Capital Requirements Regulation

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Article 4 Definitions 1. For the purposes of this Regulation, the following definitions shall apply: (1) credit institution means an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account; (2) investment firm means a person as defined in point (1) of Article 4(1) of Directive 2004/39/EC, which is subject to the requirements imposed by that Directive, excluding the following: (a) credit institutions; (b) local firms; (c) firms which are not authorised to provide the ancillary service referred to in point (1) of Section B of Annex I to Directive 2004/39/EC, which provide only one or more of the investment services and activities listed in points 1, 2, 4 and 5 of Section A of Annex I to that Directive, and which are not permitted to hold money or securities belonging to their clients and which for that reason may not at any time place themselves in debt with those clients; (3) institution means a credit institution or an investment firm;. firm; (4) local firm means a firm dealing for its own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets, or dealing for the accounts … 630 unchanged words … managing property, managing data-processing services, or a similar activity which is ancillary to the principal activity of one or more institutions; (19) asset management company means an asset management company as defined in point (5) of Article 2 of Directive 2002/87/EC and or an AIFM as defined in Article 4(1)(b) of Directive 2011/61/EU, including, unless otherwise provided, third country entities, third-country entities that carry out similar activities, activities and that are subject to the laws of a third country which applies supervisory and regulatory requirements at least equivalent to those applied in the Union; (20) financial holding company means a financial institution, the subsidiaries of which are exclusively or mainly institutions or financial institutions, at least one of such subsidiaries being an institution, and which is not a mixed financial holding company; (21) mixed financial holding company means mixed financial holding company as defined in point (15) of Article 2 of Directive 2002/87/EC; (22) mixed activity holding company means a parent undertaking, other than a financial holding company or an institution or a mixed financial holding company, the subsidiaries of which include at least one institution; (23) third-country insurance undertaking means third-country insurance undertaking as defined in point (3) of Article 13 of Directive 2009/138/EC; (24) third-country reinsurance undertaking means third-country reinsurance undertaking as defined in point (6) of Article 13 of Directive 2009/138/EC; (25) recognised third-country investment firm means a firm meeting all of the following conditions: (a) if it were established within the Union, it would be covered by the definition of an investment firm; (b) it is authorised in a third country; (c) it is subject to and complies with prudential rules considered by the competent authorities as at least as stringent as those laid down in this Regulation or in Directive 2013/36/EU; (26) financial institution means an undertaking other than an institution, the principal activity of which is to acquire holdings or to pursue one or more of the activities listed in points 2 to 12 and point 15 of Annex I to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution within the meaning of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal marketOJ L 319, 5.12.2007, p. 1., and an asset management company, but excluding insurance holding companies and mixed-activity insurance holding companies as defined defined, respectively, in point points (f) and (g) of Article 212(1) of Directive 2009/138/E; 2009/138/EC; (27) financial sector entity means any of the following: (a) an institution; (b) a financial institution; (c) an ancillary services undertaking included in the consolidated financial situation of an institution; (d) an insurance undertaking; (e) a third-country insurance undertaking; (f) a reinsurance undertaking; (g) a third-country reinsurance undertaking; (h) an insurance holding company; (i) a mixed-activity holding company (j) a mixed-activity insurance holding company as defined in point (g) (f) of Article 212(1) of Directive 2009/138/EC; (k) an undertaking excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive; (l) a third-country undertaking with a main business comparable to any of the entities referred to in points … 765 unchanged words … persons which are controlled by that person according to point (a) or interconnected with that person in accordance with point (b), including the central government. The same applies in cases of regional governments or local authorities to which Article 115(2) applies applies; (40) competent authority means a public authority or body officially recognised by national law, which is empowered by national law to supervise institutions as part of the supervisory system in operation in the Member State concerned; (41) consolidating supervisor means a … 379 unchanged words … external events, and includes legal risk; (53) dilution risk means the risk that an amount receivable is reduced through cash or non-cash credits to the obligor; (54) probability of default or PD means the probability of default of a counterparty over a one year one-year period; (55) loss given default or LGD means the ratio of the loss on an exposure due to the default of a counterparty to the amount outstanding at default; (56) conversion factor means the ratio of the currently undrawn amount of a … 606 unchanged words … has to be benchmarked, extrapolated or otherwise calculated from one or more market inputs; (70) independent price verification means a process by which market prices or marking to model inputs are regularly verified for accuracy and independence; (71) eligible capital means the following: (a) for the purposes of Title III of Part Two it means the sum of the following: (a) (i) Tier 1 capital as referred to in Article 25, without applying the deduction in Article 36(1)(k)(i); (ii) Tier 2 capital as referred to in Article 71 that is equal to or less than one third of Tier 1 capital as calculated pursuant to point (i) of this point; (b) for the purposes of Article 97 and Part Four it means the sum of the following: (i) Tier 1 capital as referred to in Article 25; (b) (ii) Tier 2 capital as referred to in Article 71 that is equal to or less than one third of Tier 1 capital; (72) recognised exchange means an exchange which meets all of the following conditions: (a) it is a regulated market; (b) it has a clearing mechanism whereby contracts listed in Annex II are subject to daily margin requirements which, in the opinion of the competent authorities, provide appropriate protection; (73) discretionary pension benefits means enhanced pension benefits granted on a discretionary basis by an institution to an employee as part of that employee's variable remuneration package, which do not include accrued benefits granted to an employee under the terms of the company pension scheme; (74) mortgage lending value means the value of immovable property as determined by a prudent assessment of the future marketability of the property taking into account long-term sustainable aspects of the property, the normal and local market conditions, the current use and alternative appropriate uses of the property; (75) residential property means a residence which is occupied by the owner or the lessee of the residence, including the right to inhabit an apartment in housing cooperatives located in Sweden; (76) market value means, for the purposes of immovable property, the estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without being under compulsion; (77) applicable accounting framework means the accounting standards to which the institution is subject under Regulation (EC) No 1606/2002 or Directive 86/635/EEC; (78) one-year default rate means the ratio between the number of defaults occurred during a period that starts from one year prior to a date T and the number of obligors assigned to this grade or pool one year prior to that date; (79) speculative immovable property financing means loans for the purposes of the acquisition of or development or construction on land in relation to immovable property, or of and in relation to such property, with the intention of reselling for profit; (80) trade finance means financing, including guarantees, connected to the exchange of goods and services through financial products of fixed short-term maturity, generally of less than one year, without automatic rollover; (81) officially supported export credits means loans or credits to finance the export of goods and services for which an official export credit agency provides guarantees, insurance or direct financing; (82) repurchase agreement and reverse repurchase agreement mean any agreement in which an institution or its counterparty transfers securities or commodities or guaranteed rights relating to either of the following: (a) title to securities or commodities where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities and the agreement does not allow an institution to transfer or pledge a particular security or commodity to more than one counterparty at one time, subject to a commitment to repurchase them; (b) them, or substituted securities or commodities of the same description at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the institution selling the securities or commodities and a reverse repurchase agreement for the institution buying them; (83) repurchase transaction means any transaction governed by a repurchase agreement or a reverse repurchase agreement; (84) simple repurchase agreement means a repurchase transaction of a single asset, or of similar, non-complex assets, as opposed to a basket of assets; (85) positions held with trading intent means any of the following: (a) proprietary positions and positions arising from client servicing and market making; (b) positions intended to be resold short term; (c) positions intended to benefit from actual or expected short term short-term price differences between buying and selling prices or from other price or interest rate variations; (86) trading book means all positions in financial instruments and commodities held by an institution either with trading intent, or in order to hedge positions held with trading intent; (87) multilateral trading facility means multilateral trading facility as defined in point 15 of Article 4 of Directive 2004/39/EC; (88) qualifying central counterparty or QCCP means a central counterparty that has been either authorised in accordance with Article 14 of Regulation (EU) No 648/2012 or recognised in accordance with Article 25 of that Regulation; (89) default fund means a fund established by a CCP in accordance with Article 42 of Regulation (EU) No 648/2012 and used in accordance with Article 45 of that Regulation; (90) pre-funded contribution to the default fund of a CCP means a contribution to the default fund of a CCP that is paid in by an institution; (91) trade exposure means a current exposure, including a variation margin due to the clearing member or to the client, but not yet received, and any potential future exposure of a clearing member or a client, to a CCP arising from contracts and transactions listed in points (a) to (e) of Article 301(1), as well as initial margin; (92) regulated market means regulated market as defined in point (14) of Article 4 of Directive 2004/39/EC; (93) leverage means the relative size of an institution's assets, off-balance sheet obligations and contingent obligations to pay or to deliver or to provide collateral, including obligations from received funding, made commitments, derivates derivatives or repurchase agreements, but excluding obligations which can only be enforced during the liquidation of an institution, compared to that institution's own funds; (94) risk of excessive leverage means the risk resulting from an institution's vulnerability due to leverage or contingent leverage that may require unintended corrective measures to its business plan, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets; (95) credit risk adjustment means the amount of specific and general loan loss provision for credit risks that has been recognised in the financial statements of the institution in accordance with the applicable accounting framework; (96) internal hedge means a position that materially offsets the component risk elements between a trading book and a non-trading book position or sets of positions; (97) reference obligation means an obligation used for the purposes of determining the cash settlement value of a credit derivative; (98) external credit assessment institution' institution or ECAI means a credit rating agency that is registered or certified in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agenciesOJ L 302, 17.11.2009, p. 1. … 994 unchanged words … of a subsidiary from the liability arrangement is 10 years; (h) the competent authority is empowered to prohibit a voluntary exit of a subsidiary from the liability arrangement; (128) distributable items means the amount of the profits at the end of the last latest financial year plus any profits brought forward and reserves available for that purpose before distributions to holders of own funds instruments less any losses brought forward, profits which are non-distributable pursuant to provisions in legislation or the institution's bye-laws and sums placed to non-distributable reserves in accordance with applicable national law or the statutes of the institution, those losses and reserves being determined on the basis of the individual accounts of the institution and not on the basis of the consolidated accounts. 2. Where reference in this Regulation is made to real estate or immovable property, to residential property or commercial immovable property or to a mortgage on such property, it shall include shares in Finnish residential housing companies operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation. Member States or their competent authorities may allow shares constituting an equivalent indirect holding of real estate immovable property to be treated as a direct holding of real estate immovable property provided that such an indirect holding is specifically regulated in the national law of the Member State concerned and that, when pledged as collateral, it provides equivalent protection to creditors. 3. Trade finance as referred to in point (80) of paragraph 1 is generally uncommitted and requires satisfactory supporting transactional documentation for each drawdown request enabling refusal of the finance in the event of any doubt about credit-worthiness creditworthiness or the supporting transactional documentation. Repayment of trade finance exposures is usually independent of the borrower, the funds instead coming from cash received from importers or resulting from proceeds of the sales of the underlying goods.

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Article 5 Definitions specific to capital requirements for credit risk For the purposes of Part Three, Title II, the following definitions shall apply: (1) exposure means an asset or off-balance sheet item; (2) loss means economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument; (3) expected loss or EL means the ratio of the amount expected to be lost on an exposure from a potential default of a counterparty or dilution over a one year one-year period to the amount outstanding at default.

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Article 6 General principles 1. Institutions shall comply with the obligations laid down in Parts Two to Five and Eight on an individual basis. 2. Every No institution which is either a subsidiary in the Member State where it is authorised and supervised, or a parent undertaking, and every no institution included in the consolidation pursuant to Article 19, 18, shall not be required to comply with the obligations laid down in Articles 89, 90 and 91 on an individual basis. 3. Every No institution which is either a parent undertaking, undertaking or a subsidiary, and every no institution included in the consolidation pursuant to Article 19, 18, shall not be required to comply with the obligations laid down in Part Eight on an individual basis. 4. Credit institutions and investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2004/39/EC shall comply with the obligations laid down in Part Six on an individual basis. Pending the report from the Commission in accordance with Article 508(3), competent authorities may exempt investment firms from compliance with the obligations laid down in Part Six taking into account the nature, scale and complexity of the investment firms' activities. 5. Institutions, except for investment firms referred to in Article 95(1) and Article 96(1) and institutions for which competent authorities have exercised the derogation specified in Article 7(1) or (3), shall comply with the obligations laid down in Part Seven on an individual basis.

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Article 7 Derogation to from the application of prudential requirements on an individual basis 1. Competent authorities may waive the application of Article 6(1) to any subsidiary of an institution, where both the subsidiary and the institution are subject to authorisation and supervision by the Member … 327 unchanged words … a Member State; (b) the risk evaluation, measurement and control procedures relevant for consolidated supervision cover the parent institution in a Member State. The competent authority which makes use of this paragraph shall inform the competent authorities of all other Member States.

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Article 8 Derogation to from the application of liquidity requirements on an individual basis 1. The competent authorities may waive in full or in part the application of Part Six to an institution and to all or some of its subsidiaries in the Union and supervise them as a single liquidity sub-group so long as they fulfil all of the following conditions: (a) the parent institution on a consolidated basis or a subsidiary institution on a sub-consolidated basis complies with the obligations laid down in Part Six; (b) the parent institution on a consolidated basis or the subsidiary institution on a sub-consolidated basis monitors and has oversight at all times over the liquidity positions of all institutions within the group or sub-group, that are subject to the waiver and ensures a sufficient level of liquidity for all of these institutions; (c) the institutions have entered into contracts that, to the satisfaction of the competent authorities, provide for the free movement of funds between them to enable them to meet their individual and joint obligations as they come become due; (d) there is no current or foreseen material practical or legal impediment to the fulfilment of the contracts referred to in (c). By 1 January 2014 2014, the Commission shall report to the European Parliament and the Council on any legal obstacles which are capable of rendering impossible the application of point (c) of the first subparagraph and is invited to make a legislative proposal, if appropriate, by 31 December 2015 2015, on which of those obstacles should be removed. 2. The competent authorities may waive in full or in part the application of Part Six to an institution and to all or some of its subsidiaries where all institutions of the single liquidity sub-group are authorised in the same Member State and provided that the conditions in paragraph 1 are fulfilled. 3. Where institutions of the single liquidity sub-group are authorised in several Member States, paragraph 1 shall only be applied after following the procedure laid down in Article 21 and only to the institutions whose competent authorities agree about the following elements: (a) their assessment of the compliance of the organisation and of the treatment of liquidity risk with the conditions set out in Article 86 of Directive 2013/36/EU across the single liquidity sub-group; (b) the distribution of amounts, location and ownership of the required liquid assets to be held within the single liquidity sub-group; (c) the determination of minimum amounts of liquid assets to be held by institutions for which the application of Part Six will be waived; (d) the need for stricter parameters than those set out in Part Six; (e) unrestricted sharing of complete information between the competent authorities; (f) a full understanding of the implications of such a waiver. 4. Competent authorities may also apply paragraphs 1, 2 and 3 to institutions which are members of the same institutional protection scheme as referred to in Article 113(7)(b), 113(7) provided that they meet all the conditions laid down in Article 113(7), therein, and to other institutions linked by a relationship referred to in Article 113(6) provided that they meet all the conditions laid down therein. Competent authorities shall in that case determine one of the institutions subject to the waiver to meet Part Six on the basis of the consolidated situation of all institutions of the single liquidity sub-group. 5. Where a waiver has been granted under paragraph 1 or paragraph 2, the competent authorities may also apply Article 86 of Directive 2013/36/EU, or parts thereof, at the level of the single liquidity sub-group and waive the application of Article 86 of Directive 2013/36/EU, or parts thereof, on an individual basis.

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Article 9 Individual consolidation method 1. Subject to paragraphs 2 and 3 of this Article and to Article 144(3) of Directive 2013/36/EU, the competent authorities may permit on a case by case case-by-case basis parent institutions to incorporate in the calculation of their requirement under Article 6(1) 6(1), subsidiaries which meet the conditions laid down in points (c) and (d) of Article 7(1), 7(1) and whose material exposures or material liabilities are to that parent institution. 2. The treatment set out in paragraph 1 shall be permitted only where the parent institution demonstrates fully to the competent authorities the circumstances and arrangements, including legal arrangements, by virtue of which there is no current or foreseen material practical or legal impediment, and none are foreseen, impediment to the prompt transfer of own funds, or repayment of liabilities when due by the subsidiary to its parent undertaking. 3. Where a competent authority exercises the discretion laid down in paragraph 1, it shall on a regular basis and not less than once a year inform the competent authorities of all the other Member States of the use made of paragraph 1 and of the circumstances and arrangements referred to in paragraph 2. Where the subsidiary is in a third country, the competent authorities shall provide the same information to the competent authorities of that third country as well.

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Article 10 Waiver for credit institutions permanently affiliated to a central body 1. Competent authorities may, in accordance with national law, partially or fully waive the application of the requirements set out in Parts Two to Eight to one or more credit institutions situated in the same Member State and which are permanently affiliated to a central body which supervises them and which is established in the same Member State, if the following conditions are met: (a) the commitments of the central body and affiliated institutions are joint and several liabilities or the commitments of its affiliated institutions are entirely guaranteed by the central body; (b) the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts of these institutions; (c) the management of the central body is empowered to issue instructions to the management of the affiliated institutions. Member States may maintain and make use of existing national legislation regarding the application of the waiver referred to in the first subparagraph as long as it does not conflict with this Regulation and or Directive 2013/36/EU. 2. Where the competent authorities are satisfied that the conditions set out in paragraph 1 are met, and where the liabilities or commitments of the central body are entirely guaranteed by the affiliated institutions, the competent authorities may waive the application of Parts Two to Eight to the central body on an individual basis.

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Article 11 General treatment 1. Parent institutions in a Member State shall comply, to the extent and in the manner prescribed in Article 18, with the obligations laid down in Parts Two to Four and Part Seven on the basis of their consolidated situation. The parent undertakings and their subsidiaries subject to this Regulation shall set up a proper organisational structure and appropriate internal control mechanisms in order to ensure that the data required for consolidation are duly processed and forwarded. In particular, they shall ensure that subsidiaries not subject to this Regulation implement arrangements, processes and mechanisms to ensure a proper consolidation. 2. Institutions controlled by a parent financial holding company or a parent mixed financial holding company in a Member State shall comply, to the extent and in the manner prescribed in Article 18, with the obligations laid down in Parts Two to Four and Part Seven on the basis of the consolidated situation of that financial holding company or mixed financial holding company. Where more than one institution is controlled by a parent financial holding company or by a parent mixed financial holding company in a Member State, the first subparagraph shall apply only to the institution to which supervision on a consolidated basis applies in accordance with Article 111 of Directive 2013/36/EU. 3. EU parent institutions and institutions, institutions controlled by an EU parent financial holding company and institutions controlled by an EU parent mixed financial holding company shall comply with the obligations laid down in Part Six on the basis of the consolidated situation of that parent institution, financial holding company or mixed financial holding company, if the group comprises one or more credit institutions or investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2004/39/EC. Pending the report from the Commission in accordance with Article 508(2), 508(2) of this Regulation, and if the group comprises only investment firms, competent authorities may exempt investment firms from compliance with the obligations laid down in Part Six on a consolidated basis, taking into account the nature, scale and complexity of the investment firm's activities. 4. Where Article 10 is applied, the central body referred to in that Article shall comply with the requirements of Parts Two to Eight on the basis of the consolidated situation of the whole as constituted by the central body together with its affiliated institutions. 5. In addition to the requirements in paragraphs 1 to 4, and without prejudice to other provisions of this Regulation and Directive 2013/36/EU, when it is justified for supervisory purposes by the specificities of the risk or of the capital structure of an institution or where Member States adopt national laws requiring the structural separation of activities within a banking group, competent authorities may require the structurally separated institutions to comply with the obligations laid down in Parts Two to Four and Parts Six to Eight of this Regulation and in Title VII of Directive 2013/36/EU on a sub-consolidated basis. Applying the approach set out in the first subparagraph shall be without prejudice to effective supervision on a consolidated basis and shall neither entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole nor form or create an obstacle to the functioning of the internal market.

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Article 14 Application of requirements of Part Five on a consolidated basis 1. Parent undertakings and their subsidiaries subject to this Regulation shall meet the obligations laid down in Part Five on a consolidated or sub-consolidated basis, to ensure that their arrangements, processes and mechanisms required by those provisions are consistent and well-integrated and that any data and information relevant to the purpose of supervision can be produced. In particular, they shall ensure that subsidiaries not subject to this Regulation implement arrangements, processes and mechanisms to ensure compliance with those provisions. 2. Institutions shall apply an additional risk weight in accordance with Article 407 when applying Article 92 on a consolidated or sub-consolidated basis if the requirements of Articles Article 405 or 406 are breached at the level of an entity established in a third country included in the consolidation in accordance with Article 18 if the breach is material in relation to the overall risk profile of the group. 3. Obligations resulting from Part Five concerning subsidiaries, not themselves subject to this Regulation, shall not apply if the EU parent institution or institutions controlled by an EU parent financial holding company or EU parent mixed financial holding company, can demonstrate to the competent authorities that the application of Part Five is unlawful under the laws of the third country where the subsidiary is established.

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Article 15 Derogation to from the application of own funds requirements on a consolidated basis for groups of investment firms 1. The consolidating supervisor may waive, on a case-by-case basis, the application of Part Three of this Regulation and Title VII, Chapter 4 of Directive 2013/36/EU on a consolidated basis provided that the following conditions exist: (a) each EU investment firm in the group uses the alternative calculation of total risk exposure amount referred to in Article 95(2); 95(2) or 96(2); (b) all investment firms in the group fall within the categories in Articles Article 95(1) and or 96(1); (c) each EU investment firm in the group meets the requirements imposed in Article 95 or 96 on an individual basis and at the same time deducts from its Common Equity Tier 1 items any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings, which would otherwise be consolidated; (d) any financial holding company which is the parent financial holding company in a Member State of any investment firm in the group holds at least as much enough capital, defined here as the sum of the items referred to in Articles 26(1), 51(1) and 62(1), as to cover the sum of the following: (i) the sum of the full book value of any holdings, subordinated claims and instruments referred to in Article 36(1)(h) and (i), Article 56(1)(c) and (d), and Article 66(1)(c) and (d) in investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated; and (ii) the total amount of any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated; (e) the group does not include credit institutions. Where the criteria in the first subparagraph are met, each EU investment firm shall have in place systems to monitor and control the sources of capital and funding of all financial holding companies, investment firms, financial institutions, asset management companies and ancillary services undertakings within the group. 2. The competent authorities may also apply the waiver if the financial holding companies holds a lower amount of own funds than the amount calculated under paragraph 1(d), but no lower than the sum of the own funds requirements imposed on an individual basis to investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated and the total amount of any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated. For the purposes of this paragraph, the own funds requirement for investment undertakings of third countries, financial institutions, asset management companies and ancillary services undertakings is a notional own funds requirement.

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Article 16 Derogation to from the application of the leverage ratio requirements on a consolidated basis for groups of investment firms Where all entities in a group of investment firms, including the parent entity, are investment firms that are exempt from the application of the requirements laid down in Part Seven on an individual basis in accordance with Article 6(5), the parent investment firm may choose not to apply the requirements laid down in Part Seven on a consolidated basis.

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Article 17 Supervision of investment firms waived from the application of own funds requirements on a consolidated basis 1. Investment firms in a group which has been granted the waiver provided for in Article 15 shall notify the competent authorities of the risks which could undermine their financial positions, including those associated with the composition and sources of their own funds, internal capital and funding. 2. Where the competent authorities responsible for the prudential supervision of the investment firm waive the obligation of supervision on a consolidated basis as provided for in Article 15, they shall take other appropriate measures to monitor the risks, notably in particular large exposures, of the whole group, including any undertakings not located in a Member State. 3. Where the competent authorities responsible for the prudential supervision of the investment firm waive the application of own funds requirements on a consolidated basis as provided for in Article 15, the requirements of Part Eight shall apply on an individual basis.

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Article 18 Methods for prudential consolidation 1. The institutions that are required to comply with the requirements referred to in Section 1 on the basis of their consolidated situation shall carry out a full consolidation of all institutions and financial institutions that are its subsidiaries or, where relevant, the subsidiaries of the same parent financial holding company or parent mixed parent financial holding company. Paragraphs 2 to 8 of this Article shall not apply where Part Six applies on the basis of an institution's consolidated situation. 2. However, the competent authorities may on a case-by-case basis permit proportional consolidation according to the share of capital that the parent undertaking holds in the subsidiary. Proportional consolidation may only be permitted where all of the following conditions are fulfilled: (a) the liability of the parent undertaking is limited to the share of capital that the parent undertaking holds in the subsidiary in view of the liability of the other shareholders or members; (b) the solvency of those other shareholders or members is satisfactory; (c) the liability of the other shareholders and members is clearly established in a legally binding way. 3. Where undertakings are linked by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC, the competent authorities shall determine how consolidation is to be carried out. 4. The consolidating supervisor shall require the proportional consolidation according to the share of capital held of participations in institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where the liability of those undertakings' liability undertakings is limited to the share of the capital they hold. 5. In the case of participations or capital ties other than those referred to in paragraphs 1 and 2, 4, the competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require use of the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis. 6. The competent authorities shall determine whether and how consolidation is to be carried out in the following cases: (a) where, in the opinion of the competent authorities, an institution exercises a significant influence over one or more institutions or financial institutions, but without holding a participation or other capital ties in these institutions; and (b) where two or more institutions or financial institutions are placed under single management other than pursuant to a contract or clauses of their memoranda or Articles articles of association. In particular, the competent authorities may permit, or require use of, the method provided for in Article 12 of Directive 83/349/EEC. That method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision. 7. EBA shall develop draft regulatory technical standards to specify conditions according to which consolidation shall be carried out in the cases referred to in paragraphs 2 to 6 of this Article. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2016. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 8. Where consolidated supervision is required pursuant to Article 111 of Directive 2013/36/EU, ancillary services undertakings and asset management companies as defined in point (5) of Article 2 of Directive 2002/87/EC shall be included in consolidations in the cases, and in accordance with the methods, laid down in this Article.

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Article 19 Entities excluded from the scope of prudential consolidation 1. An institution, a financial institution or an ancillary services undertaking which is a subsidiary or an undertaking in which a participation is held, need not to be included in the consolidation where the total amount of assets and off-balance sheet items of the undertaking concerned is less than the smaller of the following two amounts: (a) EUR 10 million; (b) 1 % of the total amount of assets and off-balance sheet items of the parent undertaking or the undertaking that holds the participation. 2. The competent authorities responsible for exercising supervision on a consolidated basis pursuant to Article 111 of Directive 2013/36/EU may on a case-by-case basis decide in the following cases that an institution, financial institution or ancillary services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation: (a) where the undertaking concerned is situated in a third country where there are legal impediments to the transfer of the necessary information; (b) where the undertaking concerned is of negligible interest only with respect to the objectives of monitoring credit institutions; (c) where, in the opinion of the competent authorities responsible for exercising supervision on a consolidated basis, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of credit institutions are concerned. 3. Where, in the cases referred to in paragraph 1 and point (b) of paragraph 2, several undertakings meet the criteria set out therein, they shall nevertheless be included in the consolidation where collectively they are of non-negligible interest with respect to the specified objectives.

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Article 20 Joint decisions on prudential requirements 1. The competent authorities shall work together, in full consultation: (a) in the case of applications for the permissions referred to in Article 143(1), Article 151(4) and (9), Article 283, Article 312(2) and Article363 respectively submitted … 370 unchanged words … months period. The decision shall be provided to the EU parent institution, the EU parent financial holding company or to the EU parent mixed financial holding company and the other competent authorities by the consolidating supervisor. If, at the end of the six month six-month period, any of the competent authorities concerned has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the consolidating supervisor shall defer its decision on point (a) of paragraph 1 of this Article and await any decision that EBA may take in accordance with Article 19(3) of that Regulation on its decision, and shall take its decision in conformity with the decision of EBA. The six-month period shall be deemed the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the six month six-month period or after a joint decision has been reached. 5. In the absence of a joint decision between the competent authorities within six months, the competent authority responsible for the supervision of the subsidiary on an individual basis shall make its own decision on point (b) of paragraph 1. The decision shall be set out in a document containing the fully reasoned decision and shall take into account the views and reservations of the other competent authorities expressed during the six months six-month period. The decision shall be provided to the consolidating supervisor that informs the EU parent institution, the EU parent financial holding company or the EU parent mixed financial holding company. If, at the end of the six month six-month period, the consolidating supervisor has referred the matter to EBA in accordance with Article 19 of Regulation (EU) No 1093/2010, the competent authority responsible for the supervision of the subsidiary on an individual basis shall defer its decision on point (b) of paragraph 1 of this Article and await any decision that EBA may take in accordance with Article 19(3) of that Regulation on its decision, and shall take its decision in conformity with the decision of EBA. The six-month period shall be deemed the conciliation period within the meaning of that Regulation. EBA shall take its decision within one month. The matter shall not be referred to EBA after the end of the six month six-month period or after a joint decision has been reached. 6. Where an EU parent institution and its subsidiaries, the subsidiaries of an EU parent financial holding company or an EU parent mixed financial holding company use an Advanced Measurement Approach referred to in Article 312(2) or an IRB Approach referred to in Article 143 on a unified basis, the competent authorities shall allow the qualifying criteria set out in Articles 321 and 322 or in Part Three, Title II, Chapter 3, Section 6 respectively to be met by the parent and its subsidiaries considered together, in a way that is consistent with the structure of the group and its risk management systems, processes and methodologies. 7. The decisions referred to in paragraphs 2, 4 and 5 shall be recognised as determinative and applied by the competent authorities in the Member States concerned. 8. EBA shall develop draft implementing technical standards to specify the joint decision process referred to in point (a) of paragraph 1, 1 with regard to the applications for permissions referred to in Article 143(1), Article 151(4) and (9), Article 283, Article 312(2), and Article 363 with a view to facilitating joint decisions. EBA shall submit those draft implementing technical standards to the Commission by 31 December 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 21 Joint decisions on the level of application of liquidity requirements 1. Upon application of an EU parent institution or an EU parent financial holding company or EU parent mixed financial holding company or a sub-consolidating subsidiary of an EU parent institution or an EU parent financial holding company or EU parent mixed financial holding company, the consolidating supervisor and the competent authorities responsible for the supervision of subsidiaries of an EU parent institution or an EU parent financial holding company or EU parent mixed financial holding company in a Member State shall do everything within their power to reach a joint decision on whether the conditions in points (a) to (d) of Article 8(1) are met and identifying a single liquidity sub-group for the application of Article 8. The joint decision shall be reached within six months after submission by the consolidating supervisor of a report identifying single liquidity sub-groups on the basis of the criteria laid down in Article 8. In the event of disagreement during the six months six-month period, the consolidating supervisor shall consult EBA at the request of any of the other competent authorities concerned. The consolidating supervisor may consult EBA on its own initiative. The joint decision may also impose constraints on the location and ownership of liquid assets and require minimum amounts of liquid assets to be held by institutions that are exempt from the application of Part Six. The joint decision shall be set out in a document containing the fully reasoned decision which shall be submitted to the parent institution of the liquidity subgroup by the consolidating supervisor. 2. In the absence of a joint decision within six months, each competent authority responsible for supervision on an individual basis shall take its own decision. However, any competent authority may during the six months six-month period refer to EBA the question whether the conditions in points (a) to (d) of Article 8(1) are met. In that case, EBA may carry out its non-binding mediation in accordance with Article 31(c) of Regulation (EU) No 1093/2010 and all the competent authorities involved shall defer their decisions pending the conclusion of the non-binding mediation. Where, during the mediation, no agreement has been reached by the competent authorities within three months, each competent authority responsible for supervision on an individual basis shall take its own decision taking into account the proportionality of benefits and risks at the level of the Member State of the parent institution and the proportionality of benefits and risks at the level of the Member State of the subsidiary. The matter shall not be referred to EBA after the end of the six month six-month period or after a joint decision has been reached. The joint decision referred to in paragraph 1 and the decisions referred to in the second subparagraph of this paragraph shall be binding. 3. Any relevant competent authority may also during the six months six-month period consult EBA in the event of a disagreement on the conditions in points (a) to (d) of Article 8(3). In that case, EBA may carry out its non-binding mediation in accordance with Article 31(c) of Regulation (EU) No 1093/2010, and all the competent authorities involved shall defer their decisions pending the conclusion of the non-binding mediation. Where, during the mediation, no agreement has been reached by the competent authorities within three months, each competent authority responsible for supervision on an individual basis shall take its own decision.

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Article 22 Sub-consolidation in cases of entities in third countries Subsidiary institutions shall apply the requirements laid down in Articles 89 to 91 and Parts Three and Five Four on the basis of their sub-consolidated situation if those institutions, or the parent undertaking where it is a financial holding company or mixed financial holding company, have an institution or a financial institution as a subsidiary in a third country, or hold a participation in such an undertaking.

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Article 24 Valuation of assets and off-balance sheet items 1. The valuation of assets and off-balance sheet items shall be effected in accordance with the applicable accounting framework. 2. By way of derogation from paragraph 1, competent authorities may require that institutions effect the valuation of assets and off-balance sheet items and the determination of own funds in accordance with International Accounting Standards the international accounting standards as applicable under Regulation (EC) No 1606/2002.

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Article 26 Common Equity Tier 1 items 1. Common Equity Tier 1 items of institutions consist of the following: (a) capital instruments, provided that the conditions laid down in Article 28 or, where applicable, Article 29 are met; (b) share premium accounts related to the instruments referred to in point (a); (c) retained earnings; (d) accumulated other comprehensive income; (e) other reserves; (f) funds for general banking risk. The items referred to in points (c) to (f) shall be recognised as Common Equity Tier 1 only where they are available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur. 2. For the purposes of point (c) of paragraph 1, institutions may include interim or year-end profits in Common Equity Tier 1 capital before the institution has taken a formal decision confirming the final profit or loss of the institution for the year only with the prior permission of the competent authority. The competent authority shall grant permission where the following conditions are met: (a) those profits have been verified by persons independent of the institution that are responsible for the auditing of the accounts of that institution; (b) the institution has demonstrated to the satisfaction of the competent authority that any foreseeable charge or dividend has been deducted from the amount of those profits. A verification of the interim or year-end profits of the institution shall provide an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the applicable accounting framework. 3. Competent authorities shall evaluate whether issuances of Common Equity Tier 1 instruments meet the criteria set out in Article 28 or, where applicable, Article 29. With respect to issuances after 31 December 2014, 28 June 2013, institutions shall classify capital instruments as Common Equity Tier 1 instruments only after permission is granted by the competent authorities, which may consult EBA. For capital instruments, with the exception of State aid, that are approved as eligible for classification as Common Equity Tier 1 instruments by the competent authority but where, in the opinion of EBA, the compliance with the criteria in Article 28 or, where applicable, Article 29, is materially complex to ascertain, the competent authorities shall explain their reasoning to EBA. On the basis of information from each competent authority, EBA shall establish, maintain and publish a list of all the forms of capital instruments in each Member State that qualify as Common Equity Tier 1 instruments. EBA shall establish that list and publish it by 1 February 2015 for the first time. time by 28 July 2013. EBA may, after the review process set out in Article 80 and, where there is significant evidence of those instruments not meeting the criteria set out in Article 28 or, where applicable, Article 29, decide to remove non-State aid capital instruments issued after 31 December 2014 28 June 2013 from the list and may make an announcement to that effect. 4. EBA shall develop draft regulatory technical standards to specify the meaning of foreseeable when determining whether any foreseeable charge or dividend has been deducted. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 27 Capital instruments of mutuals, cooperative societies, savings institutions or similar institutions in Common Equity Tier 1 items 1. Common Equity Tier 1 items shall include any capital instrument issued by an institution under its statutory terms provided that the following conditions are met: (a) the institution is of a type that is defined under applicable national law and which competent authorities consider to qualify as any of the following: (i) a mutual; (ii) a cooperative society; (iii) a savings institution; (iv) a similar institution; (v) a credit institution which is wholly owned by one of the institutions referred to in points (i) to (iv) and has approval from the relevant competent authority to make use of the provisions in this Article, provided that, and for as long as, 100 % of the ordinary shares in issue in the credit institution are held directly or indirectly by an institution referred to in those points; (b) the conditions laid down in Articles 28 or, where applicable, Article 29, are met. Those mutuals, cooperative societies or savings institutions recognised as such under applicable national law prior to 31 December 2012 shall continue to be classified as such for the purposes of this Part, provided that they continue to meet the criteria that determined such recognition. 2. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities may determine that a type of undertaking recognised under applicable national law qualifies as a mutual, cooperative society, savings institution or similar institution for the purposes of this Part. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 28 Common Equity Tier 1 instruments 1. Capital instruments shall qualify as Common Equity Tier 1 instruments only if all the following conditions are met: (a) the instruments are issued directly by the institution with the prior approval of the owners of … 501 unchanged words … the payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap, except in the case of the capital instruments referred to in Article 27; (l) the instruments are not secured, or neither secured nor subject to a guarantee that enhances the seniority of the claim by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the mixed activity holding company or its subsidiaries; (v) the mixed financial holding company and its subsidiaries; (vi) any undertaking that has close links with the entities referred to in points (i) to (v); (m) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation. The condition set out in point (j) of the first subparagraph shall be deemed to be met, notwithstanding the instruments are included in Additional Tier 1 or Tier 2 by virtue of Article 484(3), provided that they rank pari passu. 2. The conditions laid down in point (i) of paragraph 1 shall be deemed to be met notwithstanding a write down on a permanent basis of the principal amount of Additional Tier 1 or Tier 2 instruments. The condition laid down in point (f) of paragraph 1 shall be deemed to be met notwithstanding the reduction of the principal amount of the capital instrument within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution. The condition laid down in point (g) of paragraph 1 shall be deemed to be met notwithstanding the provisions governing the capital instrument indicating expressly or implicitly that the principal amount of the instrument would or might be reduced within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution. 3. The condition laid down in point (h)(iii) of paragraph 1 shall be deemed to be met notwithstanding the instrument paying a dividend multiple, provided that such a dividend multiple does not result in a distribution that causes a disproportionate drag on own funds. 4. For the purposes of point (h)(i) of paragraph 1, differentiated distributions shall only reflect differentiated voting rights. In this respect, higher distributions shall only apply to Common Equity Tier 1 instruments with fewer or no voting rights. 5. EBA shall develop draft regulatory technical standards to specify the following: (a) the applicable forms and nature of indirect funding of own funds instruments; (b) Whether whether and when multiple distributions would constitute a disproportionate drag on own funds; (c) the meaning of preferential distributions. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 29 Capital instruments issued by mutuals, cooperative societies, savings institutions and similar institutions 1. Capital instruments issued by mutuals, cooperative societies, savings institutions and similar institutions shall qualify as Common Equity Tier 1 instruments only if the conditions laid down in Article 28 with modifications resulting from the application of this Article are met. 2. The following conditions shall be met as regards redemption of the capital instruments: (a) except where prohibited under applicable national law, the institution shall be able to refuse the redemption of the instruments; (b) where the refusal by the institution of the redemption of instruments is prohibited under applicable national law, the provisions governing the instruments shall give the institution the ability to limit their redemption; (c) refusal to redeem the instruments, or the limitation of the redemption of the instruments where applicable, may not constitute an event of default of the institution. 3. The capital instruments may include a cap or restriction on the maximum level of distributions only where that cap or restriction is set out under applicable national law or the statute of the institution. 4. Where the capital instruments provide the owner with rights to the reserves of the institution in the event of insolvency or liquidation that are limited to the nominal value of the instruments, such a limitation shall apply to the same degree to the holders of all other Common Equity Tier 1 instruments issued by that institution. The condition laid down in the first subparagraph is without prejudice to the possibility for a mutual, cooperative society, savings institution or a similar institution to recognize recognise within Common Equity Tier 1 instruments that do not afford voting rights to the holder and that meet all the following conditions: (a) the claim of the holders of the non-voting instruments in the insolvency or liquidation of the institution is proportionate to the share of the total Common Equity Tier 1 instruments that those non-voting instruments represent; (b) the instruments otherwise qualify as Common Equity Tier 1 instruments. 5. Where the capital instruments entitle their owners to a claim on the assets of the institution in the event of its insolvency or liquidation that is fixed or subject to a cap, such a limitation shall apply to the same degree to all holders of all Common Equity Tier 1 instruments issued by the institution. 6. EBA shall develop draft regulatory technical standards to specify the nature of the limitations on redemption necessary where the refusal by the institution of the redemption of own funds instruments is prohibited under applicable national law. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 31 Capital instruments subscribed by public authorities in emergency situations 1. In emergency situations, competent authorities may permit institutions to include in Common Equity Tier 1 capital instruments that comply at least with the conditions laid down in points (b) to (e) of Article 28(1) where all the following conditions are met: (a) the capital instruments are issued after 1 January 2014; (b) the capital instruments are considered State aid by the Commission; (c) the capital instruments are issued within the context of recapitalisation measures pursuant to State aid- rules existing at the time; (d) the capital instruments are fully subscribed and held by the State or a relevant public authority or public-owned entity; (e) the capital instruments are able to absorb losses; (f) except for the capital instruments referred to in Article 27, in the event of liquidation, the capital instruments entitle their owners to a claim on the residual assets of the institution after the payment of all senior claims; (g) there are adequate exit mechanisms of the State or, where applicable, a relevant public authority or public-owned entity; (h) the competent authority has granted its prior permission and has published its decision together with an explanation of that decision. 2. Upon reasoned request by by, and in cooperation with with, the relevant competent authority, EBA shall consider the capital instruments referred to in paragraph 1 as equivalent to Common Equity Tier 1 instruments for the purposes of this Regulation.

