions exposure classes. The treatment of assimilated exposures to regional governments, local authorities and public sector entities, which under the SA-CR would qualify for a treatment as exposures to central governments and central banks should not be assigned to those new exposure classes under the IRB Approach and should not be subject to input floors. Moreover, specific lower input floors under the IRB Approach should be calibrated for exposures to regional governments, local authorities and public sector entities, which are not assimilated, in order to appropriately reflect their risk profile compared to exposures to corporates. |
(33) |
It should be clarified how the effect of a guarantee should be recognised for a guaranteed exposure treated under the IRB Approach using own estimates of LGD where the guarantor belongs to a type of exposures treated under the IRB Approach but without using own estimates of LGD. In particular, the use of the substitution approach, whereby the risk parameters related to the underlying exposure are substituted with the ones of the guarantor, or of a method whereby the probability of default or LGD of the underlying obligor is adjusted using a specific modelling approach to take into account the effect of the guarantee, should not lead to an adjusted risk weight that is lower than the risk weight applicable to a comparable direct exposure to the guarantor. Consequently, where the guarantor is treated under the SA-CR, recognition of the guarantee under the IRB Approach should generally lead to assigning the SA-CR risk weight of the guarantor to the guaranteed exposure. |
(34) |
The finalised Basel III framework no longer requires an institution that adopted the IRB Approach for one exposure class to adopt that approach for all of its non-trading book exposures. To ensure a level playing field between institutions currently treating some exposures under the IRB Approach and those that do not, a transitional arrangement should allow institutions to revert to less sophisticated approaches under a simplified procedure. That procedure should allow competent authorities to oppose requests to revert to a less sophisticated approach that are made with a view to engaging in regulatory arbitrage. For the purposes of that procedure, the sole fact that the reversal to a less sophisticated approach results in a reduction of own funds requirements determined for the respective exposures should not be considered sufficient to oppose a request on grounds of regulatory arbitrage. |
(35) |
In the context of removing unwarranted variability in own funds requirements, existing discounting rules applied to artificial cash flows should be revised in order to remove any unintended consequences. EBA should be mandated to revise its guidelines on the return to non-defaulted status. |
(36) |
The introduction of the output floor could have a significant impact on the own funds requirements for securitisation positions held by institutions using the Securitisation Internal Ratings Based Approach or the Internal Assessment Approach. Although such positions are generally small relative to other exposures, the introduction of the output floor could affect the economic viability of the securitisation operation because of an insufficient prudential benefit of the transfer of risk. This could occur where the development of the securitisation market is part of the action plan on the capital markets union set out in the communication of the Commission of 24 September 2020 entitled ‘A Capital Markets Union for people and businesses — new action plan’ (the ‘capital markets union action plan’) and also where originator institutions might need to use securitisation more extensively in order to manage more actively their portfolios if they become bound by the output floor. During a transitional period, institutions using the Securitisation Internal Ratings Based Approach or the Internal Assessment Approach should be able to apply a favourable treatment for the purpose of calculating their output floor to their securitisation positions that are risk weighted using either of those Approaches. EBA should report to the Commission on the need to possibly review the prudential treatment of securitisation transactions, with a view to increasing the risk sensitivity of the prudential treatment. |
(37) |
Regulation (EU) 2019/876 of the European Parliament and of the Council (9) amended Regulation (EU) No 575/2013 to implement the Basel III standards on the fundamental review of the trading book finalised by the BCBS in 2019 (the ‘final FRTB standards’) only for reporting purposes. The introduction of binding own funds requirements based on those standards was left to a separate legislative proposal, following the assessment of their impact on institutions in the Union. |
(38) |
The final FRTB standards in relation to the boundary between the trading book and the non-trading book should be implemented in Union law, as they have significant bearing on the calculation of the own funds requirements for market risk. In line with the Basel III standards, the implementation of the boundary requirements should include the lists of instruments to be assigned to the trading book or the non-trading book, as well as the derogation allowing institutions to assign, subject to the approval of the competent authority, certain instruments usually held in the trading book, including listed equities, to the non-trading book, where positions in those instruments are not held with trading intent or do not hedge positions held with trading intent. |
(39) |
In order to avoid a significant operational burden for institutions in the Union, all of the requirements implementing the final FRTB standards for the purpose of calculating the own funds requirements for market risk should have the same date of application. Therefore, the date of application of a limited number of FRTB requirements that were already introduced by Regulation (EU) 2019/876 should be aligned with the date of application of this Regulation. On 27 February 2023, EBA issued an opinion that if provisions referred to in Article 3(6) of Regulation (EU) 2019/876 entered into force and the applicable legal framework did not yet provide for the application of the FRTB-inspired approaches for capital calculation purposes, competent authorities referred to in Regulation (EU) No 1093/2010 should not prioritise any supervisory or enforcement action in relation to those requirements, until full implementation of the FRTB has been achieved, which is expected to be from 1 January 2025. |
(40) |
In order to complete the reform agenda introduced after the global financial crisis of 2008-2009 and to address deficiencies in the current market risk framework, binding own funds requirements for market risk based on the final FRTB standards should be implemented in Union law. Recent estimates of the impact of the final FRTB standards on institutions in the Union have shown that the implementation of those standards in the Union will lead to a large increase in the own funds requirements for market risk for certain trading and market making activities which are important to the Union economy. To mitigate that impact and to preserve the good functioning of financial markets in the Union, targeted adjustments should be introduced to the implementation of the final FRTB standards in Union law. |
(41) |
Institutions’ trading activities in wholesale markets can easily be carried out across borders, including between Member States and third countries. The implementation of the final FRTB standards should therefore converge as much as possible across jurisdictions, both in terms of substance and timing. Otherwise, it would be impossible to ensure an international level playing field for those activities. The Commission should therefore monitor the implementation of the final FRTB standards in other BCBS member jurisdictions. In order to address, where necessary, potential distortions in the implementation of the final FRTB standards, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (10). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. The measures introduced by means of delegated acts should remain temporary. Where it is appropriate for such measures to apply on a permanent basis, the Commission should submit a legislative proposal to the European Parliament and to the Council. |
(42) |
The Commission should take into account the principle of proportionality in the calculation of the own funds requirements for market risk for institutions with a medium-sized trading book business and calibrate those requirements accordingly. Therefore, institutions with a medium-sized trading book business should be allowed to use a simplified standardised approach to calculate the own funds requirements for market risk, in line with the internationally agreed standards. In addition, the eligibility criteria for identifying institutions with medium-sized trading book business should remain consistent with the criteria for exempting such institutions from the FRTB reporting requirements introduced by Regulation (EU) 2019/876. |
(43) |
In light of the updated design of the Union carbon emissions allowance market, its stability in recent years and the limited volatility of the prices for carbon credits, a specific risk weight for exposures to carbon trading under the EU Emissions Trading System (EU ETS) should be introduced under the alternative standardised approach. |
(44) |
Under the alternative standardised approach, exposures to instruments bearing residual risks are subject to a residual risk add-on charge to take into account risks that are not covered by the sensitivities-based method. Under the Basel III standards, an instrument and its hedge can be netted for the purposes of that charge only if they perfectly offset. However, institutions are able to hedge in the market, to a large extent, the residual risk of some of the instruments within the scope of the residual risk add-on charge thus reducing the overall risk of their portfolios, even though those hedges might not perfectly offset the risk of the initial position. To allow institutions to continue hedging without undue disincentives and in recognition of the economic rationale of reducing the overall risk, the implementation of the residual risk add-on charge should allow on a temporary basis, under strict conditions and supervisory approval, for the hedges of those instruments that can be hedged in the market to be excluded from the residual risk add-on charge. |
(45) |
The BCBS has revised the international standard on operational risk to address weaknesses that emerged in the wake of the global financial crisis of 2008-2009. Besides a lack of risk sensitivity in the standardised approaches, a lack of comparability arising from a wide range of internal modelling practices under the advanced measurement approach was identified. Therefore, and in order to simplify the operational risk framework, all existing approaches for estimating the own funds requirements for operational risk were replaced by a single non-model-based method, namely the new standardised approach for operational risk. Regulation (EU) No 575/2013 should be aligned with the finalised Basel III framework to contribute to a level playing field internationally for institutions established in the Union but operating also outside the Union, and to ensure that the operational risk framework at Union level remains effective. |
(46) |
The new standardised approach for operational risk introduced by the BCBS combines an indicator that relies on the size of the business of an institution with an indicator that takes into account the loss history of that institution. The finalised Basel III framework envisages a degree of discretion as to how the indicator that takes into account the loss history of an institution may be implemented. Jurisdictions are able to disregard historical losses for calculating the own funds requirements for operational risk for all relevant institutions, or to take historical loss data into account even for institutions below a certain business size. To ensure a level playing field within the Union and to simplify the calculation of own funds requirements for operational risk, that discretion should be exercised in a harmonised manner for the minimum own funds requirements by disregarding historical operational loss data for all institutions. |
(47) |
When calculating the own funds requirements for operational risk, insurance policies might in the future be allowed to be used as an effective risk mitigation technique. To that end, EBA should report to the Commission on whether it is appropriate to recognise insurance policies as an effective risk mitigation technique and on the conditions, criteria and the standard formula to be used in such cases. |
(48) |
The extraordinary and unprecedented pace of monetary policy tightening in the aftermath of the COVID-19 pandemic might give rise to significant levels of volatility in the financial markets. Together with increased uncertainty leading to increased yields for public debt, that might, in turn, give rise to unrealised losses on certain institutions’ holdings of public debt. In order to mitigate the considerable negative impact of the volatility in central government debt markets on institutions’ own funds and thus on institutions’ capacity to lend, a temporary prudential filter that would partially neutralise that impact should be reintroduced. |
(49) |
Public financing through the issuance of government bonds denominated in the domestic currency of another Member State might continue to be necessary to support public measures to fight the consequences of the severe, double economic shock caused by the COVID-19 pandemic and Russia’s war of aggression against Ukraine. To avoid constraints on institutions investing in such bonds, it is appropriate to reintroduce the transitional arrangement for exposures to central governments or central banks where those exposures are denominated in the domestic currency of another Member State for the purposes of the treatment of such exposures under the credit risk framework. |
(50) |
Regulation (EU) 2019/630 of the European Parliament and of the Council (11) introduced a requirement for minimum loss coverage for non-performing exposures (NPEs), the so-called prudential backstop. The measure aimed to avoid the rebuilding of non-performing exposures held by institutions, while, at the same time, promoting pro-active management of NPEs by improving the efficiency of institutions’ restructuring or enforcement proceedings. Against that background, some targeted changes should be applied to NPEs guaranteed by export credit agencies or public guarantors. Furthermore, certain institutions that meet stringent conditions and are specialised in the acquisition of NPEs should be excluded from the application of the prudential backstop. |
(51) |
Information on the amount and quality of performing, non-performing and forborne exposures, as well as an ageing analysis of accounting past due exposures, should also be disclosed by listed small and non-complex institutions and by other institutions. That disclosure obligation does not create an additional burden on those institutions, as the disclosure of such limited set of information has already been implemented by EBA on the basis of the 2017 Council Action plan to tackle non-performing loans in Europe, which invited EBA to enhance disclosure requirements on asset quality and non-performing loans for all institutions. That disclosure obligation is also fully consistent with the communication of the Commission of 16 December 2020 entitled ‘Tackling non-performing loans in the aftermath of the COVID-19 pandemic’. |
(52) |
It is necessary to reduce the compliance burden for disclosure purposes and to enhance the comparability of disclosures. EBA should therefore establish a centralised web-based platform that enables the disclosure of information and data submitted by institutions. That centralised web-based platform should serve as a single access point for institutions’ disclosures, while ownership of the information and data and the responsibility for their accuracy should remain with the institutions that produce them. The centralisation of the publication of disclosed information should be fully in line with the capital markets union action plan. In addition, that centralised web-based platform should be interoperable with the European single access point. |
(53) |
To allow for a greater integration of supervisory reporting and disclosures, EBA should publish institutions’ disclosures in a centralised manner, while respecting the right of all institutions to publish data and information themselves. Such centralised disclosures should allow EBA to publish the disclosures of small and non-complex institutions, based on the information reported by those institutions to competent authorities and should thus significantly reduce the administrative burden to which small and non-complex institutions are subject. At the same time, the centralisation of disclosures should have no cost impact for other institutions, and increase transparency and reduce the cost of access to prudential information for market participants. Such increased transparency should facilitate the comparability of data across institutions and promote market discipline. |
(54) |