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Article 32 Securitised assets 1. An institution shall exclude from any element of own funds any increase in its equity under the applicable accounting framework that results from securitised assets, including the following: (a) such an increase associated with future margin income that results in a gain on sale for the institution; (b) where the institution is the originator of a securitisation, net gains that arise from the capitalisation of future income from the securitised assets that provide credit enhancement to positions in the securitisation. 2. EBA shall develop draft regulatory technical standards to specify further the concept of a gain on sale referred to in point (a) of paragraph 1. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 33 Cash flow hedges and changes in the value of own liabilities 1. Institutions shall not include the following items in any element of own funds: (a) the fair value reserves related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value, including projected cash flows; (b) gains or losses on liabilities of the institution that are valued at fair value that result from changes in the own credit standing of the institution; (c) all fair value gains and losses arising on derivative liabilities of the institution that result from changes in the institution's own credit risk related to derivative liabilities. standing of the institution. 2. For the purposes of point (c) of paragraph 1, institutions shall not offset the fair value gains and losses arising from the institution's own credit risk with those arising from its counterparty credit risk. 3. Without prejudice to point (b) of paragraph 1, institutions may include the amount of gains and losses on their liabilities in own funds where all the following conditions are met: (a) the liabilities are in the form of bonds as referred to in Article 52(4) of Directive 2009/65/EC; (b) the changes in the value of the institution's assets and liabilities are due to the same changes in the institution's own credit standing; (c) there is a close correspondence between the value of the bonds referred to in point (a) and the value of the institution's assets; (d) it is possible to redeem the mortgage loans by buying back the bonds financing the mortgage loans at market or nominal value. 4. EBA shall develop draft regulatory technical standards to specify what constitutes close correspondence between the value of the bonds and the value of the assets, as referred to in point (c) of paragraph 3. EBA shall submit those draft regulatory technical standards to the Commission by 30 September 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 36 Deductions from Common Equity Tier 1 items 1. Institutions shall deduct the following from Common Equity Tier 1 items: (a) losses for the current financial year; (b) intangible assets; (c) deferred tax assets that rely on future profitability; (d) for institutions calculating risk-weighted exposure … 400 unchanged words … paragraph 1 of this Article and related deductions referred to in points (a), (c), (d) and (f) of Article 56 and points (a), (c) and (d) of Article 66. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 3. EBA shall develop draft regulatory technical standards to specify the types of capital instruments of financial institutions and, in consultation with the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA) established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010OJ L 331, 15.12.2010, p. 48., of third country insurance and reinsurance undertakings, and of undertakings excluded from the scope of Directive 2009/138/EC in accordance with Article 4 of that Directive that shall be deducted from the following elements of own funds: (a) Common Equity Tier 1 items; (b) Additional Tier 1 items; (c) Tier 2 items. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 38 Deduction of deferred tax assets that rely on future profitability 1. Institutions shall determine the amount of deferred tax assets that rely on future profitability that require deduction in accordance with this Article. 2. Except where the conditions laid down in paragraph 3 are met, the amount of deferred tax assets that rely on future profitability shall be calculated without reducing it by the amount of the associated deferred tax liabilities of the institution. 3. The amount of deferred tax assets that rely on future profitability may be reduced by the amount of the associated deferred tax liabilities of the institution, provided the following conditions are met: (a) the entity has a legally enforceable right under applicable national law to set off those current tax assets against current tax liabilities; (b) the deferred tax assets and the deferred tax liabilities relate to taxes levied by the same taxation tax authority and on the same taxable entity. 4. Associated deferred tax liabilities of the institution used for the purposes of paragraph 3 may not include deferred tax liabilities that reduce the amount of intangible assets or defined benefit pension fund assets required to be deducted. 5. The amount of associated deferred tax liabilities referred to in paragraph 4 shall be allocated between the following: (a) deferred tax assets that rely on future profitability and arise from temporary differences that are not deducted in accordance with Article 48(1); (b) all other deferred tax assets that rely on future profitability. Institutions shall allocate the associated deferred tax liabilities according to the proportion of deferred tax assets that rely on future profitability that the items referred to in points (a) and (b) represent.

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Article 39 Tax overpayments, tax loss carry backs and deferred tax assets that do not rely on future profitability 1. The following items shall not be deducted from own funds and shall be subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three, as applicable: (a) overpayments of tax by the institution for the current year; (b) current year tax losses of the institution carried back to previous years that give rise to a claim on, or a receivable from, a central government, regional government or local tax authority. 2. Deferred tax assets that do not rely on future profitability shall be limited to deferred tax assets arising from temporary differences, where all the following conditions are met: (a) they are automatically and mandatorily replaced without delay with a tax credit in the event that the institution reports a loss when the annual financial statements of the institution are formally approved, or in the event of liquidation or insolvency of the institution; (b) an institution shall be is able under the applicable national tax law to offset a tax credit referred to in point (a) against any tax liability of the institution or any other undertaking included in the same consolidation as the institution for tax purposes under that law or any other undertaking subject to the supervision on a consolidated basis in accordance with Chapter 2 of Title II of Part One; (c) where the amount of tax credits referred to in point (b) exceeds the tax liabilities referred to in that point, any such excess is replaced without delay with a direct claim on the central government of the Member State in which the institution is incorporated. Institutions shall apply a risk weight of 100 % to deferred tax assets where the conditions laid down in points (a), (b) and c) (c) are met.

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Article 40 Deduction of negative amounts resulting from the calculation of expected loss amounts The amount to be deducted in accordance with point (d) of Article 36(1) shall not be reduced by a rise in the level of deferred tax assets that rely on future profitability, or other additional tax effects, that could occur if provisions were to rise to the level of expected losses referred to in Section 3 of Chapter 3 of Title I. II of Part Three.

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Article 41 Deduction of defined benefit pension fund assets 1. For the purposes of point (e) of Article 36(1), the amount of defined benefit pension fund assets to be deducted shall be reduced by the following: (a) the amount of any associated deferred tax liability which could be extinguished if the assets became impaired or were derecognised under the applicable accounting framework; (b) the amount of assets in the defined benefit pension fund which the institution has an unrestricted ability to use, provided that the institution has received the prior permission of the competent authority. Those assets used to reduce the amount to be deducted shall receive a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three, as applicable. 2. EBA shall develop draft regulatory technical standards to specify the criteria according to which a competent authority shall permit an institution to reduce the amount of assets in the defined benefit pension fund as specified in point (b) of paragraph 1. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 46 Deduction of holdings of Common Equity Tier 1 instruments where an institution does not have a significant investment in a financial sector entity 1. For the purposes of point (h) of Article 36(1), institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph: (a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10 % of the aggregate amount of Common Equity Tier 1 items of the institution calculated after applying the following to Common Equity Tier 1 items: (i) Articles 32 to 35; (ii) the deductions referred to in points (a) to (g), points (k)(ii) to (v) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45; (b) the amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of those financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of direct, indirect and synthetic holdings by the institution of the own funds Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities. 2. Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1. 3. The amount to be deducted pursuant to paragraph 1 shall be apportioned across all Common Equity Tier 1 instruments held. Institutions shall determine the portion amount of holdings of each Common Equity Tier 1 instruments instrument that is deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph: (a) the amount of holdings required to be deducted pursuant to paragraph 1; (b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment represented by each Common Equity Tier 1 instrument held. 4. The amount of holdings referred to in point (h) of Article 36(1) that is equal to or less than 10 % of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i) to (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable. 5. Institutions shall determine the portion amount of holdings of own funds instruments each Common Equity Tier 1 instrument that is risk weighted pursuant to paragraph 4 by dividing multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b): (b) of this paragraph: (a) the amount of holdings required to be risk weighted pursuant to paragraph 4; (b) the amount specified proportion resulting from the calculation in point (i) divided by the amount specified in point (ii): (i) the total amount (b) of the Common Equity Tier 1 instruments; (ii) the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment. paragraph 3.

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Article 49 Requirement for deduction where consolidation, supplementary supervision or institutional protection schemes are applied 1. For the purposes of calculating own funds on an individual basis, a sub-consolidated basis and a consolidated basis, where the competent authorities require or permit institutions … 763 unchanged words … deduction is not made in accordance with paragraph 1, 2 or 3 shall qualify as exposures and shall be risk weighted in accordance with Chapter 2 or 3 of Title II of Part Three, as applicable. 5. Where an institution applies methods 1 method 1, 2 or 2 3 of Annex I to Directive 2002/87/EC, the institution shall disclose the supplementary own funds requirement and capital adequacy ratio of the financial conglomerate as calculated in accordance with Article 6 of and Annex I to that Directive. 6. EBA, EIOPA 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 of 24 November 2010OJ L 331, 15.12.2010, p. 84. shall, through the Joint Committee, develop draft regulatory technical standards to specify for the purposes of this Article the conditions of application of the calculation methods listed in Annex I, Part II of Directive 2002/87/EC for the purposes of the alternatives to deduction referred to in paragraph 1 of this Article. EBA, EIOPA and ESMA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010 and of Regulation (EU) No 1095/2010 respectively.

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Article 52 Additional Tier 1 instruments 1. Capital instruments shall qualify as Additional Tier 1 instruments only if the following conditions are met: (a) the instruments are issued and paid up; (b) the instruments are not purchased by any of the following: (i) the institution or its subsidiaries; (ii) an undertaking in which the institution has a participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking; (c) the purchase of the instruments is not funded directly or indirectly by the institution; (d) the instruments rank below Tier 2 instruments in the event of the insolvency of the institution; (e) the instruments are not secured, or neither secured nor subject to a guarantee that enhances the seniority of the claims by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the mixed … 474 unchanged words … proceeds are immediately available to the institution without limitation and in a form that satisfies the conditions laid down in this paragraph. The condition set out in point (d) of the first subparagraph shall be deemed to be met notwithstanding the fact that the instruments are included in Additional Tier 1 or Tier 2 by virtue of Article 484(3), provided that they rank pari passu. 2. EBA shall develop draft regulatory technical standards to specify all the following: (a) the form and nature of incentives to redeem; (b) the nature of any write up of the principal amount of an Additional Tier 1 instrument following a write down of its principal amount on a temporary basis; (c) the procedures and timing for the following: (i) determining that a trigger event has occurred; (ii) writing up the principal amount of an Additional Tier 1 instrument following a write down of its principal amount on a temporary basis; (d) features of instruments that could hinder the recapitalisation of the institution; (e) the use of special purposes purpose entities for indirect issuance of own funds instruments. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 54 Write down or conversion of Additional Tier 1 instruments 1. For the purposes of point (n) of Article 52(1), the following provisions shall apply to Additional Tier 1 instruments: (a) a trigger event occurs when the Common Equity Tier 1 capital ratio of the institution referred to in point (a) of Article 92(1) falls below either of the following: (i) 5,125 %; (ii) a level higher than 5,125 %, where determined by the institution and specified in the provisions governing the instrument; (b) institutions may specify in the provisions governing the instrument one or more trigger events in addition to that referred to in point (a); (c) where the provisions governing the instruments require them to be converted into Common Equity Tier 1 instruments upon the occurrence of a trigger event, those provisions shall specify either of the following: (i) the rate of such conversion and a limit on the permitted amount of conversion; (ii) a range within which the instruments will convert into Common Equity Tier 1 instruments; (d) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down shall reduce all the following: (i) the claim of the holder of the instrument in the insolvency or liquidation of the institution; (ii) the amount required to be paid in the event of the call or redemption of the instrument; (iii) the distributions made on the instrument. 2. Write down or conversion of an Additional Tier 1 instrument shall, under the applicable accounting framework, generate items that qualify as Common Equity Tier 1 items. 3. The amount of Additional Tier 1 instruments recognised in Additional Tier 1 items is limited to the minimum amount of Common Equity Tier 1 items that would be generated if the principal amount of the Additional Tier 1 instruments were fully written down or converted into Common Equity Tier 1 instruments. 4. The aggregate amount of Additional Tier 1 instruments that is required to be written down or converted upon the occurrence of a trigger event shall be no less than the lower of the following: (a) the amount required to restore fully the Common Equity Tier 1 ratio of the institution to 5,125 %; (b) the full principal amount of the instrument. 5. When a trigger event occurs institutions shall do the following: (a) immediately inform the competent authorities; (b) inform the holders of the Additional Tier 1 instruments; (c) write down the principal amount of the instruments, or convert the instruments into Common Equity Tier 1 instruments without delay, but no later than in within one month, in accordance with the requirement laid down in this Article. 6. An institution issuing Additional Tier 1 instruments that convert to Common Equity Tier 1 on the occurrence of a trigger event shall ensure that its authorised share capital is at all times sufficient, for converting all such convertible Additional Tier 1 instruments into shares if a trigger event occurs. All necessary authorisations shall be obtained at the date of issuance of such convertible Additional Tier 1 instruments. The institution shall maintain at all times the necessary prior authorisation to issue the Common Equity Tier 1 instruments into which such Additional Tier 1 instruments would convert upon occurrence of a trigger event. 7. An institution issuing Additional Tier 1 instruments that convert to Common Equity Tier 1 on the occurrence of a trigger event shall ensure that there are no procedural impediments to that conversion by virtue of its incorporation or statutes or contractual arrangements.

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Article 60 Deduction of holdings of Additional Tier 1 instruments where an institution does not have a significant investment in a financial sector entity 1. For the purposes of point (c) of Article 56, institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph: (a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: (i) Article 32 to 35; (ii) points (a) to (g), points (k)(ii) to (v) and point (l) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45; (b) the amount of direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of those financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities. 2. Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1. 3. The amount to be deducted pursuant to paragraph 1 shall be apportioned across all Additional Tier 1 instruments held. The Institutions shall determine the amount to be deducted from of each Additional Tier 1 instrument to be deducted pursuant to paragraph 1 shall be calculated by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph: (a) the amount of holdings required to be deducted pursuant to paragraph 1; (b) the amount specified in point (i) divided by the amount specified in point (ii): (i) the total amount proportion of the Additional Tier 1 instrument; (ii) the aggregate amount of direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of financial sector entities in which the institution does not have a significant investment. investment represented by each Additional Tier 1 instrument held. 4. The amount of holdings referred to in point (c) of Article 56 that is equal to or less than 10 % of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i), (ii) and (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable. 5. Institutions shall determine the portion amount of holdings of own funds instruments each Additional Tier 1 instrument that is risk weighted pursuant to paragraph 4 by dividing multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b): (b) of this paragraph: (a) the amount of holdings required to be risk weighted pursuant to paragraph 4; (b) the amount specified proportion resulting from the calculation in point (i) divided by the amount specified in point (ii): (i) the total amount (b) of the Common Equity Tier 1 instruments; (ii) the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment. paragraph 3.

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Article 62 Tier 2 items Tier 2 items shall consist of the following: (a) capital instruments and subordinated loans where the conditions laid down in Article 63 are met; (b) the share premium accounts related to instruments referred to in point (a); (c) for institutions calculating risk-weighted exposure amounts in accordance with Chapter 2 of Title II of Part Three, general credit risk adjustments, gross of tax effects, of up to 1,25 % of risk-weighted exposure amounts calculated in accordance with Chapter 2 of Title II of Part Three; (d) for institutions calculating risk-weighted exposure amounts under Chapter 3 of Title II of Part Three, positive amounts, gross of tax effects, resulting from the calculation laid down in Articles 158 and 159 up to 0,6 % of risk weighted risk-weighted exposure amounts calculated under Chapter 3 of Title II of Part Three. Items included under point (a) shall not qualify as Common Equity Tier 1 or Additional Tier 1 items.

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Article 63 Tier 2 instruments Capital instruments and subordinated loans shall qualify as Tier 2 instruments provided that the following conditions are met: (a) the instruments are issued or the subordinated loans are raised, as applicable, and fully paid-up; (b) the instruments are not purchased or the subordinated loans are not granted, as applicable, by any of the following: (i) the institution or its subsidiaries; (ii) an undertaking in which the institution has participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking; (c) the purchase of the instruments or the granting of the subordinated loans, as applicable, is not funded directly or indirectly by the institution; (d) the claim on the principal amount of the instruments under the provisions governing the instruments or the claim of the principal amount of the subordinated loans under the provisions governing the subordinated loans, as applicable, is wholly subordinated to claims of all non-subordinated creditors; (e) the instruments or subordinated loans, as applicable, are not neither secured, or nor subject to a guarantee that enhances the seniority of the claim by any of the following: (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the mixed activity holding company or its subsidiaries; (v) the mixed financial holding company or its subsidiaries; (vi) any undertaking that has close links with entities referred to in points (i) to (v); (f) the instruments or subordinated loans, as applicable, are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments or subordinated loans respectively; (g) the instruments or subordinated loans, as applicable, have an original maturity of at least five years; (h) the provisions governing the instruments or subordinated loans, as applicable, do not include any incentive for their principal amount to be redeemed or repaid, as applicable by the institution prior to their maturity; (i) where the instruments or subordinated loans, as applicable, include one or more call options or early repayment options, as applicable, the options are exercisable at the sole discretion of the issuer or debtor, as applicable; (j) the instruments or subordinated loans, as applicable, may be called, redeemed or repurchased or repaid early only where the conditions laid down in Article 77 are met, and not before five years after the date of issuance or raising, as applicable, except where the conditions laid down in Article 78(4) are met; (k) the provisions governing the instruments or subordinated loans, as applicable, do not indicate explicitly or implicitly that the instruments or subordinated loans, as applicable, would or might be called, redeemed, repurchased or repaid early, as applicable by the institution other than in the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication; (l) the provisions governing the instruments or subordinated loans, as applicable, do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the insolvency or liquidation of the institution; (m) the level of interest or dividend payments, as applicable, due on the instruments or subordinated loans, as applicable, will not be amended on the basis of the credit standing of the institution or its parent undertaking; (n) where the instruments are not issued directly by an institution, or where the subordinated loans are not raised directly by an institution, as applicable, both of the following conditions shall be are met: (i) the instruments are issued or subordinated loans are raised, as applicable, through an entity, which is part of the consolidation pursuant to Chapter 2 of Title II of Part One; (ii) the proceeds are immediately available to the institution without limitation in a form that satisfies the conditions laid down in this paragraph.

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Article 70 Deduction of Tier 2 instruments where an institution does not have a significant investment in a relevant entity 1. For the purposes of point (c) of Article 66, institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph: (a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10 % of the Common Equity Tier 1 items of the institution calculated after applying the following: (i) Article Articles 32 to 35; (ii) points (a) to (g), points (k)(ii) to (v) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; (iii) Articles 44 and 45; (b) the amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities. 2. Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1. 3. The amount to be deducted pursuant to paragraph 1 shall be apportioned across each Tier 2 instrument held. Institutions shall determine the portion of holdings of amount to be deducted from each Tier 2 instruments instrument that is deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph: (a) the total amount of holdings required to be deducted pursuant to paragraph 1; (b) the amount specified in point (i) divided by the amount specified in point (ii): (i) the total amount proportion of the Tier 2 instrument; (ii) the aggregate amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment. investment represented by each Tier 2 instrument held. 4. The amount of holdings referred to in point (c) of Article 66(1) that is equal to or less than 10 % of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i) to (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three and the requirements laid down in Title IV of Part Three, as applicable. 5. Institutions shall determine the portion amount of holdings of own funds instruments each Tier 2 instrument that is risk weighted pursuant to paragraph 4 by dividing multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b): (b) of this paragraph: (a) the amount of holdings required to be risk weighted pursuant to paragraph 4; (b) the amount specified proportion resulting from the calculation in point (i) divided by the amount specified in point (ii): (i) the total amount (b) of the Common Equity Tier 1 instruments; (ii) the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment. paragraph 3.

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Article 73 Distributions on own funds instruments 1. Capital instruments for which an institution has the sole discretion to decide to pay distributions in a form other than cash or an own funds instrument shall not be capable of qualifying as Common … 321 unchanged words … shall develop draft regulatory technical standards to specify the conditions according to which indices shall be deemed to qualify as broad market indices for the purposes of paragraph 4. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 76 Index holdings of capital instruments 1. For the purposes of point (a) of Article 42, point (a) of Article 45, point (a) of Article 57, point (a) of Article 59, point (a) of Article 67 and point (a) of Article 69, institutions may reduce the amount of a long position in a capital instrument by the portion of an index that is made up of the same underlying exposure that is being hedged, provided that the following conditions are met: (a) either both the long position being hedged and the short position in an index used to hedge that long position are held in the trading book or both are held in the non-trading book; (b) the positions referred to in point (a) are held at fair value on the balance sheet of the institution; (c) the short position referred to in point (a) qualifies as an effective hedge under the internal control processes of the institution; (d) the competent authorities assess the adequacy of the control processes referred to in point (c) on at least an annual basis and are satisfied with their continuing appropriateness. 2. Where the competent authority has given its prior permission, an institution may use a conservative estimate of the underlying exposure of the institution to capital instruments included in indices as an alternative to an institution calculating its exposure to the items referred to in either or both of points (a) and (b): (a) own Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments included in indices; (b) Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities, included in indices. 3. Competent authorities shall grant the permission referred to in paragraph 2 only where the institution has demonstrated to their satisfaction that it would be operationally burdensome for the institution to monitor its underlying exposure to the items referred to in one or both of point (a) or (b) of paragraph 2, as applicable. 4. EBA shall develop draft regulatory technical standards to specify: (a) when an estimate used as an alternative to the calculation of underlying exposure referred to in paragraph 2 is sufficiently conservative; (b) the meaning of operationally burdensome for the purposes of paragraph 3. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 78 Supervisory permission for reducing own funds 1. The competent authority shall grant permission for an institution to reduce, repurchase, call or redeem Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments where any either of the following conditions is met: (a) earlier than or at the same time as the action referred to in Article 77, the institution replaces the instruments referred to in Article 77 with own funds instruments of equal or higher quality at terms that are sustainable for the income capacity of the institution; (b) the institution has demonstrated to the satisfaction of the competent authority that the own funds of the institution would, following the action in question, exceed the requirements laid down in Article 92(1) of this Regulation and the combined buffer requirement as defined in point (6) of Article 128 of Directive 2013/36/EU by a margin that the competent authority may consider necessary on the basis of Article 104(3) of Directive 2013/36/EU. 2. When assessing under point (a) of paragraph 1 the sustainability of the replacement instruments for the income capacity of the institution, competent authorities shall consider the extent to which those replacement capital instruments would be more costly for the institution than those they would replace. 3. Where an institution takes an action referred to in point (a) of Article 77 and the refusal of redemption of Common Equity Tier 1 instruments referred to in Article 27 is prohibited by applicable national law, the competent authority may waive the conditions laid down in paragraph 1 of this Article provided that the competent authority requires the institution to limit the redemption of such instruments on an appropriate basis. 4. The competent authorities may permit institutions to redeem Additional Tier 1 or Tier 2 instruments before five years of the date of issue only where the conditions laid down in paragraph 1 and point (a) or (b) of this paragraph are met: (a) there is a change in the regulatory classification of those instruments that would be likely to result in their exclusion from own funds or reclassification as a lower quality form of own funds, and both the following conditions are met: (i) the competent authority considers such a change to be sufficiently certain; (ii) the institution demonstrates to the satisfaction of the competent authorities that the regulatory reclassification of those instruments was not reasonably foreseeable at the time of their issuance; (b) there is a change in the applicable tax treatment of those instruments which the institution demonstrates to the satisfaction of the competent authorities is material and was not reasonably foreseeable at the time of their issuance. 5. EBA shall develop draft regulatory technical standards to specify the following: (a) the meaning of sustainable for the income capacity of the institution; (b) the appropriate bases of limitation of redemption referred to in paragraph 3; (c) the process and data requirements for an application by an institution for the permission of the competent authority to carry out an action listed in Article 77, including the process to be applied in the case of redemption of shares issued to members of cooperative societies, and the time period for processing such an application. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 79 Temporary waiver from of deduction from own funds 1. Where an institution holds capital instruments or has granted subordinated loans, as applicable, that qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments in a financial sector entity temporarily and the competent authority deems those holdings to be for the purposes of a financial assistance operation designed to reorganise and save that entity, the competent authority may waive on a temporary basis the provisions on deduction that would otherwise apply to those instruments. 2. EBA shall develop draft regulatory technical standards to specify the concept of temporary for the purposes of paragraph 1 and the conditions according to which a competent authority may deem those temporary holdings to be for the purposes of a financial assistance operation designed to reorganise and save a relevant entity. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 83 Qualifying Additional Tier 1 and Tier 2 capital issued by a special purpose entity 1. Additional Tier 1 and Tier 2 instruments issued by a special purpose entity, and the related share premium accounts accounts, are included in qualifying Additional Tier 1, Tier 1 or Tier 2 capital or qualifying own funds, as applicable, only where the following conditions are met: (a) the special purpose entity issuing those instruments is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One; (b) the instruments, and the related share premium accounts, are included in qualifying Additional Tier 1 capital only where the conditions laid down in Article 52(1) are satisfied; (c) the instruments, and the related share premium accounts, are included in qualifying Tier 2 capital only where the conditions laid down in Article 63 are satisfied; (d) the only asset of the special purpose entity is its investment in the own funds of the parent undertaking or a subsidiary thereof that is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One, the form of which satisfies the relevant conditions laid down in Articles 52(1) or 63, as applicable. Where the competent authority considers the assets of a special purpose entity other than its investment in the own funds of the parent undertaking or a subsidiary thereof that is included in the scope of consolidation pursuant to Chapter 2 of Title II of Part One, to be minimal and insignificant for such an entity, the competent authority may waive the condition specified in point (d) of the first subparagraph. 2. EBA shall develop draft regulatory technical standards to specify the types of assets that can relate to the operation of special purpose entities and the concepts of minimal and insignificant referred to in the second subparagraph of paragraph 1. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 84 Minority interests included in consolidated Common Equity Tier 1 capital 1. Institutions shall determine the amount of minority interests of a subsidiary that is included in consolidated Common Equity Tier 1 capital by subtracting from the minority interests of that … 368 unchanged words … consolidated level, as applicable. 4. EBA shall develop draft regulatory technical standards to specify the sub-consolidation calculation required in accordance with paragraph 2 of this Article, Articles 85 and 87. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 5. Competent authorities may grant a waiver from the application of this Article to a parent financial holding company that satisfies all the following conditions: (a) its principal activity is to acquire holdings; (b) it is subject to prudential supervision on a consolidated basis; (c) it consolidates a subsidiary institution in which it has only a minority holding by virtue of the control relationship defined in Article 1 of Directive 83/349/EEC; (d) more than 90 % of the consolidated required Common Equity Tier 1 capital arises from the subsidiary institution referred to in point c) calculated on a sub-consolidated basis. Where, after 31 December 2014, 28 June 2013, a parent financial holding company that meets the conditions laid down in the first subparagraph becomes a parent mixed financial holding company, competent authorities may grant the waiver referred to in the first subparagraph to that parent mixed financial holding company provided that it meets the conditions laid down in that subparagraph. 6. Where credit institutions permanently affiliated in a network to a central body and institutions established within an institutional protection scheme subject to the conditions laid down in Article 113(7) have set up a cross-guarantee scheme that provides that there is no current or foreseen material, practical or legal impediment to the transfer of the amount of own funds above the regulatory requirements from the counterparty to the credit institution, these institutions are exempted from the provisions of this Article regarding deductions and may recognise any minority interest arising within the cross-guarantee scheme in full.

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Article 85 Qualifying Tier 1 instruments included in consolidated Tier 1 capital 1. Institutions shall determine the amount of qualifying Tier 1 capital of a subsidiary that is included in consolidated own funds by subtracting from the own funds qualifying Tier 1 capital of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b): (a) the Tier 1 capital of the subsidiary minus the lower of the following: (i) the amount of Tier 1 capital of the subsidiary required to meet the sum of the requirement laid down in point (b) of Article 92(1), the requirements referred to in Articles 458 and 459, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in point (6) of Article 128 of Directive 2013/36/EU, the requirements referred to in Article 500 and any additional local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 Capital; (ii) the amount of consolidated Tier 1 capital that relates to the subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in point (b) of Article 92(1), the requirements referred to in Articles 458 and 459, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in point (6) of Article 128 of Directive 2013/36/EU, the requirements referred to in Article 500 and any additional local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 Capital; (b) the qualifying Tier 1 capital of the subsidiary expressed as a percentage of all Tier 1 instruments of that undertaking plus the related share premium accounts, retained earnings and other reserves. 2. The calculation referred to in paragraph 1 shall be undertaken on a sub-consolidated basis for each subsidiary referred to in Article 81(1). An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the qualifying Tier 1 capital of that subsidiary may not be included in consolidated Tier 1 capital. 3. Where a competent authority derogates from the application of prudential requirements on an individual basis, as laid down in Article 7, Tier 1 instruments within the subsidiaries to which the waiver is applied shall not be recognised in as own funds at the sub-consolidated or at the consolidated level, as applicable.

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Article 86 Qualifying Tier 1 capital included in consolidated Additional Tier 1 capital Without prejudice to Article 84 (5) and (6)), or (6), institutions shall determine the amount of qualifying Tier 1 capital of a subsidiary that is included in consolidated Additional Tier 1 capital by subtracting from the qualifying Tier 1 capital of that undertaking included in consolidated Tier 1 capital the minority interests of that undertaking that are included in consolidated Common Equity Tier 1 capital.

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Article 87 Qualifying own funds included in consolidated own funds 1. Institutions shall determine the amount of qualifying own funds of a subsidiary that is included in consolidated own funds by subtracting from the qualifying own funds of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b): (a) the own funds of the subsidiary minus the lower of the following: (i) the amount of own funds of the subsidiary required to meet the sum of the requirement laid down in point (c) of Article 92(1), the requirements referred to in Articles 458 and 459, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in point (6) of Article 128 of Directive 2013/36/EU, the requirements referred to in Article 500 and any additional local supervisory regulations in third countries; (ii) the amount of own funds that relates to the subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in point (c) of Article 92(1), the requirements referred to in Articles 458 and 459, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in point (6) of Article 128 of Directive 2013/36/EU, the requirements referred to in Article 500 and any additional local supervisory own funds requirement in third countries; (b) the qualifying own funds of the undertaking, expressed as a percentage of all own funds instruments of the subsidiary that are included in Common Equity Tier 1, Additional Tier 1 and Tier 2 items and the related share premium accounts, the retained earnings and other reserves. 2. The calculation referred to in paragraph 1 shall be undertaken on a sub-consolidated basis for each subsidiary referred to in Article 81(1). An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the qualifying own funds of that subsidiary may not be included in consolidated own funds. 3. Where a competent authority derogates from the application of prudential requirements on an individual basis, as laid down in Article 7, own funds instruments within the subsidiaries to which the waiver is applied shall not be recognised in as own funds at the sub-consolidated or at the consolidated level, as applicable.

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Article 88 Qualifying own funds instruments included in consolidated Tier 2 capital Without prejudice to Article 84(5) and or (6), institutions shall determine the amount of qualifying own funds of a subsidiary that is included in consolidated Tier 2 capital by subtracting from the qualifying own funds of that undertaking that are included in consolidated own funds the qualifying Tier 1 capital of that undertaking that is included in consolidated Tier 1 capital.

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Article 92 Own funds requirements 1. Subject to Articles 93 and 94, institutions shall at all times satisfy the following own funds requirements: (a) a Common Equity Tier 1 capital ratio of 4,5 %; (b) a Tier 1 capital ratio of 6 %; (c) a total capital ratio of 8 %. 2. Institutions shall calculate their capital ratios as follows: (a) the Common Equity Tier 1 capital ratio is the Common Equity Tier 1 capital of the institution expressed as a percentage of the total risk exposure amount; (b) the Tier 1 capital ratio is the Tier 1 capital of the institution expressed as a percentage of the total risk exposure amount; (c) the total capital ratio is the own funds of the institution expressed as a percentage of the total risk exposure amount. 3. Total risk exposure amount shall be calculated as the sum of points (a) to (f) of this paragraph after taking into account the provisions laid down in paragraph 4: (a) the risk weighted risk-weighted exposure amounts for credit risk and dilution risk, calculated in accordance with Title II and Article 379, in respect of all the business activities of an institution, excluding risk weighted risk-weighted exposure amounts from the trading book business of the institution; (b) the own funds requirements, determined in accordance with Title IV of this Part or Part Four, as applicable, for the trading-book business of an institution, for the following: (i) position risk; (ii) large exposures exceeding the limits specified in Articles 395 to 401, to the extent an institution is permitted to exceed those limits; (c) the own funds requirements determined in accordance with Title IV or Title V with the exception of Article 379, as applicable, for the following: (i) foreign-exchange risk; (ii) settlement risk; (iii) commodities risk; (d) the own funds requirements calculated in accordance with Title VI for credit valuation adjustment risk of OTC derivative instruments other than credit derivatives recognised to reduce risk-weighted exposure amounts for credit risk; (e) the own funds requirements determined in accordance with Title III for operational risk; (f) the risk weighted risk-weighted exposure amounts determined in accordance with Title II for counterparty risk arising from the trading book business of the institution for the following types of transactions and agreements: (i) contracts listed in Annex II and credit derivatives; (ii) repurchase transactions, securities or commodities lending or borrowing transactions based on securities or commodities; (iii) margin lending transactions based on securities or commodities; (iv) long settlement transactions. 4. The following provisions shall apply in the calculation of the total risk exposure amount referred to in paragraph 3: (a) the own funds requirements referred to in points (c), (d) and (e) of that paragraph shall include those arising from all the business activities of an institution; (b) institutions shall multiply the own funds requirements set out in points (b) to (e) of that paragraph by 12,5.

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Article 94 Derogation for small trading book business 1. Institutions may replace the capital requirement referred to in point (b) of Article 92(3) by a capital requirement calculated in accordance with point (a) of that paragraph in respect of their trading-book business, provided that the size of their on- and off-balance sheet trading-book business meets both the following conditions: (a) it is normally less than 5 % of the total assets and EUR 15 million; (b) it never exceeds 6 % of total assets and EUR 20 million. 2. In calculating the size of on- and off-balance sheet business, institutions shall apply the following: (a) debt instruments shall be valued at their market prices or their nominal values, equities at their market prices and derivatives according to the nominal or market values of the instruments underlying them; (b) the absolute value of long positions shall be summed with the absolute value of short positions. 3. Where an institution fails to meet the condition in point (b) of paragraph 1 it shall immediately notify the competent authority. If, following assessment by the competent authority, the competent authority determines and notifies the institution that the requirement in point (a) of paragraph 1 is not met, the institution shall cease to make use of paragraph 1 from the next reporting date.