Achieving the environmental and climate ambitions of the European Green Deal set out in the communication of the Commission of 11 December 2019 and contributing to the United Nations 2030 Agenda for Sustainable Development requires the channelling of large amounts of investments from the private sector towards sustainable investments in the Union. Regulation (EU) No 575/2013 should reflect the importance of environmental, social and governance (ESG) factors and a full understanding of the risks of exposures to activities that are linked to overall sustainability or ESG objectives. To ensure convergence across the Union and a uniform understanding of ESG factors and risks, general definitions should be laid down. ESG factors can have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Common examples of ESG factors include greenhouse gas emissions, biodiversity and water use and consumption in the environment area; human rights, and labour and workforce considerations in the social area; and rights and responsibilities of senior staff members and remuneration in the governance area. Assets or activities subject to the impact of environmental or social factors should be defined by reference to the ambition of the Union to become climate-neutral by 2050 as set out in Regulation (EU) 2021/1119 of the European Parliament and of the Council (12), a Regulation of the European Parliament and of the Council on nature restoration and amending Regulation (EU) 2022/869, and the relevant sustainability goals of the Union. The technical screening criteria in relation to the principle of ‘do no significant harm’ adopted in accordance with Regulation (EU) 2020/852 of the European Parliament and of the Council (13), as well as specific Union legal acts to avert climate change, environmental degradation and biodiversity loss should be used to identify assets or exposures for the purpose of assessing dedicated prudential treatments and risk differentials. |
(55) |
Exposures to ESG risks are not necessarily proportional to an institution’s size and complexity. The levels of exposures to ESG risks across the Union are also quite heterogeneous, with some Member States showing a potential mild transitional impact and others showing a potential high transitional impact on exposures related to activities that have a significant negative impact, in particular on the environment. The transparency requirements that institutions are subject to and the disclosure requirements with regard to sustainability laid down in other existing Union legal acts will provide more granular data in a few years’ time. However, to properly assess the ESG risks that institutions might face, it is imperative that markets and competent authorities obtain adequate data from all entities exposed to those risks. Institutions should be in a position to systematically identify and ensure adequate transparency as regards their exposures to activities that are deemed to do significant harm to one of the environmental objectives within the meaning of Regulation (EU) 2020/852. In order to ensure that competent authorities have at their disposal data that are granular, comprehensive and comparable for the purposes of an effective supervision, information on exposures to ESG risks should be included in the supervisory reporting of institutions. To guarantee comprehensive transparency towards the markets, disclosures of ESG risks should also be extended to all institutions. The granularity of that information should be consistent with the principle of proportionality, having regard to the size and complexity of the institution concerned and the materiality of its exposures to ESG risks. When revising the implementing technical standards as regards the disclosure of ESG risks, EBA should assess means to enhance disclosures of ESG risks of cover pools of covered bonds and consider whether information on the relevant exposures of the pools of loans underlying covered bonds issued by institutions, whether directly or through the transfer of loans to a special purpose entity, should either be included in the revised implementing technical standards or in the regulatory and disclosure framework for covered bonds. |
(56) |
As the transition of the Union economy towards a sustainable economic model gains momentum, sustainability risks become more prominent and potentially require further consideration. An appropriate assessment of the availability and accessibility of reliable and consistent ESG data should form the basis for establishing a full link between ESG risk drivers and traditional categories of financial risks and sets of exposures. ESMA should also contribute to that evidence gathering by reporting on whether ESG risks are appropriately reflected in credit risk ratings of the counterparties or exposures that institutions might have. In a context of rapid and continuous developments around identification and quantification of ESG risks by both institutions and supervisors, it is also necessary to bring forward to the date of entry into force of this Regulation part of EBA’s mandate to assess and report on whether a dedicated prudential treatment of exposures related to assets or activities substantially associated with environmental or social objectives would be justified. The existing EBA mandate should be broken into a series of reports due to the length and complexity of the assessment work to be conducted. Therefore, two successive and annual follow-up EBA reports should be prepared by the end of 2024 and 2025, respectively. According to the International Energy Agency, to reach the carbon neutrality objective by 2050, no new fossil fuel exploration and expansion can take place. That means that fossil fuel exposures are prone to representing a higher risk both at the micro level, as the value of such assets is set to decrease over time, and at the macro level, as financing fossil fuel activities jeopardises the objective of limiting the increase in the global temperature to 1,5 oC above pre-industrial levels and therefore threatens financial stability. Competent authorities and market participants should, therefore, benefit from increased transparency by institutions on their exposures towards fossil fuel sector entities, including their activity in respect of renewable energy sources. |
(57) |
To ensure that any adjustments for exposures for infrastructure do not undermine the climate ambitions of the Union, new exposures would get the risk weight discount only where the assets being financed contribute positively to one or more of the environmental objectives set out in Regulation (EU) 2020/852 and do not significantly harm the other objectives set out in that Regulation, or the assets being financed do not significantly harm any of the environmental objectives set out in that Regulation. |
(58) |
It is essential for supervisors to have the necessary powers to assess and measure in a comprehensive manner the risks to which a banking group is exposed at a consolidated level and to have the flexibility to adapt their supervisory approaches to new sources of risk. It is important to avoid loopholes between prudential and accounting consolidation which can give rise to transactions that aim to move assets out of the scope of prudential consolidation, even though risks remain in the banking group. The lack of coherence in the definitions of ‘parent undertaking’, ‘subsidiary’ and ‘control’, and the lack of clarity in the definition of ‘ancillary services undertaking’, ‘financial holding company’ and ‘financial institution’ make it more difficult for supervisors to apply the applicable rules consistently in the Union and to detect and appropriately address risks at a consolidated level. Those definitions should therefore be amended and further clarified. In addition, it is deemed appropriate for EBA to investigate further whether those powers of the supervisors might be unintendedly constrained by any remaining discrepancies or loopholes in the regulatory provisions or in their interaction with the applicable accounting framework. |
(59) |
Markets in crypto-assets have grown rapidly in recent years. To address potential risks for institutions caused by their crypto-asset exposures that are not sufficiently covered by the existing prudential framework, the BCBS published in December 2022 a comprehensive standard for the prudential treatment of crypto-asset exposures. The recommended date of application of that standard is 1 January 2025, but some technical elements of the standard were being further developed at BCBS level during 2023 and 2024. In light of ongoing developments in markets in crypto-assets and acknowledging the importance of fully implementing the Basel standard on institutions’ crypto-asset exposures in Union law, the Commission should submit a legislative proposal by 30 June 2025 to implement that standard, and should specify the prudential treatment applicable to those exposures during the transitional period until the implementation of that standard. The transitional prudential treatment should take into account the legal framework introduced by Regulation (EU) 2023/1114 of the European Parliament and of the Council (14) for issuers of crypto-assets and specify a prudential treatment of those crypto-assets. Therefore, during the transitional period, tokenised traditional assets, including e-money tokens, should be recognised as entailing similar risks to traditional assets and crypto-assets compliant with that Regulation and referencing traditional assets other than a single fiat currency should benefit from a prudential treatment consistent with the requirements of that Regulation. Exposures to other crypto-assets, including tokenised derivatives on crypto-assets different from the ones that qualify for the more favourable capital treatment, should be assigned a 1 250 % risk weight. |
(60) |
The lack of clarity of certain aspects of the minimum haircut floor framework for securities financing transactions, developed by the BCBS as part of the finalised Basel III framework, as well as reservations about the economic justification of applying it to certain types of securities financing transactions, have raised the question of whether the prudential objectives of that framework can be attained without creating undesirable consequences. The Commission should therefore reassess the implementation of the minimum haircut floor framework for securities financing transactions in Union law. In order to provide the Commission with sufficient evidence, EBA, in close cooperation with ESMA, should report to the Commission on the impact of that framework, and on the most appropriate approach for its implementation in Union law. |
(61) |
Under the finalised Basel III framework, the very short-term nature of securities financing transactions might not be well reflected in the SA-CR, leading to own funds requirements calculated under that approach that could be excessively higher than own funds requirements calculated under the IRB Approach. As a result, and given as well the introduction of the output floor, the own funds requirements calculated for those exposures could significantly increase, affecting the liquidity of debt and securities markets, including the sovereign debt markets. EBA should therefore report on the appropriateness and the impact of the credit risk standards for securities financing transactions, and specifically whether an adjustment of the SA-CR for those exposures would be warranted to reflect their short-term nature. |
(62) |
The Commission should implement in Union law the revised Basel III standards on the own funds requirements for credit valuation adjustment (CVA) risk, published by the BCBS in July 2020, as those standards overall improve the calculation of the own funds requirements for CVA risk by addressing several previously observed issues, in particular that the existing CVA own funds requirements framework fails to appropriately capture CVA risk. |
(63) |
When implementing the initial Basel III standards on the treatment of CVA risk in Union law, certain transactions were exempted from the calculation of the own funds requirements for CVA risk. Those exemptions were agreed in order to prevent a potentially excessive increase in the cost of some derivative transactions triggered by the introduction of the own funds requirements for CVA risk, particularly when institutions could not mitigate the CVA risk of certain clients that were unable to exchange collateral. According to the estimated impact calculated by EBA, the own funds requirements for CVA risk under the revised Basel III standards would remain unduly high for exempted transactions with those clients. To ensure that those clients continue hedging their financial risks via derivative transactions, the exemptions should be maintained when implementing the revised Basel III standards. |
(64) |
However, the actual CVA risk of the exempted transactions could be a source of significant risk for institutions applying those exemptions. If those risks materialise, the institutions concerned could suffer significant losses. As EBA highlighted in its report on CVA of 25 February 2015, the CVA risk of the exempted transactions raises prudential concerns that are not addressed in Regulation (EU) No 575/2013. To help supervisors monitor the CVA risk arising from the exempted transactions, institutions should report the calculation of own funds requirements for CVA risk of the exempted transactions that would be required if those transactions were not exempted. In addition, EBA should develop guidelines to help supervisors identify excessive CVA risk and to improve the harmonisation of supervisory actions in that area across the Union. |
(65) |
The Commission should be empowered to adopt the regulatory technical standards developed by EBA with regard to the indicators for determining extraordinary circumstances for additional value adjustments; the method for specifying the main risk driver for a position and whether it is a long or short position; the process for calculating and monitoring net short credit or net short equity positions in the non-trading book; the treatment of foreign exchange risk hedges of capital ratios; the criteria to be used by institutions to assign off-balance-sheet items; the criteria for high quality project finance and object finance exposures in the context of specialised lending for which a directly applicable credit assessment is not available; the types of factors to be considered for the assessment of the appropriateness of the risk weights; the term ‘equivalent legal mechanism in place to ensure that the property under construction will be finished within a reasonable time frame’; the conditions for assessing the materiality of the use of an existing rating system; the assessment methodology for compliance with the requirements to use the IRB Approach; the categorisation of project finance, object finance and commodity finance; further specifying the exposure classes under the IRB Approach; the factors for specialised lending; the calculation of risk-weighted exposure amount for dilution risk of purchased receivables; the assessment of the integrity of the assignment process; the methodology of an institution for estimating probability of default; the comparable property; the supervisory delta of call and put options; the components of the business indicator; the adjustment of the business indicator; the definition of unduly burdensome in the context of calculating the annual operational risk loss; the risk taxonomy of operational risk; the competent authorities’ assessment of the computation of annual operational risk loss; the adjustments to loss data; the operational risk management; the calculation of the own funds requirements for market risk for non-trading book positions that are subject to foreign exchange risk or commodity risk; the assessment methodology for competent authorities for the alternative standardised approach; the collective investment undertaking trading books; the criteria for the residual risk add-on derogation; the conditions and indicators used to determine whether extraordinary circumstances have occurred; the criteria for the use of data inputs in the risk-measurement model; the criteria to assess the modellability of risk factors; the conditions and the criteria according to which an institution may be permitted not to count an overshooting; 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; the conditions and criteria for assessing the CVA risk arising from fair-valued securities financing transactions; the proxy spreads; the assessment of the extensions and changes to the standardised approach for CVA risk; and the technical elements necessary for institutions to calculate their own funds requirements in relation to certain crypto-assets. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. |
(66) |
The Commission should be empowered to adopt the implementing technical standards developed by EBA with regard to the joint decision process for the IRB Approach submitted by EU parent institutions, EU parent financial holding companies and EU parent mixed financial holding companies; the items of the business indicator by mapping those items with the reporting cells concerned; uniform disclosure formats, the associated instructions, information on the resubmission policy and IT solutions for disclosures; and ESG disclosures. The Commission should adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1093/2010. |
(67) |
Since the objective of this Regulation, namely to ensure uniform prudential requirements that apply to institutions throughout the Union, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. |
(68) |
Regulation (EU) No 575/2013 should therefore be amended accordingly, |
HAVE ADOPTED THIS REGULATION:
Article 1
Amendments to Regulation (EU) No 575/2013
Regulation (EU) No 575/2013 is amended as follows:
(1) |
Article 4 is amended as follows:
|
(2) |
Article 5 is amended as follows:
|
(3) |
the following article is inserted: ‘Article 5a Definitions specific to crypto-assets For the purposes of this Regulation, the following definitions apply:
(*8) Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (OJ L 150, 9.6.2023, p. 40)." (*9) Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149)." (*10) Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) (OJ L 354, 23.12.2016, p. 37)." (*11) Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product (PEPP) (OJ L 198, 25.7.2019, p. 1)." (*12) Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems (OJ L 166, 30.4.2004, p. 1)." (*13) Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16 September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems (OJ L 284, 30.10.2009, p. 1).’;" |