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Article 95 Own funds requirements for investment firms with limited authorisation to provide investment services 1. For the purposes of Article 92(3), investment firms that are not authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2004/39/EC shall use the calculation of the total risk exposure amount specified in paragraph 2. 2. Investment firms referred to in paragraph 1 of this Article and firms referred to in point (2)(c) of Article 4(1) that provide the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC shall calculate the total risk exposure amount as the higher of the following: (a) the sum of the items referred to in points (a) to (d) and (f) of Article 92(3) after applying Article 92(4); (b) 12,5 multiplied by the amount specified in Article 97. Firms referred to in point (2)(c) of Article 4(1) that provide the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC shall meet the requirements in Article 92(1) and (2) based on the total risk exposure amount referred to in the first subparagraph. Competent authorities may set the own fund funds requirements for firms referred to in point (2)(c) of Article 4(1) that provide the investment services and activities listed in points (2) and (4) of Section A of Annex I to Directive 2004/39/EC as the own fund funds requirements that would be binding on those firms according to the national transposition measures in force on 31 December 2013 for Directives 2006/49/EC and 2006/48/EC. 3. Investment firms referred to in paragraph 1 are subject to all other provisions regarding operational risk laid down in Title VII, Chapter 3, 2, Section II, Sub-section 1 2 of Directive 2013/36/EU.

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Article 96 Own funds requirements for investment firms which hold initial capital as laid down in Article 28(2) of Directive 2013/36/EU 1. For the purposes of Article 92(3), the following categories of investment firm which hold initial capital in accordance with Article 28(2) of Directive 2013/36/EU shall use the calculation of the total risk exposure amount specified in paragraph 2 of this Article: (a) investment firms that deal on own account only for the purpose of fulfilling or executing a client order or for the purpose of gaining entrance to a clearing and settlement system or a recognised exchange when acting in an agency capacity or executing a client order; (b) investment firms that meet all the following conditions: (i) that they do not hold client money or securities; (ii) that they undertake only dealing on own account; (iii) that they have no external customers; (iv) for which the their execution and settlement whose transactions takes take place under the responsibility of a clearing institution and are guaranteed by that clearing institution. 2. For investment firms referred to in paragraph 1, total risk exposure amount shall be calculated as the sum of the following: (a) points (a) to (d) and (f) of Article 92(3) after applying Article 92(4); (b) the amount referred to in Article 97 multiplied by 12,5. 3. Investment firms referred to in paragraph 1 are subject to all other provisions regarding operational risk laid down in Title VII, Chapter 3, Section II, Sub-section 1 of Directive 2013/36/EU.

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Article 99 Reporting on own funds requirements and financial information 1. Reporting by institutions to the competent authorities on the obligations laid down in Article 92 shall be carried out at least on a semi-annual basis. 2. Institutions subject to Article 4 of Regulation (EC) No 1606/2002 and credit institutions other than those referred to in Article 4 of that Regulation that prepare their consolidated accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of that Regulation, shall also report financial information. 3. Competent authorities may require those credit institutions applying international accounting standards as applicable under Regulation (EC) No 1606/2002 for the reporting of own funds on a consolidated basis pursuant to Article 24(2) of this Regulation to also report financial information as laid down in paragraph 2 of this Article. 4. The financial information referred to in paragraph paragraphs 2 and in the first subparagraph of paragraph 3 shall be reported to the extent this is necessary to obtain a comprehensive view of the risk profile of an institution's activities and a view on the systemic risks posed by institutions to the financial sector or the real economy in accordance with Regulation (EU) No 1093/2010. 5. EBA shall develop draft implementing technical standards to specify the uniform formats, frequencies, dates of reporting, definitions and the IT solutions to be applied in the Union for the reporting referred to in paragraphs 1 to 4. The reporting requirements shall be proportionate to the nature, scale and complexity of the activities of the institutions. EBA shall submit those draft implementing technical standards to the Commission by 1 February 2015. 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 6. Where a competent authority considers that the financial information required by paragraph 2 is necessary to obtain a comprehensive view of the risk profile of the activities of, and a view of the systemic risks to the financial sector or the real economy posed by, institutions other than those referred to in paragraphs2 paragraphs 2 and 3 that are subject to an accounting framework based on Directive 86/635/EEC, the competent authority shall consult EBA on the extension of the reporting requirements of financial information on a consolidated basis to those institutions, provided that they are not already reporting on such a basis. EBA shall develop draft implementing technical standards to specify the formats to be used by institutions to which the competent authorities may extend the reporting requirements in accordance with the first subparagraph. EBA shall submit those draft implementing technical standards to the Commission by 1 February 2015. 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the second subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 7. Where a competent authority considers information not covered by the implementing technical standards referred to in paragraph 5 to be necessary for the purposes set out in paragraph 4, it shall notify EBA and the ESRB about of the additional information it deems necessary to include in the implementing technical standards referred to in paragraph 5.

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Article 101 Specific reporting obligations 1. Institutions shall report on a semi-annual basis the following data to the competent authorities for each national immovable property market to which they are exposed: (a) losses stemming from exposures for which an institution has recognised immovable residential property as collateral, up to the lower of the pledged amount and 80 % of the market value or 80 % of the mortgage lending value unless otherwise decided under Article 124(2); (b) overall losses stemming from exposures for which an institution has recognised immovable residential property as collateral, up to the part of the exposure treated as fully secured by immovable residential property in accordance with Article 124(1); (c) the exposure value of all outstanding exposures for which an institution has recognised immovable residential property as collateral limited to the part treated as fully secured by immovable residential property in accordance with Article 124(1); (d) losses stemming from exposures for which an institution has recognised immovable commercial property as collateral, up to the lower of the pledged amount and 50 % of the market value or 60 % of the mortgage lending value unless otherwise decided under Article 124(2); (e) overall losses stemming from exposures for which an institution has recognised immovable commercial property as collateral, up to the part of the exposure treated as fully secured by immovable commercial property in accordance with Article 124(1). (f) the exposure value of all outstanding exposures for which an institution has recognised immovable commercial property as collateral limited to the part treated as fully secured by immovable commercial property in accordance with Article 124(1). 2. The data referred to in paragraph 1 shall be reported to the competent authority of the home Member State of the relevant institution. Where an institution has a branch in another Member State, the data relating to that branch shall also be reported to the competent authorities of the host Member State. The data shall be reported separately for each immovable property market within the Union to which the relevant institution is exposed. 3. The competent authorities shall publish annually on an aggregated basis the data specified in points (a) to (f) of paragraph 1, together with historical data, where available. A competent authority shall, upon the request of another competent authority in a Member State or EBA provide to that competent authority or EBA more detailed information on the condition of the residential property or commercial immovable property markets in that Member State. 4. EBA shall develop draft implementing technical standards to specify the following: (a) uniform formats, definitions, frequencies and dates of reporting, as well as the IT solutions, of the items referred to in paragraph 1; (b) uniform formats, definitions, frequencies and dates of reporting, as well as IT solutions, of the aggregate data referred to in paragraph 2. EBA shall submit those draft implementing technical standards to the Commission by 1 February 2015. 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 102 Requirements for the Trading Book trading book 1. Positions in the trading book shall be either free of restrictions on their tradability or able to be hedged. 2. Trading intent shall be evidenced on the basis of the strategies, policies and procedures set up by the institution to manage the position or portfolio in accordance with Article 103. 3. Institutions shall establish and maintain systems and controls to manage their trading book in accordance with Articles 104 and 105. 4. Institutions may include internal hedges in the calculation of capital requirements for position risk provided that they are held with trading intent and that the requirements of Articles 103 to 106 are met.

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Article 103 Management of the trading book In managing its positions or sets of positions in the trading book the institution shall comply with all of the following requirements: (a) the institution shall have in place a clearly documented trading strategy for the position/instrument or portfolios, approved by senior management, which shall include the expected holding period; (b) the institution shall have in place clearly defined policies and procedures for the active management of positions entered into on a trading desk. Those policies and procedures shall include the following: (i) which positions may be entered into by which trading desk; (ii) position limits are set and monitored for appropriateness; (iii) dealers have the autonomy to enter into and manage the position within agreed limits and according to the approved strategy; (iv) positions are reported to senior management as an integral part of the institution's risk management process; (v) positions are actively monitored with reference to market information sources and an assessment made of the marketability or hedge-ability hedgeability of the position or its component risks, including the assessment, the quality and availability of market inputs to the valuation process, level of market turnover, sizes of positions traded in the market; (vi) active anti fraud anti-fraud procedures and controls. (c) the institution shall have in place clearly defined policies and procedures to monitor the positions against the institution's trading strategy including the monitoring of turnover and positions for which the originally intended holding period has been exceeded.

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Article 104 Inclusion in the Trading Book trading book 1. Institutions shall have in place clearly defined policies and procedures for determining which position to include in the trading book for the purposes of calculating their capital requirements, in accordance with the requirements set out in Article 102 and the definition of trading book in accordance with point (86) of Article 4(1), taking into account the institution's risk management capabilities and practices. The institution shall fully document its compliance with these policies and procedures and shall subject them to periodic internal audit. 2. Institutions shall have in place clearly defined policies and procedures for the overall management of the trading book. These policies and procedures shall at least address: (a) the activities the institution considers to be trading and as constituting part of the trading book for own funds requirement purposes; (b) the extent to which a position can be marked-to-market daily by reference to an active, liquid two-way market; (c) for positions that are marked-to-model, the extent to which the institution can: (i) identify all material risks of the position; (ii) hedge all material risks of the position with instruments for which an active, liquid two-way market exists; (iii) derive reliable estimates for the key assumptions and parameters used in the model; (d) the extent to which the institution can, and is required to, generate valuations for the position that can be validated externally in a consistent manner; (e) the extent to which legal restrictions or other operational requirements would impede the institution's ability to effect a liquidation or hedge of the position in the short term; (f) the extent to which the institution can, and is required to, actively manage the risks of positions within its trading operation; (g) the extent to which the institution may transfer risk or positions between the non-trading and trading books and the criteria for such transfers.

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Article 105 Requirements for Prudent Valuation prudent valuation 1. All trading book positions shall be subject to the standards for prudent valuation specified in this Article. Institutions shall in particular ensure that the prudent valuation of their trading book positions achieves an appropriate degree of certainty having regard to the dynamic nature of trading book positions, the demands of prudential soundness and the mode of operation and purpose of capital requirements in respect of trading book positions. 2. Institutions shall establish and maintain systems and controls sufficient to provide prudent and reliable valuation estimates. Those systems and controls shall include at least the following elements: (a) documented policies and procedures for the process of valuation, including clearly defined responsibilities of the various areas involved in the determination of the valuation, sources of market information and review of their appropriateness, guidelines for the use of unobservable inputs reflecting the institution's assumptions of what market participants would use in pricing the position, frequency of independent valuation, timing of closing prices, procedures for adjusting valuations, month end and ad-hoc verification procedures; (b) reporting lines for the department accountable for the valuation process that are clear and independent of the front office. The reporting line office, which shall ultimately be to the management body. 3. Institutions shall revalue trading book positions at least daily. 4. Institutions shall mark their positions to market whenever possible, including when applying trading book capital treatment. 5. When marking to market, an institution shall use … 623 unchanged words … positions; (f) the extent to which valuation relies on marking-to-model; (g) the impact of other model risks. 12. When using third party valuations or marking to model, institutions shall consider whether to apply a valuation adjustment. In addition, institutions shall consider the need for establishing to establish adjustments for less liquid positions and on an ongoing basis review their continued suitability. Institutions shall also explicitly assess the need for valuation adjustments relating to the uncertainty of parameter inputs used by models. 13. With regard to complex products, including securitisation exposures and n-th-to-default credit derivatives, institutions shall explicitly assess the need for valuation adjustments to reflect the model risk associated with using a possibly incorrect valuation methodology and the model risk associated with using unobservable (and possibly incorrect) calibration parameters in the valuation model. 14. EBA shall develop draft regulatory technical standards to specify the conditions according to which the requirements of Article 105 shall be applied for the purposes of paragraph 1 of this Article. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 106 Internal Hedges 1. An internal hedge shall in particular meet the following requirements: (a) it shall not be primarily intended to avoid or reduce own funds requirements; (b) it shall be properly documented and subject to particular internal approval and audit procedures; (c) it shall be dealt with at market conditions; (d) the market risk that is generated by the internal hedge shall be dynamically managed in the trading book within the authorised limits; (e) it shall be carefully monitored. Monitoring shall be ensured by monitored in accordance with adequate procedures. 2. The requirements of paragraph 1 apply without prejudice to the requirements applicable to the hedged position in the non-trading book. 3. By way of derogation from paragraphs 1 and 2, when an institution hedges a non-trading book credit risk exposure or counterparty risk exposure using a credit derivative booked in its trading book using an internal hedge, the non-trading book exposure or counterparty risk exposure shall not be deemed to be hedged for the purposes of calculating risk weighted risk-weighted exposure amounts unless the institution purchases from an eligible third party protection provider a corresponding credit derivative meeting the requirements for unfunded credit protection in the non-trading book. Without prejudice to point (h) of Article 299(2), where such third party protection is purchased and recognised as a hedge of a non-trading book exposure for the purposes of calculating capital requirements, neither the internal nor external credit derivative hedge shall be included in the trading book for the purposes of calculating capital requirements.

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Article 107 Approaches to credit risk 1. Institutions shall apply either the Standardised Approach provided for in Chapter 2 or, if 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 points (a) and (f) of Article 92(3). 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 points (a) and (f) of Article 92(3). For all other types of exposures to a central counterparty, institutions shall treat those exposures as follows: (a) as exposures to an institution for other types of exposures to a qualifying CCP; (b) as exposures to a corporate for other types of exposures to a non-qualifying CCP. 3. For the purposes of this Regulation, exposures to third-country investment firms and exposures to third country credit institutions and exposures to third country clearing houses and exchanges 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. 4. For the purposes of paragraph 3, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to treat exposures to the entities referred to in paragraph 3 as exposures to institutions provided that the relevant competent authorities had have approved the third country as eligible for that treatment before 1 January 2014.

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Article 110 Treatment of credit risk adjustment 1. Institutions applying the Standardised Approach shall treat general credit risk adjustments in accordance with Article 62(c). 2. Institutions applying the IRB Approach shall treat general credit risk adjustments in accordance with Article 159, Article 62(d) and Article 36(1)(d). For the purposes of this Article and Chapters 2 and 3, general and specific credit risk adjustments shall exclude funds for general banking risk. 3. Institutions using the IRB Approach that apply the Standardised Approach for a part of their exposures on consolidated or individual basis, in accordance with Articles 148 and 150 shall determine the part of general credit risk adjustment that shall be assigned to the treatment of general credit risk adjustment under the Standardised Approach and to the treatment of general credit risk adjustment under the IRB Approach as follows: (a) where applicable applicable, when an institution included in the consolidation exclusively applies the IRB Approach, general credit risk adjustments of this institution shall be assigned to the treatment set out in paragraph 2; (b) where applicable, when an institution included in the consolidation exclusively applies the Standardised Approach, general credit risk adjustment of this institution shall be assigned to the treatment set out in paragraph 1; (c) The the remainder of credit risk adjustment shall be assigned on a pro rata basis according to the proportion of risk weighted exposure amounts subject to the Standardised Approach and subject to the IRB Approach. 4. EBA shall develop draft regulatory technical standards to specify the calculation of specific credit risk adjustments and general credit risk adjustments under the applicable accounting framework for the following: (a) exposure value under the Standardised Approach referred to in Article 111; (b) exposure value under the IRB Approach referred to in Articles 166 to 168; (c) treatment of expected loss amounts referred to in Article 159; (d) exposure value for the calculation of the risk-weighted exposure amounts for securitisation position referred to in Articles 246 and 266; (e) the determination of default under Article 178. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2015. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 113 Calculation of risk weighted risk-weighted exposure amounts 1. To calculate risk-weighted exposure amounts, risk weights shall be applied to all exposures, unless deducted from own funds, in accordance with the provisions of Section 2. The application of risk weights shall be based on the exposure class to which the exposure is assigned and, to the extent specified in Section 2, its credit quality. Credit quality may be determined by reference to the credit assessments of ECAIs or the credit assessments of Export Credit Agencies export credit agencies in accordance with Section 3. 2. For the purposes of applying a risk weight, as referred to in paragraph 1, the exposure value shall be multiplied by the risk weight specified or determined in accordance with Section 2. 3. Where an exposure is subject to credit protection the risk weight applicable to that item may be amended in accordance with Chapter 4. 4. Risk-weighted exposure amounts for securitised exposures shall be calculated in accordance with Chapter 5. 5. Exposures for which no calculation is provided in Section 2 shall be assigned a risk-weight of 100 %. 6. With the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 or Tier 2 items, an institution may, subject to the prior approval of the competent authorities, decide not to apply the requirements of paragraph 1 of this Article to the exposures of that institution to a counterparty which is its parent undertaking, its subsidiary, a subsidiary of its parent undertaking or an undertaking linked by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC. Competent authorities are empowered to grant approval if the following conditions are fulfilled: (a) the counterparty is an institution, a financial holding company institution or a mixed financial holding company, financial institution, asset management company or an ancillary services undertaking subject to appropriate prudential requirements; (b) the counterparty is included in the same consolidation as the institution on a full basis; (c) the counterparty is subject to the same risk evaluation, measurement and control procedures as the institution; (d) the … 358 unchanged words … protection scheme; (g) the multiple use of elements eligible for the calculation of own funds (hereinafter referred to as multiple gearing) as well as any inappropriate creation of own funds between the members of the institutional protection scheme shall be eliminated; (h) The the institutional protection scheme shall be based on a broad membership of credit institutions of a predominantly homogeneous business profile; (i) the adequacy of the systems referred to in points (c) and (d) is approved and monitored at regular intervals by the relevant competent authorities. Where the institution, in accordance with this paragraph, decides not to apply the requirements of paragraph 1, it may assign a risk weight of 0 %.

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Article 114 Exposures to central governments or central banks 1. Exposures to central governments and central banks shall be assigned a 100 % risk weight, unless the treatments set out in paragraphs 2 to 7 apply. 2. Exposures to central governments and central banks for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight according to in accordance with Table 1 which corresponds to the credit assessment of the ECAI in accordance with Article 136. Table 1 Credit quality step 1 2 3 4 5 6 Risk weight 0 % 20 % 50 % 100 % 100 % 150 % 3. Exposures to the ECB shall be assigned a 0 % risk weight. 4. Exposures to Member States' central governments, and central banks denominated and funded in the domestic currency of that central government and central bank shall be assigned a risk weight of 0 %. 5. Until 31 December 2017, the same risk weight shall be assigned in relation to exposures to the central governments or central banks of Member States denominated and funded in the domestic currency of any Member State as would be applied to such exposures denominated and funded in their domestic currency. 6. For exposures indicated in paragraph 5: Article 495(2): (a) in 2018 the calculated risk weighted weight applied to the exposure amounts values shall be 20 % of the risk weight assigned to these exposures in accordance with Article 114(2); paragraph 2; (b) in 2019 the calculated risk weighted weight applied to the exposure amounts values shall be 50 % of the risk weight assigned to these exposures in accordance with Article 114(2); paragraph 2; (c) in 2020 and onwards the calculated risk weighted weight applied to the exposure amounts values shall be 100 % of the risk weight assigned to these exposures in accordance with Article 114(2). paragraph 2. 7. When the competent authorities of a third country which apply supervisory and regulatory arrangements at least equivalent to those applied in the Union assign a risk weight which is lower than that indicated in paragraphs 1 to and 2 to exposures to their central government and central bank denominated and funded in the domestic currency, institutions may risk weight such exposures in the same manner. For the purposes of this paragraph, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to apply the treatment set out in this paragraph to the exposures to the central government or central bank of the third country where the relevant competent authorities had approved the third country as eligible for that treatment before 1 January 2014.

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Article 116 Exposures to public sector entities 1. Exposures to public sector entities for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight according to in accordance with the credit quality step to which exposures to the central government of the jurisdiction in which the public sector entity is incorporated are assigned in accordance with the following Table 2: Table 2 Credit quality step to which central government is assigned 1 2 3 4 5 6 Risk weight 20 % 50 % 100 % 100 % 100 % 150 % For exposures to public sector entities incorporated in countries where the central government is unrated, the risk weight shall be 100 %. 2. Exposures to public sector entities for which a credit assessment by a nominated ECAI is available shall be treated in accordance with Article 120. The preferential treatment for short-term exposures specified in Articles 119(2) and 120(2), shall not be applied to those entities. 3. For exposures to public sector entities with an original maturity of three months or less, the risk weight shall be 20 %. 4. In exceptional circumstances, exposures to public-sector entities may be treated as exposures to the central government, regional government or local authority in whose jurisdiction they are established where in the opinion of the competent authorities of this jurisdiction there is no difference in risk between such exposures because of the existence of an appropriate guarantee by the central government, regional government or local authority. 5. When competent authorities of a third country jurisdiction, which apply supervisory and regulatory arrangements at least equivalent to those applied in the Union, treat exposures to public sector entities in accordance with paragraph 1 or 2, institutions may risk weight exposures to such public sector entities in the same manner. Otherwise the institutions shall apply a risk weight of 100 %. For the purposes of this paragraph, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to apply the treatment set out in this paragraph to the third country where the relevant competent authorities had approved the third country as eligible for that treatment before 1 January 2014.

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Article 120 Exposures to rated institutions 1. Exposures to institutions with a residual maturity of more than three months for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight according to in accordance with Table 3 which corresponds to the credit assessment of the ECAI in accordance with Article 136. Table 3 Credit quality step 1 2 3 4 5 6 Risk weight 20 % 50 % 50 % 100 % 100 % 150 % 2. Exposures to an institution of up to three months residual maturity for which a credit assessment by a nominated ECAI is available shall be assigned a risk-weight according to in accordance with Table 4 which corresponds to the credit assessment of the ECAI in accordance with Article 136: Table 4 Credit quality step 1 2 3 4 5 6 Risk weight 20 % 20 % 20 % 50 % 50 % 150 % 3. The interaction between the treatment of short term credit assessment under Article 131 and the general preferential treatment for short term exposures set out in paragraph 2 shall be as follows: (a) If there is no short-term exposure assessment, the general preferential treatment for short-term exposures as specified in paragraph 2 shall apply to all exposures to institutions of up to three months residual maturity; (b) If there is a short-term assessment and such an assessment determines the application of a more favourable or identical risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the short-term assessment shall be used for that specific exposure only. Other short-term exposures shall follow the general preferential treatment for short-term exposures, as specified in paragraph 2; (c) If there is a short-term assessment and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the general preferential treatment for short-term exposures shall not be used and all unrated short-term claims shall be assigned the same risk weight as that applied by the specific short-term assessment.

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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 a risk weight according to in accordance with the credit quality step to which exposures to the central government of the jurisdiction in which the institution is incorporated are assigned in accordance with Table 5. Table 5 Credit quality step to which central government is assigned 1 2 3 4 5 6 Risk weight of exposure 20 % 50 % 100 % 100 % 100 % 150 % 2. For exposures to unrated institutions incorporated in countries where the central government is unrated, the risk weight shall be 100 %. 3. For exposures to unrated institutions with an original effective maturity of three months or less, the risk weight shall be 20 %. 4. Notwithstanding paragraphs 2 and 3, for trade finance exposures referred to in point (b) of the second subparagraph of Article 162(3) to unrated institutions, the risk weight shall be 50 % and where the residual maturity of these trade finance exposures to unrated institutions is three months or less, the risk weight shall be 20 %.

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Article 122 Exposures to corporates 1. Exposures for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight according to in accordance with Table 6 which corresponds to the credit assessment of the ECAI in accordance with Article 136. Table 6 Credit quality step 1 2 3 4 5 6 Risk weight 20 % 50 % 100 % 100 % 150 % 150 % 2. Exposures for which such a credit assessment is not available shall be assigned a 100 % risk weight or the risk weight of exposures to the central government of the jurisdiction in which the corporate is incorporated, whichever is the higher.

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Article 123 Retail exposures Exposures that comply with the following criteria shall be assigned a risk weight of 75 %: (a) the exposure shall be either to an a natural person or persons, or to a small or medium-sized enterprise (SME); (b) the exposure shall be one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced; (c) the total amount owed to the institution and parent undertakings and its subsidiaries, including any exposure in default, by the obligor client or group of connected clients, but excluding exposures fully and completely secured on residential property collateral that have been assigned to the exposure class laid down in point (i) of Article 112, shall not, to the knowledge of the institution, exceed EUR 1 million. The institution shall take reasonable steps to acquire this knowledge. Securities shall not be eligible for the retail exposure class. Exposures that do not comply with the criteria referred to in points (a) to (c) of the first subparagraph shall not be eligible for the retail exposures class. The present value of retail minimum lease payments is eligible for the retail exposure class.

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Article 124 Exposures secured by mortgages on immovable property 1. An exposure or any part of an exposure fully secured by mortgage on immovable property shall be assigned a risk weight of 100 %, where the conditions under Article 125 and Article or 126 are not met, except for any part of the exposure which is assigned to another exposure class. The part of the exposure that exceeds the mortgage value of the immovable property shall be assigned the risk weight applicable to the unsecured exposures of the counterparty involved. The part of an exposure treated as fully secured by immovable property shall not be higher than the pledged amount of the market value or in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, the mortgage lending value of the property in question. 2. Based on the data collected under Article 101, and any other relevant indicators, the competent authorities shall periodically, and at least annually, assess whether the risk-weight of 35 % for exposures secured by mortgages on residential property referred to in Article 125 and the risk weight of 50 % for exposures secured on commercial immovable property referred to in Article 126 located in their territory are appropriately based on: (a) the loss experience of exposures secured by immovable property; (b) forward-looking immovable property markets developments; Competent authorities may set a higher risk weight or stricter criteria than those set out in Article 125(2) and Article 126(2), where appropriate, on the basis of financial stability considerations. For exposures secured by mortgages on residential property, the competent authority shall set the risk weight at a percentage from 35 % through 150 %, For exposures secured on commercial immovable property, the competent authority shall set the risk weight at a percentage from 50 % through 150 %, Within these ranges, the higher risk weight shall be set based on loss experience and taking into account forward-looking markets developments and financial stability considerations. Where the assessment demonstrates that the risk weights set out in Article 125(2) and Article 126(2) do not reflect the actual risks related to one or more property segments of such exposures, fully secured by mortgages on residential property or on commercial immovable property located in one or more parts of its territory, the competent authorities shall set, for those property segments of exposures, a higher risk weight corresponding to the actual risks. The competent authorities shall consult EBA on the adjustments to the risk weights and criteria applied, which will be calculated in accordance with the criteria set out in this paragraph as specified by the regulatory technical standards referred to in paragraph 4 of this Article. EBA shall publish the risk weights and criteria that the competent authorities set for exposures referred to in Articles 125, 126 and 199. 199(1)(a). 3. When competent authorities set a higher risk weight or stricter criteria, institutions shall have a 6-month transitional period to apply the new risk weight. 4. EBA shall develop draft regulatory technical standards to specify: (a) the rigorous criteria for the assessment of the mortgage lending value referred to in paragraph 1; (b) the conditions referred to in paragraph 2 that competent authorities shall take into account when determining higher risk-weights, in particular the term of financial stability considerations. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 5. The institutions of one Member State shall apply the risk-weights and criteria that have been determined by the competent authorities of another Member State to exposures secured by mortgages on commercial and residential immovable property located in that Member State.

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Article 125 Exposures fully and completely secured by mortgages on residential property 1. Unless otherwise decided by the competent authorities in accordance with Article 124(2), exposures fully and completely secured by mortgages on residential property shall be treated as follows: (a) exposures or any part of an exposure fully and completely secured by mortgages on residential property which is or shall be occupied or let by the owner, or the beneficial owner in the case of personal investment companies, shall be assigned a risk weight of 35 %; (b) exposures to a tenant under a property leasing transaction concerning residential property under which the institution is the lessor and the tenant has an option to purchase, shall be assigned a risk weight of 35 % provided that the exposure of the institution is fully and completely secured by its ownership of the property. 2. Institutions shall consider an exposure or any part of an exposure as fully and completely secured for the purposes of paragraph 1 only if the following conditions are met: (a) the value of the property shall not materially depend upon the credit quality of the borrower. Institutions may exclude situations where purely macro-economic factors affect both the value of the property and the performance of the borrower from their determination of the materiality of such dependence; (b) the risk of the borrower shall not materially depend upon the performance of the underlying property or project, but on the underlying capacity of the borrower to repay the debt from other sources, and as a consequence, the repayment of the facility shall not materially depend on any cash flow generated by the underlying property serving as collateral. For those other sources, institutions shall determine maximum loan-to-income ratios as part of their lending policy and obtain suitable evidence of the relevant income when granting the loan. loan; (c) the requirements set out in Article 208 and the valuation rules set out in Article 229(1) are met; (d) unless otherwise determined under Article 124(2), the part of the loan to which the 35 % risk weight is assigned does not exceed 80 % of the market value of the property in question or 80 % of the mortgage lending value of the property in question in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions. 3. Institutions may derogate from point (b) of paragraph 2 for exposures fully and completely secured by mortgages on residential property which is situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established residential property market is present in that territory with loss rates which do not exceed the following limits: (a) losses stemming from lending collateralised by residential property up to 80 % of the market value or 80 % of the mortgage lending value value, unless otherwise decided under Article 124(2) 124(2), do not exceed 0,3 % of the outstanding loans collateralised by residential property in any given year; (b) overall losses stemming from lending collateralised by residential property do not exceed 0,5 % of the outstanding loans collateralised by residential property in any given year. 4. If Where either of the limits referred to in paragraph 3 is not satisfied in a given year, the eligibility to use paragraph 3 shall cease and the condition contained in point (b) of paragraph 2 shall apply until the conditions in paragraph 3 are satisfied in a subsequent year.

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Article 126 Exposures fully and completely secured by mortgages on commercial immovable property 1. Unless otherwise decided by the competent authorities in accordance with Article 124(2), exposures fully and completely secured by mortgages on commercial immovable property shall be treated as follows: (a) exposures or any part of an exposure fully and completely secured by mortgages on offices or other commercial premises may be assigned a risk weight of 50 %; (b) exposures related to property leasing transactions concerning offices or other commercial premises under which the institution is the lessor and the tenant has an option to purchase may be assigned a risk weight of 50 % provided that the exposure of the institution is fully and completely secured by its ownership of the property. 2. Institutions shall consider an exposure or any part of an exposure as fully and completely secured for the purposes of paragraph 1 only if the following conditions are met: (a) the value of the property shall not materially depend upon the credit quality of the borrower. Institutions may exclude situations where purely macro-economic factors affect both the value of the property and the performance of the borrower from their determination of the materiality of such dependence; (b) the risk of the borrower shall not materially depend upon the performance of the underlying property or project, but on the underlying capacity of the borrower to repay the debt from other sources, and as a consequence, the repayment of the facility shall not materially depend on any cash flow generated by the underlying property serving as collateral; (c) the requirements set out in Article 208 and the valuation rules set out in Article 229(1) are met; (d) The the 50 % risk weight unless otherwise provided under Article 124(2) shall be assigned to the part of the loan that does not exceed 50 % of the market value of the property or 60 % of the mortgage lending value unless otherwise provided under Article 124(2) of the property in question in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions. 3. Institutions may derogate from point (b) of paragraph 2 for exposures fully and completely secured by mortgages on commercial immovable property which is situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established commercial immovable property market is present in that territory with loss rates which do not exceed the following limits: (a) losses stemming from lending collateralised by commercial immovable property up to 50 % of the market value or 60 % of the mortgage lending value, unless otherwise determined under Article 124(2), do not exceed 0,3 % of the outstanding loans collateralised by commercial immovable property; (b) overall losses stemming from lending collateralised by commercial immovable property do not exceed 0,5 % of the outstanding loans collateralised by commercial immovable property. 4. Where either of the limits referred to in paragraph 3 is not satisfied in a given year, the eligibility to use paragraph 3 shall cease and the condition contained in point (b) of paragraph 2 shall apply until the conditions in paragraph 3 are satisfied in a subsequent year.

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Article 128 Items associated with particular high risk 1. Institutions shall assign a 150 % risk weight to exposures, including exposures in the form of shares or units in a CIU that are associated with particularly high risks, where appropriate. 2. Exposures with particularly high risks shall include any of the following exposures: (a) investments in venture capital firms; (b) investments in AIFs as defined in Article 4(1)(a) of Directive 2011/61/EU except where the mandate of the fund does not allow a leverage higher than that required under Article 51(3) of Directive 2009/65/EC; (c) investments in private equity; (d) speculative immovable property financing. 3. When assessing whether an exposure other than exposures referred to in the paragraph 2 is associated with particularly high risks, institutions shall take into account the following risk characteristics: (a) there is a high risk of loss as a result of a default of the obligor; (b) it is impossible to assess adequately whether the exposure falls under point (a). EBA shall issue guidelines specifying which types of exposures are associated with particularly high risk and under which circumstances. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.

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Article 129 Exposures in the form of covered bonds 1. To be eligible for the preferential treatment set out in paragraphs 4 and 5, bonds as referred to in Article 52(4) of Directive 2009/65/EC (covered bonds) shall meet the requirements set out in paragraph 7 and shall be collateralised by any of the following eligible assets: (a) exposures to or guaranteed by central governments, the ESCB central banks, public sector entities, regional governments or local authorities in the Union; (b) exposures to or guaranteed by third country central governments, third-country central banks, multilateral development banks, international organisations that qualify for the credit quality step 1 as … 771 unchanged words … units qualify for the credit quality step 1 as set out in this Chapter and that such units do not exceed 10 % of the nominal amount of the outstanding issue. Loans secured by commercial immovable property are eligible where the Loan loan to Value value ratio of 60 % is exceeded up to a maximum level of 70 % if the value of the total assets pledged as collateral for the covered bonds exceed the nominal amount outstanding on the covered bond by at least 10 %, and the bondholders' claim meets the legal certainty requirements set out in Chapter 4. The bondholders' claim shall take priority over all other claims on the collateral; (g) loans secured by maritime liens on ships up to the difference between 60 % of the value of the pledged ship and the value of any prior maritime liens. For the purposes of points (c), (d)(ii) and (f)(ii) of the first subparagraph, exposures caused by transmission and management of payments of the obligors of, or liquidation proceeds in respect of, loans secured by pledged properties of the senior units or debt securities shall not be comprised in calculating the limits referred to in those points. The competent authorities may, after consulting EBA, partly waive the application of point (c) of the first subparagraph and allow credit quality step 2 for up to 10 % of the total exposure of the nominal amount of outstanding covered bonds of the issuing institution, provided that significant potential concentration problems in the Member States concerned can be documented due to the application of the credit quality step 1 requirement referred to in that point. 2. The situations referred to in points (a) to (f) of paragraph 1 shall also include collateral that is exclusively restricted by legislation to the protection of the bond-holders against losses. 3. Institutions shall for immovable property collateralising covered bonds meet the requirements set out in Article 208 and the valuation rules set out in Article 229(1). 4. Covered bonds for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight according to in accordance with Table 6a which corresponds to the credit assessment of the ECAI in accordance with Article 136. Table 6a Credit quality step 1 2 3 4 5 6 Risk weight 10 % 20 % 20 % 50 % 50 % 100 % 5. Covered bonds for which a credit assessment by a nominated ECAI is not available shall be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the institution which issues them. The following correspondence between risk weights shall apply: (a) if the exposures to the institution are assigned a risk weight of 20 %, the covered bond shall be assigned a risk weight of 10 %; (b) if the exposures to the institution are assigned a risk weight of 50 %, the covered bond shall be assigned a risk weight of 20 %; (c) if the exposures to the institution are assigned a risk weight of 100 %, the covered bond shall be assigned a risk weight of 50 %; (d) if the exposures to the institution are assigned a risk weight of 150 %, the covered bond shall be assigned a risk weight of 100 %. 6. Covered bonds issued before 31 December 2007 are not subject to the requirements of paragraphs 1 and 3. They are eligible for the preferential treatment under paragraphs 4 and 5 until their maturity. 7. Exposures in the form of covered bonds are eligible for preferential treatment, provided that the institution investing in the covered bonds can demonstrate to the competent authorities that: (a) it receives portfolio information at least on: (i) the value of the cover pool and outstanding covered bonds; (ii) the geographical distribution and type of cover assets, loan size, interest rate and currency risks; (iii) the maturity structure of cover assets and covered bonds; and (iv) the percentage of loans more than ninety 90 days past due; (b) the issuer makes the information referred to in point (a) available to the institution at least semi annually. semi-annually.

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Article 130 Items representing securitisation positions Risk weighted Risk-weighted exposure amounts for securitisation positions shall be determined in accordance with Chapter 5.

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Article 131 Exposures to institutions and corporates with a short-term credit assessment Exposures to institutions and exposures to corporates for which a short-term credit assessment by a nominated ECAI is available shall be assigned a risk weight according to in accordance with Table 7 which corresponds to the credit assessment of the ECAI in accordance with Article 136. Table 7 Credit Quality Step 1 2 3 4 5 6 Risk weight 20 % 50 % 100 % 150 % 150 % 150 %

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Article 132 Exposures in the form of units or shares in CIUs 1. Exposures in the form of units or shares in CIUs shall be assigned a risk weight of 100 %, unless the institution applies the credit risk assessment method under paragraph 2, or the look-through approach in paragraph 4 or the average risk weight approach under paragraph 5 when the conditions in paragraph 3 are met. 2. Exposures in the form of units or shares in CIUs for which a credit assessment by a nominated ECAI is available shall be assigned a risk weight according to in accordance with Table 8 which corresponds to the credit assessment of the ECAI in accordance with Article 136. Table 8 Credit quality step 1 2 3 4 5 6 Risk weight 20 % 50 % 100 % 100 % 150 % 150 % 3. Institutions may … 488 unchanged words … not covered by point (a), the CIU management company, provided that the CIU management company meets the criteria set out in paragraph 3(a). The correctness of the calculation referred to in the first subparagraph shall be confirmed by an external auditor.

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Article 134 Other items 1. Tangible assets within the meaning of item 10 under the heading 'Assets' in Article 4(10) 4 of Directive 86/635/EEC shall be assigned a risk weight of 100 %. 2. Prepayments and accrued income for which an institution is unable to determine the counterparty in accordance with Directive 86/635/EEC, shall be assigned a risk weight of 100 %. 3. … 341 unchanged words … payment obligation may be taken into account as unfunded credit protection under Chapter 4. These exposures shall be assigned to the relevant exposure class in accordance with Article 112. When the exposure is a residual value of leased assets, the risk weighted risk-weighted exposure amounts shall be calculated as follows: 1/t * 100 % * residual value, where t is the greater of 1 and the nearest number of whole years of the lease remaining.

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Article 137 Use of credit assessments by Export Credit Agencies export credit agencies 1. For the purpose of Article 114, institutions may use credit assessments of an Export Credit Agency that the institution has nominated, if either of the following conditions is met: (a) it is a consensus risk score from Export Credit Agencies export credit agencies participating in the OECD Arrangement on Guidelines for Officially Supported Export Credits; (b) the Export Credit Agency publishes its credit assessments, and the Export Credit Agency subscribes to the OECD agreed methodology, and the credit assessment is associated with one of the eight minimum export insurance premiums that the OECD agreed methodology establishes. An institution may revoke its nomination of an Export Credit Agency. An institution shall substantiate the revocation if there are concrete indications that the intention underlying the revocation is to reduce the capital adequacy requirements. 2. Exposures for which a credit assessment by an Export Credit Agency is recognised for risk weighting purposes shall be assigned a risk weight according to in accordance with Table 9. Table 9 MEIP 0 1 2 3 4 5 6 7 Risk weight 0 % 0 % 20 % 50 % 100 % 100 % 100 % 150 %

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Article 139 Issuer and issue credit assessment 1. Where a credit assessment exists for a specific issuing programme or facility to which the item constituting the exposure belongs, this credit assessment shall be used to determine the risk weight to be assigned to that item. 2. Where no directly applicable credit assessment exists for a certain item, but a credit assessment exists for a specific issuing programme or facility to which the item constituting the exposure does not belong or a general credit assessment exists for the issuer, then that credit assessment shall be used in either of the following cases: (a) it produces a higher risk weight than would other wise otherwise be the case and the exposure in question ranks pari passu or junior in all respects to the specific issuing program or facility or to senior unsecured exposures of that issuer, as relevant; (b) it produces a lower risk weight and the exposure in question ranks pari passu or senior in all respects to the specific issuing programme or facility or to senior unsecured exposures of that issuer, as relevant. In all other cases, the exposure shall be treated as unrated. 3. Paragraphs 1 and 2 are not to prevent the application of Article 129. 4. Credit assessments for issuers within a corporate group cannot be used as credit assessment of another issuer within the same corporate group.

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Article 142 Definitions 1. For the purposes of this Chapter, the following definitions shall apply: (1) rating system means all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to rating grades or pools, and the quantification of default and loss estimates that have been developed for a certain type of exposures; (2) type of exposures means a group of homogeneously managed exposures which are formed by a certain type of facilities and which may be limited to a single entity or a single sub-set of entities within a group provided that the same type of exposures is managed differently in other entities of the group; (3) business unit means any separate organisational or legal entities, business lines, geographical locations; (4) large financial sector entity means any financial sector entity, other than those referred to in point (27)(j) of Article 4(1), entity which meets the following conditions: (a) its total assets, calculated on an individual or consolidated basis, are greater than or equal to a EUR 70 billion threshold, using the most recent audited financial statement or consolidated financial statement in order to determine asset size; and (b) it is, or one of its subsidiaries is, subject to prudential regulation in the Union or to the laws of a third country which applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union; (5) unregulated financial sector entity means any other an entity that is not a regulated financial sector entity but that performs, as its main business, one or more of the activities listed in Annex I to Directive 2013/36/EU or listed in Annex I to Directive 2004/39/EC; (6) obligor grade means a risk category within the obligor rating scale of a rating system, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of probability of default (PD) are derived; (7) facility grade means a risk category within a rating system's facility scale, to which exposures are assigned on the basis of a specified and distinct set of rating criteria criteria, from which own estimates of LGD are derived; (8) servicer means an entity that manages a pool of purchased receivables or the underlying credit exposures on a day-to-day basis. 2. For the purposes of point (4)(b) of paragraph 1 of this Article, the Commission may adopt, by way of implementing acts, and subject to the examination procedure referred to in Article 464(2), a decision as to whether a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the Union. In the absence of such a decision, until 1 January 2015, institutions may continue to apply the treatment set out in this paragraph to a third country where the relevant competent authorities had approved the third country as eligible for this treatment before 1 January 2014.

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Article 143 Permission to use the IRB Approach 1. Where the conditions set out in this Chapter are met, the competent authority shall permit institutions to calculate their risk-weighted exposure amounts using the Internal Ratings Based Approach (hereinafter referred to as IRB Approach). 2. Prior permission to the use the IRB Approach, including own estimates of LGD and conversion factors, shall be required for each exposure class and for each rating system and internal model models approaches to equity exposures and for each approach to estimating LGDs and conversion factors used. 3. Institutions shall obtain the prior permission of the competent authorities for the following: (a) material changes to the range of application of a rating system or an internal models approach to equity exposures that the institution has received permission to use; (b) material changes to a rating system or an internal models approach to equity exposures that the institution has received permission to use. The range of application of a rating system shall comprise all exposures of the relevant type of exposure for which that rating system was developed. 4. Institutions shall notify the competent authorities of all changes to rating systems and internal models approaches to equity exposures. 5. EBA shall develop draft regulatory technical standards to specify the conditions for assessing the materiality of the use of an existing rating system for other additional exposures not already covered by that rating system and changes to rating systems or internal models approaches to equity exposures under the IRB Approach. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 145 Prior experience of using IRB approaches 1. An institution applying to use the IRB Approach shall have been using for the IRB exposure classes in question rating systems that were broadly in line with the requirements set out in Section 6 for internal risk measurement and management purposes for at least three years prior to its qualification to use the IRB Approach. 2. An institution applying for the use of own estimates of LGDs and conversion factors shall demonstrate to the satisfaction of the competent authorities that it has been estimating and employing own estimates of LGDs and conversion factors in a manner that was is broadly consistent with the requirements for use of own estimates of those parameters set out in Section 6 for at least three years prior to qualification to use own estimates of LGDs and conversion factors. 3. Where the institution extends the use of the IRB Approach subsequent to its initial permission, the experience of the institution shall be sufficient to satisfy the requirements of paragraphs 1 and 2 in respect of the additional exposures covered. If the use of rating systems is extended to exposures that are significantly different to from the scope of the existing coverage, such that the existing experience cannot be reasonably assumed to be sufficient to meet the requirements of these provisions in respect of the additional exposures, then the requirements of paragraphs 1 and 2 shall apply separately for the additional exposures.

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Article 147 Methodology to assign exposures to exposure to exposures classes 1. The methodology used by the institution for assigning exposures to different exposure classes shall be appropriate and consistent over time. 2. Each exposure shall be assigned to one of the following exposure classes: (a) exposures to central governments and central banks; (b) exposures to on institutions; (c) exposures to corporates; (d) retail exposures; (e) equity exposures; (f) items representing securitisation positions; (g) other non credit-obligation assets. 3. The following exposures shall be assigned to the class laid down in point (a) of paragraph 2: (a) exposures to regional governments, local authorities or public sector entities which are treated as exposures to central governments under Articles 115 and 116; (b) exposures to multilateral development banks referred to in Article 117(2); (c) exposures to International Organisations which attract a risk weight of 0 % under Article 118. 4. The following exposures shall be assigned to the class laid down in point (b) of paragraph 2: (a) exposures to regional governments and local authorities which are not treated as exposures to central governments in accordance with Article 115(2) and (4); (b) exposures to Public Sector Entities public sector entities which are not treated as exposures to central governments in accordance with Article 116(4); (c) exposures to multilateral development banks which are not assigned a 0 % risk weight under Article 117; and (d) exposures to financial institutions which are treated as exposures to institutions in accordance with Article 119(5). 5. To be eligible for the retail exposure class laid down in point (d) of paragraph 2, exposures shall meet the following criteria: (a) they shall be to one of the following: (i) exposures to one or more natural persons; (ii) exposures to an SME, provided in that case that the total amount owed to the institution and parent undertakings and its subsidiaries, including any past due exposure, by the … 367 unchanged words … basket would be assigned, except if the individual exposures in the basket would be assigned to various exposure classes in which case the exposure shall be assigned to the corporates exposure class laid down in point (c) of paragraph 2.

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Article 148 Conditions for implementing the IRB Approach across different classes of exposure and business units 1. Institutions and any parent undertaking and its subsidiaries shall implement the IRB Approach for all exposures, unless they have received the permission of the competent authorities to permanently use the Standardised Approach in accordance with Article 150. Subject to the prior permission of the competent authorities, implementation may be carried out sequentially across the different exposure classes, classes referred to in Article 147, 147 within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk weights for exposures to corporates, institutions, and central governments and central banks. In the case of the retail exposure class referred to in Article 147(5), implementation may be carried out sequentially across the categories of exposures to which the different correlations in Article 154 correspond. 2. Competent authorities shall determine the time period over which an institution and any parent undertaking and its subsidiaries shall be required to implement the IRB Approach for all exposures. This time period shall be one that competent authorities consider to be appropriate on the basis of the nature and scale of the activities of the institutions, or any parent undertaking and its subsidiaries, and the number and nature of rating systems to be implemented. 3. Institutions shall carry out implementation of the IRB Approach according to in accordance with conditions determined by the competent authorities. The competent authority shall design those conditions such that they ensure that the flexibility under paragraph 1 is not used selectively for the purposes of achieving reduced own funds requirements in respect of those exposure classes or business units that are yet to be included in the IRB Approach or in the use of own estimates of LGDs and conversion factors. 4. Institutions that have begun to use the IRB Approach only after 1 January 2013 or that have until that date been required by the competent authorities to be able to calculate their capital requirements using the Standardised Approach shall retain their ability to calculate capital requirements using the Standardised Approach for all their exposures during the implementation period until the competent authorities notify them that they are satisfied that the implementation of the IRB Approach will be completed with reasonable certainty. 5. An institution that is permitted to use the IRB Approach for any exposure class shall use the IRB Approach for the equity exposure class laid down in point (e) of Article 147(2), except where that institution is permitted to apply the Standardised Approach for equity exposures pursuant to Article 150 and for the other non credit-obligation assets exposure class laid down in point (g) of Article 147(2). 6. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities shall determine the appropriate nature and timing of the sequential roll out of the IRB Approach across exposure classes referred to in paragraph 3. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 150 Conditions for permanent partial use 1. Where institutions have received the prior permission of the competent authorities, institutions permitted to use the IRB Approach in the calculation of risk-weighted exposure amounts and expected loss amounts for one or more exposure classes may apply the Standardised Approach for the following exposures: (a) the exposure class laid down in Article 147(2)(a), where the number of material counterparties is limited and it would be unduly burdensome for the institution to implement a rating system for these counterparties; (b) the exposure class laid down in Article 147(2)(b), where the number of material counterparties is limited and it would be unduly burdensome for the institution to implement a rating system for these counterparties; (c) exposures in non-significant business units as well as exposure classes or types of exposures that are immaterial in terms of size and perceived risk profile; (d) exposures to central governments and central banks of the Member States and their regional governments, local authorities, administrative bodies and public sector entities provided: provided that: (i) there is no difference in risk between the exposures to that central government and central bank and those other exposures because of specific public arrangements; and (ii) exposures to the central government and central bank are assigned a 0 % risk weight under Article 114(2), 114(2) or (4) or (5); Article 495(2); (e) exposures of an institution to a counterparty which is its parent undertaking, its subsidiary or a subsidiary of its parent undertaking provided that the counterparty is an institution or a financial holding company, mixed financial holding company, financial institution, asset management company or ancillary services undertaking subject to appropriate prudential requirements or an undertaking linked by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC; (f) exposures between institutions which meet the requirements set out in Article 113(7); (g) equity exposures to entities whose credit obligations are assigned a 0 % risk weight under Chapter 2 including those publicly sponsored entities where a 0 % risk weight can be applied; (h) equity exposures incurred under legislative programmes to promote specified sectors of the economy that provide significant subsidies for the investment to the institution and involve some form of government oversight and restrictions on the equity investments where such exposures may in aggregate be excluded from the IRB Approach only up to a limit of 10 % of own funds; (i) the exposures identified in Article 119(4) meeting the conditions specified therein; (j) State and State-reinsured guarantees referred to in Article 215(2). The competent authorities shall permit the application of Standardised Approach for equity exposures referred to in points (g) and (h) of the first subparagraph which have been permitted for that treatment in other Member States. EBA shall publish on its website and regularly update a list with of the exposures referred to in those points (to to be treated according to the Standardised Approach. 2. For the purposes of paragraph 1, the equity exposure class of an institution shall be material if their aggregate value, excluding equity exposures incurred under legislative programmes as referred to in point (g) (h) of paragraph 1, exceeds on average over the preceding year 10 % of the own funds of the institution. Where the number of those equity exposures is less than 10 individual holdings, that threshold shall be 5 % of the own funds of the institution. 3. EBA shall develop draft regulatory technical standards to determine the conditions of application of points (a), (b) and (c) of paragraph 1. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 4. EBA shall issue guidelines on the application of point (d) of paragraph 1 in 2018, recommending limits in terms of a percentage of total balance sheet and/or risk weighted assets to be calculated in accordance with the Standardised Approach. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.

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Article 151 Treatment by exposure class 1. The risk-weighted exposure amounts for credit risk for exposures belonging to one of the exposure classes referred to in points (a) to (e) and (g) of 147(2) shall, unless deducted from own funds, be calculated in accordance with Sub-section 2 except where those exposures are deducted from Common Equity Tier 1 items, Additional Tier 1 items or Tier 2 items. 2. The risk-weighted exposure amounts for dilution risk for purchased receivables shall be calculated in accordance with Article 157. Where an institution has full recourse to the seller of purchased receivables for default risk and for dilution risk, the provisions of this Article and Article 152 and Article 158(1) to (4) in relation to purchased receivables shall not apply and the exposure shall be treated as a collateralised exposure. 3. The calculation of risk-weighted exposure amounts for credit risk and dilution risk shall be based on the relevant parameters associated with the exposure in question. These shall include PD, LGD, maturity (hereinafter referred to as M) and exposure value of the exposure. PD and LGD may be considered separately or jointly, in accordance with Section 4. 4. Institutions shall calculate risk-weighted exposure amounts for credit risk for all exposures belonging to the exposure class equity referred to in point (e) of Article 147(2) in accordance with Article 155. Institutions may use the approaches set out in Article 155(3) and (4) where they have received the prior permission of the competent authorities. Competent authorities shall grant permission for an institution to use the internal models approach set out in Article 155(4) provided that the institution meets the requirements set out in Sub-section 4 of Section 6. 5. The calculation of risk weighted exposure amounts for credit risk for specialised lending exposures may be calculated in accordance with Article 153(5). 6. For exposures belonging to the exposure classes referred to in points (a) to (d) of Article 147(2), institutions shall provide their own estimates of PDs in accordance with Article 143 and Section 6. 7. For exposures belonging to the exposure class referred to in point (d) of Article 147(2), institutions shall provide own estimates of LGDs and conversion factors in accordance with Article 143 and Section 6. 8. For exposures belonging to the exposure classes referred to in points (a) to (c) of Article 147(2), institutions shall apply the LGD values set out in Article 161(1), and the conversion factors set out in Article 166(8)(a) to (d), unless it has been permitted to use its own estimates of LGDs and conversion factors for those exposure classes in accordance with paragraph 9. 9. For all exposures belonging to the exposure classes referred to in points (a) to (c) of Article 1472), 147(2), the competent authority shall permit institutions to use own estimates of LGDs and conversion factors in accordance with Article 143 and Section 6. 10. The risk-weighted exposure amounts for securitised exposures and for exposures belonging to the exposure class referred to in point (f) of Article 147(2) shall be calculated in accordance with Chapter 5.

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Article 152 Treatment of exposures in the form of units or shares in CIUs 1. Where exposures in the form of units or shares in CIUs meet the criteria set out in Article 132(3) and the institution is aware of all or parts of the underlying exposures of the CIU, the institution shall look through to those underlying exposures in order to calculate risk-weighted exposure amounts and expected loss amounts in accordance with the methods set out in this Chapter. Where an underlying exposure of the CIU is itself another exposure in the form of units or shares in another CIU, the first institution shall also look through to the underlying exposures of the other CIU. 2. Where the institution does not meet the conditions for using the methods set out in this Chapter for all or parts of the underlying exposures of the CIU, risk weighted risk-weighted exposure amounts and expected loss amounts shall be calculated in accordance with the following approaches: (a) for exposures belonging to the equity exposure class referred to in Article 147(2)(e), institutions shall apply the simple risk-weight approach set out in Article 155(2); (b) for all other underlying exposures referred to in paragraph 1, institutions shall apply the Standardised Approach laid down in Chapter 2, subject to the following: (i) for exposures subject to a specific risk weight for unrated exposures or subject to the credit quality step yielding the highest risk weight for a given exposure class, the risk weight shall be multiplied by a factor of two but shall not be higher than 1250 %; (ii) for all other exposures, the risk weight shall be multiplied by a factor of 1,1 and shall be subject to a minimum of 5 %. Where, for the purposes of point (a), the institution is unable to differentiate between private equity, exchange-traded and other equity exposures, it shall treat the exposures concerned as other equity exposures. Where those exposures, taken together with the institution's direct exposures in that exposure class, are not material within the meaning of Article 150(2), Article 150(1) may be applied subject to the permission of the competent authorities. 3. Where exposures in the form of units or shares in a CIU do not meet the criteria set out in Article 132(3), or where the institution is not aware of all of the underlying exposures of the CIU or of its the underlying exposures of a unit or share in a CIU which is itself an underlying exposure in of the form of units or shares in a CIU, the institution shall look through to those underlying exposures and calculate risk-weighted exposure amounts and expected loss amounts in accordance with the simple risk-weight approach set out in Article 155(2). Where the institution is unable to differentiate between private equity, exchange-traded and other equity exposures, it shall treat the exposures concerned as other equity exposures. It shall assign non equity exposures to the other equity class. 4. Alternatively to the method described in paragraph 3, institutions may calculate themselves or may rely on the following third parties to calculate and report the average risk weighted risk-weighted exposure amounts based on the CIU's underlying exposures in accordance with the approaches referred to in points (a) and (b) of paragraph 2 for the following: (a) the depository institution or financial institution of the CIU provided that the CIU exclusively invests in securities and deposits all securities at this depository institution or financial institution; (b) for other CIUs, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3)(a). The correctness of the calculation shall be confirmed by an external auditor. 5. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities may permit institutions to use the Standardised Approach referred to in Article 150(1) under point (b) of paragraph 2 of this Article. EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 153 Risk weighted Risk-weighted exposure amounts for exposures to corporates, institutions and central governments and central banks 1. Subject to the application of the specific treatments laid down in paragraphs 2, 3 and 4, the risk weighted risk-weighted exposure amounts for exposures to corporates, institutions and central governments and central banks shall be calculated according to the following formulae:Risk formulae: Risk – weighted exposure amount = RW · exposure value where the risk weight RW is defined as (i) if PD = 0, RW shall be 0; (ii) if PD = 1, i.e., for defaulted exposures: where institutions apply the LGD values set out in Article 161(1), RW shall be 0; where institutions use own estimates of LGDs, RW shall be RW = max 0,12.5 · LGD – ELBE; where the expected loss best estimate (hereinafter referred to as ELBE) shall be the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h); (iii) if 0 < PD < 1 RW = LGD · N11 – R · GPD + R1 – R · G0.999 – LGD · PD · 1 + M – 2,5 · b1 – 1,5 · b · 12,5 · 1,06 where: N(x) the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x); G(Z) denotes the inverse cumulative distribution function for a standard normal random variable (i.e. the value x such that N(x) = z) R denotes the coefficient of correlation, is defined asR = 0.12 · 1 – e– 50 · PD1 – e– 50 + 0.24 · 1 – 1 – e– 50 · PD1 – e– 50 b the maturity adjustment factor, which is defined as b = 0.11852 – 0.05478 · lnPD2. 2. For all exposures to large financial sector entities, the co-efficient of correlation of paragraph 1(iii) is multiplied by 1,25. For all exposures to unregulated financial sector entities, the coefficients of correlation set out in paragraph 1(iii) and paragraph 4, as relevant, are multiplied by 1,25. 3. The risk weighted risk-weighted exposure amount for each exposure which meets the requirements set out in Articles 202 and 217 may be adjusted according to in accordance with the following formula:Risk formula: Risk – weighted exposure amount = RW · exposure value · 0.15 (0.15 + 160 · PDpp PDpp) where: PDpp PD of the protection provider. RW shall be calculated using the relevant risk weight formula set out in point 1 for the exposure, the PD of the obligor and the LGD of a comparable direct exposure to the protection provider. The maturity factor (b) shall be calculated using the lower of the PD of the protection provider and the PD of the obligor. 4. For exposures to companies where the total annual sales for the consolidated group of which the firm is a part is less than EUR 50 million, institutions may use the following correlation formula in paragraph 1 (iii) for the calculation of risk weights for corporate exposures. In this formula S is expressed as total annual sales in millions of Euros euro with EUR 5 million ≤ S ≤ EUR 50 million. Reported sales of less than EUR 5 million shall be treated as if they were equivalent to EUR 5 million. For purchased receivables the total annual sales shall be the weighted average by individual exposures of the pool.R = 0.12 · 1 – e– 50 · PD1 – e– 50 + 0.24 · 1 – 1 – e– 50 · PD1 – e– 50 – 0.04 · 1 – minmax5,S,50 – 545 Institutions shall substitute total assets of the consolidated group for total annual sales when total annual sales are not a meaningful indicator of firm size and total assets are a more meaningful indicator than total annual sales. 5. For specialised lending exposures in respect of which an institution is not able to estimate PDs or the institutions' PD estimates do not meet the requirements set out in Section 6, the institution shall assign risk weights to these exposures according to in accordance with Table 1, as follows: Table 1 Remaining Maturity Category 1 Category 2 Category 3 Category 4 Category 5 Less than 2,5 years 50 % 70 % 115 % 250 % 0 % Equal or more than 2,5 years 70 % 90 % 115 % 250 % 0 % In assigning risk weights to specialised lending exposures institutions shall take into account the following factors: financial strength, political and legal environment, transaction and/or asset characteristics, strength of the sponsor and developer, including any public private partnership income stream, and security package. 6. For their purchased corporate receivables institutions shall comply with the requirements set out in Article 184. For purchased corporate receivables that comply in addition with the conditions set out in Article 154(5), and where it would be unduly burdensome for an institution to use the risk quantification standards for corporate exposures as set out in Section 6 for these receivables, the risk quantification standards for retail exposures as set out in Section 6 may be used. 7. For purchased corporate receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for default losses, dilution losses, or both, may be treated as first-loss positions under the IRB securitisation framework. 8. Where an institution provides credit protection for a number of exposures under terms that the nth default among the exposures shall trigger payment and that this credit event shall terminate the contract, if the product has an external credit assessment from an ECAI the risk weights set out in Chapter 5 shall be applied. If the product is not rated by an ECAI, the risk weights of the exposures included in the basket will be aggregated, excluding n-1 exposures where the sum of the expected loss amount multiplied by 12,5 and the risk weighted risk-weighted exposure amount shall not exceed the nominal amount of the protection provided by the credit derivative multiplied by 12,5. The n-1 exposures to be excluded from the aggregation shall be determined on the basis that they shall include those exposures each of which produces a lower risk-weighted exposure amount than the risk-weighted exposure amount of any of the exposures included in the aggregation. A 1250 % risk weight shall apply to positions in a basket for which an institution cannot determine the risk-weight under the IRB Approach. 9. EBA shall develop draft regulatory technical standards to specify how institutions shall take into account the factors referred to in the second subparagraph of paragraph 5 when assigning risk weights to specialised lending exposures. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 154 Risk weighted Risk-weighted exposure amounts for retail exposures 1. The risk-weighted exposure amounts for retail exposures shall be calculated according to in accordance with the following formulae:Risk formulae: Risk – weighted exposure amount = RW · exposure value where the risk weight RW is defined as follows: (i) if PD = 1, i.e., for defaulted exposures, RW shall be RW = max 0,12.5 · LGD – ELBE; where ELBE shall be the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h); (ii) if 0 < PD < 1, i.e., for any possible value for PD other than under (i) RW = LGD · N11 – R · GPD + R1 – R · G0.999 – LGD · PD · 12,5 · 1,06 where: N(x) the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x); G(Z) the inverse cumulative distribution function for a standard normal random variable (i.e. the value x such that N(x) = z); R the coefficient of correlation defined asR = 0.03 · 1 – e– 35 · PD1 – e– 35 + 0.16 · 1 – 1 – e– 35 · PD1 – e– 35 2. The risk weighted risk-weighted exposure amount for each exposure to an SME as referred to in Article 147(5) which meets the requirements set out in Articles 202 and 217 may be calculated in accordance with Article 153(3). 3. For retail exposures secured by immovable property collateral a coefficient of correlation R of 0,15 shall replace the figure produced by the correlation formula in paragraph 1. 4. For qualifying revolving retail exposures in accordance with points (a) to (e), a coefficient of correlation R of 0,04 shall replace the figure produced by the correlation formula in paragraph 1. Exposures shall qualify as qualifying revolving retail exposures if they meet the following conditions: (a) the exposures are to individuals; (b) the exposures are revolving, unsecured, and to the extent they are not drawn immediately and unconditionally, cancellable by the institution. In this context revolving exposures are defined as those where customers' outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the institution. Undrawn commitments may be considered as unconditionally cancellable if the terms permit the institution to cancel them to the full extent allowable under consumer protection and related legislation; (c) the maximum exposure to a single individual in the sub-portfolio is EUR 100000 or less; (d) the use of the correlation of this paragraph is limited to portfolios that have exhibited low volatility of loss rates, relative to their average level of loss rates, especially within the low PD bands; (e) the treatment as a qualifying revolving retail exposure shall be consistent with the underlying risk characteristics of the sub-portfolio. By way of derogation from point (b), the requirement to be unsecured does not apply in respect of collateralised credit facilities linked to a wage account. In this case amounts recovered from the collateral shall not be taken into account in the LGD estimate. Competent authorities shall review the relative volatility of loss rates across the qualifying revolving retail sub-portfolios, as well the aggregate qualifying revolving retail portfolio, and shall share information on the typical characteristics of qualifying revolving retail loss rates across Member States. 5. To be eligible for the retail treatment, purchased receivables shall comply with the requirements set out in Article 184 and the following conditions: (a) the institution has purchased the receivables from unrelated, unrelated third party sellers, and its exposure to the obligor of the receivable does not include any exposures that are directly or indirectly originated by the institution itself; (b) the purchased receivables shall be generated on an arm's-length basis between the seller and the obligor. As such, inter-company accounts receivables and receivables subject to contra-accounts between firms that buy and sell to each other are ineligible; (c) the purchasing institution has a claim on all proceeds from the purchased receivables or a pro-rata interest in the proceeds; and (d) the portfolio of purchased receivables is sufficiently diversified. 6. For purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for default losses, dilution losses, or both, may be treated as first-loss positions under the IRB securitisation framework. 7. For hybrid pools of purchased retail receivables where purchasing institutions cannot separate exposures secured by immovable property collateral and qualifying revolving retail exposures from other retail exposures, the retail risk weight function producing the highest capital requirements for those exposures shall apply.

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Article 155 Risk weighted Risk-weighted exposure amounts for equity exposures 1. Institutions shall determine their risk-weighted exposure amounts for equity exposures, excluding those deducted in accordance with Part Two or subject to a 250 % risk weight in accordance with Article 48, in accordance with the approaches set out in paragraphs 2, 3 and 4 of this Article. An institution may apply different approaches to different equity portfolios where the institution itself uses different approaches for internal risk management purposes. Where an institution uses different approaches, the choice of the PD / LGD PD/LGD approach or the internal models approach shall be made consistently, including over time and with the approach used for the internal risk management of the relevant equity exposure, and shall not be determined by regulatory arbitrage considerations. Institutions may treat equity exposures to ancillary services undertakings according to in accordance with the treatment of other non credit- obligation assets. 2. Under the Simple simple risk weight approach, the risk weighted risk-weighted exposure amount shall be calculated according to in accordance with the formula: Risk – weighted exposure amount = RW * exposure value, where: Risk weight (RW) 190 % for private equity exposures in sufficiently diversified portfolios. Risk weight (RW) 290 % for exchange traded equity exposures. Risk weight (RW) 370 % for all other equity exposures. Short cash positions and derivative instruments held in the non-trading book are permitted to offset long positions in the same individual stocks provided that these instruments have been explicitly designated as hedges of specific equity exposures and that they provide a hedge for at least another year. Other short positions are to be treated as if they are long positions with the relevant risk weight assigned to the absolute value of each position. In the context of maturity mismatched positions, the method is that for corporate exposures as set out in Article 162(5). Institutions may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in Chapter 4. 3. Under the PD/LGD approach, risk weighted risk-weighted exposure amounts shall be calculated according to the formulas in Article 153(1). If institutions do not have sufficient information to use the definition of default set out in Article 178, a scaling factor of 1,5 shall be assigned to the risk weights. At the individual exposure level the sum of the expected loss amount multiplied by 12,5 and the risk weighted risk-weighted exposure amount shall not exceed the exposure value multiplied by 12,5. Institutions may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in Chapter 4. This shall be subject to an LGD of 90 % on the exposure to the provider of the hedge. For private equity exposures in sufficiently diversified portfolios an LGD of 65 % may be used. For these purposes M shall be five years. 4. Under the internal models approach, the risk weighted risk-weighted exposure amount shall be the potential loss on the institution's equity exposures as derived using internal value-at-risk models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term sample period, multiplied by 12,5. The risk weighted risk-weighted exposure amounts at the equity portfolio level shall not be less than the total of the sums of the following: (a) the risk weighted risk-weighted exposure amounts required under the PD/LGD Approach; and (b) the corresponding expected loss amounts multiplied by 12,5. The amounts referred to in point (a) and (b) shall be calculated on the basis of the PD values set out in Article 165(1) and the corresponding LGD values set out in Article 165(2). Institutions may recognise unfunded credit protection obtained on an equity position.

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Article 156 Risk weighted Risk-weighted exposure amounts for other non credit-obligation assets The risk weighted risk-weighted exposure amounts for other non credit-obligation assets shall be calculated according to in accordance with the following formula: Risk – weighted exposure amount = 100 % · exposure value, except for: (a) cash in hand and equivalent cash items as well as gold bullion held in own vault or on an allocated basis to the extent backed by bullion liabilities, in which case a 0 % risk-weight shall be assigned; (b) when the exposure is a residual value of leased assets in which case it shall be calculated as follows: 1t · 100 % · exposure value where t is the greater of 1 and the nearest number of whole years of the lease remaining.

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Article 157 Risk weighted Risk-weighted exposure amounts for dilution risk of purchased receivables 1. Institutions shall calculate the risk weighted risk-weighted exposure amounts for dilution risk of purchased corporate and retail receivables according to in accordance with the formula set out in Article 153(1). 2. Institutions shall determine the input parameters PD and LGD in accordance with Section 4. 3. Institutions shall determine the exposure value in accordance with Section 5. 4. For the purposes of this Article, the value of M is 1 year. 5. The competent authorities shall exempt an institution from calculating and recognising risk weighted risk-weighted exposure amounts for dilution risk of a type of exposures caused by purchased corporate or retail receivables where the institution has demonstrated to the satisfaction of the competent authority that dilution risk for that institution is immaterial for this type of exposures.

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Article 158 Treatment by exposure type 1. The calculation of expected loss amounts shall be based on the same input figures of PD, LGD and the exposure value for each exposure as are used for the calculation of risk-weighted exposure amounts in accordance with Article 151. 2. The expected loss amounts for securitised exposures shall be calculated in accordance with Chapter 5. 3. The expected loss amount for exposures belonging to the other non credit obligations assets exposure class referred to in point (g) of Article 147(2) shall be zero. 4. The expected loss amounts for exposures in the form of shares or units of a CIU referred to in Article 152 shall be calculated in accordance with the methods set out in this Article. 5. The expected loss (EL) and expected loss amounts for exposures to corporates, institutions, central governments and central banks and retail exposures shall be calculated according to in accordance with the following formulae:Expected lossEL formulae: Expected loss (EL) = PD * LGD Expected loss amount EL [multiplied by] exposure value. For defaulted exposures (PD = 100 %) where institutions use own estimates of LGDs, EL shall be ELBE, the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h). For exposures subject to the treatment set out in Article 153(3), EL shall be 0 %. 6. The EL values for specialised lending exposures where institutions use the methods set out in Article 153(5) for assigning risk weights shall be assigned according to in accordance with Table 2. Table 2 Remaining Maturity Category 1 Category 2 Category 3 Category 4 Category 5 Less than 2,5 years 0 % 0,4 % 2,8 % 8 % 50 % Equal to or more than 2,5 years 0,4 % 0,8 % 2,8 % 8 % 50 % 7. The expected loss amounts for equity exposures where the risk weighted risk-weighted exposure amounts are calculated according to in accordance with the simple risk weight approach shall be calculated according to in accordance with the following formula:Expected formula: Expected loss amount = EL · exposure value The EL values shall be the following: Expected loss (EL) 0,8 % for private equity exposures in sufficiently diversified portfolios Expected loss (EL) 0,8 % for exchange traded equity exposures Expected loss (EL) 2,4 % for all other equity exposures. 8. The expected loss and expected loss amounts for equity exposures where the risk weighted risk-weighted exposure amounts are calculated according to in accordance with the PD/LGD approach shall be calculated according to in accordance with the following formulae:Expected lossEL formula: Expected loss (EL) = PD · LGDExpected LGD Expected loss amount = EL · exposure value 9. The expected loss amounts for equity exposures where the risk weighted risk-weighted exposure amounts are calculated according to in accordance with the internal models approach shall be zero. 10. The expected loss amounts for dilution risk of purchased receivables shall be calculated according to in accordance with the following formula:Expected lossEL formula: Expected loss (EL) = PD · LGDExpected LGD Expected loss amount = EL · exposure value

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Article 160 Probability of default (PD) 1. The PD of an exposure to a corporate or an institution shall be at least 0,03 %. 2. For purchased corporate receivables in respect of which an institution is not able to estimate PDs or an institution's PD estimates do not meet the requirements set out in Section 6, the PDs for these exposures shall be determined according to in accordance with the following methods: (a) for senior claims on purchased corporate receivables PD shall be the institutions estimate of EL divided by LGD for these receivables; (b) for subordinated claims on purchased corporate receivables PD shall be the institution's estimate of EL; (c) an … 398 unchanged words … are eligible. An institution that has received the permission of the competent authority pursuant to Article 143 to use own LGD estimates for dilution risk of purchased corporate receivables, may recognise unfunded credit protection by adjusting PDs subject to Article 161(3).

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Article 161 Loss Given Default (LGD) 1. Institutions shall use the following LGD values: (a) senior exposures without eligible collateral: 45 %; (b) subordinated exposures without eligible collateral: 75 %; (c) institutions may recognise funded and unfunded credit protection in the LGD in accordance with Chapter 4; (d) covered bonds eligible for the treatment set out in Article 129(4) or (5) may be assigned an LGD value of 11,25 %; (e) for senior purchased corporate receivables exposures where an institution is not able to estimate PDs or the institution's PD estimates do not meet the requirements set out in Section 6: 45 %; (f) for subordinated purchased corporate receivables exposures where an institution is not able to estimate PDs or the institution's PD estimates do not meet the requirements set out in Section 6: 100 %; (g) For for dilution risk of purchased corporate receivables: 75 %. 2. For dilution and default risk if an institution has received permission from the competent authority to use own LGD estimates for corporate exposures pursuant to Article 143 and it can decompose its EL estimates for purchased corporate receivables into PDs and LGDs in a manner the competent authority considers to be reliable, the LGD estimate for purchased corporate receivables may be used. 3. If an institution has received the permission of the competent authority to use own LGD estimates for exposures to corporates, institutions, central governments and central banks pursuant to Article 143, unfunded credit protection may be recognised by adjusting PD or LGD subject to requirements as specified in Section 6 and permission of the competent authorities. An institution shall not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor. 4. For the purposes of the undertakings referred to in Article 153(3), the LGD of a comparable direct exposure to the protection provider shall either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether in the event both the guarantor and obligor default during the life of the hedged transaction, available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial condition of the guarantor or obligor, respectively.