(4) |
Article 10a is replaced by the following: ‘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.’ |
(5) |
in Article 13(1), the second subparagraph is replaced by the following: ‘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.’ ; |
(6) |
Article 18 is amended as follows:
|
(7) |
Article 19 is amended as follows:
|
(8) |
Article 20 is amended as follows:
|
(9) |
Article 22 is replaced by the following: ‘Article 22 Sub-consolidation in the case of entities in third countries 1. Subsidiary institutions or subsidiary intermediate financial holding companies or subsidiary intermediate mixed financial holding companies shall apply the requirements laid down in Articles 89, 90 and 91 and Parts Three, Four and Seven and the associated reporting requirements laid down in Part Seven A on the basis of their sub-consolidated situation if they have an institution or a financial institution as a subsidiary in a third country, or hold a participation in such an undertaking. 2. By way of derogation from paragraph 1 of this Article, subsidiary institutions or subsidiary intermediate financial holding companies or subsidiary intermediate mixed financial holding companies may choose not to apply the requirements laid down in Articles 89, 90 and 91 and Parts Three, Four and Seven and the associated reporting requirements laid down in Part Seven A on the basis of their sub-consolidated situation where the total assets and off-balance-sheet items of the subsidiaries and participations in third countries are less than 10 % of the total amount of the assets and off-balance-sheet items of the subsidiary institution or subsidiary intermediate financial holding company or subsidiary intermediate mixed financial holding company.’ |
(10) |
in Article 27(1), point (a), point (v) is deleted; |
(11) |
Article 34 is replaced by the following: ‘Article 34 Additional value adjustments 1. Institutions shall apply the requirements of Article 105 to all their assets measured at fair value when calculating the amount of their own funds and shall deduct from Common Equity Tier 1 capital the amount of any additional value adjustments necessary. 2. By way of derogation from paragraph 1, in extraordinary circumstances, the existence of which shall be determined by an opinion provided by EBA in accordance with paragraph 3, institutions may reduce the total additional value adjustments in the calculation of the total amount to be deducted from Common Equity Tier 1 capital. 3. For the purpose of providing the opinion referred to in paragraph 2, EBA shall monitor the market conditions to assess whether extraordinary circumstances have occurred and, if so, shall notify the Commission thereof immediately. 4. EBA, in consultation with ESMA, shall develop draft regulatory technical standards to specify the indicators and conditions that EBA will use to determine the extraordinary circumstances referred to in paragraph 2 and to specify the reduction of the total aggregated additional value adjustments referred to in that paragraph. 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.’ |
(12) |
Article 36 is amended as follows:
|
(13) |
in Article 46(1), point (a), point (ii) is replaced by the following:
; |
(14) |
Article 47c is amended as follows:
|
(15) |
in Article 48, paragraph 1 is amended as follows:
|
(16) |
in Article 49, paragraph 4 is replaced by the following: ‘4. The holdings in respect of which deduction is not made in accordance with paragraph 1 shall qualify as exposures and shall be risk weighted in accordance with Part Three, Title II, Chapter 2. 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 %.’ |
(17) |
in Article 60(1), in point (a), point (ii) is replaced by the following:
; |
(18) |
in Article 62, first paragraph, point (d) is replaced by the following:
; |
(19) |
in Article 70(1), in point (a), point (ii) is replaced by the following:
; |
(20) |
in Article 72b(3), first subparagraph, the introductory wording is replaced by the following: ‘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:’ ; |
(21) |
in Article 72i(1), in point (a), point (ii) is replaced by the following:
; |
(22) |
Article 74 is replaced by the following: ‘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.’ |
(23) |
Article 84 is amended as follows:
|
(24) |
in Article 85, paragraph 1 is amended as follows:
|
(25) |
in Article 87, paragraph 1 is amended as follows:
|
(26) |
the following article is inserted: ‘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.’ |
(27) |
Article 89 is amended as follows:
|
(28) |
Article 92 is amended as follows:
|
(29) |
in Article 92a(1), point (a) is replaced by the following:
; |
(30) |
Article 94 is amended as follows:
|
(31) |
in Article 95(2), point (a) is replaced by the following:
; |
(32) |
in Article 96(2), point (a) is replaced by the following:
; |
(33) |
in Article 102, paragraph 4 is replaced by the following: ‘4. For the purpose of calculating the own funds requirements for market risk in accordance with the approach referred to in Article 325(1), point (b), trading book positions shall be assigned to trading desks.’ |
(34) |
Article 104 is replaced by the following: ‘Article 104 Inclusion in the trading book 1. An institution shall have in place clearly defined policies and procedures for determining which positions to include in the trading book to calculate its own funds requirements, in accordance with Article 102 and this Article, taking into account its risk management capabilities and practices. An institution shall fully document its compliance with those policies and procedures, shall subject them to an internal audit on at least a yearly basis and shall make the results of that audit available to the competent authorities. 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. 2. Institutions shall assign positions in the following instruments to the trading book:
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. 3. Institutions shall not assign positions in the following instruments to the trading book:
4. By way of derogation from paragraph 2, an institution may assign to the non-trading book a position in an instrument referred to in points (d) to (i) of that paragraph, subject to the approval of its competent authority. The competent authority shall give its approval where the institution has demonstrated to the satisfaction of its competent authority that the position is not held with trading intent or does not hedge positions held with trading intent. 5. By way of derogation from paragraph 3, an institution may assign to the trading book a position in an instrument referred to in point (i) of that paragraph, subject to the approval of its competent authority. The competent authority shall give its approval where the institution has demonstrated to the satisfaction of its competent authority that the position is held with trading intent, or hedges positions held with trading intent, and that the institution meets at least one of the conditions set out in paragraph 8 for that position. 6. Where an institution has assigned to the trading book a position in an instrument other than the instruments referred to in paragraph 2, point (a), (b) or (c), the institution’s competent authority may ask the institution to provide evidence to justify such assignment. Where the institution fails to provide suitable evidence, its competent authority may require the institution to reassign that position to the non-trading book. 7. Where an institution has assigned to the non-trading book a position in an instrument other than the instruments referred to in paragraph 3, the institution’s competent authority may ask the institution to provide evidence to justify such assignment. Where the institution fails to provide suitable evidence, its competent authority may require the institution to reassign that position to the trading book. 8. 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:
9. EBA shall develop draft regulatory technical standards to further specify the process that institutions are to use to calculate and monitor net short credit or net short equity positions in the non-trading book referred to in the paragraph 2, point (b). 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.’ |
(35) |
Article 104a is amended as follows:
|
(36) |
Article 104b is amended as follows:
|
(37) |
the following article is inserted: ‘Article 104c Treatment of foreign exchange risk hedges of capital ratios 1. 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:
2. Any exclusion of risk positions from the own funds requirements for market risk in accordance with paragraph 1 shall be applied consistently. 3. The competent authority shall approve any changes by the institution to the risk management framework referred to in paragraph 1, point (c), and to the details of the risk positions referred to in paragraph 1, point (d). 4. EBA shall develop draft regulatory technical standards to specify:
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.’ |
(38) |
Article 106 is amended as follows:
|
(39) |
in Article 107, paragraphs 1, 2 and 3 are replaced by the following: ‘1. Institutions shall apply either the Standardised Approach provided for in Chapter 2 or, where permitted by the competent authorities in accordance with Article 143, the Internal Ratings Based Approach provided for in Chapter 3 to calculate their risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g). 2. 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:
3. For the purposes of this Regulation, exposures to third-country investment firms, third-country credit institutions and third-country exchanges, as well as exposures to third-country financial institutions authorised and supervised by third-country authorities and subject to prudential requirements comparable to those applied to institutions in terms of robustness, shall be treated as exposures to an institution only if the third country applies prudential and supervisory requirements to that entity that are at least equivalent to those applied in the Union.’ |
(40) |
Article 108 is replaced by the following: ‘Article 108 Use of credit risk mitigation techniques under the Standardised Approach and the IRB Approach for credit risk and dilution risk 1. For an exposure to which an institution applies the Standardised Approach under Chapter 2 or applies the IRB Approach under Chapter 3 but without using its own estimates of LGD under Article 143, the institution may take into account the effect of funded credit protection in accordance with Chapter 4 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g) and, where relevant, expected loss amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d). 2. For an exposure to which an institution applies the IRB Approach by using its own estimates of LGD under Article 143, the institution may take into account the effect of funded credit protection in accordance with Chapter 3 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g), and, where relevant, expected loss amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d). 3. Where an institution applies the IRB Approach by using its own estimates of LGD under Article 143 for both the original exposure and for comparable direct exposures to the protection provider, the institution may take into account the effect of unfunded credit protection in accordance with Chapter 3 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (g), and, where relevant, expected loss amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d). In all other cases, for those purposes, the institution may take into account the effect of unfunded credit protection in the calculation of risk-weighted exposure amounts and expected loss amounts in accordance with Chapter 4. 4. 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:
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. 5. 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:
6. Institutions that use the option provided for in paragraph 4 for a given eligible protection provider under the mechanism referred to in that paragraph shall do so for all its exposures to natural persons guaranteed by that protection provider under that mechanism.’ |
(41) |
the following article is inserted: ‘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.’ |
(42) |
Article 111 is replaced by the following: ‘Article 111 Exposure value 1. The exposure value of an asset item shall be its accounting value remaining after specific credit risk adjustments in accordance with Article 110, additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution, amounts deducted in accordance with Article 36(1), point (m), and other own funds reductions related to the asset item have been applied. 2. 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):
3. 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):
4. Contractual arrangements offered by an institution, but not yet accepted by the client, that would become commitments if accepted by the client, shall be treated as commitments and the percentage applicable shall be the one provided for in accordance with paragraph 2. For contractual arrangements that meet the conditions set out in Article 5, points (10)(a) to (e), the applicable percentage shall be 0 %. 5. Where an institution is using the Financial Collateral Comprehensive Method referred to in Article 223, the exposure value of securities or commodities sold, posted or lent under a securities financing transaction shall be increased by the volatility adjustment appropriate to such securities or commodities in accordance with Articles 223 and 224. 6. The exposure value of a derivative instrument listed in Annex II shall be determined in accordance with Chapter 6, taking into account the effects of contracts of novation and other netting agreements as specified in that Chapter. The exposure value of securities financing transactions and long settlement transactions may be determined in accordance with Chapter 4 or 6. 7. Where the exposure is covered by a funded credit protection, the exposure value may be amended in accordance with Chapter 4. 8. EBA shall develop draft regulatory technical standards to specify:
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.’ |
(43) |
Article 112 is amended as follows
|
(44) |
Article 113 is amended as follows:
|
(45) |
Article 115 is amended as follows:
|
(46) |
Article 116 is amended as follows:
|
(47) |
in Article 117(1), the first subparagraph is replaced by the following: ‘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 %. Table 1
’; |
(48) |
in Article 119, paragraphs 2 and 3 are deleted; |
(49) |
in Article 120, paragraphs 1 and 2 are replaced by the following: ‘1. 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. Table 1
2. 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. Table 2
’; |
(50) |
Article 121 is replaced by the following: ‘Article 121 Exposures to unrated institutions 1. Exposures to institutions for which a credit assessment by a nominated ECAI is not available shall be assigned to one of the following grades:
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. 2. For exposures to financial institutions that are treated as exposures to institutions in accordance with Article 119(5), for the purpose of assessing whether the conditions set out in paragraph 1, points (a)(ii) and (b)(ii), of this Article are met by those financial institutions, institutions shall assess whether those financial institutions meet or exceed any comparable prudential requirements. 3. Exposures assigned to Grade A, B or C in accordance with paragraph 1 shall be assigned a risk weight as follows:
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. Table 1
’; |
(51) |
Article 122 is amended as follows:
|
(52) |
the following article is inserted: ‘Article 122a Specialised lending exposures 1. 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:
2. 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. Table 1
3. 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:
4. EBA shall develop draft regulatory technical standards to further specify the conditions under which the criteria set out in paragraph 3, point (c)(ii), are met. 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.’ |
(53) |
Article 123 is replaced by the following: ‘Article 123 Retail exposures 1. Exposures that comply with all of the following criteria shall be considered retail exposures:
The present value of retail minimum lease payments shall be eligible for the retail exposure 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. 2. The following exposures shall not be considered to be retail exposures:
3. Retail exposures as referred to in paragraph 1 shall be assigned a risk weight of 75 %, with the exception of transactor exposures, which shall be assigned a risk weight of 45 %. 4. Where any of the criteria referred to in paragraph 1 are not met for an exposure to one or more natural persons, the exposure shall be considered a retail exposure and shall be assigned a risk weight of 100 %. 5. 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:
|
(54) |
the following article is inserted: ‘Article 123a Exposures with a currency mismatch 1. 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:
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. 2. For the purposes of this Article, source of income refers to any source that generates cash flows to the obligor, including from remittances, rental incomes or salaries, whilst excluding proceeds from selling assets or similar recourse actions by the institution. 3. By way of derogation from paragraph 1, where the pair of currencies referred to in paragraph 1, point (a), is composed of the euro and the currency of a Member State participating in the second stage of economic and monetary union (ERM II), the risk weight multiplier of 1,5 shall not apply.’ |