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Article 162 Maturity 1. Institutions that have not received permission to use own LGDs and own conversion factors for exposures to corporates, institutions or central governments and central banks shall assign to exposures arising from repurchase transactions or securities or commodities lending or borrowing transactions a maturity value (M) of 0,5 years and to all other exposures an M of 2,5 years. Alternatively, as part of the permission referred to in Article 143, the competent authorities shall decide on whether the institution shall use maturity (M) for each exposure as set out under paragraph 2. 2. Institutions that have received the permission of the competent authority to use own LGDs and own conversion factors for exposures to corporates, institutions or central governments and central banks pursuant to Article 143 shall calculate M for each of these exposures as set out in points (a) to (e) of this paragraph and subject to paragraphs 3 to 5 of this Article. M shall be no greater than five years except in the cases specified in Article 384(1) where M as specified there shall be used: (a) for an instrument subject to a cash flow schedule, M shall be calculated according to in accordance with the following formula: M = max1,minΣtt · CFtΣtCFt,5 where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the obligor in period t; (b) for derivatives subject to a master netting agreement, M shall be the weighted average remaining maturity of the exposure, where M shall be at least 1 year, and the notional amount of each exposure shall be used for weighting the maturity; (c) for exposures arising from fully or nearly-fully collateralised derivative instruments listed in Annex II and fully or nearly-fully collateralised margin lending transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least 10 days; (d) for repurchase transactions or securities or commodities lending or borrowing transactions which are subject to a master netting agreement, M shall be the weighted average remaining maturity of the transactions where M shall be at least five days. The notional amount of each transaction shall be used for weighting the maturity; (e) an institution that has received the permission of the competent authority pursuant to Article 143 to use own PD estimates for purchased corporate receivables, for drawn amounts M shall equal the purchased receivables exposure weighted average maturity, where M shall be at least 90 days. This same value of M shall also be used for undrawn amounts under a committed purchase facility provided that the facility contains effective covenants, early amortisation triggers, or other features that protect the purchasing institution against a significant deterioration in the quality of the future receivables it is required to purchase over the facility's term. Absent such effective protections, M for undrawn amounts shall be calculated as the sum of the longest-dated potential receivable under the purchase agreement and the remaining maturity of the purchase facility, where M shall be at least 90 days; (f) for any instrument other instrument than those mentioned referred to in this paragraph or when an institution is not in a position to calculate M as set out in point (a), M shall be the maximum remaining time (in years) that the obligor is permitted to take to fully discharge its contractual obligations, where M shall be at least 1 one year; (g) for institutions using the Internal Model Method set out in Section 6 of Chapter 6 to calculate the exposure values, M shall be calculated for exposures to which they apply this method and for which the maturity of the longest-dated contract contained in the netting set is greater than one year according to in accordance with the following formula: M = minΣkEffectiveEEtk · Δtk · dftk · stk + ΣkEEtk · Δtk · dftk · 1 – stkΣkEffectiveEEtk · Δtk · dftk · stk,5 where: Stk a dummy variable whose value at future period tk is equal to 0 if tk > 1 year and to 1 if tk ≤ 1; EEtk the expected exposure at the future period tk; EffectiveEEtk the effective expected exposure at the future period tk; dftk the risk-free discount factor for future time period tk; Δtk = tk – tk–1; (h) an institution that uses an internal model to calculate a one-sided credit valuation adjustment (CVA) may use, subject to the permission of the competent authorities, the effective credit duration estimated by the internal model as M. Subject to paragraph 2, for netting sets in which all contracts have an original maturity of less than one year the formula in point (a) shall apply; (i) for institutions using the Internal Model Method set out in Section 6 of Chapter 6, to calculate the exposure values and having an internal model permission for specific risk associated with traded debt positions in accordance with Part Three, Title IV, Chapter 5, M shall be set to 1 in the formula laid out in Article 153(1), provided that an institution can demonstrate to the competent authorities that its internal model for Specific risk associated with traded debt positions applied in Article 383 contains effects of rating migrations; (j) for the purposes of Article 153(3), M shall be the effective maturity of the credit protection but at least 1 year. 3. Where the documentation requires daily re-margining and daily revaluation and includes provisions that allow for the prompt liquidation or set off of collateral in the event of default or failure to remargin, M shall be at least one-day for: (a) fully or nearly-fully collateralised derivative instruments listed in Annex II; (b) fully or nearly-fully collateralised margin lending transactions; (c) repurchase transactions, securities or commodities lending or borrowing transactions. In addition, for qualifying short-term exposures which are not part of the institution's ongoing financing of the obligor, M shall be at least one-day. Qualifying short term exposures shall include the following: (a) exposures to institutions arising from settlement of foreign exchange obligations; (b) self-liquidating short-term trade financing finance transactions connected to the exchange of goods or services with a residual maturity of up to one year as referred to in point (80) of Article 4(1); (c) exposures arising from settlement of securities purchases and sales within the usual delivery period or two business days; (d) exposures arising from cash settlements by wire transfer and settlements of electronic payment transactions and prepaid cost, including overdrafts arising from failed transactions that do not exceed a short, fixed agreed number of business days. 4. For exposures to corporates situated in the Union and having consolidated sales and consolidated assets of less than EUR 500 million, institutions may choose to consistently set M as set out in paragraph 1 instead of applying paragraph 2. Institutions may replace EUR 500 million total assets with EUR 1000 million total assets for corporates which primarily own and let non-speculative residential property. 5. Maturity mismatches shall be treated as specified in Chapter 4.

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Article 163 Probability of default (PD) 1. The PD of an exposure shall be at least 0,03 %. 2. The PD of obligors or, where an obligation approach is used, of exposures in default shall be 100 %. 3. For dilution risk of purchased receivables PD shall be set equal to EL estimates for dilution risk. If an institution can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a manner the competent authorities consider to be reliable, the PD estimate may be used. 4. Unfunded credit protection may be taken into account by adjusting PDs subject to Article 164(2). For dilution risk, in addition to the protection providers referred to in Article 201(1)(g), the seller of the purchased receivables is eligible if the conditions set out in Article 160(4) are met.

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Article 164 Loss Given Default (LGD) 1. Institutions shall provide own estimates of LGDs subject to requirements as specified in Section 6 and permission of the competent authorities granted in accordance with Article 143. For dilution risk of purchased receivables, an LGD value of 75 % shall be used. If an institution can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the institution may use its own LGD estimate. 2. Unfunded credit protection may be recognised as eligible by adjusting PD or LGD estimates subject to requirements as specified in Article 183(1), (2) and (3) and permission of the competent authorities either in support of an individual exposure or a pool of exposures. An institution shall not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor. 3. For the purposes of Article 154(2), the LGD of a comparable direct exposure to the protection provider referred to in Article 153(3) shall either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether, in the event both the guarantor and obligor default during the life of the hedged transaction, available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial condition of the guarantor or obligor, respectively. 4. The exposure weighted average LGD for all retail exposures secured by residential property and not benefiting from guarantees from central governments shall not be lower than 10 %. The exposure weighted average LGD for all retail exposures secured by commercial immovable property and not benefiting from guarantees from central governments shall not be lower than 15 %. 5. Based on the data collected under Article 101 and taking into account forward-looking immovable property market developments and any other relevant indicators, the competent authorities shall periodically, and at least annually, assess whether the minimum LGD values in paragraph 4 of this Article are appropriate for exposures secured by residential property or commercial immovable property located in their territory. Competent authorities may, where appropriate on the basis of financial stability considerations, set higher minimum values of exposure weighted average LGD for exposures secured by immovable property in their territory. Competent authorities shall notify EBA of any changes to the minimum LGD values that they make in accordance with the first subparagraph and EBA shall publish these LGD values. 6. EBA shall develop draft regulatory technical standards to specify the conditions that competent authorities shall take into account when determining higher minimum LGD values. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 7. The institutions of one Member State shall apply the higher minimum LGD values that have been determined by the competent authorities of another Member State to exposures secured by immovable property located in that Member State.

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Article 165 Equity exposures subject to the PD/LGD method 1. PDs shall be determined according to in accordance with the methods for corporate exposures. The following minimum PDs shall apply: (a) 0,09 % for exchange traded equity exposures where the investment is part of a long-term customer relationship; (b) 0,09 % for non-exchange traded equity exposures where the returns on the investment are based on regular and periodic cash flows not derived from capital gains; (c) 0,40 % for exchange traded equity exposures including other short positions as set out in Article 155(2); (d) 1,25 % for all other equity exposures including other short positions as set out in Article 155(2). 2. Private equity exposures in sufficiently diversified portfolios may be assigned an LGD of 65 %. All other such exposures shall be assigned an LGD of 90 %. 3. M assigned to all exposures shall be five years.

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Article 166 Exposures to corporates, institutions, central governments and central banks and retail exposures 1. Unless noted otherwise, the exposure value of on-balance sheet exposures shall be the accounting value measured without taking into account any credit risk adjustments made. This rule also applies to assets purchased at a price different than the amount owed. For purchased assets, the difference between the amount owed and the accounting value remaining after specific credit risk adjustments have been applied that has been recorded on the balance-sheet of the institutions when purchasing the asset is denoted discount if the amount owed is larger, and premium if it is smaller. 2. Where institutions use Master master netting agreements in relation to repurchase transactions or securities or commodities lending or borrowing transactions, the exposure value shall be calculated in accordance with Chapter 4 or 6. 3. In order to calculate the exposure value for on-balance sheet netting of loans and deposits, institutions shall apply the methods set out in Chapter 4. 4. The exposure value for leases shall be the discounted minimum lease payments. Minimum lease payments shall comprise the payments over the lease term that the lessee is or can be required to make and any bargain option (i.e. option the exercise of which is reasonably certain). If a party other than the lessee may be required to make a payment related to the residual value of a leased asset and this payment obligation fulfils the set of conditions in Article 201 regarding the eligibility of protection providers as well as the requirements for recognising other types of guarantees provided in Article 213, the payment obligation may be taken into account as unfunded credit protection in accordance with Chapter 4. 5. In the case of any contract listed in Annex II, the exposure value shall be determined by the methods set out in Chapter 6 and shall not take into account any credit risk adjustment made. 6. The exposure value for the calculation of risk weighted risk-weighted exposure amounts of purchased receivables shall be the value determined in accordance with paragraph 1 minus the own funds requirements for dilution risk prior to credit risk mitigation. 7. Where an exposure takes the form of securities or commodities sold, posted or lent under repurchase transactions or securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions, the exposure value shall be the value of the securities or commodities determined in accordance with Article 24. Where the Financial Collateral Comprehensive Method as set out under Article 223 is used, the exposure value shall be increased by the volatility adjustment appropriate to such securities or commodities, as set out therein. The exposure value of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions may be determined either in accordance with Chapter 6 or Article 220(2). 8. The exposure value for the following items shall be calculated as the committed but undrawn amount multiplied by a conversion factor. Institutions shall use the following conversion factors in accordance with Article 151(8) for exposures to corporates, institutions, central governments and central banks: (a) for credit lines that are unconditionally cancellable at any time by the institution without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower's credit worthiness, creditworthiness, a conversion factor of 0 % shall apply. To apply a conversion factor of 0 %, institutions shall actively monitor the financial condition of the obligor, and their internal control systems shall enable them to immediately detect deterioration in the credit quality of the obligor. Undrawn credit lines may be considered as unconditionally cancellable if the terms permit the institution to cancel them to the full extent allowable under consumer protection and related legislation; (b) for short-term letters of credit arising from the movement of goods, a conversion factor of 20 % shall apply for both the issuing and confirming institutions; (c) for undrawn purchase commitments for revolving purchased receivables that are able to be unconditionally cancelled or that effectively provide for automatic cancellation at any time by the institution without prior notice, a conversion factor of 0 % shall apply. To apply a conversion factor of 0 %, institutions shall actively monitor the financial condition of the obligor, and their internal control systems shall enable them to immediately detect a deterioration in the credit quality of the obligor; (d) for other credit lines, note issuance facilities (NIFs), and revolving underwriting facilities (RUFs), a conversion factor of 75 % shall apply; (e) institutions apply. Institutions which meet the requirements for the use of own estimates of conversion factors as specified in Section 6 may use their own estimates of conversion factors across different product types as mentioned in points (a) to (d), subject to permission of the competent authorities. 9. Where a commitment refers to the extension of another commitment, the lower of the two conversion factors associated with the individual commitment shall be used. 10. For all off-balance sheet items other than those mentioned in paragraphs 1 to 8, the exposure value shall be the following percentage of its value: (a) 100 % if it is a full risk item; (b) 50 % if it is a medium-risk item; (c) 20 % if it is a medium/low-risk item; (d) 0 % if it is a low-risk item. For the purposes of this paragraph the off-balance sheet items shall be assigned to risk categories as indicated in Annex I.

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Article 170 Structure of rating systems 1. The structure of rating systems for exposures to corporates, institutions and central governments and central banks shall comply with the following requirements: (a) a rating system shall take into account obligor and transaction risk characteristics; (b) a rating system shall have an obligor rating scale which reflects exclusively quantification of the risk of obligor default. The obligor rating scale shall have a minimum of 7 grades for non-defaulted obligors and one for defaulted obligors; (c) an institution shall document the relationship between obligor grades in terms of the level of default risk each grade implies and the criteria used to distinguish that level of default risk; (d) institutions with portfolios concentrated in a particular market segment and range of default risk shall have enough obligor grades within that range to avoid undue concentrations of obligors in a particular grade. Significant concentrations within a single grade shall be supported by convincing empirical evidence that the obligor grade covers a reasonably narrow PD band and that the default risk posed by all obligors in the grade falls within that band; (e) to be permitted by the competent authority to use own estimates of LGDs for own funds requirement calculation, a rating system shall incorporate a distinct facility rating scale which exclusively reflects LGD related transaction characteristics. The facility grade definition shall include both a description of how exposures are assigned to the grade and of the criteria used to distinguish the level of risk across grades; (f) significant concentrations within a single facility grade shall be supported by convincing empirical evidence that the facility grade covers a reasonably narrow LGD band, respectively, and that the risk posed by all exposures in the grade falls within that band. 2. Institutions using the methods set out in Article 153(5) for assigning risk weights for specialised lending exposures are exempt from the requirement to have an obligor rating scale which reflects exclusively quantification of the risk of obligor default for these exposures. These institutions shall have for these exposures at least 4 four grades for non-defaulted obligors and at least one grade for defaulted obligors. 3. The structure of rating systems for retail exposures shall comply with the following requirements: (a) rating systems shall reflect both obligor and transaction risk, and shall capture all relevant obligor and transaction characteristics; (b) the level of risk differentiation shall ensure that the number of exposures in a given grade or pool is sufficient to allow for meaningful quantification and validation of the loss characteristics at the grade or pool level. The distribution of exposures and obligors across grades or pools shall be such as to avoid excessive concentrations; (c) the process of assigning exposures to grades or pools shall provide for a meaningful differentiation of risk, for a grouping of sufficiently homogenous exposures, and shall allow for accurate and consistent estimation of loss characteristics at grade or pool level. For purchased receivables the grouping shall reflect the seller's underwriting practices and the heterogeneity of its customers. 4. Institutions shall consider the following risk drivers when assigning exposures to grades or pools: (a) obligor risk characteristics; (b) transaction risk characteristics, including product or collateral types or both. Institutions shall explicitly address cases where several exposures benefit from the same collateral; (c) delinquency, except where an institution demonstrates to the satisfaction of its competent authority that delinquency is not a material driver of risk for the exposure.

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Article 176 Data maintenance 1. Institutions shall collect and store data on aspects of their internal ratings as required under Part Eight. 2. For exposures to corporates, institutions and central governments and central banks, and for equity exposures where an institution uses the PD/LGD approach set out in Article 155(3), institutions shall collect and store: (a) complete rating histories on obligors and recognised guarantors; (b) the dates the ratings were assigned; (c) the key data and methodology used to derive the rating; (d) the person responsible for the rating assignment; (e) the identity of obligors and exposures that defaulted; (f) the date and circumstances of such defaults; (g) data on the PDs and realised default rates associated with rating grades and ratings migration. 3. Institutions not using own estimates of LGDs and conversion factors shall collect and store data on comparisons of realised LGDs to the values as set out in Article 161(1) and realised conversion factors to the values as set out in Article 166(8). 4. Institutions using own estimates of LGDs and conversion factors shall collect and store: (a) complete histories of data on the facility ratings and LGD and conversion factor estimates associated with each rating scale; (b) the dates on which the ratings were assigned and the estimates were done; made; (c) the key data and methodology used to derive the facility ratings and LGD and conversion factor estimates; (d) the person who assigned the facility rating and the person who provided LGD and conversion factor estimates; (e) data on the estimated and realised LGDs and conversion factors associated with each defaulted exposure; (f) data on the LGD of the exposure before and after evaluation of the effects of a guarantee/or credit derivative, for those institutions that reflect the credit risk mitigating effects of guarantees or credit derivatives through LGD; (g) data on the components of loss for each defaulted exposure. 5. For retail exposures, institutions shall collect and store: (a) data used in the process of allocating exposures to grades or pools; (b) data on the estimated PDs, LGDs and conversion factors associated with grades or pools of exposures; (c) the identity of obligors and exposures that defaulted; (d) for defaulted exposures, data on the grades or pools to which the exposure was assigned over the year prior to default and the realised outcomes on LGD and conversion factor; (e) data on loss rates for qualifying revolving retail exposures.

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Article 178 Default of an obligor 1. A default shall be considered to have occurred with regard to a particular obligor when either or both of the following have taken place: (a) the institution considers that the obligor is unlikely to pay its credit obligations to the institution, the parent undertaking or any of its subsidiaries in full, without recourse by the institution to actions such as realising security; (b) the obligor is past due more than 90 days on any material credit obligation to the institution, the parent undertaking or any of its subsidiaries. Competent authorities may replace the 90 days with 180 days for exposures secured by residential property or SME commercial real estate immovable property in the retail exposure class, as well as exposures to public sector entities). entities. The 180 days shall not apply for the purposes of Article 127. In the case of retail exposures, institutions may apply the definition of default laid down in points (a) and (b) of the first subparagraph at the level of an … 524 unchanged words … the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 7. EBA shall issue guidelines on the application of this Article. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.

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Article 179 Overall requirements for estimation 1. In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements: (a) an institution's own estimates of the risk parameters PD, LGD, conversion factor and EL shall incorporate … 436 unchanged words … some flexibility in the application of the required standards for data. 2. Where an institution uses data that is pooled across institutions it shall meet the following requirements: (a) the rating systems and criteria of other institutions in the pool are similar with to its own; (b) the pool is representative of the portfolio for which the pooled data is used; (c) the pooled data is used consistently over time by the institution for its estimates; (d) the institution shall remain responsible for the integrity of its rating systems; (e) the institution shall maintain sufficient in-house understanding of its rating systems, including the ability to effectively monitor and audit the rating process.

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Article 180 Requirements specific to PD estimation 1. In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to PD estimation to exposures to corporates, institutions and central governments and central banks … 618 unchanged words … appropriate estimates of LGDs; (c) institutions shall regard internal data for assigning exposures to grades or pools as the primary source of information for estimating loss characteristics. Institutions may use external data (including pooled data) or statistical models for quantification provided that the following strong links both exist: (i) between the institution's process of assigning exposures to grades or pools and the process used by the external data source; and (ii) between the institution's internal risk profile and the composition of the external data; (d) if an institution derives long run average estimates of PD and LGD for retail exposures from an estimate of total losses and an appropriate estimate of PD or LGD, the process for estimating total losses shall meet the overall standards for estimation of PD and LGD set out in this part, and the outcome shall be consistent with the concept of LGD as set out in point (a) of Article 181(1); (e) irrespective of whether an institution is using external, internal or pooled data sources or a combination of the three, for their estimation of loss characteristics, the length of the underlying historical observation period used shall be at least five years for at least one source. If the available observation spans a longer period for any source, and these data are relevant, this longer period shall be used. An institution need not give equal importance to historic data if more recent data is a better predictor of loss rates. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall increase by one year each year until relevant data cover a period of five years; (f) institutions shall identify and analyse expected changes of risk parameters over the life of credit exposures (seasoning effects). For purchased retail receivables, institutions may use external and internal reference data. Institutions shall use all relevant data sources as points of comparison. 3. EBA shall develop draft regulatory technical standards to specify the following: (a) the conditions according to which competent authorities may grant the permissions referred to in point (h) of paragraph 1 and point (e) of paragraph 2; (b) the methodologies according to which competent authorities shall assess the methodology of an institution for estimating PD pursuant to Article 143. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 181 Requirements specific to own-LGD estimates 1. In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to own-LGD estimates: (a) institutions shall estimate LGDs by facility grade or pool on the basis of the average realised LGDs by facility grade or pool using all observed defaults within the data sources (default weighted average); (b) institutions shall use LGD estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver realised LGDs at a constant level by grade or pool over time, institutions shall make adjustments to their estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn; (c) an institution shall consider the extent of any dependence between the risk of the obligor with and that of the collateral or collateral provider. Cases where there is a significant degree of dependence shall be addressed in a conservative manner; (d) currency mismatches between the underlying obligation and the collateral shall be treated conservatively in the institution's assessment of LGD; (e) to the extent that LGD estimates take into account the existence of collateral, these estimates shall not solely be based on the collateral's estimated market value. LGD estimates shall take into account the effect of the potential inability of institutions to expeditiously gain control of their collateral and liquidate it; (f) to the extent that LGD estimates take into account the existence of collateral, institutions shall establish internal requirements for collateral management, legal certainty and risk management that are generally consistent with those set out in Chapter 4, Section 3; (g) to the extent that an institution recognises collateral for determining the exposure value for counterparty credit risk in accordance with Chapter 6, Section 5 or 6, any amount expected to be recovered from the collateral shall not be taken into account in the LGD estimates; (h) for the specific case of exposures already in default, the institution shall use the sum of its best estimate of expected loss for each exposure given current economic circumstances and exposure status and its estimate of the increase of loss rate caused by possible additional unexpected losses during the recovery period, i.e. between date of default and final liquidation of the exposure; (i) to the extent that unpaid late fees have been capitalised in the institution's income statement, they shall be added to the institution's measure of exposure and loss; (j) for exposures to corporates, institutions and central governments and central banks, estimates of LGD shall be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for any source, and the data is relevant, this longer period shall be used. 2. For retail exposures, institutions may do the following: (a) derive LGD estimates from realised losses and appropriate estimates of PDs; (b) reflect future drawings either in their conversion factors or in their LGD estimates; (c) For purchased retail receivables use external and internal reference data to estimate LGDs. For retail exposures, estimates of LGD shall be based on data over a minimum of five years. An institution needs need not give equal importance to historic data if more recent data is a better predictor of loss rates. Subject to the permission of the competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall increase by one year each year until relevant data cover a period of five years. 3. EBA shall develop draft regulatory technical standards to specify the following: (a) the nature, severity and duration of an economic downturn referred to in paragraph 1; (b) the conditions according to which a competent authority may permit and an institution pursuant to paragraph 3 2 to use relevant data covering a period of two years when the institution implements the IRB Approach. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 182 Requirements specific to own-conversion factor estimates 1. In quantifying the risk parameters to be associated with rating grades or pools, institutions shall apply the following requirements specific to own-conversion factor estimates: (a) institutions shall estimate conversion factors by facility grade or pool on the basis of the average realised conversion factors by facility grade or pool using the default weighted average resulting from all observed defaults within the data sources; (b) institutions shall use conversion factor estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver realised conversion factors at a constant level by grade or pool over time, institutions shall make adjustments to their estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn; (c) institutions' estimates of conversion factors shall reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered. The conversion factor estimate shall incorporate a larger margin of conservatism where a stronger positive correlation can reasonably be expected between the default frequency and the magnitude of conversion factor; (d) in arriving at estimates of conversion factors institutions shall consider their specific policies and strategies adopted in respect of account monitoring and payment processing. Institutions shall also consider their ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events; (e) institutions shall have adequate systems and procedures in place to monitor facility amounts, current outstandings against committed lines and changes in outstandings per obligor and per grade. The institution shall be able to monitor outstanding balances on a daily basis; (f) if institutions use different estimates of conversion factors for the calculation of risk weighted risk-weighted exposure amounts and internal purposes it shall be documented and be reasonable. 2. For exposures to corporates, institutions and central governments and central banks, estimates of conversion factors shall be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for any source, and the data is relevant, this longer period shall be used. 3. For retail exposures, institutions may reflect future drawings either in their conversion factors or in their LGD estimates. For retail exposures, estimates of conversion factors shall be based on data over a minimum of five years. By way of derogation from point (a) of paragraph 1, an institution need not give equal importance to historic data if more recent data is a better predictor of draw downs. Subject to the permission of competent authorities, institutions may use, when they implement the IRB Approach, relevant data covering a period of two years. The period to be covered shall increase by one year each year until relevant data cover a period of five years. 4. EBA shall develop draft regulatory technical standards to specify the following: (a) the nature, severity and duration of an economic downturn referred to in paragraph 1; (b) conditions according to which a competent authority may permit and institution to use relevant data covering a period of two years at the time an institution first implements the IRB Approach. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 183 Requirements for assessing the effect of guarantees and credit derivatives for exposures to corporates, institutions and central governments and central banks where own estimates of LGD are used and for retail exposures 1. The following requirements shall apply in relation to eligible guarantors and guarantees: (a) institutions shall have clearly specified criteria for the types of guarantors they recognise for the calculation of risk weighted risk-weighted exposure amounts; (b) for recognised guarantors the same rules as for obligors as set out in Articles 171, 172 and 173 shall apply; (c) the guarantee shall be evidenced in writing, non-cancellable on the part of the guarantor, in force until the obligation is satisfied in full (to the extent of the amount and tenor of the guarantee) and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach and enforce a judgement. Conditional guarantees prescribing conditions under which the guarantor may not be obliged to perform may be recognised subject to permission of the competent authorities. The assignment criteria shall adequately address any potential reduction in the risk mitigation effect. 2. An institution shall have clearly specified criteria for adjusting grades, pools or LGD estimates, and, in the case of retail and eligible purchased receivables, the process of allocating exposures to grades or pools, to reflect the impact of guarantees for the calculation of risk weighted risk-weighted exposure amounts. These criteria shall comply with the requirements set out in Articles 171, 172 and 173. The criteria shall be plausible and intuitive. They shall address the guarantor's ability and willingness to perform under the guarantee, the likely timing of any payments from the guarantor, the degree to which the guarantor's ability to perform under the guarantee is correlated with the obligor's ability to repay, and the extent to which residual risk to the obligor remains. 3. The requirements for guarantees in this Article shall apply also for single-name credit derivatives. In relation to a mismatch between the underlying obligation and the reference obligation of the credit derivative or the obligation used for determining whether a credit event has occurred, the requirements set out under Article 216(2) shall apply. For retail exposures and eligible purchased receivables, this paragraph applies to the process of allocating exposures to grades or pools. The criteria shall address the payout structure of the credit derivative and conservatively assess the impact this has on the level and timing of recoveries. The institution shall consider the extent to which other forms of residual risk remain. 4. The requirements set out in paragraphs 1 to 3 shall not apply for guarantees provided by institutions, central governments and central banks, and corporate entities which meet the requirements laid down in Article 201(1)(g) if the institution has received permission to apply the Standardised Approach for exposures to such entities pursuant to Articles 148 and 150. In this case the requirements of Chapter 4 shall apply. 5. For retail guarantees, the requirements set out in paragraphs 1, 2 and 3 shall also apply to the assignment of exposures to grades or pools, and the estimation of PD. 6. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities may permit conditional guarantees to be recognised. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 186 Own funds requirement and risk quantification For the purpose of calculating own funds requirements institutions shall meet the following standards: (a) the estimate of potential loss shall be robust to adverse market movements relevant to the long-term risk profile of the institution's specific holdings. The data used to represent return distributions shall reflect the longest sample period for which data is available and meaningful in representing the risk profile of the institution's specific equity exposures. The data used shall be sufficient to provide conservative, statistically reliable and robust loss estimates that are not based purely on subjective or judgmental considerations. The shock employed shall provide a conservative estimate of potential losses over a relevant long-term market or business cycle. The institution shall combine empirical analysis of available data with adjustments based on a variety of factors in order to attain model outputs that achieve appropriate realism and conservatism. In constructing Value value at Risk risk (VaR) models estimating potential quarterly losses, institutions may use quarterly data or convert shorter horizon period data to a quarterly equivalent using an analytically appropriate method supported by empirical evidence and through a well-developed and documented thought process and analysis. Such an approach shall be applied conservatively and consistently over time. Where only limited relevant data is available the institution shall add appropriate margins of conservatism; (b) the models used shall capture adequately all of the material risks embodied in equity returns including both the general market risk and specific risk exposure of the institution's equity portfolio. The internal models shall adequately explain historical price variation, capture both the magnitude and changes in the composition of potential concentrations, and be robust to adverse market environments. The population of risk exposures represented in the data used for estimation shall be closely matched to or at least comparable with those of the institution's equity exposures; (c) the internal model shall be appropriate for the risk profile and complexity of an institution's equity portfolio. Where an institution has material holdings with values that are highly non-linear in nature the internal models shall be designed to capture appropriately the risks associated with such instruments; (d) mapping of individual positions to proxies, market indices, and risk factors shall be plausible, intuitive, and conceptually sound; (e) institutions shall demonstrate through empirical analyses the appropriateness of risk factors, including their ability to cover both general and specific risk; (f) the estimates of the return volatility of equity exposures shall incorporate relevant and available data, information, and methods. Independently reviewed internal data or data from external sources including pooled data shall be used; (g) a rigorous and comprehensive stress-testing programme shall be in place.

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Article 188 Validation and documentation Institutions shall have robust systems in place to validate the accuracy and consistency of their internal models and modelling processes. All material elements of the internal models and the modelling process and validation shall be documented. The validation and documentation of institutions' internal models and modelling processes shall be subject to the following requirements: (a) institutions shall use the internal validation process to assess the performance of its internal models and processes in a consistent and meaningful way; (b) the methods and data used for quantitative validation shall be consistent through over time. Changes in estimation and validation methods and data both changes to data sources and periods covered covered, shall be documented; (c) institutions shall regularly compare actual equity returns computed using realised and unrealised gains and losses with modelled estimates. Such comparisons shall make use of historical data that cover as long a period as possible. The institution shall document the methods and data used in such comparisons. This analysis and documentation shall be updated at least annually; (d) institutions shall make use of other quantitative validation tools and comparisons with external data sources. The analysis shall be based on data that are appropriate to the portfolio, are updated regularly, and cover a relevant observation period. Institutions' internal assessments of the performance of their models shall be based on as long a period as possible; (e) institutions shall have sound internal standards for addressing situations where comparison of actual equity returns with the models estimates calls the validity of the estimates or of the models as such into question. These standards shall take account of business cycles and similar systematic variability in equity returns. All adjustments made to internal models in response to model reviews shall be documented and consistent with the institution's model review standards; (f) the internal model and the modelling process shall be documented, including the responsibilities of parties involved in the modelling, and the model approval and model review processes.

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Article 190 Credit risk control 1. The credit risk control unit shall be independent from the personnel and management functions responsible for originating or renewing exposures and report directly to senior management. The unit shall be responsible for the design or selection, implementation, oversight and performance of the rating systems. It shall regularly produce and analyse reports on the output of the rating systems. 2. The areas of responsibility for the credit risk control unit or units shall include: (a) testing and monitoring grades and pools; (b) production and analysis of summary reports from of the institution's rating systems; (c) implementing procedures to verify that grade and pool definitions are consistently applied across departments and geographic areas; (d) reviewing and documenting any changes to the rating process, including the reasons for the changes; (e) reviewing the rating criteria to evaluate if they remain predictive of risk. Changes to the rating process, criteria or individual rating parameters shall be documented and retained; (f) active participation in the design or selection, implementation and validation of models used in the rating process; (g) oversight and supervision of models used in the rating process; (h) ongoing review and alterations to models used in the rating process. 3. Institutions using pooled data in accordance with Article 179(2) may outsource the following tasks: (a) production of information relevant to testing and monitoring grades and pools; (b) production of summary reports from of the institution's rating systems; (c) production of information relevant to a review of the rating criteria to evaluate if they remain predictive of risk; (d) documentation of changes to the rating process, criteria or individual rating parameters; (e) production of information relevant to ongoing review and alterations to models used in the rating process. 4. Institutions making use of paragraph 3 shall ensure that the competent authorities have access to all relevant information from the third party that is necessary for examining compliance with the requirements and that the competent authorities may perform on-site examinations to the same extent as within the institution.

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Article 197 Eligibility of collateral under all approaches and methods 1. Institutions may use the following items as eligible collateral under all approaches and methods: (a) cash on deposit with, or cash assimilated instruments held by, the lending institution; (b) debt securities issued by … 583 unchanged words … shares in CIUs as eligible collateral where all the following conditions are satisfied: (a) the units or shares have a daily public price quote; (b) the CIUs are limited to investing in instruments that are eligible for recognition under paragraphs 1 and 2; 4; (c) the CIUs meet the conditions laid down in Article 132(3). Where a CIU invests in shares or units of another CIU, conditions laid down in points (a) to (c) of the first subparagraph shall apply equally to any such underlying CIU. The use by a CIU of derivative instruments to hedge permitted investments shall not prevent units or shares in that undertaking from being eligible as collateral. 6. For the purposes of paragraph 5, where a CIU (the original CIU) or any of its underlying CIUs are not limited to investing in instruments that are eligible under paragraphs 1 and 4, institutions may use units or shares in that CIU as collateral to an amount equal to the value of the eligible assets held by that CIU under the assumption that that CIU or any of its underlying CIUs have invested in non-eligible assets to the maximum extent allowed under their respective mandates. Where any underlying CIUs CIU has underlying CIUs of its own, institutions may use units or shares in the original CIU as eligible collateral provided that they apply the methodology laid down in the first subparagraph subparagraph. Where non-eligible assets can have a negative value due to liabilities or contingent liabilities resulting from ownership, institutions shall do both of the following: (a) calculate the total value of the non-eligible assets; (b) where the amount obtained under point (a) is negative, subtract the absolute value of that amount from the total value of the eligible assets. 7. With regard to points (b) to (e) of paragraph 1, where a security has two credit assessments by ECAIs, institutions shall apply the less favourable assessment. Where a security has more than two credit assessments by ECAIs, institutions shall apply the two most favourable assessments. Where the two most favourable credit assessments are different, institutions shall apply the less favourable of the two. 8. ESMA shall develop draft implementing technical standards to specify the following: (a) the main indices referred to in point (f) of paragraph 1 of this Article, in point (a) of Article 198(1), in Article 224(1) and (4), and in point (e) of Article 299(2); (b) the recognised exchanges referred to in point (a) of paragraph 4 of this Article, in point (a) of Article 198(1), in Article 224(1) and (4), in point (e) of Article 299(2), in point (k) of Article 400(2), in point (e) of Article 416(3), in point (c) of Article 428(1), and in point 12 of Annex III in accordance with the conditions laid down in point (72) of Article 4(1). ESMA shall submit those draft implementing technical standards to the Commission by 31 December 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.

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Article 199 Additional eligibility for collateral under the IRB Approach 1. In addition to the collateral referred to in Articles 197 and 198, institutions that calculate risk-weighted exposure amounts and expected loss amounts under the IRB Approach may also use the following … 363 unchanged words … year. 4. Institutions may derogate from point (b) of paragraph 2 for commercial immovable property situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established commercial immovable property market is present in that territory with loss rates that do not exceed any of the following limits: (a) losses stemming from loans collateralised by commercial immovable property up to 50 % of the market value or 60 % of … 419 unchanged words … manner as loans collateralised by the type of property leased. 8. EBA shall disclose a list of types of physical collateral for which institutions can assume that the conditions referred to in points (a) and (b) of paragraph 6 are met.

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Article 201 Eligibility of protection providers under all approaches 1. Institutions may use the following parties as eligible providers of unfunded credit protection: (a) central governments and central banks; (b) regional governments or local authorities; (c) multilateral development banks; (d) international organisations exposures to which a 0 % risk weight under Article 117 is assigned; (e) public sector entities, claims on which are treated in accordance with Article 116; (f) institutions, and financial institutions for which exposures to the financial institution are treated as exposures to institutions in accordance with Article 119(5); (g) other corporate entities, including parent, subsidiary parent undertakings, subsidiaries and affiliate affiliated corporate entities of the institution, where either of the following conditions is met: (i) those other corporate entities have a credit assessment by an ECAI; (ii) in the case of institutions calculating risk-weighted exposure amounts and expected loss amounts under the IRB Approach, those other corporate entities do not have a credit assessment by a recognised ECAI and are internally rated by the institution; (h) central counterparties. 2. Where institutions calculate risk-weighted exposure amounts and expected loss amounts under the IRB Approach, to be eligible as a provider of unfunded credit protection a guarantor shall be internally rated by the institution in accordance with the provisions of Section 6 of Chapter 3. Competent authorities shall publish and maintain the list of those financial institutions that are eligible providers of unfunded credit protection under point (f) of paragraph 1, or the guiding criteria for identifying such eligible providers of unfunded credit protection, together with a description of the applicable prudential requirements, and share their list with other competent authorities in accordance with Article 117 of Directive 2013/36/EU.

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Article 202 Eligibility of protection providers under the IRB Approach which qualify for the treatment set out in Article 153(3) An institution may use institutions, insurance and reinsurance undertakings and export credit agencies as eligible providers of unfunded credit protection which qualify for the treatment set out in Article 153(3) where they meet all the following conditions: (a) they have sufficient expertise in providing unfunded credit protection; (b) they are regulated in a manner equivalent to the rules laid down in this Regulation, or had, at the time the credit protection was provided, a credit assessment by a recognised ECAI which had been determined by EBA to be associated with credit quality step 3, 3 or above, above in accordance with the rules for the risk weighting of exposures to corporates set out in Chapter 2; (c) they had, at the time the credit protection was provided, or for any period of time thereafter, an internal rating with a PD equivalent to or lower than that associated with credit quality step 2 or above in accordance with the rules for the risk weighting of exposures to corporates set out in Chapter 2; (d) they have an internal rating with a PD equivalent to or lower than that associated with credit quality step 3 or above in accordance with the rules for the risk weighting of exposures to corporates set out in Chapter 2. For the purpose of this Article, credit protection provided by export credit agencies shall not benefit from any explicit central government counter-guarantee.

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Article 208 Requirements for immovable property collateral 1. Immovable property shall qualify as eligible collateral only where all the requirements laid down in paragraphs 2 to 5 are met. 2. The following requirements on legal certainly shall be met: (a) a mortgage or charge is enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement and shall be properly filed on a timely basis; (b) all legal requirements for establishing the pledge have been fulfilled; (c) the protection agreement and the legal process underpinning it enable the institution to realise the value of the protection within a reasonable timeframe. 3. The following requirements on monitoring of property values and on property valuation shall be met: (a) institutions monitor the value of the property on a frequent basis and at a minimum once every year for commercial immovable property and once every three years for residential real estate. property. Institutions carry out more frequent monitoring where the market is subject to significant changes in conditions; (b) the property valuation is reviewed when information available to institutions indicates that the value of the property may have declined materially relative to general market prices and that review is carried out by a valuer who possesses the necessary qualifications, ability and experience to execute a valuation and who is independent from the credit decision process. For loans exceeding EUR 3 million or 5 % of the own funds of an institution, the property valuation shall be reviewed by such valuer at least every three years. Institutions may use statistical methods to monitor the value of the immovable property and to identify immovable property that needs revaluation. 4. Institutions shall clearly document the types of residential property and commercial immovable property they accept and their lending policies in this regard. 5. Institutions shall have in place procedures to monitor that the immovable property taken as credit protection is adequately insured against the risk of damage.