(55) |
Articles 124, 125 and 126 are replaced by the following: ‘Article 124 Exposures secured by mortgages on immovable property 1. 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:
2. 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:
3. 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:
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. 4. By way of derogation from paragraph 3, point (b), in jurisdictions where junior liens provide the holder with a claim on collateral that is legally enforceable and constitutes an effective credit risk mitigant, junior liens held by an institution other than the one holding the senior lien may also be recognised, including where the institution does not hold the senior lien or does not hold a lien ranking between a more senior lien and a more junior lien both held by the institution. For the purposes of the first subparagraph, the rules governing the liens shall ensure all of the following:
5. For the purpose of calculating risk-weighted exposure amounts for undrawn facilities, liens that satisfy all eligibility requirements set out in paragraph 3 and, where applicable, paragraph 4, may be recognised where drawing under the facility is conditional on the prior or simultaneous filing of a lien to the extent of the institution’s interest in the lien once the facility is drawn, such that the institution does not have any interest in the lien to the extent that the facility is not drawn. 6. 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:
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. 7. Exposures to a tenant under an immovable property leasing transaction under which the institution is the lessor and the tenant has an option to purchase shall qualify as exposures secured by immovable property and shall be treated in accordance with the treatment set out in Article 125 or 126 if the applicable conditions set out in this Article are met, provided that the exposure of the institution is secured by its ownership of the property. 8. Member States shall designate an authority to be responsible for the application of paragraph 9. That authority shall be the competent authority or the designated authority. 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. 9. 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:
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. 10. Where the authority designated in accordance with paragraph 8 sets higher risk weights or stricter criteria pursuant to paragraph 9, institutions shall have a six-month transitional period to apply them. 11. EBA, in close cooperation with the ESRB, shall develop draft regulatory technical standards to specify the types of factors to be considered for the assessment of the appropriateness of the risk weights referred to in paragraph 9. 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. 12. 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:
13. Institutions established in a Member State shall apply the risk weights and criteria that have been determined by the authorities of another Member State in accordance with paragraph 9 to their corresponding exposures secured by mortgages on residential property or commercial immovable property located in one or more parts of that other Member State. 14. EBA shall develop draft regulatory technical standards to specify what constitutes an “equivalent legal mechanism in place to ensure that the property under construction is completed within a reasonable timeframe”, in accordance with paragraph 3, point (a)(iii)(2). 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 1. For an exposure secured by residential property as referred to in Article 124(2), point (a)(i) or (ii), the part of the exposure up to 55 % of the property value shall be assigned a risk weight of 20 %. 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:
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. 2. An exposure as referred to in Article 124(2), point (a)(iii), shall be assigned the risk weight set in accordance with the respective exposure-to-value risk weight bucket in Table 1. 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). Table 1
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:
3. Institutions may also apply the derogation referred to in paragraph 2, third subparagraph, of this Article in cases where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union as determined in a decision of the Commission adopted in accordance with Article 107(4), publishes corresponding loss rates for exposures secured by residential property situated within the territory of that third country. 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 1. For an exposure secured by commercial immovable property as referred to in Article 124(2), point (b)(i), the part of the exposure up to 55 % of the property value shall be assigned a risk weight of 60 %. 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:
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. 2. An exposure as referred to in Article 124(2), point (b)(ii), shall be assigned the risk weight set in accordance with the respective exposure-to-value risk weight bucket in Table 1. 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). Table 1
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:
3. Institutions may apply the derogation referred to in paragraph 2, third subparagraph, of this Article also in cases where the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Union as determined in a decision of the Commission adopted in accordance with Article 107(4), publishes corresponding loss rates for exposures secured by commercial immovable property situated within the territory of that third country. 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. 4. EBA shall assess the appropriateness of adjusting the treatment of exposures secured by mortgages on commercial immovable property, including IPRE and non-IPRE exposures, taking into account the appropriateness of risk weights and the relative differences in risk of exposures secured by residential property, the differences in risk sensitivity of IPRE exposures secured by residential property referred to in in Article 125(2), Table 1, and IPRE exposures secured by commercial immovable property referred to in Table 1 in this Article and the recommendations of the ESRB on the vulnerabilities in the commercial immovable property sector in the Union. EBA shall submit a report on its findings to the Commission by 31 December 2027. 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.’ |
(56) |
the following article is inserted: ‘Article 126a Land acquisition, development and construction exposures 1. An ADC exposure shall be assigned a risk weight of 150 %. 2. 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:
3. By 10 July 2025, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying the terms “substantial cash deposits”, “financing ensured in an equivalent manner”, “significant portion of total contracts” and “appropriate amount of obligor-contributed equity”, taking into account the specificities of institutions’ lending to public housing or not-for-profit entities across the Union that are regulated by law and that exist to serve social purposes and to offer tenants long-term housing.’ |
(57) |
Article 127 is amended as follows:
|
(58) |
Article 128 is replaced by the following: ‘Article 128 Subordinated debt exposures 1. The following exposures shall be treated as subordinated debt exposures:
2. Subordinated debt exposures shall be assigned a risk weight of 150 %, unless those subordinated debt exposures are deducted from own funds or subject to the treatment set out in Article 72e(5), first subparagraph.’ |
(59) |
Article 129 is amended as follows:
|
(60) |
in Article 132a(3), the first subparagraph is replaced by the following: ‘By way of derogation from Article 92(4), point (e), institutions that calculate the risk-weighted exposure amount of a CIU’s exposures in accordance with paragraph 1 or 2 of this Article may calculate the own funds requirement for the credit valuation adjustment risk of derivative exposures of that CIU as an amount equal to 50 % of the own funds requirement for those derivative exposures calculated in accordance with Chapter 6, Section 3, 4 or 5, of this Title, as applicable.’ ; |
(61) |
in Article 132b, paragraph 2 is replaced by the following: ‘2. Institutions may exclude from the calculations referred to in Article 132 equity exposures underlying exposures in the form of units or shares in CIUs to entities whose credit obligations are assigned a 0 % risk weight under this Chapter, including those publicly sponsored entities where a 0 % risk weight can be applied, and equity exposures referred to in Article 133(5), and instead apply the treatment set out in Article 133 to those equity exposures.’ |
(62) |
in Article 132c(2), the first subparagraph is replaced by the following: ‘Institutions shall calculate the exposure value of a minimum value commitment that meets the conditions set out in paragraph 3 of this Article as the discounted present value of the guaranteed amount using a discount factor that is derived from a risk-free rate pursuant to Article 325l(2) or (3), as applicable. Institutions may reduce the exposure value of the minimum value commitment by any losses recognised with respect to the minimum value commitment under the applicable accounting standard.’ ; |
(63) |
Article 133 is replaced by the following: ‘Article 133 Equity exposures 1. All of the following shall be classified as equity exposures:
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. 2. Equity investments shall not be treated as equity exposures in any of the following cases:
3. Equity exposures, other than those referred to in paragraphs 4 to 7, shall be assigned a risk weight of 250 %, unless those exposures are required to be deducted or risk weighted in accordance with Part Two. 4. 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:
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. 5. 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:
6. Equity exposures to central banks shall be assigned a risk weight of 0 %. 7. An equity holding that is recorded as a loan but that has arisen from a debt-equity swap made as part of the orderly realisation or restructuring of the debt shall not be assigned a risk weight lower than the risk weight that would apply if the equity holding were treated as a debt exposure.’ |
(64) |
in Article 134, paragraph 3 is replaced by the following: ‘3. Cash items in the process of collection shall be assigned a 20 % risk weight. Cash owned and held by the institution, or in transit, and equivalent cash items shall be assigned a 0 % risk weight.’ |
(65) |
in Article 135, the following paragraph is added: ‘3. By 10 July 2025, ESMA shall prepare a report on whether ESG risks are appropriately reflected in ECAI credit risk rating methodologies and submit that report to the Commission. 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.’ |
(66) |
Article 138 is amended as follows:
|
(67) |
in Article 139(2), points (a) and (b) are replaced by the following:
; |
(68) |
Article 141 is replaced by the following: ‘Article 141 Domestic and foreign currency items 1. A credit assessment that refers to an item denominated in the obligor’s domestic currency shall not be used to derive a risk weight for an exposure on that same obligor that is denominated in a foreign currency. 2. By way of derogation from paragraph 1, where an exposure arises through an institution’s participation in a loan that has been extended by, or has been guaranteed against convertibility and transfer risk by, a multilateral development bank listed in Article 117(2) the preferred creditor status of which is recognised in the market, the credit assessment on the obligor’s domestic currency item may be used to derive a risk weight for an exposure on that same obligor that is denominated in a foreign currency. 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.’ |
(69) |
in Article 142, paragraph 1 is amended as follows:
|
(70) |
Article 143 is amended as follows:
|
(71) |
Article 144 is amended as follows:
|
(72) |
Article 147 is amended as follows:
|
(73) |
Article 148 is amended as follows:
|
(74) |
in Article 149(1), point (a) is replaced by the following:
; |
(75) |
Article 150 is amended as follows:
|
(76) |
Article 151 is amended as follows:
|
(77) |
Article 152 is amended as follows:
|
(78) |
Article 153 is amended as follows:
|
(79) |
Article 154 is amended as follows:
|
(80) |
Article 155 is deleted; |
(81) |
in Article 157, the following paragraph is added: ‘6. EBA shall develop draft regulatory technical standards to further specify:
|
(82) |
Article 158 is amended as follows:
|
(83) |
Article 159 is replaced by the following: ‘Article 159 Treatment of expected loss amounts, IRB shortfall and IRB excess 1. 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:
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”. 2. For the purposes of the calculation referred to in the paragraph 1 of this Article, institutions shall treat discounts determined in accordance with Article 166(1) on balance-sheet exposures purchased when in default in the same manner as specific credit risk adjustments. Discounts on balance-sheet exposures purchased when not in default shall not be allowed to be included in the calculation of the IRB shortfall or IRB excess. Specific credit risk adjustments on exposures in default shall not be used to cover expected loss amounts on other exposures. Expected loss amounts for securitised exposures and general and specific credit risk adjustments related to those exposures shall not be included in the calculation of the IRB shortfall or IRB excess.’ |
(84) |
in Part Three, the following Sub-Section is inserted after Section 4 ‘PD, LGD and maturity’:
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.’ |
(85) |
in Part Three, Title II, Chapter 3, Section 4, the title of Sub-Section 1 is replaced by the following: ‘Exposures to corporates, institutions, central governments and central banks, regional governments, local authorities and public sector entities’ ; |
(86) |
Article 160 is amended as follows:
|
(87) |
Article 161 is amended as follows:
|
(88) |
Article 162 is amended as follows:
|
(89) |
Article 163 is amended as follows:
|
(90) |
Article 164 is amended as follows:
|
(91) |
in Part Three, Title II, Chapter 3, Section 4, Sub-Section 3 is deleted; |
(92) |
Article 166 is amended as follows:
|
(93) |
Article 167 is deleted; |
(94) |
in Article 169(3), the following subparagraph is added: ‘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.’ ; |
(95) |
Article 170 is amended as follows:
|
(96) |
in Article 171, the following paragraph is added: ‘3. Institutions shall use a time horizon longer than one year in assigning ratings. An obligor rating shall represent the institution’s assessment of the obligor’s ability and willingness to contractually perform despite adverse economic conditions or the occurrence of unexpected events. Rating systems shall be designed in such a way that idiosyncratic changes and, where they are material drivers of risk for the type of exposure, industry-specific changes are a driver of migrations from one grade or pool to another. Business cycle effects may also be a driver of migrations.’ |
(97) |
in Article 172, paragraph 1 is amended as follows:
|
(98) |
Article 173 is amended as follows:
|
(99) |
Article 174 is amended as follows:
|
(100) |
Article 176 is amended as follows:
|
(101) |
Article 177 is amended as follows:
|
(102) |
Article 178 is amended as follows:
|
(103) |
in Article 179(1), point (f) is replaced by the following:
; |
(104) |
Article 180 is amended as follows:
|
(105) |
Article 181 is amended as follows:
|
(106) |
Article 182 is amended as follows:
|
(107) |
Article 183 is amended as follows
|
(108) |
in Part Three, Title II, Chapter 3, Section 6, Sub-Section 4 is deleted; |
(109) |
in Article 192, the following point is added:
; |
(110) |
in Article 193, the following paragraph is added: ‘7. Collateral that satisfies all eligibility requirements set out in this Chapter can be recognised even for exposures associated with undrawn facilities, where drawing under the facility is conditional on the prior or simultaneous purchase or reception of collateral to the extent of the institution’s interest in the collateral once the facility is drawn, such that the institution does not have any interest in the collateral to the extent the facility is not drawn.’ |
(111) |
in Article 194, paragraph 10 is deleted; |
(112) |
Article 197 is amended as follows:
|
(113) |
in Article 198, paragraph 2 is replaced by the following: ‘2. 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:
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:
|
(114) |
Article 199 is amended as follows:
|
(115) |
Article 201 is amended as follows:
|
(116) |
Article 202 is deleted; |
(117) |
in Article 204, the following paragraph is added: ‘3. First-to-default and all other nth-to-default credit derivatives shall not be eligible types of unfunded credit protection under this Chapter.’ |
(118) |
in Article 207(4), point (d) is replaced by the following:
; |
(119) |
Article 208 is amended as follows:
|
(120) |
Article 210 is amended as follows:
|
(121) |
in Article 213, paragraph 1 is replaced by the following: ‘1. 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:
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.’ |
(122) |
Article 215 is amended as follows:
|
(123) |
in Article 216, the following paragraph is added: ‘3. 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:
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).’ |
(124) |
Article 217 is deleted; |
(125) |
Article 219 is replaced by the following: ‘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.’ |
(126) |
Article 220 is amended as follows:
|
(127) |
Article 221 is amended as follows:
|
(128) |