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Article 214 Sovereign and other public sector counter-guarantees 1. Institutions may treat the exposures referred to in paragraph 2 as protected by a guarantee provided by the entities listed in that paragraph, provided that all the following conditions are satisfied: (a) the counter-guarantee covers all credit risk elements of the claim; (b) both the original guarantee and the counter-guarantee meet the requirements for guarantees set out in Articles 213 and 215(1), except that the counter-guarantee need not be direct; (c) the cover is robust and nothing in the historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct guarantee by the entity in question. 2. The treatment set out in paragraph 1 shall apply to exposures protected by a guarantee which is counter-guaranteed by any of the following entities: (a) a central government or a central bank; (b) a regional government or a local authority; (c) a public sector entity, claims on which are treated as claims on the central government in accordance with Article 116(4); (d) a multilateral development bank or an international organisation, to which a 0 % risk weight is assigned under or by virtue of Articles 117(2) and 118 respectively; (e) a public sector entity, claims on which are treated in accordance with Article 116(1) and (2). 3. Institutions shall apply the treatment set out in paragraph 1 also to an exposure which is not counter-guaranteed by any entity listed in paragraph 2 where that exposure's counter-guarantee is in turn directly guaranteed by one of those entities and the conditions listed in paragraph 1 are satisfied.

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Article 216 Additional requirements for credit derivatives 1. Credit derivative derivatives shall qualify as eligible unfunded credit protection where all the conditions in Article 213 and all the following conditions are met: (a) the credit events specified in the credit derivative contract include: (i) the failure to pay the amounts due under the … 328 unchanged words … underlying obligation and the reference obligation or the obligation used for the purpose of determining whether a credit event has occurred, as the case may be, share the same obligor and legally enforceable cross-default or cross-acceleration clauses are in place.

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Article 220 Using the Supervisory Volatility Adjustments Approach or the Own Estimates Volatility Adjustments Approach for master netting agreements 1. When institutions calculate the fully 'fully adjusted exposure value value' (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions or securities or commodities lending or borrowing transactions or other capital market-driven transactions, they shall calculate the volatility adjustments that they need to apply either by using the Supervisory Volatility Adjustments Approach or the Own Estimates Volatility Adjustments Approach (Own ('Own Estimates Approach) Approach') as set out in Articles 223 to 226 for the Financial Collateral Comprehensive Method. The use of the Own Estimates Approach shall be subject to the same conditions and requirements as apply under the Financial Collateral Comprehensive Method. 2. For the purpose of calculating E*, institutions shall: (a) calculate the net position in each group of securities or in each type of commodity by subtracting the amount in point (ii) from the amount in point (i): (i) the total value of a group of securities or of commodities of the same type lent, sold or provided under the master netting agreement; (ii) the total value of a group of securities or of commodities of the same type borrowed, purchased or received under the master netting agreement; (b) calculate the net position in each currency, other than the settlement currency of the master netting agreement, by subtracting the amount in point (ii) from the amount in point (i): (i) the sum of the total value of securities denominated in that currency lent, sold or provided under the master netting agreement and the amount of cash in that currency lent or transferred under that agreement; (ii) the sum of the total value of securities denominated in that currency borrowed, purchased or received under the master netting agreement and the amount of cash in that currency borrowed or received under that agreement; (c) apply the volatility adjustment appropriate to a given group of securities or to a cash position to the absolute value of the positive or negative net position in the securities in that group; (d) apply the foreign exchange risk (fx) volatility adjustment to the net positive or negative position in each currency other than the settlement currency of the master netting agreement. 3. Institutions shall calculate E* according to in accordance with the following formula:E* = max0,ΣiEi – ΣiCi + ΣjEjsec · Hjsec + ΣkEkfx · Hkfx where: Ei the exposure value for each separate exposure i under the agreement that would apply in the absence of the credit protection, where institutions calculate risk-weighted exposure amounts under the Standardised Approach or where they calculate the risk-weighted exposure amounts and expected loss amounts under the IRB Approach; Ci the value of securities in each group or commodities of the same type borrowed, purchased or received or the cash borrowed or received in respect of each exposure i; Ejsec the net position (positive or negative) in a given group of securities j; Ekfx the net position (positive or negative) in a given currency k other than the settlement currency of the agreement as calculated under point (b) of paragraph 2; Hjsec the volatility adjustment appropriate to a particular group of securities j; Hkfx the foreign exchange volatility adjustment for currency k. 4. For the purpose of calculating risk-weighted exposure amounts and expected loss amounts for repurchase transactions or securities or commodities lending or borrowing transactions or other capital market-driven transactions covered by master netting agreements, institutions shall use E* as calculated under paragraph 3 as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement for the purposes of Article 113 under the Standardised Approach or Chapter 3 under the IRB Approach. 5. For the purposes of paragraphs 2 and 3, group of securities means securities which are issued by the same entity, have the same issue date, the same maturity, are subject to the same terms and conditions, and are subject to the same liquidation periods as indicated in Articles 224 and 225, as applicable.

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Article 221 Using the Internal Models Approach internal models approach for Master master netting agreements 1. Subject to permission of competent authorities, institutions may, as an alternative to using the Supervisory Volatility Adjustments Approach or the Own Estimates Approach in calculating the fully adjusted exposure value (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions, or other capital market driven transactions other than derivative transactions, use an internal models approach which takes into account correlation effects between security positions subject to the master netting agreement as well as the liquidity of the instruments concerned. 2. Subject to the permission of the competent authorities, institutions may also use their internal models for margin lending transactions, where the transactions are covered under a bilateral master netting agreement that meets the requirements set out in Chapter 6, Section 7. 3. An institution may choose to use an internal models approach independently of the choice it has made between the Standardised Approach and the IRB Approach for the calculation of risk-weighted exposure amounts. However, where an institution seeks to use an internal models approach, it shall do so for all counterparties and securities, excluding immaterial portfolios where it may use the Supervisory Volatility Adjustments Approach or the Own Estimates Approach as laid down in Article 220. Institutions that have received permission for an internal risk-management risk-measurement model under Title IV, Chapter 5 may use the internal models approach. Where an institution has not received such permission, it may still apply for permission to the competent authorities to use an internal models approach for the purposes of … 368 unchanged words … order to capture all material price risks. An institution may use empirical correlations within risk categories and across risk categories where its system for measuring correlations is sound and implemented with integrity. 6. Institutions using the internal models approach shall calculate E* according to in accordance with the following formula:E* = max0,ΣiEi max0,Σi Ei – ΣiCi Σi Ci + potential change in value where: Ei the exposure value for each separate exposure i under the agreement that would apply in the absence of the credit protection, where institutions calculate the risk-weighted exposure amounts under the Standardised Approach or where they calculate … 358 unchanged words … draft regulatory technical standards to the Commission by 31 December 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 222 Financial Collateral Simple Method 1. Institutions may use the Financial Collateral Simple Method only where they calculate risk-weighted exposure amounts under the Standardised Approach. Institution shall not use both the Financial Collateral Simple Method and the Financial Collateral Comprehensive Method, except for the purposes of Articles 148(1) and 150(1). Institutions shall not use this exception selectively with the purpose of achieving reduced own funds requirements or with the purpose of conducting regulatory arbitrage. 2. Under the Financial Collateral Simple Method institutions shall assign to eligible financial collateral a value equal to its market value as determined in accordance with point (d) of Article 207(4). 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 this 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(1). The risk weight of the collateralised portion shall be at least 20 % except as specified in paragraphs 4 to 6. Institutions shall apply to the remainder of the exposure value the risk weight that they would assign to an unsecured exposure to the counterparty under Chapter 2. 4. Institutions shall assign a risk weight of 0 % to the collateralised portion of the exposure arising from repurchase transaction and securities lending or borrowing transactions which fulfil the criteria in Article 227. Where the counterparty to the transaction is not a core market participant, institutions shall assign a risk weight of 10 %. 5. Institutions shall assign a risk weight of 0 %, to the extent of the collateralisation, to the exposure values determined under Chapter 6 for the derivative instruments listed in Annex II and subject to daily marking-to-market, collateralised by cash or cash-assimilated cash assimilated instruments where there is no currency mismatch. Institutions shall assign a risk weight of 10 %, to the extent of the collateralisation, to the exposure values of such transactions collateralised by debt securities issued by central governments or central banks which are assigned a 0 % risk weight under Chapter 2. 6. For transactions other than those referred to in paragraphs 4 and 5, institutions may assign a 0 % risk weight where the exposure and the collateral are denominated in the same currency, and either of the following conditions is met: (a) the collateral is cash on deposit or a cash assimilated instrument; (b) the collateral is in the form of debt securities issued by central governments or central banks eligible for a 0 % risk weight under Article 114, and its market value has been discounted by 20 %. 7. For the purpose of paragraphs 5 and 6 debt securities issued by central governments or central banks shall include: (a) debt securities issued by regional governments or local authorities exposures to which are treated as exposures to the central government in whose jurisdiction they are established under Article 115; (b) debt securities issued by multilateral development banks to which a 0 % risk weight is assigned under or by virtue of Article 117(2); (c) debt securities issued by international organisations which are assigned a 0 % risk weight under Article 118; (d) debt securities issued by public sector entities which are treated as exposures to central governments in accordance with Article 116(4).

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Article 224 Supervisory volatility adjustment under the Financial Collateral Comprehensive Method 1. The volatility adjustments to be applied by institutions under the Supervisory Volatility Adjustments Approach, assuming daily revaluation, shall be those set out in Tables 1 to 4 of this paragraph.VOLATILITY paragraph. VOLATILITY ADJUSTMENTS Table 1 Credit quality step with which the credit assessment of the debt security is associated Residual Maturity Volatility adjustments for debt securities issued by entities described in Article 197(1)(b) Volatility adjustments for debt securities issued by entities described in Article … 644 unchanged words … to invest. 6. For unrated debt securities issued by institutions and satisfying the eligibility criteria in Article 197(4) the volatility adjustments is the same as for securities issued by institutions or corporates with an external credit assessment associated with credit quality steps step 2 or 3.

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Article 225 Own estimates of volatility adjustments under the Financial Collateral Comprehensive Method 1. The competent authorities shall permit institutions to use their own volatility estimates for calculating the volatility adjustments to be applied to collateral and exposures where those institutions comply with the requirements set out in paragraphs 2 and 3. Institutions which have obtained permission to use their own volatility estimates shall not revert to the use of other methods except for demonstrated good cause and subject to the permission of the competent authorities. For debt securities that have a credit assessment from an ECAI equivalent to investment grade or better, institutions may calculate a volatility estimate for each category of security. For debt securities that have a credit assessment from an ECAI equivalent to below investment grade, and for other eligible collateral, institutions shall calculate the volatility adjustments for each individual item. Institutions using the Own Estimates Approach shall estimate volatility of the collateral or foreign exchange mismatch without taking into account any correlations between the unsecured exposure, collateral or exchange rates. In determining relevant categories, institutions shall take into account the type of issuer of the security, the external credit assessment of the securities, their residual maturity, and their modified duration. Volatility estimates shall be representative of the securities included in the category by the institution. 2. The calculation of the volatility adjustments shall be subject to all the following criteria: (a) institutions shall base the calculation on a 99th percentile, one-tailed confidence interval; (b) institutions shall base the calculation on the following liquidation periods: (i) 20 business days for secured lending transactions; (ii) 5 business days for repurchase transaction, transactions, except insofar as such transactions involve the transfer of commodities or guaranteed rights relating to title to commodities and securities lending or borrowing transactions; (iii) 10 business days for other capital market driven transactions; (c) institutions may use volatility adjustment numbers calculated according to in accordance with shorter or longer liquidation periods, scaled up or down to the liquidation period set out in point (b) for the type of transaction in question, using the square root of time formula: HM = HN · TMTN where: TM the relevant liquidation period; HM the volatility … 403 unchanged words … of volatility adjustments; (iii) the verification of the consistency, timeliness and reliability of data sources used to run the system for the estimation of volatility adjustments, including the independence of such data sources; (iv) the accuracy and appropriateness of the volatility assumptions.

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Article 226 Scaling up of volatility adjustment under the Financial Collateral Comprehensive method Method The volatility adjustments set out in Article 224 are the volatility adjustments an institution shall apply where there is daily revaluation. Similarly, where an institution uses its own estimates of the volatility adjustments in accordance with Article 225, it shall calculate them in the first instance on the basis of 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:H = HM · NR + TM – 1TM where: H the volatility adjustment to be applied; HM the volatility adjustment where there is daily revaluation; NR the actual number of business days between revaluations; TM the liquidation period for the type of transaction in question.

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Article 227 Conditions for applying a 0 % volatility adjustment under the Financial Collateral Comprehensive method Method 1. In relation to repurchase transactions and securities lending or borrowing transactions, where an institution uses the Supervisory Volatility Adjustments Approach under Article 224 or the Own Estimates Approach under Article 225 and where the conditions set out in points … 329 unchanged words … expected loss amounts under the IRB Approach, do not have a credit assessment by a recognised ECAI and are internally rated by the institution; (d) regulated CIUs that are subject to capital or leverage requirements; (e) regulated pension funds; (f) recognised clearing organisations.

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Article 229 Valuation principles for other eligible collateral under the IRB Approach 1. For immovable property collateral, the collateral shall be valued by an independent valuer at or at less than the market value. An institution shall require the independent valuer to document the market value in a transparent and clear manner. In those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions the immovable property may instead be valued by an independent valuer at or at less than the mortgage lending value. Institutions shall require the independent valuer not to take into account speculative elements in the assessment of the mortgage lending value and to document that value in a transparent and clear manner. The value of the collateral shall be the market value or mortgage lending value reduced as appropriate to reflect the results of the monitoring required under Article 208(3) and to take account of any prior claims on the immovable property. 2. For receivables, the value of receivables shall be the amount receivable. 3. Institutions shall value physical collateral other than immovable property at its market value. For the purposes of this Article, the market value is the estimated amount for which the property would exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction.

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Article 230 Calculating risk-weighted exposure amounts and expected loss amounts for other eligible collateral under the IRB Approach 1. Institutions shall use LGD* calculated in accordance with this paragraph and paragraph 2 as the LGD for the purposes of Chapter 3. Where the ratio of the value of the collateral (C) to the exposure value (E) is below the required minimum collateralisation level of the exposure (C*) as laid down in Table 5, LGD* shall be the LGD laid down in Chapter 3 for uncollateralised exposures to the counterparty. For this purpose, institutions shall calculate the exposure value of the items listed in Article 166(8) to (10) by using a conversion factor or percentage of 100 % rather than the conversion factors or percentages indicated in those paragraphs. Where the ratio of the value of the collateral to the exposure value exceeds a second, higher threshold level of C** as laid down in Table 5, LGD* shall be that prescribed in Table 5. Where the required level of collateralisation C** is not achieved in respect of the exposure as a whole, institutions shall consider the exposure to be two exposures — one corresponding to the part in respect of which the required level of collateralisation C** is achieved and one corresponding to the remainder. 2. The applicable LGD* and required collateralisation levels for the secured parts of exposures are set out in Table 5 of this paragraph. Table 5 Minimum LGD for secured parts of exposures LGD* for senior exposure LGD* for subordinated exposures Required minimum collateralisation level of the exposure (C*) Required minimum collateralisation level of the exposure (C**) Receivables 35 % 65 % 0 % 125 % Residential real estate/commercial real estate property/commercial immovable property 35 % 65 % 30 % 140 % Other collateral 40 % 70 % 30 % 140 % 3. As an alternative to the treatment set out in paragraphs 1 and 2, and subject to Article 124(2), institutions may assign a 50 % risk weight to the part of the exposure that is, within the limits set out in Article 125(2)(d) and Article 126(2)(d) respectively, fully collateralised by residential property or commercial immovable property situated within the territory of a Member State where all the conditions in Article 199(4) 199(3) or (4) are met.

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Article 232 Other funded credit protection 1. Where the conditions set out in Article 212(1) are met, deposits a deposit with a third party institutions institution may be treated as a guarantee by the third party institution. 2. Where the conditions set out in Article 212(2) are met, institutions shall subject the portion of the exposure collateralised by the current surrender value of life insurance policies pledged to the lending institution to the following treatment: (a) where the exposure is subject to the Standardised Approach, it shall be risk-weighted by using the risk weights specified in paragraph 3; (b) where the exposure is subject to the IRB Approach but not subject to the institution's own estimates of LGD, it shall be assigned an LGD of 40 %. In the event of a currency mismatch, institutions shall reduce the current surrender value in accordance with Article 233(3), the value of the credit protection being the current surrender value of the life insurance policy. 3. For the purposes of point (a) of paragraph 2, institutions shall assign the following risk weights on the basis of the risk weight assigned to a senior unsecured exposure to the undertaking providing the life insurance: (a) a risk weight of 20 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 20 %; (b) a risk weight of 35 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 50 %; (c) a risk weight of 70 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 100 %; (d) a risk weight of 150 %, where the senior unsecured exposure to the undertaking providing the life insurance is assigned a risk weight of 150 %. 4. Institutions may treat instruments repurchased on request that are eligible under Article 200(c) as a guarantee by the issuing institution. The value of the eligible credit protection shall be the following: (a) where the instrument will be repurchased at its face value, the value of the protection shall be that amount; (b) where the instrument will be repurchased at market price, the value of the protection shall be the value of the instrument valued in the same way as the debt securities that meet the conditions in Article 197(4).

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Article 233 Valuation 1. For the purpose of calculating the effects of unfunded credit protection in accordance with this Sub-section, the value of unfunded credit protection (G) shall be the amount that the protection provider has undertaken to pay in the event of the default or non-payment of the borrower or on the occurrence of other specified credit events. 2. In the case of credit derivatives which do not include as a credit event restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that result in a credit loss event the following shall apply: (a) where the amount that the protection provider has undertaken to pay is not higher than the exposure value, institutions shall reduce the value of the credit protection calculated under paragraph 1 by 40 %; (b) where the amount that the protection provider has undertaken to pay is higher than the exposure value, the value of the credit protection shall be no higher than 60 % of the exposure value. 3. Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated, institutions shall reduce the value of the credit protection by the application of a volatility adjustment as follows:G* = G · 1 – Hfx where: G* the amount of credit protection adjusted for foreign exchange risk, G the nominal amount of the credit protection; Hfx the volatility adjustment for any currency mismatch between the credit protection and the underlying obligation determined in accordance with paragraph 4. Where there is no currency mismatch Hfx is equal to zero. 4. Institutions shall base the volatility adjustments for any currency mismatch on a 10 business day liquidation period, assuming daily revaluation, and may calculate them based on the Supervisory Volatility Adjustments approach Approach or the Own Estimates Approach as set out in Articles 224 and 225 respectively. Institutions shall scale up the volatility adjustments in accordance with Article 226.

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Article 237 Maturity mismatch 1. For the purpose of calculating risk-weighted exposure amounts, a maturity mismatch occurs when the residual maturity of the credit protection is less than that of the protected exposure. Where protection has a residual maturity of less than three months and the maturity of the protection is less than the maturity of the underlying exposure that protection does not qualify as eligible credit protection. 2. Where there is a maturity mismatch the credit protection shall not qualify as eligible where either of the following conditions is met: (a) the original maturity of the protection is less than 1 one year; (b) the exposure is a short term exposure specified by the competent authorities as being subject to a one-day floor rather than a one-year floor in respect of the maturity value (M) under Article 162(3).

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Article 239 Valuation of protection 1. For transactions subject to funded credit protection under the Financial Collateral Simple Method, where there is a mismatch between the maturity of the exposure and the maturity of the protection, the collateral does not qualify as eligible funded credit protection. 2. For transactions subject to funded credit protection under the Financial Collateral Comprehensive Method, institutions shall reflect the maturity of the credit protection and of the exposure in the adjusted value of the collateral according to in accordance with the following formula:CVAM = CVA · t – t*T – t* where: CVA the volatility adjusted value of the collateral as specified in Article 223(2) or the amount of the exposure, whichever is lower; t the number of years remaining to the maturity date of the credit protection calculated in accordance with Article 238, or the value of T, whichever is lower; T the number of years remaining to the maturity date of the exposure calculated in accordance with Article 238, or five years, whichever is lower; t* 0,25. Institutions shall use CVAM as CVA further adjusted for maturity mismatch in the formula for the calculation of the fully adjusted value of the exposure (E*) set out in Article 223(5). 3. For transactions subject to unfunded credit protection, institutions shall reflect the maturity of the credit protection and of the exposure in the adjusted value of the credit protection according to in accordance with the following formula:GA = G* · t – t*T – t* where: GA G* adjusted for any maturity mismatch; G* the amount of the protection adjusted for any currency mismatch; t is the number of years remaining to the maturity date of the credit protection calculated in accordance with Article 238, or the value of T, whichever is lower; T is the number of years remaining to the maturity date of the exposure calculated in accordance with Article 238, or five years, whichever is lower; t* 0,25. Institutions shall use GA as the value of the protection for the purposes of Articles 233 to 236.

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Article 240 First-to-default credit derivatives Where an institution obtains credit protection for a number of exposures under terms that the first default among the exposures shall trigger payment and that this credit event shall terminate the contract, the institution may amend the calculation of the risk-weighted exposure amount and, as relevant, the expected loss amount of the exposure which would, in the absence of the credit protection, produce the lowest risk weighted risk-weighted exposure amount in accordance with this Chapter: (a) for institutions using the Standardised Approach, the risk-weighted exposure amount shall be that calculated under the Standardised Approach; (b) for institutions using the IRB Approach, the risk-weighted exposure amount shall be the sum of the risk-weighted exposure amount calculated under the IRB Approach and 12.5 12,5 times the expected loss amount. The treatment set out in this Article applies only where the exposure value is less than or equal to the value of the credit protection.

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Article 242 Definitions For the purposes of this Chapter, the following definitions shall apply: (1) excess spread means finance charge collections and other fee income received in respect of the securitised exposures net of costs and expenses; (2) clean-up call option means a contractual option for the originator to repurchase or extinguish the securitisation positions before all of the underlying exposures have been repaid, when the amount of outstanding exposures falls below a specified level; (3) liquidity facility means the securitisation position arising from a contractual agreement to provide funding to ensure timeliness of cash flows to investors; (4) KIRB means 8 % of the risk-weighted exposure amounts that would be calculated under Chapter 3 in respect of the securitised exposures, had they not been securitised, plus the amount of expected losses associated with those exposures calculated under that Chapter; (5) ratings based method means the method of calculating risk-weighted exposure amounts for securitisation positions in accordance with Article 261; (6) supervisory formula method means the method of calculating risk-weighted exposure amounts for securitisation positions in accordance with Article 262; (7) unrated position means a securitisation position which does not have an eligible credit assessment by an ECAI as referred to in Section 4; (8) rated position means a securitisation position which has an eligible credit assessment by an ECAI as referred to in Section 4; (9) asset-backed commercial paper (ABCP) programme or ABCP programme means a programme of securitisations the securities issued by which predominantly take the form of commercial paper with an original maturity of one year or less; (10) traditional securitisation means a securitisation involving the economic transfer of the exposures being securitised. This shall be accomplished by the transfer of ownership of the securitised exposures from the originator institution to an SSPE or through sub-participation by an SSPE. The securities issued do not represent payment obligations of the originator institution; (11) synthetic securitisation means a securitisation where the transfer of risk is achieved by the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originator institution; (12) revolving exposure means an exposure whereby customers' outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to an agreed limit; (13) revolving securitisation means a securitisation where the securitisation structure itself revolves by exposures being added to or removed from the pool of exposures irrespective of whether the exposures revolve or not; (14) early amortisation provision means a contractual clause in a securitisations securitisation of revolving exposures or a revolving securitisation which requires, on the occurrence of defined events, investors' positions to be redeemed before the originally stated maturity of the securities issued; (15) first loss tranche means the most subordinated tranche in a securitisation that is the first tranche to bear losses incurred on the securitised exposures and thereby provides protection to the second loss and, where relevant, higher ranking tranches.

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Article 243 Traditional securitisation 1. The originator institution of a traditional securitisation may exclude securitised exposures from the calculation of risk-weighted exposure amounts and expected loss amounts if either of the following conditions is fulfilled: (a) significant credit risk associated with the securitised exposures is considered to have been transferred to third parties; (b) the originator institution applies a 1250 % risk weight to all securitisation positions it holds in this securitisation or deducts these securitisation positions from Common Equity Tier 1 items in accordance with Article 36(1)(k). 2. Significant credit risk shall be considered to have been transferred in the following cases: (a) the risk-weighted exposure amounts of the mezzanine securitisation positions held by the originator institution in this securitisation do not exceed 50 % of the risk weighted risk-weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation; (b) where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that the exposure value of the securitisation positions that would be subject to deduction from Common Equity Tier 1 or a 1250 % risk weight exceeds a reasoned estimate of the expected loss on the securitised exposures by a substantial margin, the originator institution does not hold more than 20 % of the exposure values of the securitisation positions that would be subject to deduction from Common Equity Tier 1 or a 1250 % risk weight. Where the possible reduction in risk weighted risk-weighted exposure amounts, which the originator institution would achieve by this securitisation is not justified by a commensurate transfer of credit risk to third parties, competent authorities may decide on a case-by-case basis that significant credit risk shall not be considered … 468 unchanged words … deterioration in the credit quality of the underlying pool; (iii) it makes it clear, where applicable, that any purchase or repurchase of securitisation positions by the originator or sponsor beyond its contractual obligations is exceptional and may only be made at arms' lengths conditions; arm's length; (f) where there is a clean-up call option, that option shall also meet the following conditions: (i) it is exercisable at the discretion of the originator institution; (ii) it may only be exercised when 10 % or less of the original value of the exposures securitised remains unamortised; (iii) it is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to provide credit enhancement. 6. The competent authorities shall keep EBA informed about the specific cases, referred to in paragraph 2, where the possible reduction in risk-weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties, and the use institutions make of paragraph 4. EBA shall monitor the range of practices in this area and shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines. EBA shall review Member States' implementation of those guidelines and provide advice to the Commission by 31 December 2017 on whether a binding technical standard is required.

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Article 244 Synthetic securitisation 1. An originator institution of a synthetic securitisation may calculate risk-weighted exposure amounts, and, as relevant, expected loss amounts, for the securitised exposures in accordance with Article 249, if either of the following is met: (a) significant credit risk is considered to have been transferred to third parties either through funded or unfunded credit protection; (b) the originator institution applies a 1250 % risk weight to all securitisation positions it holds in this securitisation or deducts these securitisation positions from Common Equity Tier 1 items in accordance with Article 36(1)(k). 2. Significant credit risk shall be considered to have been transferred if either of the following conditions is met: (a) the risk-weighted exposure amounts of the mezzanine securitisation positions which are held by the originator institution in this securitisation do not exceed 50 % of the risk weighted risk-weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation; (b) where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that the exposure value of the securitisation positions that would be subject to deduction from Common Equity Tier 1 or a 1250 % risk weight exceeds a reasoned estimate of the expected loss on the securitised exposures by a substantial margin, the originator institution does not hold more than 20 % of the exposure values of the securitisation positions that would be subject to deduction from Common Equity Tier 1 or a 1250 % risk weight; (c) where weight. Where the possible reduction in risk weighted risk-weighted exposure amounts, which the originator institution would achieve by this securitisation, is not justified by a commensurate transfer of credit risk to third parties, competent authority may decide on a case- by-case basis that significant credit risk shall not be considered to have been transferred to third parties. 3. For the purposes of paragraph 2, mezzanine securitisation positions means securitisation positions to which a risk weight lower than 1250 % applies and that are more junior than the most senior position in this securitisation and more junior than any securitisation positions in this securitisation to which either of the following is assigned in accordance with Section 4: (a) in the case of a securitisation position subject to Section 3, Sub-section 3 a credit quality step 1; (b) in the case of a securitisation position subject to Section 3, Sub-section 4 a credit quality step 1 or 2. 4. As an alternative to paragraphs 2 and 3, competent authorities shall grant permission to originator institutions to consider significant credit risk as having been transferred where the originator institution is able to demonstrate, in every case of a securitisation, that the reduction of own funds requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties. Permission shall be granted only where the institution meets all of the following conditions: (a) the institution has appropriately risk-sensitive policies and methodologies in place to assess the transfer of risk; (b) the institution has also recognised the transfer of credit risk to third parties in each case for the purposes of the institution's internal risk management and its internal capital allocation. 5. In addition to the requirements set out in paragraphs 1 to 4, as applicable, the transfer shall comply with the following conditions: (a) the securitisation documentation reflects the economic substance of the transaction; (b) the credit protection by which the credit risk is transferred complies with Article 247(2); (c) the instruments used to transfer credit risk do not contain terms or conditions that: (i) impose significant materiality thresholds below which credit protection is deemed not to be triggered if a credit event occurs; (ii) allow for the termination of the protection due to deterioration of the credit quality of the underlying exposures; (iii) other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator institution; (iv) increase the institution's cost of credit protection or the yield payable to holders of positions in the securitisation in response to a deterioration in the credit quality of the underlying pool; (d) an opinion is obtained from qualified legal counsel confirming the enforceability of the credit protection in all relevant jurisdictions; (e) the securitisation documentation shall make clear, where applicable, that any purchase or repurchase of securitisation positions by the originator or sponsor beyond its contractual obligations may only be made at arms' lengths conditions; arm's length; (f) where there is a clean-up call option, that option meets all the following conditions: (i) it is exercisable at the discretion of the originator institution; (ii) it may only be exercised when 10 % or less of the original value of the exposures securitised remains unamortised; (iii) it is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to provide credit enhancement. 6. The competent authorities shall keep EBA informed about the specific cases, referred to in paragraph 2, where the possible reduction in risk-weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties, and the use institutions make of paragraph 4. EBA shall monitor the range of practices in this area and shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines. EBA shall review Member States' implementation of those guidelines and provide advice to the Commission by 31 December 2017 on whether a binding technical standard is required.

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Article 247 Recognition of credit risk mitigation for securitisation positions 1. An institution may recognise funded or unfunded credit protection obtained in respect of a securitisation position in accordance with Chapter 4 and subject to the requirements laid down in this Chapter and in Chapter 4. Eligible funded credit protection is limited to financial collateral which is eligible for the calculation of risk-weighted exposure amounts under Chapter 2 as laid down under Chapter 4 and recognition is subject to compliance with the relevant requirements as laid down under Chapter 4. 2. Eligible unfunded credit protection and unfunded credit protection providers are limited to those which are eligible under Chapter 4 and recognition is subject to compliance with the relevant requirements laid down under Chapter 4. 3. By way of derogation from paragraph 2, the eligible providers of unfunded credit protection listed in points (a) to (h) of Article 201(1) except for qualifying central counterparties shall have a credit assessment by a recognised ECAI which has been determined to be associated with credit quality step 3 or above under Article 136 and shall have been associated with credit quality step 2 or above at the time the credit protection was first recognised. Institutions that have a permission to apply the IRB Approach to a direct exposure to the protection provider may assess eligibility according to in accordance with the first sentence based on the equivalence of the PD for the protection provider to the PD associated with the credit quality steps referred to in Article 136. 4. By way of derogation from paragraph 2, SSPEs are eligible protection providers where they own assets that qualify as eligible financial collateral and to which there are no rights or contingent rights preceding or ranking pari passu to the contingent rights of the institution receiving unfunded credit protection and all requirements for the recognition of financial collateral in Chapter 4 are fulfilled. In those cases, GA (the amount of the protection adjusted for any currency mismatch and maturity mismatch in accordance with the provisions of Chapter 4) shall be limited to the volatility adjusted market value of those assets and g (the risk weight of exposures to the protection provider as specified under the Standardised Approach) shall be determined as the weighted-average risk weight that would apply to those assets as financial collateral under the Standardised Approach.

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Article 248 Implicit support 1. A sponsor institution, or an originator institution which in respect of a securitisation has made use of Article 245(1) and (2) in the calculation of risk-weighted exposure amounts or has sold instruments from its trading book to the effect that it is no longer required to hold own funds for the risks of those instruments shall not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations. A transaction shall not be considered to provide support if it is executed at arm's length conditions and taken into account in the assessment of significant risk transfer. Any such transaction shall be, regardless of whether it provides support, notified to the competent authorities and subject to the institution's credit review and approval process. The institution shall, when assessing whether the transaction is not structured to provide support, adequately consider at least all the following: (a) the price of the repurchase; (b) the institution's capital and liquidity position before and after repurchase; (c) the performance of the securitised exposures; (d) the performance of the securitisation positions; (e) the impact of support on the losses expected to be incurred by the originator relative to investors. 2. EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines on what constitutes at arm's length conditions and when a transaction is not structured to provide support. 3. If an originator institution or a sponsor institution fails to comply with paragraph 1 in respect of a securitisation this institution shall at a minimum hold own funds against all of the securitised exposures as if they had not been securitised.

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Article 258 Reduction in risk-weighted exposure amounts Where a securitisation position is assigned a 1250 % risk weight, institutions may in accordance with Article 36(1)(k), as an alternative to including the position in their calculation of risk-weighted exposure amounts, deduct from Common Equity Tier 1 capital the exposure value of the position. For these purposes, the calculation of the exposure value may reflect eligible funded credit protection in a manner consistent with Article 257. Where an originator institution makes use of this alternative, it may subtract 12.5 12,5 times the amount deducted in accordance with Article 36(1)(k) from the amount specified in Article 252 as the risk-weighted exposure amount which would currently be calculated for the securitised exposures had they not been securitised.

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Article 260 Maximum risk-weighted exposure amounts An originator institution, a sponsor institution, or other institutions which can calculate KIRB may limit the risk-weighted exposure amounts calculated in respect of its positions in a securitisation to that which would produce a own funds requirement under Article 92(3) equal to the sum of 8 % of the risk-weighted exposure amounts which would be produced if the securitised assets had not been securitised and were on the balance sheet of the institution plus the expected loss amounts of those exposures.

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Article 262 Supervisory Formula Method 1. Under the Supervisory Formula Method, the risk weight for a securitisation position shall be calculated as follows subject to a floor of 20 % for re-securitisation positions and 7 % for all other securitisation positions:12.5 · … 361 unchanged words … from which the underlying securitisation exposures stem; ELGD the exposure-weighted average loss-given-default, calculated as follows:ELGD = ΣiLGDi · EADiΣiEADi where: LGDi the average LGD associated with all exposures to the ith obligor, where LGD is determined in accordance with Chapter 3. In the case of resecuritisation, re-securitisation, an LGD of 100 % shall be applied to the securitised positions. When default and dilution risk for purchased receivables are treated in an aggregate manner within a securitisation, the LGDi input shall be constructed as a weighted average of the LGD for credit risk and the 75 % LGD for dilution risk. The weights shall be the stand-alone own funds charges for credit risk and dilution risk respectively. 2. Where the nominal amount of the largest securitised exposure, C1, is no more than 3 % of the sum of the nominal amount of the securitised exposures, then, for the purposes of the Supervisory Formula Method, the institution may set LGD= 50 % in the case of securitisations, which are not re-securitisations, and N equal to either of the following:N = C1 · Cm + Cm – C1m – 1 · max1 – m · C1,0–1N = 1C1 where: Cm the ratio of the sum of the nominal amounts of the largest m exposures to the sum of the nominal amounts of the exposures securitised. The level of m may be set by the institution. For securitisations in which materially all securitised exposures are retail exposures, institutions may, subject to permission by the competent authority, use the Supervisory Formula Method using the simplifications h=0 and v=0, provided that the effective number of exposures is not low and that the exposures are not highly concentrated. 3. The competent authorities shall keep EBA informed about the use institutions make of paragraph 2. EBA shall monitor the range of practices in this area and shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines. 4. Credit risk mitigation on securitisation positions may be recognised in accordance with Article 264(2) to (4), subject to the conditions in Article 247.

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Article 270 Mapping EBA shall develop draft implementing technical standards to determine, for all ECAIs, which of the credit quality steps set out in this Chapter are associated with the relevant credit assessments of an ECAI. Those determinations shall be objective and consistent, and carried out in accordance with the following principles: (a) EBA shall differentiate between the relative degrees of risk expressed by each assessment; (b) EBA shall consider quantitative factors, such as default and/or loss rates and the historical performance of credit assessments of each ECAI across different asset classes; (c) EBA shall consider qualitative factors such as the range of transactions assessed by the ECAI, its methodology and the meaning of its credit assessments, in particular whether based on expected loss or first Euro euro loss, and to timely payment of interest or to ultimate payment of interest; (d) EBA shall seek to ensure that securitisation positions to which the same risk weight is applied on the basis of the credit assessments of ECAIs are subject to equivalent degrees of credit risk. EBA shall consider amending its determination as to the credit quality step with which a particular credit assessment shall be associated, as appropriate. EBA shall submit those draft implementing technical standards to the Commission by 1 July 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 272 Definitions For the purposes of this Chapter and of Title VI of this Part, the following definitions shall apply: General terms (1) counterparty credit risk or CCR means the risk that the counterparty to a transaction could default before the final settlement … 411 unchanged words … than one year means the ratio of the sum of expected exposure over the life of the transactions in the netting set discounted at the risk-free rate of return, divided by the sum of expected exposure over one year in a the netting set discounted at the risk-free rate. This effective maturity may be adjusted to reflect rollover risk by replacing expected exposure with effective expected exposure for forecasting horizons under one year; (11) cross-product netting means the inclusion of transactions of different product categories within the same netting set pursuant to the Cross-Product Netting cross-product netting rules set out in this Chapter; (12) Current Market Value (hereinafter referred to as CMV) for the purposes of Section 5 refers to the net market value of the portfolio of transactions within a netting set, where both positive and negative … 614 unchanged words … the exchange of a financial instrument for a payment. In the case of transactions that stipulate the exchange of payment against payment, those two payment legs shall consist of the contractually agreed gross payments, including the notional amount of the transaction.

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Article 273 Methods for calculating the exposure value 1. Institutions shall determine the exposure value for the contracts listed in Annex II on the basis of one of the methods set out in Sections 3 to 6 in accordance with this Article. An institution which is not eligible for the treatment set out in Article 94 shall not use the method set out in Section 4. To determine the exposure value for the contracts listed in point 3 of Annex II an institution shall not use the method set out in Section 4. Institutions may use in combination the methods set out in Sections 3 to 6 on a permanent basis within a group. A single institution shall not use in combination the methods set out in Sections 3 to 6 on a permanent basis but shall be permitted to use in combination methods set out in Sections 3 and 5 when one of the methods is used for the cases set out in Article 282(6). 2. Where permitted by the competent authorities in accordance with Article 283(1) and (2), an institution may determine the exposure value for the following items using the Internal Model Method set out in Section 6: (a) the contracts listed in Annex II; (b) repurchase transactions; (c) securities or commodities lending or borrowing transactions; (d) margin lending transactions; (e) long settlement transactions. 3. When an institution purchases protection through a credit derivative against a non-trading book exposure or against a counterparty risk exposure, it may calculate its own funds requirement for the hedged exposure in accordance with either of the following: (a) Articles 233 to 236; (b) in accordance with Article 153(3), or Article 183, where permission has been granted in accordance with Article 143. The exposure value for CCR for those credit derivatives shall be zero, unless an institution applies the approach (ii) in point (h) (h)(ii) of Article 299(2). 4. Notwithstanding paragraph 3, an institution may choose consistently to include for the purposes of calculating own funds requirements for counterparty credit risk all credit derivatives not included in the trading book and purchased as protection against a … 380 unchanged words … multiplication on the risk structure of that contract. For the methods set out in Sections 3 to 6, institutions shall treat transactions where specific wrong way risk has been identified in accordance with Article 291(2), (4), (5) and (6) as appropriate.