in Article 222, paragraph 3 is replaced by the following: ‘3. Institutions shall assign to those portions of exposure values that are collateralised by the market value of eligible collateral the risk weight that they would assign under Chapter 2 where the lending institution had a direct exposure to the collateral instrument. For that purpose, the exposure value of an off-balance-sheet item listed in Annex I shall be equal to 100 % of the item’s value rather than the exposure value indicated in Article 111(2).’ |
(129) |
Article 223 is amended as follows
|
(130) |
in Article 224, paragraph 1, Tables 1 to 4 are replaced by the following: ‘Table 1
Table 2
Table 3 Other collateral or exposure types
Table 4 Volatility adjustment for currency mismatch (Hfx)
’; |
(131) |
Article 225 is deleted; |
(132) |
Article 226 is replaced by the following: ‘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:
|
(133) |
in Article 227, paragraph 1 is replaced by the following: ‘1. Institutions that use the Supervisory Volatility Adjustments Approach referred to in Article 224, may, for repurchase transactions and securities lending or borrowing transactions, apply a 0 % volatility adjustment instead of the volatility adjustments calculated under Articles 224 and 226, provided that the conditions set out in paragraph 2, points (a) to (h), of this Article are satisfied. Institutions that use the internal model approach set out in Article 221 shall not use the treatment set out in this Article.’ |
(134) |
Article 228 is replaced by the following: ‘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.’ |
(135) |
Article 229 is amended as follows:
|
(136) |
Article 230 is replaced by the following: ‘Article 230 Calculating risk-weighted exposure amounts and expected loss amounts for an exposure with an eligible funded credit protection under the IRB Approach 1. 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:
2. Table 1 specifies the values of LGDS and Hc applicable in the formula set out in paragraph 1. Table 1
3. Where an eligible funded credit protection is denominated in a different currency than that of the exposure, the volatility adjustment for currency mismatch (Hfx) shall be the same as the one that applies pursuant to Articles 224 to 227. 4. As an alternative to the treatment set out in paragraphs 1 and 2 of this Article, and subject to Article 124(9), institutions may assign a 50 % risk weight to the part of the exposure that is, within the limits set out in Article 125(1), first subparagraph, and Article 126(1), first subparagraph, respectively, fully collateralised by residential property or commercial immovable property situated within the territory of a Member State where all of the conditions set out in Article 199(3) or (4) are met. 5. To calculate risk-weighted exposure amounts and expected loss amounts for IRB exposures that fall within the scope of Article 220, institutions shall use E* in accordance with Article 220(4) and shall use LGD for unsecured exposures, as set out in Article 161(1), points (a), (aa) and (b).’ |
(137) |
Article 231 is replaced by the following: ‘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:
|
(138) |
Article 232 is amended as follows:
|
(139) |
in Article 233, paragraph 4 is replaced by the following: ‘4. Institutions shall base the volatility adjustments for any currency mismatch on a 10 business day liquidation period, assuming daily revaluation, and shall calculate those adjustments based on the Supervisory Volatility Adjustments Approach as set out in Article 224. Institutions shall scale up the volatility adjustments in accordance with Article 226.’ |
(140) |
Article 235 is amended as follows:
|
(141) |
the following article is inserted: ‘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 1. 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:
2. Where the amount of credit protection (GA) is less than the exposure value (E), institutions may apply the formula specified in paragraph 1 only where the protected and unprotected parts of the exposure are of equal seniority. 3. Institutions may extend the preferential treatment set out in Article 114(4) and (7), to exposures or parts of exposures guaranteed by the central government or the central bank as if those exposures were direct exposures to the central government or the central bank, provided that the conditions set out in Article 114(4) or (7), as applicable, are met for such direct exposures. 4. The expected loss amount for the covered part of the exposure value shall be zero. 5. For any uncovered part of the exposure value (E), institutions shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation set out in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure other than the deductions made in accordance with Article 36(1), point (m), to the uncovered part of the exposure value.’ |
(142) |
Article 236 is replaced by the following: ‘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 1. For an exposure with unfunded credit protection to which an institution applies the IRB Approach set out in Chapter 3, but without using its own estimates of LGD, and where comparable direct exposures to the protection provider are treated under the IRB Approach set out in Chapter 3, the institution shall determine the covered part of the exposure as the lower of the exposure value (E) and the adjusted value of the unfunded credit protection (GA). 1a. Institutions that apply the IRB Approach to comparable direct exposures to the protection provider using own estimates of PD shall calculate the risk-weighted exposure amount and the expected loss amount for the covered part of the exposure value by using the PD of the protection provider and the LGD applicable for a comparable direct exposure to the protection provider as referred to in Article 161(1), in accordance with paragraph 1b of this Article. For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered part of the exposure value shall be the LGD associated with senior claims and the institutions may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter. 1b. Institutions shall calculate the risk weight and expected loss applicable to the covered part of the underlying exposure using the PD, the LGD specified in paragraph 1a of this Article, and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162. 1c. Institutions that apply the IRB Approach to comparable direct exposures to the protection provider using the method provided for in Article 153(5) shall use the risk weight and expected loss applicable to the covered part of the exposure that correspond to the ones provided for in Articles 153(5) and 158(6). 1d. Notwithstanding paragraph 1c of this Article, institutions that apply the IRB Approach to guaranteed exposures using the method provided for in Article 153(5) shall calculate the risk weight and expected loss applicable to the covered part of the exposure using the PD, the LGD applicable for a comparable direct exposure to the protection provider as referred to in Article 161(1), in accordance with paragraph 1b of this Article, and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162. For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered part of the exposure value shall be the LGD associated with senior claims and the institutions may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter. 2. For any uncovered part of the exposure value (E), institutions shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation set out in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure other than the deductions made in accordance with Article 36(1), point (m), to the uncovered part of the exposure value. 3. For the purposes of this Article, (GA) is 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. The exposure value (E) is the exposure value determined in accordance with Chapter 3, Section 5. 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).’ |
(143) |
the following article is inserted: ‘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 1. For an exposure with unfunded credit protection to which an institution applies the IRB Approach set out in Chapter 3 using its own estimates of LGD and where comparable direct exposures to the protection provider are treated under the IRB Approach set out in Chapter 3, but without using its own estimates of LGD, the institution shall determine the covered part of the exposure as the lower of the exposure value (E) and the adjusted value of the unfunded credit protection (GA), calculated in accordance with Article 235a(1). The institution shall calculate the risk-weighted exposure amount and the expected loss amount for the covered part of the exposure value by using the PD, the LGD and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162. 2. Institutions that apply the IRB Approach set out in Chapter 3, but without using their own estimates of LGD to comparable direct exposures to the protection provider, shall determine the LGD in accordance with Article 161(1). For subordinated exposures and non-subordinated unfunded credit protection, the LGD to be applied by institutions to the covered part of the exposure value shall be the LGD associated with senior claims and the institutions may account for any funded credit protection securing the unfunded credit protection in accordance with this Chapter. 3. Institutions that apply the IRB Approach set out in Chapter 3 using their own estimates of LGD to comparable direct exposures to the protection provider shall calculate the risk weight and the expected loss applicable to the covered part of the underlying exposure using the PD, the LGD and the same risk weight function as the ones used for a comparable direct exposure to the protection provider, and shall, where applicable, use the maturity (M) related to the underlying exposure, calculated in accordance with Article 162. 4. Institutions that apply the IRB Approach to comparable direct exposures to the protection provider using the method provided for in Article 153(5) shall use the risk weight and expected loss applicable to the covered part of the exposure that correspond to the ones provided in Articles 153(5) and 158(6). 5. For any uncovered part of the exposure value (E), institutions shall use the risk weight and the expected loss corresponding to the underlying exposure. For the calculation set out in Article 159, institutions shall assign any general or specific credit risk adjustments or additional value adjustments in accordance with Article 34 related to the non-trading book business of the institution or other own funds reductions related to the exposure other than the deductions made in accordance with Article 36(1), point (m), to the uncovered part of the exposure value.’ |
(144) |
in Part Three, Title II, Chapter 4, Section 6 is deleted; |
(145) |
in Article 252, point (b), the definition of RW* is replaced by the following: ‘RW* = risk-weighted exposure amounts for the purposes of Article 92(4), point (a);’ |
(146) |
Article 273 is amended as follows:
|
(147) |
in Article 273a, paragraph 3 is amended as follows:
|
(148) |
Article 273b is amended as follows:
|
(149) |
Article 274 is amended as follows:
|
(150) |
in Article 276(1), point (d) is replaced by the following:
; |
(151) |
in Article 277a(2), the following subparagraph is added: ‘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.’ ; |
(152) |
Article 279a is amended as follows:
|
(153) |
Article 285 is amended as follows:
|
(154) |
in Article 291(5), point (f) is replaced by the following:
; |
(155) |
in Part Three, Title III is replaced by the following: ‘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:
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:
Article 314 Business indicator 1. Institutions shall calculate their business indicator in accordance with the following formula: BI = ILDC + SC + FC where:
2. For the purposes of paragraph 1, the interest, leases and dividend component shall be calculated in accordance with the following formula:
where:
3. 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:
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. 4. Until 31 December 2027 or until the consolidating supervisor grants permission in accordance with paragraph 3, whichever is earlier, an EU parent institution that has been granted permission to apply the alternative standardised approach to its business lines of retail banking and commercial banking to calculate its own funds requirement for operational risk may, after having informed its consolidating supervisor, continue to use the alternative standardised approach as set out in the version of this Regulation applicable on 8 July 2024 for the purpose of calculating the own funds requirement for operational risk relating to those two business lines and according to the scope of the existing permission. 5. 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:
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. 6. For the purposes of paragraph 1, the financial component shall be calculated in accordance with the following formula: FC = TC + BC where:
7. Institutions shall not use any of the following elements in the calculation of their business indicator:
8. Where an institution has been in operation for less than three years, it shall use forward-looking business estimates in calculating the relevant components of its business indicator, subject to the satisfaction of its competent authority. The institution shall start using historical data as soon as that data are available. 9. EBA shall develop draft regulatory technical standards to specify the following:
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. 10. EBA shall develop draft implementing technical standards to specify the items of the business indicator by mapping those items with the corresponding reporting cells set out in Commission Implementing Regulation (EU) 2021/451 (*14), where appropriate. 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 1. Institutions shall include business indicator items of merged or acquired entities or activities in their business indicator calculation from the time of the merger or acquisition, as applicable, and shall cover the last three financial years. 2. Institutions may request permission from the competent authority to exclude from the business indicator amounts related to disposed entities or activities. 3. EBA shall develop draft regulatory technical standards to specify the following:
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 1. Institutions with a business indicator equal to or exceeding EUR 750 million shall calculate their annual operational risk loss as the sum of all net losses over a given financial year, calculated in accordance with Article 318(1), that are equal to or exceed the loss data thresholds set out in Article 319(1) or (2). 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. 2. For the purposes of paragraph 1, the relevant business indicator shall be the highest value of the business indicator that the institution has reported at the last eight reporting reference dates. An institution that has not yet reported its business indicator shall use its most recent business indicator. 3. EBA shall develop draft regulatory technical standards to specify the condition of “unduly burdensome” for the purposes of paragraph 1. 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 1. Institutions that calculate an annual operational risk loss in accordance with Article 316(1) shall have in place arrangements, processes and mechanisms to establish and maintain updated on an ongoing basis a loss data set compiling for each recorded operational risk event the gross loss amounts, non-insurance recoveries, insurance recoveries, reference dates and grouped losses, including those from misconduct events. 2. The institution’s loss data set shall capture all operational risk events stemming from all entities that are part of the scope of consolidation pursuant to Part One, Title II, Chapter 2. 3. For the purpose of paragraph 1, institutions shall:
4. Institutions shall also collect:
The level of detail of any descriptive information shall be commensurate with the size of the gross loss amount. 5. An institution shall not include in the loss data set operational risk events related to credit risk that are accounted for in the risk-weighted exposure amount for credit risk. Operational risk events that relate to credit risk but are not accounted for in the risk-weighted exposure amount for credit risk shall be included in the loss data set. 6. Operational risk events related to market risk shall be treated as operational risk and shall be included in the loss data set. 7. An institution shall, upon request from the competent authority, be able to map its historical internal loss data to the event type. 8. 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:
9. For the purposes of paragraph 7, EBA shall develop draft regulatory technical standards establishing a risk taxonomy on operational risk that complies with international standards and a methodology to classify the loss events included in the loss data set based on that risk taxonomy on operational risk. 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. 10. For the purposes of paragraph 8, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, explaining the technical elements necessary to ensure the soundness, robustness and performance of governance arrangements to maintain the loss data set, with a particular focus on IT systems and infrastructures. Article 318 Calculation of net loss and gross loss 1. 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:
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:
2. For the purposes of paragraph 1, the following items shall be included in the gross loss computation:
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. 3. For the purposes of paragraph 1, the following items shall be excluded from the gross loss computation:
4. For the purposes of paragraph 1, recoveries shall be used to reduce gross losses only where the institution has received payment. Receivables shall not be considered as recoveries. 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 1. To calculate the annual operational risk loss referred to in Article 316(1), institutions shall take into account from the loss data set operational risk events with a net loss, calculated in accordance with Article 318, that are equal to or exceed EUR 20 000. 2. Without prejudice to paragraph 1 of this Article, and for the purposes of Article 446, institutions shall also calculate the annual operational risk loss referred to in Article 316(1), taking into account from the loss data set operational risk events with a net loss, calculated in accordance with Article 318, that are equal to or exceed EUR 100 000. 3. In the case of an operational risk event that leads to losses during more than one financial year, as referred to in Article 318(1), second subparagraph, the net loss to be taken into account for the thresholds referred to in paragraphs 1 and 2 of this Article shall be the aggregated net loss. Article 320 Exclusion of losses 1. 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:
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). 2. 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:
3. EBA shall develop draft regulatory technical standards to specify the conditions that the competent authority has to assess pursuant to paragraph 1, including how the average annual operational risk loss is to be computed and the specifications on the information to be collected pursuant to paragraph 2 or any further information deemed necessary to carry out the assessment. 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 1. Losses stemming from merged or acquired entities or activities shall be included in the loss data set as soon as the business indicator items related to those entities or activities are included in the institution’s business indicator calculation in accordance with Article 315(1). To that end, institutions shall include losses observed during a 10-year period prior to the acquisition or merger. 2. EBA shall develop draft regulatory technical standards to specify how institutions are to determine the adjustments to their loss data set following the inclusion of losses from merged or acquired entities or activities as referred to in paragraph 1. 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 1. Institutions shall have in place the organisation and processes to ensure the comprehensiveness, accuracy and quality of the loss data and to subject that data to independent review. 2. Competent authorities shall periodically, and at least every five years, review the quality of the loss data of an institution that calculates an annual operational risk loss in accordance with Article 316(1). Competent authorities shall carry out such review at least every three years for an institution with a business indicator that exceeds EUR 1 billion. Article 323 Operational risk management framework 1. Institutions shall have in place:
2. EBA shall develop draft regulatory technical standards to specify the obligations under paragraph 1, points (a) to (h), taking into consideration the size and complexity of the institution. 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. (*14) Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down implementing technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to supervisory reporting of institutions and repealing Implementing Regulation (EU) No 680/2014 (OJ L 97, 19.3.2021, p. 1).’;" |
(156) |
Article 325 is amended as follows:
|
(157) |
Article 325a is amended as follows:
|
(158) |
in Article 325b, the following paragraph is added: ‘4. 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:
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.’ |
(159) |
Article 325c is amended as follows:
|
(160) |
Article 325j is amended as follows:
|
(161) |
in Article 325q, paragraph 2 is replaced by the following: ‘2. The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates between currency pairs. Those implied volatilities shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years and 10 years.’ |
(162) |
in Article 325s(1), the formula sk for is replaced by the following: ‘
’; |
(163) |
Article 325t is amended as follows:
|
(164) |
Article 325u is amended as follows:
|
(165) |
in Article 325v, the following paragraph is added: ‘3. For traded non-securitisation credit and equity derivatives, JTD amounts by individual constituents shall be determined by applying a look-through approach.’ |
(166) |
in Article 325x, the following paragraph is added: ‘5. Where the contractual or legal terms of a derivative position having a debt or equity cash instrument as an underlying, and hedged with that debt or equity cash instrument, allow an institution to close out both legs of that position at the time of the expiry of the first-to-mature of the two legs with no exposure to default risk of the underlying, the net jump-to-default amount of the combined position shall be set equal to zero.’ |
(167) |
in Article 325y, the following paragraph is added: ‘6. 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.’ |
(168) |
in Article 325ab, paragraph 2 is deleted; |
(169) |
Article 325ad is amended as follows:
|
(170) |
in Article 325ae, paragraph 3 is replaced by the following: ‘3. 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:
|
(171) |
Article 325ah is amended as follows:
|
(172) |
in Article 325ai(1), the definition of ρkl (name) is replaced by the following: ‘ρkl (name) shall be equal to 1 where the two names of sensitivities k and l are identical; it shall be equal to 35 % where the two names of sensitivities k and l are in buckets 1 to 18 in Article 325ah(1), Table 4, otherwise it shall be equal to 80 %’ ; |
(173) |
in Article 325aj, the definition of γbc (rating) is replaced by the following: ‘γbc (rating) shall be equal to:
|
(174) |
Article 325ak is amended as follows:
|
(175) |
Article 325am is amended as follows:,
|
(176) |
in Article 325as, Table 9 is amended as follows:
|
(177) |
Article 325ax is amended as follows:
|
(178) |
Article 325az is amended as follows:
|
(179) |
Article 325ba, is amended as follows:
|
(180) |
in Article 325bc, the following paragraph is added: ‘6. EBA shall develop draft regulatory technical standards to specify the criteria for the use of data inputs in the risk-measurement model referred to in this Article, including criteria on data accuracy and criteria on the calibration of the data inputs where market data are insufficient. 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.’ |
(181) |
in Article 325bd, the following paragraph is inserted: ‘5a. Currencies of Member States participating in ERM II shall be included in the most liquid currencies and domestic currency sub-category within the broad category of interest rate risk factor of Table 2.’ |
(182) |
Article 325be is amended as follows:
|
(183) |
Article 325bf is amended as follows:
|
(184) |
Article 325bg is amended as follows:
|
(185) |
Article 325bh is amended as follows:
|
(186) |
in Article 325bi, paragraph 1 is amended as follows:
|
(187) |
in Article 325bo, paragraph 3 is replaced by the following: ‘3. In their internal default risk models, institutions shall capture material basis risks in hedging strategies that arise from differences in the type of product, seniority in the capital structure, internal or external ratings, vintage and other differences. 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.’ |
(188) |
Article 325bp is amended as follows:
|
(189) |
in Article 332, paragraph 3 is replaced by the following: ‘3. Credit derivatives in accordance with Article 325(6) or (8) shall be included only in the determination of the specific risk own funds requirement in accordance with Article 338(2).’ |
(190) |
Article 337 is amended as follows:
|
(191) |
Article 338 is replaced by the following: ‘Article 338 Own funds requirement for the correlation trading portfolio 1. For the purposes of this Article, an institution shall determine its correlation trading portfolio in accordance with Article 325(6), (7) and (8). 2. An institution shall determine the larger of the following amounts as the specific risk own funds requirement for the correlation trading portfolio:
|
(192) |
in Article 348, paragraph 1 is replaced by the following: ‘1. Without prejudice to other provisions in this Section, positions in CIUs shall be subject to an own funds requirement for position risk, comprising general and specific risk, of 32 %. Without prejudice to Article 353 taken together with the amended gold treatment set out in Article 352(4) positions in CIUs shall be subject to an own funds requirement for position risk, comprising general and specific risk, and foreign exchange risk of 40 %.’ |
(193) |
Article 351 is replaced by the following: ‘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 %.’ |
(194) |
in Article 352, paragraph 2 is deleted; |
(195) |
Article 361 is amended as follows:
|
(196) |
in Part Three, Title IV, Chapter 5 is deleted; |
(197) |
in Article 381, the following paragraph is added: ‘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.’ ; |
(198) |
Article 382 is amended as follows:
|
(199) |
the following article is inserted: ‘Article 382a Approaches for calculating the own funds requirements for CVA risk 1. 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:
2. An institution shall not use the approach referred to in paragraph 1, point (c), in combination with the approach referred to in point (a) or (b) of that paragraph. 3. 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:
4. For the purposes of paragraph 3, point (c), institutions shall split the eligible netting set into a hypothetical netting set containing the transactions subject to the approach referred to in paragraph 1, point (a), and a hypothetical netting set containing the transactions subject to the approach referred to in paragraph 1, point (b). 5. For the purposes of paragraph 3, point (c), the conditions referred to therein shall comprise the following:
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.’ |
(200) |
Article 383 is replaced by the following: ‘Article 383 Standardised approach 1. 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:
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. 2. For the purpose of calculating the own funds requirements for CVA risk, the following definitions apply:
3. 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:
|
(201) |
the following articles are inserted: ‘Article 383a Regulatory CVA model 1. 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:
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. 2. 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:
3. An institution using a regulatory CVA model shall comply with all of the following qualitative requirements:
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. 4. EBA shall develop draft regulatory technical standards to specify:
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. 5. EBA shall develop draft regulatory technical standards to specify:
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 1. Institutions shall apply the delta and vega risk factors described in Articles 383c to 383h, and the process set out in paragraphs 2 to 8 of this Article, to calculate the own funds requirements for delta and vega risks. 2. For each risk class referred to in Article 383(2), the sensitivity of the aggregate CVAs and the sensitivity of all positions in eligible hedges falling within the scope of the own funds requirements for delta or vega risk to each of the applicable delta or vega risk factors included in that risk class shall be calculated by using the corresponding formulae set out in Articles 383i and 383j. Where the value of an instrument depends on several risk factors, the sensitivity shall be determined separately for each risk factor. 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:
3. Where an eligible hedge is an index instrument, institutions shall calculate the sensitivities of that eligible hedge to all relevant risk factors by applying the shift of one of the relevant risk factors to each of the index constituents. 4. An institution may introduce additional risk factors that correspond to qualified index instruments for the following risk classes:
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. 5. 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:
6. Institutions shall calculate the net-weighted sensitivity WSk of the CVA portfolio to risk factor k in accordance with the following formula:
7. 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:
8. 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:
Article 383c Interest rate risk factors 1. For the interest rate delta risk factors, including inflation rate risk, there shall be one bucket per currency, with each bucket containing different types of 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. 2. The currencies for which an institution shall apply the interest rate delta risk factors in accordance with paragraph 1 shall be euro, Swedish krona, Australian dollar, Canadian dollar, British pound sterling, Japanese yen and US dollar, the institution’s reporting currency and the currency of a Member State participating in ERM II. 3. For currencies not specified in paragraph 2, the interest rate delta risk factors shall be the absolute change of the inflation rate and the parallel shift of the entire risk-free curve for a given currency. 4. Institutions shall obtain the risk-free rates per currency from money market instruments held in their trading book that have the lowest credit risk, including overnight index swaps. 5. Where institutions cannot apply the approach referred to in paragraph 4, the risk-free rates shall be based on one or more market-implied swap curves used by the institutions to mark positions to market, such as the interbank offered rate swap curves. 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. 6. The interest rate vega risk factor applicable to instruments in the CVA portfolio sensitive to interest rate volatility shall be all the volatilities of the interest rate of all tenors for a given currency. The inflation rate vega risk factor applicable to instruments in the CVA portfolio sensitive to inflation rate volatility shall be all the volatilities of the inflation rate of all tenors for a given currency. There shall be one net interest rate sensitivity and one net inflation rate sensitivity computed for each currency. Article 383d Foreign exchange risk factors 1. The foreign exchange delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange spot rates shall be the spot foreign exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency or the institution’s base currency where the institution is using a base currency in accordance with Article 325q(7). There shall be one bucket per currency pair, containing a single risk factor and a single net sensitivity. 2. The foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility shall be the implied volatilities of foreign exchange rates between the currency pairs referred to in paragraph 1. There shall be one bucket for all currencies and maturities, containing all foreign exchange vega risk factors and a single net sensitivity. 3. Institutions shall not be required to distinguish between onshore and offshore variants of a currency for foreign exchange delta and vega risk factors. Article 383e Counterparty credit spread risk factors 1. The counterparty credit spread delta risk factors applicable to counterparty credit spread sensitive instruments in the CVA portfolio shall be the credit spreads of individual counterparties and reference names and qualified indices for the following maturities: 0,5 years, 1 year, 3 years, 5 years and 10 years. 2. The counterparty credit spread risk class shall not be subject to vega risk own funds requirements. Article 383f Reference credit spread risk factors 1. The reference credit spread delta risk factors applicable to reference credit spread sensitive instruments in the CVA portfolio shall be the credit spreads of all maturities for all reference names within a bucket. There shall be one net sensitivity computed for each bucket. 2. The reference credit spread vega risk factors applicable to instruments in the CVA portfolio sensitive to reference credit spread volatility shall be the volatilities of the credit spreads of all tenors for all reference names within a bucket. There shall be one net sensitivity computed for each bucket. Article 383g Equity risk factors 1. The buckets for all equity risk factors shall be the buckets referred to in Article 383t. 2. The equity delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to equity spot prices shall be the spot prices of all equities mapped to the same bucket referred to in paragraph 1. There shall be one net sensitivity computed for each bucket. 3. The equity vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to equity volatility shall be the implied volatilities of all equities mapped to the same bucket referred to in paragraph 1. There shall be one net sensitivity computed for each bucket. Article 383h Commodity risk factors 1. The buckets for all commodity risk factors shall be the sector buckets referred to in Article 383x. 2. The commodity delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to commodity spot prices shall be the spot prices of all commodities mapped to the same sector bucket referred to in paragraph 1. There shall be one net sensitivity computed for each sector bucket. 3. The commodity vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to commodity price volatility shall be the implied volatilities of all commodities mapped to the same sector bucket referred to in paragraph 1. There shall be one net sensitivity computed for each sector bucket. Article 383i Delta risk sensitivities 1. Institutions shall calculate delta sensitivities consisting of interest rate risk factors as follows:
2. 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:
3. 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:
4. 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:
5. 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:
6. 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:
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:
Article 383k Risk weights for interest rate risk 1. 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: Table 1
2. For currencies other than the currencies referred to in Article 383c(2), the risk weight of risk-free rate delta sensitivities shall be 1,58 %. 3. For inflation rate risk denominated in one of the currencies referred to in Article 383c(2), the risk weight of the delta sensitivity to the inflation rate risk shall be 1,11 %. 4. For inflation rate risk denominated in a currency other than the currencies referred to in Article 383c(2), the risk weight of the delta sensitivity to the inflation rate risk shall be 1,58 %. 5. The risk weights to be applied to sensitivities to interest rate vega risk factors and to inflation rate vega risk factors for all currencies shall be 100 %. Article 383l Intra-bucket correlations for interest rate risk 1. 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: Table 1
2. Institutions shall apply a correlation parameter of 40 % for the aggregation of inflation rate delta risk sensitivity and risk-free rate delta sensitivity denominated in the same currency. 3. Institutions shall apply a correlation parameter of 40 % for the aggregation of inflation rate vega risk factor sensitivity and interest rate vega risk factor sensitivity denominated in the same currency. 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 1. The risk weights for all delta sensitivities to foreign exchange risk factor between an institution’s reporting currency and another currency shall be 11 %. 2. 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:
3. Notwithstanding paragraph 2, the risk weight of the foreign exchange risk factors concerning currencies referred to in that paragraph which participate in ERM II with a formally agreed fluctuation band narrower than the standard band of plus or minus 15 % shall equal the maximum percentage fluctuation within that narrower band. 4. The risk weights for all vega sensitivities to foreign exchange risk factor shall be 100 %. Article 383o Correlations for foreign exchange risk 1. A uniform correlation parameter equal to 60 % shall apply to the aggregation of sensitivities to delta foreign exchange risk factor across buckets. 2. A uniform correlation parameter equal to 60 % shall apply to the aggregation of sensitivities to vega foreign exchange risk factor across buckets. Article 383p Risk weights for counterparty credit spread risk 1. 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: 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. 2. To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to only one of the sector buckets set out in Table 1. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to either bucket 11 or bucket 20 in Table 1, depending on the credit quality of the issuer. 3. Institutions shall assign to buckets 12 and 21 in Table 1 only exposures that reference qualified indices as referred to in Article 383b(4). 4. Institutions shall use a look-through approach to determine the sensitivities of an exposure referencing a non-qualified index. Article 383q Intra-bucket correlations for counterparty credit spread risk 1. 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:
2. 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:
Article 383r Correlations across buckets for counterparty credit spread risk The cross-bucket correlations for counterparty credit spread delta risk shall be the following: Table 1
Article 383s Risk weights for reference credit spread risk 1. 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: 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. 2. Risk weights for reference credit spread volatilities shall be set at 100 %. 3. To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to only one of the sector buckets in Table 1. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to bucket 20 in Table 1. 4. Institutions shall assign to buckets 11 and 19 only exposures that reference qualified indices as referred to in Article 383b(4). 5. Institutions shall use a look-through approach to determine the sensitivities of an exposure referencing a non-qualified index. Article 383t Intra-bucket correlations for reference credit spread risk 1. 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:
2. 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:
Article 383u Correlations across buckets for reference credit spread risk 1. The cross-bucket correlations for reference credit spread delta risk and reference credit spread vega risk shall be the following: Table 1
2. By way of derogation from paragraph 1, the cross-bucket correlation values calculated in that paragraph shall be divided by 2 for correlations between a bucket from the group of buckets 1 to 10 and a bucket from the group of buckets 12 to 18. Article 383v Risk weight buckets for equity risk 1. 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: Table 1
2. For the purposes of paragraph 1 of this Article, what constitutes a small and a large capitalisation shall be specified in the regulatory technical standards referred to in Article 325bd(7). 3. For the purposes of paragraph 1 of this Article, what constitutes an emerging market and an advanced economy shall be specified in the regulatory technical standards referred to in Article 325ap(3). 4. When assigning a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by industry sector. Institutions shall assign each issuer to one of the sector buckets in paragraph 1, Table 1, and shall assign all issuers from the same industry to the same sector. Risk exposures from any issuer that an institution cannot assign to a sector in that manner shall be assigned to bucket 11. Multinational or multi-sector equity issuers shall be allocated to a particular bucket on the basis of the most material region and sector in which the equity issuer operates. 5. The risk weights for equity vega risk shall be set at 78 % for buckets 1 to 8 and bucket 12, and at 100 % for all other buckets. Article 383w Correlations across buckets for equity risk The cross-bucket correlation parameter for equity delta and vega risk shall be set at:
Article 383x Risk weight buckets for commodity risk 1. 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: Table 1
2. The risk weights for commodity vega risk shall be set at 100 %. Article 383z Correlations across buckets for commodity risk 1. The cross-bucket correlation parameter for commodity delta risk shall be set at:
2. The cross-bucket correlation parameter for commodity vega risk shall be set at:
|
(202) |
Articles 384, 385 and 386 are replaced by the following: ‘Article 384 Basic approach 1. 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:
The approaches set out in the first subparagraph, points (a) and (b), shall not be used in combination. 2. An institution that meets the condition referred to in paragraph 1, point (a), shall calculate the own funds requirements for CVA risk as follows: BACVAtotal = β ∙ BACVAcsr–unhedged + DSCVA ∙ (1 – β) ∙ BACVAcsr–hedged where:
where:
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.
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:
Table 1
Table 2
3. 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 1. An institution that meets all of the conditions set out in Article 273a(2) or has been permitted by its competent authority in accordance with Article 273a(4) to apply the approach set out in Article 282, may calculate the own funds requirements for CVA risk as the risk-weighted exposure amounts for counterparty risk for non-trading book and trading book positions, respectively, referred to in Article 92(4), points (a) and (g), divided by 12,5. 2. For the purposes of the calculation referred to in paragraph 1, the following requirements shall apply:
3. An institution that no longer meets one or more of the conditions set out in Article 273a(2) or (4), as applicable, shall comply with the requirements set out in Article 273b. Article 386 Eligible hedges 1. 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:
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. 2. 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:
3. 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:
4. Positions in hedging instruments entered into with third parties that are recognised as eligible hedges in accordance with paragraphs 1, 2 and 3 and included in the calculation of the own funds requirements for CVA risk shall not be subject to the own funds requirements for market risk set out in Title IV. 5. Positions in hedging instruments that are not recognised as eligible hedges in accordance with this Article shall be subject to the own funds requirements for market risk set out in Title IV.’ |
(203) |
in Article 394, paragraph 2 is amended as follows:
|
(204) |
in Article 395, the following paragraph is inserted: ‘2a. By 10 January 2027, EBA, after consulting ESMA, shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to update the guidelines referred to in paragraph 2 of this Article. 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.’ |
(205) |
Article 400 is amended as follows:
|
(206) |
Article 402 is amended as follows:
|
(207) |
in Article 425(4), point (b) is replaced by the following:
; |
(208) |
in Article 428(1), point (k) is replaced by the following:
; |
(209) |
Article 429, is amended as follows:
|
(210) |
in Article 429a, paragraph 1 is amended as follows:
|
(211) |
Article 429c is amended as follows:
|
(212) |
Article 429f is amended as follows:
|
(213) |
in Article 429g, paragraph 1 is replaced by the following: ‘1. Institutions shall treat cash related to regular-way purchases and financial assets related to regular-way sales which remain on the balance sheet until the settlement date as assets in accordance with Article 429(4), point (a).’ |
(214) |
Article 430 is amended as follows:
|
(215) |
Article 430a is amended as follows:
|
(216) |
Article 430b is deleted; |
(217) |
Article 433 is replaced by the following: ‘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.’ |
(218) |
in Article 433a, paragraph 1 is amended as follows:
|
(219) |
Article 433b is replaced by the following: ‘Article 433b Disclosures by small and non-complex institutions 1. Small and non-complex institutions shall disclose the information referred to in the following provisions on an annual basis:
2. By way of derogation from paragraph 1 of this Article, small and non-complex institutions that are non-listed institutions shall disclose the key metrics referred to in Article 447 and ESG risks referred to in Article 449a on an annual basis.’ |
(220) |
in Article 433c, paragraph 2 is amended as follows:
|
(221) |
Article 434 is replaced by the following: ‘Article 434 Means of disclosures 1. Institutions other than small and non-complex institutions shall submit all information required under Titles II and III in electronic format to EBA no later than the date on which they publish their financial statements or financial reports for the corresponding period, where applicable, or as soon as possible thereafter. EBA shall publish that information, together with its submission date, on its website. 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. 2. Institutions other than small and non-complex institutions shall submit the disclosures required under Articles 433a and 433c in electronic format to EBA no later than the date on which they publish their financial statements or financial reports for the corresponding period or as soon as possible thereafter. If the financial reports are published before the submission of information in accordance with Article 430 for the same period, disclosures can be submitted on the same date as supervisory reporting or as soon as possible thereafter. If disclosure is required to be made for a period when an institution does not prepare any financial report, the institution shall submit to EBA the information on disclosures as soon as possible following the end of that period. 3. By way of derogation from paragraphs 1 and 2 of this Article, institutions may submit to EBA the information required under Article 450 separately from the other information required under Titles II and III no later than two months after the date on which institutions publish their financial statements for the corresponding year. 4. EBA shall publish on its website the disclosures of small and non-complex institutions on the basis of the information reported by those institutions to competent authorities in accordance with Article 430. 5. Ownership of the data and the responsibility for their accuracy shall remain with the institutions that produce them. EBA shall provide for a single access point for institutions’ disclosures and shall make available on its website an archive of the information required to be disclosed in accordance with this Part. That archive shall be kept accessible for a period that shall be no less than the storage period set by national law for information included in the institutions’ financial reports. 6. EBA shall monitor the number of visits to its single access point for institutions’ disclosures and include the related statistics in its annual reports.’ |
(222) |
Article 434a is amended as follows:
|
(223) |
the following article is inserted: ‘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.’ |
(224) |
Article 438 is amended as follows:
|
(225) |
Article 445 is replaced by the following: ‘Article 445 Disclosure of exposures to market risk under the standardised approach 1. Institutions that have not been granted permission by competent authorities to use the alternative internal model approach as set out in Article 325az, and that use the simplified standardised approach in accordance with Article 325a or the alternative standardised approach in accordance with Part Three, Title IV, Chapter 1a, shall disclose an overview of their trading book positions. 2. 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:
|
(226) |
the following article is inserted: ‘Article 445a Disclosure of CVA risk 1. Institutions subject to the own funds requirements for CVA risk shall disclose the following information:
2. 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:
3. 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:
|
(227) |
Article 446 is replaced by the following: ‘Article 446 Disclosure of operational risk 1. Institutions shall disclose the following information:
2. 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:
|
(228) |
Article 447 is amended as follows:
|
(229) |
Article 449a is replaced by the following: ‘Article 449a Disclosure of environmental, social and governance risks (ESG risks) 1. Institutions shall disclose information on ESG risks, distinguishing environmental, social and governance risks, and physical risks and transition risks for environmental risks. 2. For the purposes of paragraph 1, institutions shall disclose information on ESG risks, including:
3. EBA shall develop draft implementing technical standards to specify uniform disclosure formats, as laid down in Article 434a, for ESG risks ensuring that they are consistent with and uphold the principle of proportionality while avoiding duplication of disclosure requirements already established in other applicable Union law. Those formats shall not require disclosure of information beyond the information to be reported to competent authorities in accordance with Article 430(1), point (h), and shall in particular take into account the size and complexity of the institution and the relative exposure of small and non-complex institutions subject to Article 433b to ESG risks. 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.’ |
(230) |
the following article is inserted: ‘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.’ |
(231) |
in Article 451(1), the following point is added:
; |
(232) |
the following article is inserted: ‘Article 451b Disclosure of crypto-asset exposures and related activities 1. Institutions shall disclose the following information on crypto-assets and crypto-asset services as well as any other activities related to crypto-assets:
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. 2. Institutions shall not apply the exception laid down in Article 432 for the purposes of the disclosure requirements laid down in paragraph 1 of this Article.’ |
(233) |
Article 455 is replaced by the following: ‘Article 455 Use of internal models for market risk 1. An institution using the internal models referred to in Article 325az for the calculation of the own funds requirements for market risk shall disclose:
2. 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:
3. Institutions shall disclose on an aggregate basis for all trading desks the own funds requirements for market risk that would be calculated in accordance with Part Three Title IV, Chapter 1a, had the institutions not been granted permission to use their internal models for those trading desks.’ |
(234) |
in Article 456(1), point (d) is replaced by the following:
; |
(235) |
Article 458 is amended as follows:
|
(236) |
Article 461a is replaced by the following: ‘Article 461a Own funds requirements for market risk 1. The Commission shall monitor the differences between the implementation of international standards on own funds requirements for market risk in the Union and in third countries, including as regards the impact of the rules in terms of own funds requirements and as regards their date of application. 2. 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:
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. 3. By 10 July 2026, EBA shall submit a report to the European Parliament, to the Council and to the Commission on the implementation of international standards on own funds requirements for market risk in third countries. 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.’ |
(237) |
Article 465 is replaced by the following: ‘Article 465 Transitional arrangements for the output floor 1. 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:
2. 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. 3. 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, institutions may, until 31 December 2032, assign a risk weight of 65 % to exposures to corporates for which no credit assessment by a nominated ECAI is available and provided that those institutions’ estimates of the PD of those obligors, calculated in accordance with Part Three, Title II, Chapter 3, are no greater than 0,5 %. 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:
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. 4. By way of derogation from Article 92(5), point (a)(iv), and without prejudice to the derogation set out in Article 92(3), second subparagraph, institutions shall, until 31 December 2029, replace alpha by 1 in the calculation of the exposure value for the contracts listed in Annex II in accordance with the approaches set out in Part Three, Title II, Chapter 6, Section 3 where the same exposure values are calculated in accordance with the approach set out in Part Three, Title II, Chapter 6, Section 6 for the purposes of the total un-floored risk exposure amount. 5. 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:
6. For the purposes of paragraph 5, point (a), 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 10 % 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 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:
7. For the purposes of paragraph 5, point (b), 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 45 % risk weight, the amount of 80 % 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 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:
8. For the purposes of paragraph 5 of this Article, all of the following conditions shall be met:
9. 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:
10. Where Member States exercise the discretion referred to in paragraph 5, they shall notify EBA and substantiate their decision. Competent authorities shall notify the details of all verifications referred to in paragraph 8, point (f), to EBA. 11. EBA shall monitor the use of the transitional treatment laid down in paragraph 5 and shall submit a report with its findings on the appropriateness of the associated risk weights 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, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2031. 12. Any extension of any of the transitional arrangements referred to in paragraphs 3, 5 and 9 of this Article, and in Articles 495b(1), 495c(1) and 495d(1), shall be limited to four years, and shall be substantiated with an evaluation equivalent to those referred to in those Articles. 13. 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:
|
(238) |
Article 468 is amended as follows:
|
(239) |
in Article 493, paragraph 3 is amended as follows:
|
(240) |
the following article is inserted: ‘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:
|
(241) |
Article 495 is replaced by the following: ‘Article 495 Treatment of equity exposures under the IRB Approach 1. 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:
2. Instead of applying the treatment laid down in paragraph 1, institutions that have been granted permission to apply the IRB Approach to calculate the risk-weighted exposure amount for equity exposures may apply the treatment set out in Article 133 to all their equity exposures at any time until 31 December 2029. 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. 3. Institutions applying the treatment laid down in paragraph 1 of this Article shall calculate the expected loss amount in accordance with Article 158(7), (8) or (9), as applicable, in the version of those paragraphs applicable on 8 July 2024 and apply Article 36(1), point (d), and Article 62, point (d), as applicable, in the version of those points applicable on 8 July 2024 where the risk-weighted exposure amount calculated pursuant to paragraph 1, point (b), of this Article is higher than the risk-weighted exposure amount calculated pursuant to paragraph 1, point (a), of this Article. 4. Where institutions request permission to apply the IRB Approach to calculate the risk-weighted exposure amount for equity exposures, competent authorities shall not grant such permission after 31 December 2024.’ |
(242) |
the following articles are inserted: ‘Article 495a Transitional arrangements for equity exposures 1. 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:
2. 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:
3. By way of derogation from Article 133, institutions may continue to assign the same risk weight that was applicable on 8 July 2024 to equity exposures, including the part of the exposures not deducted from the own funds in accordance with Article 471 in the version of that Article applicable on 27 October 2021, to entities in which they have been a shareholder on 27 October 2021 for six consecutive years and over which they, or together with the network the institutions belong to, exercise significant influence or control within the meaning of Directive 2013/34/EU, or of the accounting standards to which an institution is subject under Regulation (EC) No 1606/2002, or as a result of a similar relationship between any natural or legal person or network of institutions and an undertaking, or where an institution has the capacity to appoint at least one member of the management body of the entity. Article 495b Transitional arrangements for specialised lending exposures 1. 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:
2. EBA shall prepare a report on the appropriate calibration of risk parameters, including the haircut parameter, applicable to specialised lending exposures under the IRB Approach, and in particular on own estimates of LGD and LGD input floors for each specific category of specialised lending exposures as referred to in Article 147(8). EBA shall in particular include in its report data on average numbers of defaults and realised losses observed in the Union for different samples of institutions with different business and risk profiles. EBA shall recommend specific calibrations of risk parameters, including the haircut parameter, that would reflect the specific and different risk profile for each specific category of specialised lending exposures. 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. 3. 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:
4. EBA shall prepare a report, analysing the following:
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 1. 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:
2. EBA shall prepare a report on the appropriate calibrations of risk parameters associated with leasing exposures under the IRB Approach, and of risk weights under the Standardised Approach, and in particular on the LGDs and Hc provided for in Article 230. EBA shall in particular include in its report data on average numbers of defaults and realised losses observed in the Union for exposures associated with different types of properties leased and different types of institutions practicing leasing activities. 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 1. 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:
2. EBA shall prepare a report assessing whether the derogation referred to in paragraph 1, point (a), should be extended beyond 31 December 2032 and specifying, where necessary, the conditions under which that derogation should be maintained. 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.’ |
(243) |
Article 500 is amended as follows:
|
(244) |
Article 500a is amended as follows:
|
(245) |
Article 500c is replaced by the following: ‘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.’ |
(246) |
in Article 501(2), points (a) and (b) are replaced by the following:
; |
(247) |
in Article 501a, paragraph 1 is amended as follows:
|
(248) |
Article 501c is replaced by the following: ‘Article 501c Prudential treatment of exposures to environmental or social factors 1. 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:
2. EBA shall submit successive reports on its findings to the European Parliament, to the Council and to the Commission by the following dates:
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.’ |
(249) |
the following article is inserted: ‘Article 501d Transitional provisions on the prudential treatment of crypto-assets 1. 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:
2. 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:
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). 3. The value of an institution’s total exposure to crypto-assets other than those referred to in paragraph 1, points (a) and (b), shall not exceed 1 % of the institution’s Tier 1 capital. 4. An institution that exceeds the limit set out in paragraph 3 shall immediately notify the competent authority of the breach and shall demonstrate to the satisfaction of the competent authority a timely return to compliance. 5. EBA shall develop draft regulatory technical standards to specify the technical elements necessary for institutions to calculate their own funds requirements in accordance with the approaches set out in paragraph 2, points (b) and (c), including how to calculate the value of the exposures and how to aggregate short and long exposures for the purposes of paragraphs 2 and 3. 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. 6. For the calculation of their own funds requirements for crypto-asset exposures, institutions shall not apply the deduction referred to in Article 36(1), point (b).’ |
(250) |
Articles 505 and 506 are replaced by the following: ‘Article 505 Review of agricultural financing 1. By 31 December 2030, EBA shall prepare a report on the impact of the requirements of this Regulation on agricultural financing, including on:
2. Taking into account the EBA report referred to in paragraph 1, the Commission shall submit the report to the European Parliament and to the Council. Where appropriate, that report shall be accompanied by a legislative proposal to amend this Regulation in order to mitigate its negative effects on agricultural financing. 3. EBA shall also prepare an intermediate report on the impact of the requirements of this Regulation on agricultural financing by 31 December 2027. 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:
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. (*15) Regulation (EU) 2018/848 of the European Parliament and of the Council of 30 May 2018 on organic production and labelling of organic products and repealing Council Regulation (EC) No 834/2007 (OJ L 150, 14.6.2018, p. 1).’;" |
(251) |
the following articles are inserted: ‘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 1. By 31 December 2026, EBA, in close collaboration with ESMA, shall report to the Commission on the prudential treatment of securitisation transactions, differentiating between different types of securitisations, including synthetic securitisations, between originators and investors, and between STS and non-STS transactions. 2. In particular, EBA shall monitor the use of the transitional arrangement referred to in Article 465(13) and assess the extent to which the application of the output floor to securitisation exposures would affect the capital reduction obtained by originator institutions in transactions for which a significant risk transfer has been recognised, would excessively reduce the risk sensitivity and would affect the economic viability of new securitisation transactions. In such cases of a reduction of risk sensitivities, EBA may consider proposing a downward recalibration of the non-neutrality factors for transactions for which a significant risk transfer has been recognised. EBA shall also assess the appropriateness of the non-neutrality factors under both the SEC-SA and the SEC-IRBA, taking into account the historic credit performance of securitisation transactions in the Union and the reduced model and agency risks of the securitisation framework. 3. On the basis of the report referred to in paragraph 1 and taking into account 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. Article 506e Recognition of capped or floored unfunded credit protection 1. By 10 July 2026, EBA shall submit a report to the Commission on the following:
2. In the report referred to in paragraph 1, EBA shall assess in particular the following:
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.’ |
(252) |
in Article 514, the following paragraph is added: ‘2. On the basis of the EBA report referred to in paragraph 1 and taking due account of the implementation in third countries of the internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit a legislative proposal to the European Parliament and to the Council to amend the approaches set out in Part Three, Title II, Chapter 6, Sections 3, 4 and 5.’ |
(253) |
the following article is inserted: ‘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.’ |
(254) |
the following articles are inserted: ‘Article 519d Minimum haircut floor framework for securities financing transactions 1. EBA, in close cooperation with ESMA, shall, by 10 January 2027, report to the Commission on the appropriateness of implementing in Union law the minimum haircut floor framework for securities financing transactions to address the potential build-up of leverage outside the banking sector. 2. The report referred to in paragraph 1 shall consider all of the following:
3. On the basis of the report referred to in paragraph 1 and taking due account of the Financial Stability Board recommendation to implement the minimum haircut floor framework for securities financing transactions, as well as 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 10 January 2028. Article 519 e Operational risk By 10 January 2028, EBA shall report to the Commission on the following:
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:
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.’ |
(255) |
Annex I is replaced by the text set out in the Annex to this Regulation. |
Article 2
Entry into force and application
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
It shall apply from 1 January 2025.
However, the following points of Article 1 of this Regulation shall apply from 9 July 2024: point (1)(a)(iv); point (1)(b); points (2), (3) and (4); point (6)(f); point (8)(c); point (11) concerning Article 34(4) of Regulation (EU) No 575/2013; point (30)(d); point (34) concerning Article 104(9) of Regulation (EU) No 575/2013; point (35)(a); point 37 concerning Article 104c(4) of Regulation (EU) No 575/2013; point (42) concerning Article 111(8) of Regulation (EU) No 575/2013; point (52) concerning Article 122a(4) of Regulation (EU) No 575/2013; point (53) concerning Article 123(1), third subparagraph, of Regulation (EU) No 575/2013; point (55) concerning Article 124(11), (12) and (14) of Regulation (EU) No 575/2013; point (56) concerning Article 126a(3) of Regulation (EU) No 575/2013; points (57) and (65); point (70)(c) concerning Article 143(5) of Regulation (EU) No 575/2013; point (71)(b); point (72)(i); point 75(d); point (78)(e); point (81); point (98)(b); point (102)(d); point (104)(c); point (105)(c); point (106)(e); point (135)(c); point (152)(b)(ii); point (155) concerning Article 314(9) and (10), Article 315(3), Article 316(3), Article 317(9) and (10), Article 320(3), Article 321(2) and Article 323(2) of Regulation (EU) No 575/2013; point (156)(b); point (159)(c) concerning Article 325c(8) of Regulation (EU) No 575/2013; point (160)(c) concerning Article 325j(7) of Regulation (EU) No 575/2013; point (164)(b); point (178)(e); point (180); point (182)(d); point (183)(c); point (184)(b)(iii); point (198)(c); point (201) concerning Article 383a(4) and (5) of Regulation (EU) No 575/2013; point (204); point (205)(b)(i); points (214)(a) and (c); points (222) and (223); point (229) concerning Article 449a(3) of Regulation (EU) No 575/2013; points (232), (235), (236) and (238); point (239)(a); point (242) concerning Article 495b(2) and (4) and Article 495c(2) of Regulation (EU) No 575/2013; points (243), (244), (248) and (249); point (250) concerning Article 506 of Regulation (EU) No 575/2013; point (251) concerning Articles 506e and 506f of Regulation (EU) No 575/2013; points (252), (253) and (254).
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 31 May 2024.
For the European Parliament
The President
R. METSOLA
For the Council
The President
H. LAHBIB
(1) OJ C 233, 16.6.2022, p. 14.
(2) OJ C 290, 29.7.2022, p. 40.
(3) Position of the European Parliament of 24 April 2024 (not yet published in the Official Journal) and decision of the Council of 30 May 2024.
(4) Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).
(5) Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12).
(6) Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48).
(7) Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84).
(8) Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ L 302, 17.11.2009, p. 1).
(9) Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 7.6.2019, p. 1).
(10) OJ L 123, 12.5.2016, p. 1.
(11) Regulation (EU) 2019/630 of the European Parliament and of the Council of 17 April 2019 amending Regulation (EU) No 575/2013 as regards minimum loss coverage for non-performing exposures (OJ L 111, 25.4.2019, p. 4).
(12) Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate Law’) (OJ L 243, 9.7.2021, p. 1).
(13) Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22.6.2020, p. 13).
(14) Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (OJ L 150, 9.6.2023, p. 40).
ANNEX
‘ANNEX I
Classification of off-balance-sheet items
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ELI: http://data.europa.eu/eli/reg/2024/1623/oj
ISSN 1977-0677 (electronic edition)