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Article 274 Mark-to-market Mark-to-Market Method 1. In order to determine the current replacement cost of all contracts with positive values, institutions shall attach the current market values to the contracts. 2. In order to determine the potential future credit exposure, institutions shall multiply the notional amounts or underlying values, as applicable, by the percentages in Table 1 and in accordance with the following principles: (a) contracts which do not fall within one of the five categories indicated in Table 1 shall be treated as contracts concerning commodities other than precious metals; (b) for contracts with multiple exchanges of principal, the percentages shall be multiplied by the number of remaining payments still to be made in accordance with the contract; (c) for contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset so that the market value of the contract is zero on those specified dates, the residual maturity shall be equal to the time until the next reset date. In the case of interest-rate contracts that meet those criteria and have a remaining maturity of over one year, the percentage shall be no lower than 0,5 %. Table 1 Residual maturity Interest-rate contracts Contracts concerning foreign-exchange rates and gold Contracts concerning equities Contracts concerning precious metals except gold Contracts concerning commodities other than precious metals One year or less 0 % 1 % 6 % 7 % 10 % Over one year, not exceeding five years 0,5 % 5 % 8 % 7 % 12 % Over five years 1,5 % 7,5 % 10 % 8 % 15 % 3. For contracts relating to commodities other than gold, which are referred to in point 3 of Annex II, an institution may, as an alternative to applying the percentages in Table 1, apply the percentages in Table 2 provided that that institution follows the extended maturity ladder approach set out in Article 361 for those contracts. Table 2 Residual maturity Precious metals (except gold) Base metals Agricultural products (softs) Other, including energy products One year or less 2 % 2,5 % 3 % 4 % Over one year, not exceeding five years 5 % 4 % 5 % 6 % Over five years 7,5 % 8 % 9 % 10 % 4. The sum of current replacement cost and potential future credit exposure is the exposure value.

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Article 279 Treatment of Collateral collateral For the determination of risk positions, institutions shall treat collateral as follows: (a) collateral received from a counterparty shall be treated as a claim on an obligation to the counterparty under a derivative contract (long (short position) that is due on the day the determination is made; (b) collateral it has posted with the counterparty shall be treated as an obligation to a claim on the counterparty (short (long position) that is due on the day the determination is made.

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Article 282 Hedging sets 1. Institutions shall establish hedging sets in accordance with paragraphs 2 to 5. 2. There shall be one hedging set for each issuer of a reference debt instrument that underlies a credit default swap. N-th to default basket credit default swaps shall be treated as follows: (a) the size of a risk position in a reference debt instrument in a basket underlying an n-th to default credit default swap shall be the effective notional value of the reference debt instrument, multiplied by the modified duration of the n-th to default derivative with respect to a change in the credit spread of the reference debt instrument; (b) there shall be one hedging set for each reference debt instrument in a basket underlying a given nth to default credit default swap. Risk positions from different n-th to default credit default swaps shall not be included in the same hedging set; (c) the CCR multiplier applicable to each hedging set created for one of the reference debt instruments of an n-th to default derivative shall be as follows: (i) 0,3 % for reference debt instruments that have a credit assessment from a recognised ECAI equivalent to credit quality step 1 to 3; (ii) 0,6 % for other debt instruments. 3. For interest rate risk positions from: (a) money deposits that are posted with a counterparty as collateral when that counterparty does not have debt obligations of low specific risk outstanding; (b) underlying debt instruments, to which according to Table 1 of Article 336 a capital charge of more than 1,60 % applies; applies. There shall be one hedging set for each issuer. When a payment leg emulates such a debt instrument, there shall also be one hedging set for each issuer of the reference debt instrument. An institution may assign risk positions that arise from … 512 unchanged words … An institution that makes use of collateral to mitigate its CCR shall have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in Chapter 4.

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Article 284 Exposure value 1. Where an institution is permitted, in accordance with Article 283(1), to use the IMM to calculate the exposure value of some or all transactions mentioned in that paragraph, it shall measure the exposure value of those transactions at the level of the netting set. The model used by the institution for that purpose shall: (a) specify the forecasting distribution for changes in the market value of the netting set attributable to joint changes in relevant market variables, such as interest rates, foreign exchange rates; (b) calculate the exposure value for the netting set at each of the future dates on the basis of the joint changes in the market variables. 2. In order for the model to capture the effects of margining, the model of the collateral value shall meet the quantitative, qualitative and data requirements for the IMM model in accordance with this Section and the institution may include in its forecasting distributions for changes in the market value of the netting set only eligible financial collateral as referred to in Articles 197 and 198 and points (c) and (d) of Article 299(2). 3. The own funds requirement for counterparty credit risk with respect to the CCR exposures to which an institution applies the IMM, shall be the higher of the following: (a) the own funds requirement for those exposures calculated on the basis of Effective EPE using current market data; (b) the own funds requirement for those exposures calculated on the basis of Effective EPE using a single consistent stress calibration for all CCR exposures to which they apply the IMM. 4. Except for counterparties identified as having Specific Wrong-Way Risk risk that fall within the scope of Article 291(4) and (5), institutions shall calculate the exposure value as the product of alpha (α) times Effective EPE, as follows:Exposure follows: Exposure value = α · Effective EPE where: α 1.4, unless competent authorities require a higher α or permit institutions to use their own estimates in accordance with paragraph 9; Effective EPE shall be calculated by estimating expected exposure (EEt) as the average exposure at future date t, where the average is taken across possible future values of relevant market risk factors. The model shall estimate EE at a series of future dates t1, t2, t3, etc. 5. Effective EE shall be calculated recursively as:Effective EEtk = max Effective EEtk–1, EEtk where: the current date is denoted as t0; Effective EEt0 equals current exposure. 6. Effective EPE is the average Effective EE during the first year of future exposure. If all contracts in the netting set mature within less than one year, EPE shall be the average of EE until all contracts in the netting set mature. Effective EPE shall be calculated as a weighted average of Effective EE:Effective EPE = Σk=1min 1 year, maturityEffective maturity Effective EEtk · Δtk where the weights Δtk = tk – tk–1 allow for the case when future exposure is calculated at dates that are not equally spaced over time. 7. Institutions shall calculate EE or peak exposure measures on the basis of a distribution of exposures that accounts for the possible non-normality of the distribution of exposures. 8. An institution may use a measure of the distribution calculated by the model IMM that is more conservative than α multiplied by Effective EPE as calculated in accordance with the equation in paragraph 4 for every counterparty. 9. Notwithstanding paragraph 4, competent authorities may permit institutions to use their own estimates of alpha, where: (a) alpha shall equal the ratio of internal capital from a full simulation of CCR exposure across counterparties (numerator) and internal capital based on EPE (denominator); (b) in the denominator, EPE shall be used as if it were a fixed outstanding amount. When estimated in accordance with this paragraph, alpha shall be no lower than 1.2. 1,2. 10. For the purposes of an estimate of alpha under paragraph 9, an institution shall ensure that the numerator and denominator are calculated in a manner consistent with the modelling methodology, parameter specifications and portfolio composition. The approach used to estimate α shall be based on the institution's internal capital approach, be well documented and be subject to independent validation. In addition, an institution shall review its estimates of alpha on at least a quarterly basis, and more frequently when the composition of the portfolio varies over time. An institution shall also assess the model risk. 11. An institution shall demonstrate to the satisfaction of the competent authorities that its internal estimates of alpha capture in the numerator material sources of dependency of distribution of market values of transactions or of portfolios of transactions across counterparties. Internal estimates of alpha shall take account of the granularity of portfolios. 12. In supervising the use of estimates under paragraph 9, competent authorities shall have regard to the significant variation in estimates of alpha that arises from the potential for mis-specification in the models used for the numerator, especially where convexity is present. 13. Where appropriate, volatilities and correlations of market risk factors used in the joint modelling of market and credit risk shall be conditioned on the credit risk factor to reflect potential increases in volatility or correlation in an economic downturn.

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Article 285 Exposure value for netting sets subject to a margin agreement 1. If the netting set is subject to a margin agreement and daily mark-to-market valuation, an the institution may shall calculate Effective EPE as set out in this paragraph. If the model captures the effects of margining when estimating EE, the institution may, subject to the permission of the competent authority, use the model's EE measure directly in the equation in Article 284(5). Competent authorities shall grant such permission only if they verify that the model properly captures the effects of margining when estimating EE. An institution that has not received such permission shall use one of the following Effective EPE measures: (a) effective Effective EPE, calculated without taking into account any collateral held or posted by way of margin plus any collateral that has been posted to the counterparty independent of the daily valuation and margining process or current exposure; (b) an add-on that reflects Effective EPE, calculated as the potential increase in exposure over the margin period of risk, plus the larger of: (i) the current exposure including all collateral currently held or posted, other than collateral called or in dispute; (ii) the largest net exposure, including collateral under the margin agreement, that would not trigger a collateral call. This amount shall reflect all applicable thresholds, minimum transfer amounts, independent amounts and initial margins under the margin agreement; (c) if the model captures the effects of margining when estimating EE, the institution may, subject to the permission of the competent authority, use the model's EE measure directly in the equation in Article 284(5). Competent authorities shall grant such permission only if they verify that the model properly captures the effects of margining when estimating EE. agreement. For the purposes of point (b), institutions shall calculate the add-on as the expected positive change of the mark-to-market value of the transactions during the margin period of risk. Changes in the value of collateral shall be reflected using the supervisory volatility adjustments Supervisory Volatility Adjustments Approach in accordance with Section 3 4 of Chapter 4 or the own estimates of volatility adjustments of the Financial Collateral Comprehensive Method, but no collateral payments shall be assumed during the margin period of risk. The margin period of risk is subject to the minimum periods … 333 unchanged words … for the subsequent two quarters. 5. For re-margining with a periodicity of N days, the margin period of risk shall be at least equal to the period specified in paragraphs 2 and 3, F, plus N days minus one day. That is:Margin is: Margin Period of Risk = F + N – 1 6. If the internal model includes the effect of margining on changes in the market value of the netting set, an institution shall model collateral, other than cash of the same currency as the exposure itself, jointly with the exposure in its exposure value calculations for OTC derivatives and securities-financing transactions. 7. If an institution is not able to model collateral jointly with the exposure, it shall not recognise in its exposure value calculations for OTC derivatives and securities-financing transactions the effect of collateral other than cash of the same currency as the exposure itself, unless it uses either volatility adjustments that meet the standards of the financial collateral comprehensive method Method with own volatility adjustments estimates or the standard supervisory volatility adjustments Supervisory Volatility Adjustments Approach in accordance with Chapter 4. 8. An institution using the IMM shall ignore in its models the effect of a reduction of the exposure value due to any clause in a collateral agreement that requires receipt of collateral when counterparty credit quality deteriorates.

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Article 286 Management of CCR – — Policies, processes and systems 1. An institution shall establish and maintain a CCR management framework, consisting of: (a) policies, processes and systems to ensure the identification, measurement, management, approval and internal reporting of CCR; (b) procedures for ensuring that those policies, processes and systems are complied with. Those polices, policies, processes and systems shall be conceptually sound, implemented with integrity and documented. The documentation shall include an explanation of the empirical techniques used to measure CCR. 2. The CCR management framework required by paragraph 1 shall take account of market, liquidity, … 491 unchanged words … and shall be reflected in the CCR policies and limits set by the management body or senior management. Where stress tests reveal particular vulnerability to a given set of circumstances, the institution shall take prompt steps to manage those risks.

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Article 289 Use test 1. Institutions shall ensure that the distribution of exposures generated by the model used to calculate effective Effective EPE is closely integrated into the day-to-day CCR management process of the institution, and that the output of the model is taken into account in the process of credit approval, CCR management, internal capital allocation and corporate governance. 2. The institution shall demonstrate to the satisfaction of the competent authorities that it has been using a model to calculate the distribution of exposures upon which the EPE calculation is based that meets, broadly, the requirements set out in this Section for at least one year prior to permission to use the IMM by the competent authorities in accordance with Article 283. 3. The model used to generate a distribution of exposures to CCR shall be part of the CCR management framework required by Article 286. This framework shall include the measurement of usage of credit lines, aggregating CCR exposures with other credit exposures and internal capital allocation. 4. In addition to EPE, an institution shall measure and manage current exposures. Where appropriate, the institution shall measure current exposure gross and net of collateral. The use test is satisfied if an institution uses other CCR measures, such as peak exposure, based on the distribution of exposures generated by the same model to compute EPE. 5. An institution shall have the systems capability to estimate EE daily if necessary, unless it demonstrates to the satisfaction of its competent authorities that its exposures to CCR warrant less frequent calculation. The institution shall estimate EE along a time profile of forecasting horizons that adequately reflects the time structure of future cash flows and maturity of the contracts and in a manner that is consistent with the materiality and composition of the exposures. 6. Exposure shall be measured, monitored and controlled over the life of all contracts in the netting set and not only to the one-year horizon. The institution shall have procedures in place to identify and control the risks for counterparties where the exposure rises beyond the one-year horizon. The forecast increase in exposure shall be an input into the institution's internal capital model.

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Article 291 Wrong-Way Risk 1. For the purposes of this Article: (a) General Wrong-Way risk arises when the likelihood of default by counterparties is positively correlated with general market risk factors; (b) Specific Wrong-Way risk arises when future exposure to a specific counterparty is positively correlated with the counterparty's PD due to the nature of the transactions with the counterparty. An institution shall be considered to be exposed to Specific Wrong-Way risk if the future exposure to a specific counterparty is expected to be high when the counterparty's probability of a default is also high. 2. An institution shall give due consideration to exposures that give rise to a significant degree of Specific and General Wrong-Way Risk. risk. 3. In order to identify General Wrong-Way Risk, risk, an institution shall design stress testing and scenario analyses to stress risk factors that are adversely related to counterparty credit worthiness. creditworthiness. Such testing shall address the possibility of severe shocks occurring when relationships between risk factors have changed. An institution shall monitor General Wrong Way Risk risk by product, by region, by industry, or by other categories that are relevant to the business. 4. An institution shall maintain procedures to identify, monitor and control cases of Specific Wrong-Way risk for each legal entity, beginning at the inception of a transaction and continuing through the life of the transaction. 5. Institutions shall calculate the own funds requirements for CCR in relation to transactions where Specific Wrong-Way risk has been identified and where there exists a legal connection between the counterparty and the issuer of the underlying of the OTC derivative or the underlying of the transactions referred to in points (b), (c) and (d) of Article 273(2)), in accordance with the following principles: (a) the instruments where Specific Wrong-Way risk exists shall not be included in the same netting set as other transactions with the counterparty, and shall each be treated as a separate netting set; (b) within any such separate netting set, for single-name credit default swaps the exposure value equals the full expected loss in the value of the remaining fair value of the underlying instruments based on the assumption that the underlying issuer is in liquidation; (c) LGD for an institution using the approach set out in Chapter 3 shall be 100 % for such swap transactions; (d) for an institution using the approach set out in Chapter 2, the applicable risk weight shall be that of an unsecured transaction; (e) for all other transactions referencing a single name in any such separate netting set, the calculation of the exposure value shall be consistent with the assumption of a jump-to-default of those underlying obligations where the issuer is legally connected with the counterparty. For transactions referencing a basket of names or index, the jump-to-default of the respective underlying obligations where the issuer is legally connected with the counterparty, shall be applied, if material; (f) to the extent that this uses existing market risk calculations for own funds requirements for incremental default and migration risk as set out in Title IV, Chapter 5, Section 4 that already contain an LGD assumption, the LGD in the formula used shall be 100 %. 6. Institutions shall provide senior management and the appropriate committee of the management body with regular reports on both Specific and General Wrong-Way risks and the steps being taken to manage those risks.

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Article 292 Integrity of the modelling process 1. An institution shall ensure the integrity of modelling process as set out in Article 284 by adopting at least the following measures: (a) the model shall reflect transaction terms and specifications in a timely, complete, and conservative fashion; (b) those terms shall include at least contract notional amounts, maturity, reference assets, margining arrangements and netting arrangements; (c) those terms and specifications shall be maintained in a database that is subject to formal and periodic audit; (d) a process for recognising netting arrangements that requires legal staff to verify that netting under those arrangements is legally enforceable; (e) the verification required by under point (d) shall be entered into the database mentioned in point (c) by an independent unit; (f) the transmission of transaction terms and specification data to the EPE model shall be subject to internal audit; (g) there shall be processes for formal … 449 unchanged words … underlying the model are inappropriate and may therefore result in an understatement of EPE; (b) include a review of the comprehensiveness of the model. 7. An institution shall monitor the relevant risks and have processes in place to adjust its estimation of EEPE Effective EPE when those risks become significant. In complying with this paragraph, the institution shall: (a) identify and manage its exposures to Specific Wrong-Way risk arising as specified in Article 291(1)(b) and exposures to General Wrong-Way risk arising as specified in Article 291(1)(a); (b) for exposures with a rising risk profile after one year, compare on a regular basis the estimate of a relevant measure of exposure over one year with the same exposure measure over the life of the exposure; (c) for exposures with a residual maturity below one year, compare on a regular basis the replacement cost (current exposure) and the realised exposure profile, and store data that would allow such a comparison. 8. An institution shall have internal procedures to verify that, prior to including a transaction in a netting set, the transaction is covered by a legally enforceable netting contract that meets the requirements set out in Section 7. 9. An institution that uses collateral to mitigate its CCR shall have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in Chapter 4. 10. EBA shall monitor the range of practices in this area and shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines on the application of this Article.

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Article 294 Validation requirements 1. As part of the initial and on-going validation of its CCR exposure model and its risk measures, an institution shall ensure that the following requirements are met: (a) the institution shall carry out back-testing using historical data on movements in market risk factors prior to the permission by the competent authorities in accordance with Article 283(1). That back-testing shall consider a number of distinct prediction time horizons out to at least one year, over a range of various initialisation dates and covering a wide range of market conditions; (b) the institution using the approach set out in Article 285(1)(b) shall regularly validate its model to test whether realised current exposures are consistent with prediction over all margin periods within one year. If some of the trades in the netting set have a maturity of less than one year, and the netting set has higher risk factor sensitivities without these trades, the validation shall take this into account; (c) it shall back-test the performance of its CCR exposure model and the model's relevant risk measures as well as the market risk factor predictions. For collateralised trades, the prediction time horizons considered shall include those reflecting typical margin periods of risk applied in collateralised or margined trading; (d) if the model validation indicates that effective Effective EPE is underestimated, the institution shall take the action necessary to address the inaccuracy of the model; (e) it shall test the pricing models used to calculate CCR exposure for a given scenario of future shocks to market risk factors as … 522 unchanged words … all counterparties for which the models are used. 3. If back-testing indicates that a model is not sufficiently accurate, the competent authorities shall revoke its permission for the model, or impose appropriate measures to ensure that the model is improved promptly.

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Article 296 Recognition of contractual netting agreements 1. Competent authorities shall recognise a contractual netting agreement only where the conditions in paragraph 2 and, where relevant, 3 are fulfilled. 2. The following conditions shall be fulfilled by all contractual netting agreements used by an institution for the purposes of determining exposure value in this Part: (a) the institution has concluded a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of default by the counterparty it would be entitled to receive or obliged to pay only the net sum of the positive and negative mark-to-market values of included individual transactions; (b) the institution has made available to the competent authorities written and reasoned legal opinions to the effect that, in the event of a legal challenge of the netting agreement, the institution's claims and obligations would not exceed those referred to in point (a). The legal opinion shall refer to the applicable law: (i) the jurisdiction in which the counterparty is incorporated; (ii) if a branch of an undertaking is involved, which is located in a country other than that where the undertaking is incorporated, the jurisdiction in which the branch is located; (iii) the jurisdiction whose law governs the individual transactions included in the netting agreement; (iv) the jurisdiction whose law governs any contract or agreement necessary to effect the contractual netting; (c) credit risk to each counterparty is aggregated to arrive at a single legal exposure across transactions with each counterparty. This aggregation shall be factored into credit limit purposes and internal capital purposes; (d) the contract shall not contain any clause which, in the event of default of a counterparty, permits a non-defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulting party, even if the defaulting party is a net creditor (i.e. walk away walk-away clause). If any of the competent authorities are not satisfied that the contractual netting is legally valid and enforceable under the law of each of the jurisdictions referred to in point (b) the contractual netting agreement shall not be recognised as risk-reducing for either of the counterparties. Competent authorities shall inform each other accordingly. 3. The legal opinions referred to in point (b) may be drawn up by reference to types of contractual netting. The following additional conditions shall be fulfilled by contractual cross-product netting agreements: (a) the net sum referred to in point (a) of paragraph 2 is the net sum of the positive and negative close out values of any included individual bilateral master agreement and of the positive and negative mark-to-market value of the individual transactions (the Cross-Product Net Amount); cross-product net amount); (b) the legal opinions referred to in point (b) of paragraph 2 shall address the validity and enforceability of the entire contractual cross-product netting agreement under its terms and the impact of the netting arrangement on the material provisions of any included individual bilateral master agreement.

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Article 299 Items in the trading book 1. For the purposes of the application of this Article, Annex II shall include a reference to derivative instruments for the transfer of credit risk as mentioned in point (8) of Section C of Annex … 371 unchanged words … where such financial instruments or commodities which are not eligible under Chapter 4 are lent, sold or provided, or borrowed, purchased or received by way of collateral or otherwise under such a transaction, and an institution is using the Supervisory volatility adjustments approach Volatility Adjustments Approach under Section 3 of Chapter 4, institutions shall treat such instruments and commodities in the same way as non-main index equities listed on a recognised exchange; (f) where an institution is using the Own Estimates of Volatility adjustments approach Approach under Section 3 of Chapter 4 in respect of financial instruments or commodities which are not eligible under Chapter 4, it shall calculate volatility adjustments for each individual item. Where an institution has obtained the approval to use the Internal Models Approach internal models approach defined in Chapter 4, it may also apply that approach in the trading book; (g) in relation to the recognition of master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions, or other capital market-driven transactions, institutions shall only recognise netting across positions in the trading book and the non-trading book when the netted transactions fulfil the following conditions: (i) all transactions are marked to market daily; (ii) any items borrowed, purchased or received under the transactions may be recognised as eligible financial collateral under Chapter 4 without the application of points (c) to (f) of this paragraph; (h) where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is recognised under this Regulation in accordance with Article 204, institutions shall apply one of the following approaches: (i) treat it as if there were no counterparty risk arising from the position in that credit derivative; (ii) consistently include for the purpose of calculating the own funds requirements for counterparty credit risk all credit derivatives in the trading book forming part of internal hedges or purchased as protection against a CCR exposure where the credit protection is recognised as eligible under Chapter 4.

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Article 301 Material scope 1. This Section applies to the following contracts and transactions for as long as they are outstanding with a CCP: (a) the contracts listed in Annex II and credit derivatives; (b) repurchase transactions; (c) securities or commodities lending or borrowing transactions; (d) long settlement transactions; (e) margin lending transactions. 2. Institutions may choose whether to apply one of the following two treatments to the contracts and transactions outstanding with a QCCP listed in paragraph 1: (a) the treatment for trade exposures and exposures from default fund contributions set out in Article 306, except for the treatment set out in paragraph 1(b) of that Article, and in Article 307, respectively; (b) the treatment set out in Article 310. 3. Institutions shall apply the treatment set out in Article 306, except for the treatment set out in paragraph (1)(a) of that Article, and in Article 309, as applicable, to the contracts and transactions outstanding with a non-qualifying CCP listed in paragraph 1 of this Article.

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before (32013R0575)

Article 303
Treatment of clearing members' exposures to CCPs
1. Where an institution acts as a clearing member, either for its own purposes or as a financial intermediary between a client and a CCP, it shall calculate the own funds requirements for its exposures to a CCP in accordance with Article 301(2) and (3).
2. Where an institution acts as a clearing member and, in that capacity, acts as a financial intermediary between a client and a CCP, it shall calculate the own funds requirements for its CCP-related transactions with the client in accordance with the Sections 1 to 8 of this Chapter, as applicable.
3. Where an institution is a client of a clearing member, it shall calculate the own funds requirements for its CCP-related transactions with the clearing member in accordance with the Sections 1 to 8 of this Chapter, as applicable.
4. As an alternative to the approach specified in paragraph 3, where an institution is a client, it may calculate the own funds requirements for its CCP-related transactions with the clearing member in accordance with Article 305(2) provided that both of the following conditions are met:
(a) the positions and assets of that institution related to those transactions are distinguished and segregated within the meaning of Article 39 of Regulation (EU) No 648/2012, at the level of both the clearing member and the CCP, from the positions and assets of both the clearing member and the other clients of that clearing member and as a result of that segregation those positions and assets are bankruptcy remote in the event of the default or insolvency of the clearing member or one or more of its other clients;
(b) relevant laws, regulations, rules and contractual arrangements applicable to or binding that institution or the CCP ensure that in the event of default or insolvency of the clearing member, the transfer of the institution's positions relating to those contracts and transactions and of the corresponding collateral to another clearing member within the relevant margin period of risk.
5. Where an institution acting as a clearing member enters into a contractual arrangement with a client of another clearing member in order to ensure that client the portability of assets and positions referred to in point (b) of paragraph 4, that institution may attribute an exposure value of zero to the contingent obligation that is created due to that contractual arrangement.

after (02013R0575-20130628)

Article 303
Treatment of clearing members' exposures to CCPs
Where an institution acts as a clearing member, either for its own purposes or as a financial intermediary between a client and a CCP, it shall calculate the own funds requirements for its exposures to a CCP in accordance with Article 301(2) and (3).

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Article 304 Treatment of clearing members' exposures to clients 1. Where an institution acts as a clearing member and, in that capacity, acts as a financial intermediary between a client and a CCP, it shall calculate the own funds requirements for its CCP-related transactions with the client in accordance with Sections 1 to 8 of this Chapter and with Title VI of Part Three, as applicable. 2. Where an institution acting as a clearing member enters into a contractual arrangement with a client of another clearing member that facilitates, in accordance with Article 48(5) and (6), of Regulation (EU) No 648/2012, the transfer of positions and collateral referred to in Article 305(2)(b) of this Regulation for that client, and that contractual agreement gives rise to a contingent obligation for that institution, that institution may attribute an exposure value of zero to that contingent obligation. 3. An institution acting as a clearing member may apply a shorter margin period of risk when calculating the own fund funds requirement for its exposures to a client in accordance with the Internal Model Method. The margin period of risk applied by the institution shall not be less than five days. 4. An institution acting as a clearing member may multiply its EAD by a scalar when calculating the own fund funds requirement for its exposures to a client in accordance with the Mark-to-Market Method, the Standardised Method or the Original Exposure Method. The scalars that the institutions may apply are the following: (a) 0,71 for a margin period of risk of five days; (b) 0,77 for a margin period of risk of six days; (c) 0,84 for a margin period of risk of seven days; (d) 0,89 for a margin period of risk of eight days; (e) 0,95 for a margin period of risk of nine days; (f) 1 for a margin period of risk of ten days or more. 5. EBA shall develop draft regulatory technical standards to specify the margin periods of risk that institutions may use for the purposes of paragraphs 3 and 4. When developing those draft regulatory technical standards, EBA shall apply the following principles: (a) it shall define the margin period of risk for each of the types of contracts and transactions listed in Article 301(1); (b) the margin periods of risk to be defined in point (a) shall reflect the close-out period of the contracts and transactions referred to in that point. EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 305 Treatment of clients' exposures 1. Where an institution is a client, it shall calculate the own funds requirements for its CCP-related transactions with its clearing member in accordance with Sections 1 to 8 of this Chapter and with Title VI … 430 unchanged words … in accordance with Article 4(3) of Regulation (EU) No 648/2012, that institution may apply the treatment set out in paragraph 2 or 3 only where the conditions in each paragraph are met at every level of the chain of intermediaries.

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Article 306 Own funds requirements for trade exposures 1. An institution shall apply the following treatment to its trade exposures with CCPs: (a) it shall apply a risk weight of 2 % to the exposure values of all its trade exposures with QCCPs; (b) it shall apply the risk weight used for the Standardised Approach to credit risk as set out in Article 107(2)(b) to all its trade exposures with non-qualifying CCPs; (c) where an institution is acting as a financial intermediary between a client and a CCP and the terms of the CCP-related transaction stipulate that the institution is not obligated to reimburse the client for any losses suffered due to changes in the value of that transaction in the event that the CCP defaults, the exposure value of the transaction with the CCP that corresponds to that CCP-related transaction is equal to zero. 2. Notwithstanding paragraph 1, where assets posted as collateral to a CCP or a clearing member are bankruptcy remote in the event that the CCP, the clearing member or one or more of the other clients of the clearing member becomes insolvent, an institution may attribute an exposure value of zero to the counterparty credit risk exposures for those assets. 3. An institution shall calculate exposure values of its trade exposures with a CCP in accordance with Sections 1 to 8 of this Chapter, as applicable. 4. An institution shall calculate the risk weighted risk-weighted exposure amounts for its trade exposures with CCPs for the purposes of Article 92(3) as the sum of the exposure values of its trade exposures with CCPs, calculated in accordance with paragraphs 2 and 3 of this Article, multiplied by the risk weight determined in accordance with paragraph 1 of this Article.

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Article 307 Own funds requirements for pre-funded contributions to the default fund of a CCP An institution acting as a clearing member shall apply the following treatment to its exposures arising from its contributions to the default fund of a CCP: (a) it shall calculate the own funds requirement for its pre-funded contributions to the default fund of a QCCP in accordance with the approach set out in Article 308; (b) it shall calculate the own funds requirement for its pre-funded contributions to the default fund of a non-qualifying CCP in accordance with the approach set out in Article 309.

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Article 308 Own funds requirements for pre-funded contributions to the default fund of a QCCP 1. The exposure value for an institution's pre-funded contribution to the default fund of a QCCP (DFi) shall be the amount paid in or the market value of the assets delivered by that institution reduced by any amount of that contribution that the QCCP has already used to absorb its losses following the default of one or more of its clearing members. 2. An institution shall calculate the own funds requirement (Ki) to cover the exposure arising from its pre-funded contribution (DFi) as follows:Ki = 1 + β · NN – 2 · DFiDFCM · KCM where: β the concentration factor communicated to the institution by the CCP; N the number of clearing members communicated to the institution by the CCP; DFCM the sum of pre-funded contributions of all clearing members of the CCP ΣiDFi communicated ΣiDFicommunicated to the institution by the CCP; KCM the sum of the own funds requirements of all clearing members of the CCP calculated in accordance with the applicable formula specified in paragraph 3 ΣiKi. 3. An institution shall calculate KCM as follows: (a) where KCCP ≤ DFCCP, the institution shall use the following formula: KCM = c1 · DFCM*; (b) where DFCCP < KCCP ≤DF*, the institution shall use the following formula: KCM = c2 · KCCP – DFCCP + c1 · DF* – KCCP; (c) where DF* < KCCP, the institution shall use the following formula: KCM = c2 · μ · KCCP – DF* + c2 · DFCM* where: DFCCP the pre-funded financial resources of the CCP communicated to the institution by the CCP; KCCP the hypothetical capital of the CCP communicated to the institution by the CCP; DF* DFCCP + DFCM*; DFCM* DFCM – 2 · DF—i; DF—i DF—i;; DFi the average pre-funded contribution, 1N · DFCM, communicated to the institution by the CCP; c1 a capital factor equal to max 1.6%DF*KCCP0.3, 1.6 %DF*KCCP0.3, 0.16% c2 a capital factor equal to 100 %; μ 1,2. 4. An institution shall calculate the risk weighted risk-weighted exposure amounts for exposures arising from an institution's pre-funded contribution for the purposes of Article 92(3) as the own funds requirement (Ki) determined in accordance with paragraph 2 multiplied by 12,5. 5. Where KCCP is equal to zero, institutions shall use the value for c1 of 0,16 % for the purpose of the calculation in paragraph 3.

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Article 309 Own funds requirements for pre-funded contributions to the default fund of a non-qualifying CCP and for unfunded contributions to a non-qualifying CCP 1. An institution shall apply the following formula to calculate the own funds requirement (Ki) for the exposures arising from its pre-funded contributions to the default fund of a non-qualifying CCP (DFi) and from unfunded contributions (UCi) to such CCP:Ki = c2 · μ · DFi + UCi where c2·and μ are defined as in Article 308(3). 2. For the purpose of paragraph 1, unfunded contributions means contributions that an institution acting as a clearing member has contractually committed to provide to a CCP after the CCP has depleted its default fund to cover the losses it incurred following the default of one or more of its clearing members. 3. An institution shall calculate the risk weighted risk-weighted exposure amounts for exposures arising from an institution's pre-funded contribution for the purposes of Article 92(3) as the own funds requirement (Ki) determined in accordance with paragraph 1 multiplied by 12,5.

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Article 310 Alternative calculation of own funds requirement for exposures to a QCCP An institution shall apply the following formula to calculate the own funds requirement (Ki) for the exposures arising from its trade exposures and the trade exposures of its clients (TEi) and pre-funded contributions (DFi) to the default fund of a QCCP:Ki = 8% · min2% · TEi + 1250% · DFi;20% · TEi

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Article 314 Combined use of different approaches 1. Institutions may use a combination of approaches provided that they obtain permission from the competent authorities. Competent authorities shall grant such permission where the requirements set out in paragraphs 2 to 4, as applicable, are met. 2. An institution may use an Advanced Measurement Approach in combination with either the Basic Indicator Approach or the Standardised Approach, where both of the following conditions are met: (a) the combination of Approaches used by the institution captures all its operational risks and competent authorities are satisfied with the methodology used by the institution to cover different activities, geographical locations, legal structures or other relevant divisions determined on an internal basis; (b) the criteria set out in Article 320 and the standards set out in Articles 321 and 322 are fulfilled for the part of activities covered by the Standardised Approach and the Advanced Measurement Approaches respectively. 3. For institutions that want to use an Advanced Measurement Approach in combination with either the Basic Indicator Approach or the Standardised Approach competent authorities shall impose the following additional conditions for granting permission: (a) on the date of implementation of an Advanced Measurement Approach, a significant part of the institution's operational risks are captured by that Approach; (b) the institution takes a commitment to apply the Advanced Measurement Approach across a material part of its operations within a time schedule that was submitted to and approved by its competent authorities. 4. An institution may request permission from a competent authority to use a combination of the Basic Indicator Approach and the Standardised Approach only in exceptional circumstances such as the recent acquisition of new business which may require a transition transitional period for the application of the Standardised Approach. A competent authority shall grant such permission only where the institution has committed to apply the Standardised Approach within a time schedule that was submitted to and approved by the competent authority. 5. EBA shall develop draft regulatory technical standards to specify the following: (a) the conditions that competent authorities shall use when assessing the methodology referred to in point (a) of paragraph 2; (b) the conditions that the competent authorities shall use when deciding whether to impose the additional conditions referred to in paragraph 3. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2016. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 338 Own funds requirement for the correlation trading portfolio 1. The correlation trading portfolio shall consist of securitisation positions and n-th-to-default credit derivatives that meet all of the following criteria: (a) the positions are neither re-securitisation positions, nor options on a securitisation tranche, nor any other derivatives of securitisation exposures that do not provide a pro-rata share in the proceeds of a securitisation tranche; (b) all reference instruments are either of the following: (i) single-name instruments, including single-name credit derivatives, for which a liquid two-way market exists; (ii) commonly-traded indices based on those reference entities. A two-way market is deemed to exist where there are independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined within one day and settled at such price within a relatively short time conforming to trade custom. 2. Positions which reference any of the following shall not be part of the correlation trading portfolio: (a) an underlying that is capable of being assigned to the exposure class retail exposures or to the exposure class exposures secured by mortgages on immovable property' property under the Standardised Approach for credit risk in an institution's non-trading book; (b) a claim on a special purpose entity, collateralised, directly or indirectly, by a position that would itself not be eligible for inclusion in the correlation trading portfolio in accordance with paragraph 1 and this paragraph. 3. An institution may include in the correlation trading portfolio positions which are neither securitisation positions nor n-th-to-default credit derivatives but which hedge other positions of that portfolio, provided that a liquid two-way market as described in the last subparagraph of paragraph 1 exists for the instrument or its underlyings. 4. An institution shall determine the larger of the following amounts as the specific risk own funds requirement for the correlation trading portfolio: (a) the total specific risk own funds requirement that would apply just to the net long positions of the correlation trading portfolio; (b) the total specific risk own funds requirement that would apply just to the net short positions of the correlation trading portfolio.

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Article 344 Stock indices 1. EBA shall develop draft implementing technical standards listing the stock indices for which the treatments set out in the second sentence of paragraph 4 is available. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 2. Before the entry into force of the technical standards referred to in paragraph 1, institutions may continue to apply the treatment set out in paragraphs 3 and the second sentence of paragraph 4, where the competent authorities have applied that treatment before 1 January 2014. 3. Stock-index futures, the delta-weighted equivalents of options in stock-index futures and stock indices collectively referred to hereafter as stock-index futures, may be broken down into positions in each of their constituent equities. These positions may be treated as underlying positions in the equities in question, and may, be netted against opposite positions in the underlying equities themselves. Institutions shall notify the competent authority of the use they make of that treatment. 4. Where a stock-index future is not broken down into its underlying positions, it shall be treated as if it were an individual equity. However, the specific risk on this individual equity can be ignored if the stock-index future in question is exchange traded and represents a relevant appropriately diversified index.

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Article 347 Allowance for hedges by first and nth-to default credit derivatives In the case of first-to-default credit derivatives and nth-to-default credit derivatives, the following treatment applies for the allowance to be given in accordance with Article 346: (a) where an institution obtains credit protection for a number of reference entities underlying a credit derivative under the terms that the first default among the assets shall trigger payment and that this credit event shall terminate the contract, the institution may offset specific risk for the reference entity to which the lowest specific risk percentage charge among the underlying reference entities applies according to in accordance with Table 1 in Article 336; (b) where the nth default among the exposures triggers payment under the credit protection, the protection buyer may only offset specific risk if protection has also been obtained for defaults 1 to n-1 or when n-1 defaults have already occurred. In such cases, the methodology set out in point (a) for first-to-default credit derivatives shall be followed appropriately amended for nth-to-default products.

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Article 349 General criteria for CIUs CIUs shall be eligible for the approach set out in Article 350, where all the following conditions are met: (a) the CIU's prospectus or equivalent document shall include all of the following: (i) the categories of assets in which the CIU is authorised to invest in; invest; (ii) where investment limits apply, the relative limits and the methodologies to calculate them; (iii) where leverage is allowed, the maximum level of leverage; (iv) where concluding OTC financial derivatives transactions or repurchase transactions or securities borrowing or lending is allowed, a policy to limit counterparty risk arising from these transactions; (b) the business of the CIU shall be reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period; (c) the shares or units of the CIU are shall be redeemable in cash, out of the undertaking's assets, on a daily basis at the request of the unit holder; (d) investments in the CIU shall be segregated from the assets of the CIU manager; (e) there shall be adequate risk assessment of the CIU, by the investing institution; (f) CIUs shall be managed by persons supervised in accordance with Directive 2009/65/EC or equivalent legislation.

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Article 352 Calculation of the overall net foreign exchange position 1. The institution's net open position in each currency (including the reporting currency) and in gold shall be calculated as the sum of the following elements (positive or negative): (a) the net spot position (i.e. all asset items less all liability items, including accrued interest, in the currency in question or, for gold, the net spot position in gold); (b) the net forward position, which are all amounts to be received less all amounts to be paid under forward exchange and gold transactions, including currency and gold futures and the principal on currency swaps not included in the spot position; (c) irrevocable guarantees and similar instruments that are certain to be called and likely to be irrecoverable; (d) the net delta, or delta-based, equivalent of the total book of foreign-currency and gold options; (e) the market value of other options. The delta used for purposes of point (d) shall be that of the exchange concerned. For OTC options, or where delta is not available from the exchange concerned, the institution may calculate delta itself using an appropriate model, subject to permission by the competent authorities. Permission shall be granted if the model appropriately estimates the rate of change of the option's or warrant's value with respect to small changes in the market price of the underlying. The institution may include net future income/expenses not yet accrued but already fully hedged if it does so consistently. The institution may break down net positions in composite currencies into the component currencies according to in accordance with the quotas in force. 2. Any positions which an institution has deliberately taken in order to hedge against the adverse effect of the exchange rate on its ratios in accordance with Article 92(1) may, subject to permission by the competent authorities, be excluded from the calculation of net open currency positions. Such positions shall be of a non-trading or structural nature and any variation of the terms of their exclusion, subject to separate permission by the competent authorities. The same treatment subject to the same conditions may be applied to positions which an institution has which relate to items that are already deducted in the calculation of own funds. 3. An institution may use the net present value when calculating the net open position in each currency and in gold provided that the institution applies this approach consistently. 4. Net short and long positions in each currency other than the reporting currency and the net long or short position in gold shall be converted at spot rates into the reporting currency. They shall then be summed separately to form the total of the net short positions and the total of the net long positions respectively. The higher of these two totals shall be the institution's overall net foreign-exchange position. 5. Institutions shall adequately reflect other risks associated with options, apart from the delta risk, in the own funds requirements. 6. EBA shall develop draft regulatory technical standards defining a range of methods to reflect in the own funds requirements other risks, apart from delta risk, in a manner proportionate to the scale and complexity of institutions' activities in options. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. Before the entry into force of the technical standards referred to in the first subparagraph, competent authorities may continue to apply the existing national treatments, where the competent authorities have applied those treatments before 31 December 2013.

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Article 354 Closely correlated currencies 1. Institutions may provide lower own funds requirements against positions in relevant closely correlated currencies. A pair of currencies is deemed to be closely correlated only if the likelihood of a loss — calculated on the basis of daily exchange-rate data for the preceding three or five years — occurring on equal and opposite positions in such currencies over the following 10 working days, which is 4 % or less of the value of the matched position in question (valued in terms of the reporting currency) has a probability of at least 99 %, when an observation period of three years is used, and 95 %, when an observation period of five years is used. The own-funds requirement on the matched position in two closely correlated currencies shall be 4 % multiplied by the value of the matched position. 2. In calculating the requirements of this Chapter, institutions may disregard positions in currencies, which are subject to a legally binding intergovernmental agreement to limit its variation relative to other currencies covered by the same agreement. Institutions shall calculate their matched positions in such currencies and subject them to an own funds requirement no lower than half of the maximum permissible variation laid down in the intergovernmental agreement in question in respect of the currencies concerned. 3. EBA shall develop draft implementing technical standards listing the currencies for which the treatment set out in paragraph 1 is available. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 4. The own funds requirement on the matched positions in currencies of Member States participating in the second stage of the economic and monetary union may be calculated as 1,6 % of the value of such matched positions. 5. Only the unmatched positions in currencies referred to in this Article shall be incorporated into the overall net open position in accordance with Article 352(4). 6. Where daily exchange-rate data for the preceding three or five years - — occurring on equal and opposite positions in a pair of currencies over the following 10 working days show that these two currencies are perfectly positively correlated and the institution always can face a zero bid/ask spread on the respective trades, the institution can, upon explicit permission by its competent authority, apply an own funds requirement of 0 % until the end of 2017.

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Article 361 Extended maturity ladder approach Institutions may use the minimum spread, carry and outright rates set out in the following table Table 2 instead of those indicated in Article 359 provided that the institutions: (a) undertake significant commodities business; (b) have an appropriately diversified commodities portfolio; (c) are not yet in a position to use internal models for the purpose of calculating the own funds requirement for commodities risk. Table 2 Precious metals (except gold) Base metals Agricultural products (softs) Other, including energy products Spread rate (%) 1,0 1,2 1,5 1,5 Carry rate (%) 0,3 0,5 0,6 0,6 Outright rate (%) 8 10 12 15 Institutions shall notify the use they make of this Article to their competent authorities together with evidence of their efforts to implement an internal model for the purpose of calculating the own funds requirement for commodities risk.

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Article 366 Regulatory back testing and multiplication factors 1. The results of the calculations referred to in Article 365 shall be scaled up by the multiplication factors (mc) and (ms). 2. Each of the multiplication factors (mc) and (ms) shall be the sum of at least 3 and an addend between 0 and 1 in accordance with Table 1. That addend shall depend on the number of overshootings for the most recent 250 business days as evidenced by the institution's back-testing of the value-at-risk number as set out in Article 365(1). Table 1 Number of overshootings addend Fewer than 5 0,00 5 0,40 6 0,50 7 0,65 8 0,75 9 0,85 10 or more 1,00 3. The institutions shall count daily overshootings on the basis of back-testing on hypothetical and actual changes in the portfolio's value. An overshooting is a one-day change in the portfolio's value that exceeds the related one-day value-at-risk number generated by the institution's model. For the purpose of determining the addend the number of overshootings shall be assessed at least quarterly and shall be equal to the higher of the number of overshootings under hypothetical and actual changes in the value of the portfolio. Back-testing on hypothetical changes in the portfolio's value shall be based on a comparison between the portfolio's end-of-day value and, assuming unchanged positions, its value at the end of the subsequent day. Back-testing on actual changes in the portfolio's value shall be based on a comparison between the portfolio's end-of-day value and its actual value at the end of the subsequent day excluding fees, commissions, and net interest income. 4. The competent authorities may in individual cases limit the addend to that resulting from overshootings under hypothetical changes, where the number of overshootings under actual changes does not result from deficiencies in the internal model. 5. In order to allow competent authorities to monitor the appropriateness of the multiplication factors on an ongoing basis, institutions shall notify promptly, and in any case no later than within five working days, the competent authorities of overshootings that result form from their back-testing programme.

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Article 372 Requirement to have an internal IRC model An institution that use uses an internal model for calculating own funds requirements for specific risk of traded debt instruments shall also have an internal incremental default and migration risk (IRC) model in place to capture the default and migration risks of its trading book positions that are incremental to the risks captured by the value-at-risk measure as specified in Article 365(1). The institution shall demonstrate that its internal model meets the following standards under the assumption of a constant level of risk, and adjusted where appropriate to reflect the impact of liquidity, concentrations, hedging and optionality: (a) the internal model provides a meaningful differentiation of risk and accurate and consistent estimates of incremental default and migration risk; (b) the internal model's estimates for potential losses play an essential role in the risk management of the institution; (c) the market and position data used for the internal model are up-to-date and subject to an appropriate quality assessment; (d) the requirements in Article 367(3), Article 368, Article 369(1) and points (b), (c), (e) and (f) of Article 370 are met. EBA shall issue guidelines on the requirements in Articles 373 to 376.

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Article 381 Meaning of Credit Valuation Adjustment credit valuation adjustment For the purposes of this Title and Chapter 6 of Title II, Credit Valuation Adjustment credit valuation adjustment or CVA means an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty. That adjustment reflects the current market value of the credit risk of the counterparty to the institution, but does not reflect the current market value of the credit risk of the institution to the counterparty.

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Article 382 Scope 1. An institution shall calculate the own funds requirements for CVA risk in accordance with this Title for all OTC derivative instruments in respect of all of its business activities, other than credit derivatives recognised to reduce risk-weighted exposure amounts for credit risk. 2. An institution shall include securities financing transactions in the calculation of own funds required by paragraph 1 if the competent authority determines that the institution's CVA risk exposures arising from those transactions are material. 3. Transactions with a qualifying central counterparty and a client's transactions with a clearing member, when the clearing member is acting as an intermediary between the client and a qualifying central counterparty and the transactions give rise to a trade exposure of the clearing member to the qualifying central counterparty, are excluded from the own funds requirements for CVA risk. 4. The following transactions shall be excluded from the own funds requirements for CVA risk: (a) transactions with non-financial counterparties as defined in point (9) of Article 2 of Regulation (EU) No 648/2012, or with non-financial counterparties established in a third country, where those transactions do not exceed the clearing threshold as specified in Article 10(3) and (4) of that Regulation; (b) intragroup transactions as provided for in Article 3 of Regulation (EU) No 648/2012 unless Member States adopt national laws requiring the structural separation within a banking group, in which case competent authorities may require those intragroup transactions between the structurally separated institutions to be included in the own funds requirements; (c) transactions with counterparties referred to in point (10) of Article 2 of Regulation (EU) No 648/2012 and subject to the transitional provisions set out in Article 89(1) of that Regulation until those transitional provisions cease to apply; (d) transactions with counterparties referred to in Article 1(4)(a) 1(4) and (b) and Article 1(5)(a), (b) and (c) (5) of Regulation (EU) No 648/2012 and transactions with counterparties for which Article 115 114(4) and Article 115(2) of this Regulation specifies a risk weight of 0 % for exposures to those counterparties. The exemption from the CVA risk charge for those transactions referred to in point (c) of this paragraph) which are entered into during the transitional period laid down in Article 89(1) of Regulation (EU) No 648/2012 shall apply for the length of the contract of that transaction. In regard to point (a), where an institution ceases to be exempt through crossing the exemption threshold or due to a change in the exemption threshold, outstanding contracts shall remain exempt until the date of their maturity. 5. EBA shall conduct a review by 1 January 2015 and every two years thereafter, in the light of international regulatory developments and including on potential methodologies on the calibration and thresholds for application of CVA risk charges to non-financial counterparties established in a third country. EBA in cooperation with ESMA shall develop draft regulatory technical standards to specify the procedures for excluding transactions with non-financial counterparties established in a third country from the own funds requirement for CVA risk. risk charge. EBA shall submit those draft regulatory technical standards within six months of the date of the review referred to in the first subparagraph, Power is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 383 Advanced method 1. An institution which has permission to use an internal model for the specific risk of debt instruments in accordance with point (d) of Article 363 (1) shall, for all transactions for which it has permission to use … 471 unchanged words … (whichever is appropriate): (a) where the model is based on full repricing, the formula in paragraph 1 shall be used directly; (b) where the model is based on credit spread sensitivities for specific tenors, an institution shall base each credit spread sensitivity (Regulatory CS01) ('Regulatory CS01') on the following formula: Regulatory CS01i = 0.0001 · ti · exp– si · tiLGDMKT · EEi – 1 · Di – 1 – EEi + 1 · Di + 12 For the final time bucket i=T, the corresponding formula is Regulatory CS01T … 411 unchanged words … the notional weighted average maturity of all transactions inside the netting set. 5. An institution shall determine the own funds requirements for CVA risk in accordance with Article 364(1) and Articles 365 and 367 as the sum of non-stressed and stressed Value-at-Risk, value-at-risk, which shall be calculated as follows: (a) for the non-stressed Value-at-Risk, value-at-risk, current parameter calibrations for expected exposure as set out in the first subparagraph of Article 292(2), shall be used; (b) for the stressed Value-at-Risk, value-at-risk, future counterparty EE profiles using a stressed calibration as set out in the second subparagraph of Article 292(2) shall be used. The period of stress for the credit spread parameters shall be the most severe one-year stress period contained within the three-year stress period used for the exposure parameters; (c) the three-times multiplier multiplication factor used in the calculation of own funds requirements based on a Value-at-Risk value-at-risk and a stressed Value-at-Risk value-at-risk in accordance with 364(1) will apply to these calculations. EBA shall monitor for consistency any supervisory discretion used to apply a higher multiplier multiplication factor than that three-times multiplier multiplication factor to the Value-at-Risk value-at-risk and stressed Value-at-Risk value-at-risk inputs to the CVA risk charge. Competent authorities applying a multiplier multiplication factor higher than three shall provide a written justification to EBA; (d) the calculation shall be carried out on at least a monthly basis and the EE that is used shall be calculated on the same frequency. If lower than a daily frequency is used, for the purpose of the calculation specified in points (a)(ii) and (b)(ii) of Article 364(1) institutions shall take the average over three months. 6. For exposures to a counterparty, for which the institution's approved internal model for the specific risk of debt instruments does not produce a proxy spread that is appropriate with respect to the criteria of rating, industry and region of the counterparty, the institution shall use the method set out in Article 384 to calculate the own funds requirement for CVA risk. 7. EBA shall develop draft regulatory technical standards to specify in greater detail: (a) how a proxy spread is to be determined by the institution's approved internal model for the specific risk of debt instruments for the purposes of identifying si and LGDMKT referred to in paragraph 1; (b) the number and size of portfolios that fulfil the criterion of a limited number of smaller portfolios referred to in paragraph 4. EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 384 Standardised method 1. An institution which does not calculate the own funds requirements for CVA risk for its counterparties in accordance with Article 383 shall calculate a portfolio own funds requirements for CVA risk for each counterparty in accordance with the following formula, taking into account CVA hedges that are eligible in accordance with Article 386:K = 2.33 · h · Σi0.5 Σi 0.5 · wi · Mi · EADitotal – MihedgeBi – Σindwind Σind wind · Mind · Bind2 + Σi0.75 Σi 0.75 · wi2 · Mi · EADitotal – MihedgeBi2 where: h the one-year risk horizon (in units of a year); h = 1; wi the weight applicable to counterparty i. Counterparty i shall be mapped to one of the six weights wi based on an external credit assessment by a nominated ECAI, as set out in Table 1. For a counterparty for which a credit assessment by a nominated ECAI is not available: (a) an institution using the approach in Title II, Chapter 3 shall map the internal rating of the counterparty to one of the external credit assessment; (b) an institution using the approach in Title II, Chapter 2 shall assign wi=1.0 wi=1,0 % to this counterparty. However, if an institution uses Article 128 to risk weight counterparty credit risk exposures to this counterparty, wi=3.0 wi=3,0 % shall be assigned; EADitotal the total counterparty credit risk exposure value of counterparty i (summed across its netting sets) including the effect of collateral in accordance with the methods set out in Sections 3 to 6 of Title II, Chapter 6 as applicable to the calculation of the own funds requirements for counterparty credit risk for that counterparty. An institution using one of the methods set out in Sections 3 and 4 of Title II, Chapter 6, may use as EADitotal the fully adjusted exposure value in accordance with Article 223(5). For an institution not using the method set out in Section 6 of Title II, Chapter 6, the exposure shall be discounted by applying the following factor:1 – e–0.05 · Mi0.05 · Mi Bi the notional of purchased single name credit default swap hedges (summed if more than one position) referencing counterparty i and used to hedge CVA risk. That notional amount shall be discounted by applying the following factor:1 – e–0.05 · Mihedge0.05 Mi0.05 · Mihedge Mi Bind is the full notional of one or more index credit default swap of purchased protection used to hedge CVA risk. That notional amount shall be discounted by applying the following factor:1 – e–0.05 · Mind0.05 Mi0.05 · Mind Mi wind is the weight applicable to index hedges. An institution shall determine wind by calculating a weighted average of wi that are applicable to the individual constituents of the index; Mi the effective maturity of the transactions with counterparty i. For an institution using the method set out in Section 6 of Title II, Chapter 6, Mi shall be calculated in accordance with Article 162(2)(g). However, for that purpose, Mi shall not be capped at five years but at the longest contractual remaining maturity in the netting set. For an institution not using the method set out in Section 6 of Title II, Chapter 6, Mi is the average notional weighted maturity as referred to in point (b) of Article 162(2). However, for that purpose, Mi shall not be capped at five years but at the longest contractual remaining maturity in the netting set. Mihedge the maturity of the hedge instrument with notional Bi (the quantities Mihedge Bi MihedgeBi are to be summed if these are several positions); Mind the maturity of the index hedge. In the case of more than one index hedge position, Mind is the notional-weighted maturity. 2. Where a counterparty is included in an index on which a credit default swap used for hedging counterparty credit risk is based, the institution may subtract the notional amount attributable to that counterparty in accordance with its reference entity weight from the index CDS notional amount and treat it as a single name hedge (Bi) of the individual counterparty with maturity based on the maturity of the index. Table 1 Credit quality step Weight wi 1 0,7 % 2 0,8 % 3 1,0 % 4 2,0 % 5 3,0 % 6 10,0 %

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Article 386 Eligible hedges 1. Hedges shall be eligible hedges for the purposes of the calculation of own funds requirements for CVA risk in accordance with Articles 383 and 384 only where they are used for the purpose of mitigating CVA risk and managed as such, and are one of the following: (a) single-name credit default swaps or other equivalent hedging instruments referencing the counterparty directly; (b) index credit default swaps, provided that the basis between any individual counterparty spread and the spreads of index credit default swap hedges is reflected, to the satisfaction of the competent authority, in the Value-at-Risk. value-at-risk and the stressed value-at-risk. The requirement in point (b) that the basis between any individual counterparty spread and the spreads of index credit default swap hedges is reflected in the Value-at-Risk value-at-risk and the stressed value-at-risk shall also apply to cases where a proxy is used for the spread of a counterparty. For all counterparties for which a proxy is used, an institution shall use reasonable basis time series out of a representative group of similar names for which a spread is available. If the basis between any individual counterparty spread and the spreads of index credit default swap hedges is not reflected to the satisfaction of the competent authority, then an institution shall reflect only 50 % of the notional amount of index hedges in the Value-at-Risk. value-at-risk and the stressed value-at-risk. Over-hedging of the exposures with single name credit default swaps under the method laid out in Article 383 is not allowed. 2. An institution shall not reflect other types of counterparty risk hedges in the calculation of the own funds requirements for CVA risk. In particular, tranched or nth-to-default credit default swaps and credit linked notes are not eligible hedges for the purposes the calculation of the own funds requirements for CVA risk. 3. Eligible hedges that are included in the calculation of the own funds requirements for CVA risk shall not be included in the calculation of the own funds requirements for specific risk as set out in Title IV or treated as credit risk mitigation other than for the counterparty credit risk of the same portfolio of transaction.

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Article 390 Calculation of the exposure value 1. Exposures arising from the items referred to in Annex II shall be calculated in accordance with one of the methods set out in Part Three, Title II, Chapter 6. 2. Institutions with a permission to use the Internal Model Method in accordance with Article 283 may use the Internal Model Method for calculating the exposure value for repurchase transactions, securities or commodities lending or borrowing transactions, margin lending transactions and long settlement transactions. 3. The institutions that calculate the own funds requirements for their trading-book business in accordance with Part Three, Title IV, Chapter 2, Article 299 and Part Three, Title V and, as appropriate, with Part Three, Title IV, Chapter 5, shall calculate the exposures to individual clients which arise on the trading book by adding together the following items: (a) the positive excess of an institution's long positions over its short positions in all the financial instruments issued by the client in question, the net position in each of the different instruments being calculated according to in accordance with the methods laid down in Part Three, Title IV, Chapter 2; (b) the net exposure, in the case of the underwriting of a debt or an equity instrument; (c) the exposures due to the transactions, agreements and contracts referred to in Articles … 499 unchanged words … draft regulatory technical standards to the Commission by 1 January 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 394 Reporting requirements 1. An institution shall report the following information about every large exposure to the competent authorities, including large exposures exempted from the application of Article 395(1): (a) the identification of the client or the group of connected clients to which an institution has a large exposure; (b) the exposure value before taking into account the effect of the credit risk mitigation, when applicable; (c) where used, the type of funded or unfunded credit protection; (d) the exposure value after taking into account the effect of the credit risk mitigation calculated for the purpose of Article 395(1). Where an institution is subject to Part Three, Title II, Chapter 3 its 20 largest exposures on a consolidated basis, excluding those exempted from the application of Article 395(1) shall be made available to the competent authorities. 2. An institution shall report the following information to the competent authorities, in addition to reporting the information referred to in paragraph 1, in relation to its 10 largest exposures on a consolidated basis to institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial sector entities, including large exposures exempted from the application of Article 395(1): (a) the identification of the client or the group of connected clients to which an institution has a large exposure; (b) the exposure value before taking into account the effect of the credit risk mitigation, when applicable; (c) where used, the type of funded or unfunded credit protection; (d) the exposure value after taking into account the effect of the credit risk mitigation calculated for the purpose of Article 395(1); (e) the expected run-off of the exposure expressed as the amount maturing within monthly maturity buckets up to one year, quarterly maturity buckets up to three years and annually thereafter. 3. Reporting shall be carried out at least twice a year. 4. EBA shall develop draft implementing technical standards to specify the following: (a) the uniform formats for the reporting referred to in paragraph 3 which shall be proportionate to the nature, scale and complexity of institutions' activities and the instructions for using those formats; (b) the frequencies and dates of the reporting referred to in paragraph 3; (c) the IT solutions to be applied for the reporting referred to in paragraph 3. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 395 Limits to large exposures 1. An institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to a client or group of connected clients the value … 801 unchanged words … the Council of 30 May 1994 on deposit-guarantee schemesOJ L 135, 31.5.1994, p. 5. or an equivalent deposit guarantee scheme in a third country to apply a large exposure limit below 25 % but not lower than 15 % between 31 December 2014 28 June 2013 and 30 June 2015, and than 10 % from 1 July 2015 on a sub-consolidated basis in accordance with Article 11(5) to intragroup exposures where these exposures consist of exposures to an entity that does not belong to the same … 517 unchanged words … this case, they shall notify the Commission, the Council, the competent authorities concerned and EBA. Approval of the new measures shall be subject to the process set out in this Article. This Article shall be without prejudice to Article 458.

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Article 396 Compliance with large exposures requirements 1. If, in an exceptional case, exposures exceed the limit set out in Article 395(1), the institution shall report the value of the exposure without delay to the competent authorities which may, where the circumstances warrant it, allow the institution a limited period of time in which to comply with the limit. Where the amount of EUR 150 million referred to in Article 395(1) is applicable, the competent authorities may allow on a case-by-case basis the 100 % limit in terms of the institution's eligible capital to be exceeded. 2. Where compliance by an institution on an individual or sub-consolidated basis with the obligations imposed in this Part is disapplied waived under Article 7(1), or the provisions of Article 9 are applied in the case of parent institutions in a Member State, measures shall be taken to ensure the satisfactory allocation of risks within the group.

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Article 400 Exemptions 1. The following exposures shall be exempted from the application of Article 395(1): (a) asset items constituting claims on central governments, central banks or public sector entities which, unsecured, would be assigned a 0 % risk weight under Part Three, … 945 unchanged words … mutual guarantee schemes possessing the status of credit institutions; (j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk -weighted exposure amounts; (k) assets items constituting claims on and other exposures to recognised exchanges. 3. Competent authorities may only make use of the exemption provided for in paragraph 2 where the following conditions are met: (a) the specific nature of the exposure, the counterparty or the relationship between the institution and the counterparty eliminate or reduce the risk of the exposure; and (b) any remaining concentration risk can be addressed by other equally effective means such as the arrangements, processes and mechanisms provided for in Article 81 of Directive 2013/36/EU. Competent authorities shall inform EBA whether or not they intend to use any of the exemptions provided for in paragraph 2 in accordance with points (a) and (b) of this paragraph and shall consult EBA on this choice.

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Article 402 Exposures arising from mortgage lending 1. For the calculation of exposure values for the purposes of Article 395, an institution may reduce the value of an exposure or any part of an exposure fully secured by real estate immovable property in accordance with Article 125(1) by the pledged amount of the market or mortgage lending value of the immovable property concerned but not more than 50 % of the market or 60 % of the mortgage lending value in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, if all of the following conditions are met: (a) the competent authorities of the Member States have not set a higher risk weight than 35 % for exposures or parts of exposures secured by residential real estate property in accordance with Article 124(2); (b) the exposure or part of the exposure is fully secured by: (i) mortgages on residential property; or (ii) a residential property in a leasing transaction under which the lessor retains full ownership of the residential property and the lessee has not yet exercised his option to purchase; (c) the requirements in Article 208 and Article 229(1) are met. 2. For the calculation of exposure values for the purposes of Article 395, an institution may reduce the value of an exposure or any part of an exposure fully secured by real estate immovable property in accordance with Article 126(1) by the pledged amount of the market or mortgage lending value of the immovable property concerned but not more than 50 % of the market or 60 % of the mortgage lending value in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, if all of the following conditions are met: (a) the competent authorities of the Member States have not set a higher risk weight than 50 % for exposures or parts of exposures secured by commercial real estate immovable property in accordance with Article 124(2); (b) the exposure is fully secured by: (i) mortgages on offices or other commercial premises; or (ii) offices or other commercial premises and the exposures related to immovable property leasing transactions; (c) the requirements in Article 126(2)(a), Article 208 and Article 229(1) are met; (d) the commercial immovable property is fully constructed. 3. An institution may treat an exposure to a counterparty that results from a reverse repurchase agreement under which the institution has purchased from the counterparty non-accessory independent mortgage liens on immovable property of third parties as a number of individual exposures to each of those third parties, provided that all of the following conditions are met: (a) the counterparty is an institution; (b) the exposure is fully secured by liens on the immovable property of those third parties that have been purchased by the institution and the institution is able to exercise those liens; (c) the institution has ensured that the requirements in Article 208 and Article 229(1) are met; (d) the institution becomes beneficiary of the claims that the counterparty has against the third parties in the event of default, insolvency or liquidation of the counterparty; (e) the institution reports to the competent authorities in accordance with Article 394 the total amount of exposures to each other institution that are treated in accordance with this paragraph. For these purposes, the institution shall assume that it has an exposure to each of those third parties for the amount of the claim that the counterparty has on the third party instead of the corresponding amount of the exposure to the counterparty. The remainder of the exposure to the counter party, if any, shall continue to be treated as an exposure to the counter party.

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Article 415 Reporting obligation and reporting format 1. Institutions shall report in a single currency, regardless of their actual denomination, to the competent authorities the items referred to in Titles II and III and their components, including the composition of their liquid assets in accordance with Article 416. Until the liquidity coverage requirement in Part Six is fully specified and implemented as a minimum standard in accordance with Article 460, institutions shall report the items set in Title II and Annex III. Institutions shall report the items in Title III. The reporting frequency shall not be less than monthly for items referred to in Title II and Annex III and not less than quarterly for items referred to in Title III. The reporting formats shall include all the necessary information and shall allow EBA to assess whether secured lending and collateral swap transactions where liquid assets referred to in points (a), (b) and (c) of Article 416(1) have been obtained against collateral that does not qualify under points (a), (b) and (c) of Article 416(1) have been properly unwound. 2. An institution shall report separately to the competent authorities of the home Member State the items referred to in paragraph 1 in the currency below when it has: (a) aggregate liabilities in a currency different from the reporting currency under paragraph 1 amounting to or exceeding 5 % of the institution's or the single liquidity sub-group's total liabilities; or (b) a significant branch in accordance with Article 51 of Directive 2013/36/EU in a host Member State using a currency different from the reporting currency under paragraph 1 of this Article. 3. EBA shall develop draft implementing technical standards to specify the following: (a) uniform formats and IT solutions with associated instructions for frequencies and reference and remittance dates. The reporting formats and frequencies shall be proportionate to the nature, scale and complexity of the different activities of the institutions and shall comprise the reporting required in accordance with paragraphs 1 and 2; (b) additional liquidity monitoring metrics required, to allow competent authorities to obtain a comprehensive view of the liquidity risk profile, proportionate to the nature, scale and complexity of an institution's activities. EBA shall submit to the Commission those draft implementing technical standards for the items specified in point (a) by 1 February 2015 28 July 2013 and for the items specified in point (b) by 1 January 2014. Until the full introduction of binding liquidity requirements, competent authorities may continue to collect information through monitoring tools for the purpose of monitoring compliance with existing national liquidity standards. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 4. The competent authorities of the home Member State shall upon request provide in a timely manner and by electronic means the competent authorities and the central bank of the host Member States and EBA with the individual reporting in accordance with this Article. 5. Competent authorities that exercise supervision on a consolidated basis in accordance with Article 112 111 of Directive 2013/36/EU shall upon request provide in a timely manner and by electronic means the following authorities with all reporting submitted by the institution in accordance with the uniform reporting formats referred to in paragraph 3: (a) the competent authorities and the national central bank of the host Member States in which there are significant branches in accordance with Article 51 of Directive 2013/36/EU of the parent institution or institutions controlled by the same parent financial holding company; (b) the competent authorities that have authorised subsidiaries of the parent institution or institutions controlled by the same parent financial holding company and the central bank of the same Member State; (c) EBA; (d) ECB. 6. The competent authorities that have authorised an institution that is a subsidiary of a parent institution or parent financial holding company shall upon request provide in a timely manner and by electronic means the competent authorities that exercise supervision on a consolidated basis in accordance with Article 111 of Directive 2013/36/EU, the central bank of the Member State where the institution is authorised and EBA all reporting submitted by the institution in accordance with the uniform reporting formats referred to in paragraph 3.

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Article 416 Reporting on liquid assets 1. Institutions shall report the following as liquid assets unless excluded by paragraph 2 and only if the liquid assets fulfil the conditions in paragraph 3: (a) cash and exposures to central banks to the extent that … 842 unchanged words … via a simple repurchase agreement on approved repurchase markets. These criteria shall be assessed separately for each market. The conditions referred to in points (c), (d) and (e) of the first subparagraph shall not apply to the assets referred to in point points (a), (e) and (f) of paragraph 1. The condition referred to in point (d) of the first subparagraph shall not apply in the case of liquid assets held to meet liquidity outflows in a currency in which there is an extremely narrow definition of central … 481 unchanged words … set out in paragraph 6, the shares or units in the CIU may nevertheless be considered a liquid asset for an additional period of 30 days provided that those assets do not exceed 10 % of the CIU's overall assets.

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Article 417 Operational requirements for holdings of liquid assets The institution shall only report as liquid assets those holdings of liquid assets that meet the following conditions: (a) they are appropriately diversified. Diversification is not required in terms of assets corresponding to points (a), (b) and (c) of Article 416(1); (b) they are legally and practically readily available at any time during the next 30 days to be liquidated via outright sale or via a simple repurchase agreement on approved repurchase markets in order to meet obligations coming due. Liquid assets referred to in point (c) of Article 416(1) which are held in third countries where there are transfer restrictions or which are denominated in non-convertible currencies shall be considered available only to the extent that they correspond to outflows in the third country or currency in question, unless the institution can demonstrate to the competent authorities that it has appropriately hedged the ensuing currency risk; (c) the liquid assets are controlled by a liquidity management function; (d) a portion of the liquid assets except those referred to in points (a), (c) (c), (e) and (e) (f) of Article 416(1) is periodically and at least annually liquidated via outright sale or via simple repurchase agreements on an approved repurchase market for the following purposes: (i) to test the access to the market for these assets; (ii) to test the effectiveness of its processes for the liquidation of assets; (iii) to test the usability of the assets; (iv) to minimise the risk of negative signalling during a period of stress; (e) price risks associated with the assets may be hedged but the liquid assets are subject to appropriate internal arrangements that ensure that they are readily available to the treasury when needed and especially that they are not used in other ongoing operations, including: (i) hedging or other trading strategies; (ii) providing credit enhancements in structured transactions; (iii) covering operational costs. (f) the denomination of the liquid assets is consistent with the distribution by currency of liquidity outflows after the deduction of inflows.

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Article 422 Outflows on other liabilities 1. Institutions shall multiply liabilities resulting from the institution's own operating expenses by 0 %. 2. Institutions shall multiply liabilities resulting from secured lending and capital market-driven transactions as defined in point (3) of Article 192 by: (a) … 462 unchanged words … operational relationship as referred to in point (c) of paragraph 3, institutions shall themselves establish the criteria to identify an established operational relationship for which they have evidence that the client is unable to withdraw amounts legally due over a 30 day 30-day horizon without compromising their operational functioning and shall report these criteria to the competent authorities. Competent authorities may, in the absence of a uniform definition, provide general guidance that institutions shall follow in identifying deposits maintained by the depositor in … 404 unchanged words … draft regulatory technical standards to the Commission by 1 January 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 423 Additional Outflows outflows 1. Collateral other than assets referred to in Article 416(1)(a), (b) and (c), which is posted by the institution for contracts listed in Annex II and credit derivatives, shall be subject to an additional outflow of 20 %. 2. Institutions shall … 370 unchanged words … assets for the purposes of Article 416 without the consent of the institution. 6. Deposits received as collateral shall not be considered liabilities for the purposes of Article 422 but will be subject to the provisions of this Article where applicable.

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Article 424 Outflows from credit and liquidity facilities 1. Institutions shall report outflows from committed credit facilities and committed liquidity facilities, which shall be determined as a percentage of the maximum amount that can be drawn within the next 30 days. This … 468 unchanged words … and 3 also to credit and liquidity facilities that are provided to institutions for the sole purpose of directly or indirectly funding promotional loans qualifying for the exposure classes referred to in those paragraphs. By way of derogation from point (d) (g) of Article 425(2), where those promotional loans are extended via another institution as intermediary (pass through loans), a symmetric in and outflow may be applied by institutions. Those promotional loans shall be available only to persons who are not financial customers on a non-competitive, not for profit basis in order to promote public policy objectives of the Union and/or that Member State's central or regional government. It shall only be possible to draw on such facilities following the reasonably expected demand for a promotional loan and up to the amount of such demand linked to a subsequent reporting on the use of the funds disbursed.

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Article 425 Inflows 1. Institutions shall report their liquidity inflows. Capped liquidity inflows shall be the liquidity inflows limited to 75 % of liquidity outflows. Institutions may exempt liquidity inflows from deposits placed with other institutions and qualifying for the treatments set … 444 unchanged words … full for the remaining monies due; (e) monies due that the institution owing those monies treats in accordance with Article 422(3) and (4), shall be multiplied by a corresponding symmetrical inflow; (f) monies due from positions in major index equity instruments provided that there is no double counting with liquid assets; (g) any undrawn credit or liquidity facilities and any other commitments received shall not be taken into account. 3. Outflows and inflows expected over the 30 day horizon from the contracts listed in Annex … 409 unchanged words … which are to be received in third countries where there are transfer restrictions or which are denominated in non-convertible currencies into account only to the extent that they correspond to outflows respectively in the third country or currency in question.

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Article 427 Items providing stable funding 1. Institutions shall report to the competent authorities, in accordance with the reporting requirements set out in Article 415(1) and the uniform reporting formats referred to in Article 415(3), the following items and their components in order to allow an assessment of the availability of stable funding: (a) the following own funds, after deductions have been applied, where appropriate: (i) tier 1 capital instruments; (ii) tier 2 capital instruments; (iii) other preferred shares and capital instruments in excess of Tier 2 allowable amount having an effective maturity of one year or greater; (b) the following liabilities not included in point (a): (i) retail deposits that qualify for the treatment set out in Article 421(1); (ii) retail deposits that qualify for the treatment set out in Article 421(2); (iii) deposits that qualify for the treatment set out in Article 422 (3) and (4); (iv) of the deposits referred to in point (iii), those that are subject to a deposit guarantee scheme in accordance with Directive 94/19/EC or an equivalent deposit guarantee scheme in a third country deposit guarantees within the terms of Article 421(2); 421(1); (v) of the deposits referred to in point (iii), those that fall under point (b) of Article 422(3); (vi) of the deposits referred to in point (iii), those that fall under point (d) of Article 422(3); (vii) amounts deposited not falling under point (i), (ii) or (iii) if they are not deposited by financial customers; (viii) all funding obtained from financial customers; (ix) separately for amounts falling under points (vii) and (viii) respectively, funding from secured lending and capital market-driven transactions as defined in point (3) of Article 192: collateralised by assets that would qualify as liquid assets in accordance with Article 416; collateralised by any other assets; (x) liabilities resulting from securities issued qualifying for the treatment set out in Article 129(4) or (5) or as referred to in Article 52(4) of Directive 2009/65/EC; (xi) the following other liabilities resulting from securities issued that do not fall under point (a): liabilities resulting from securities issued with an effective maturity of one year or greater; liabilities resulting from securities issued with an effective maturity of less than one year; (xii) any other liabilities. 2. Where applicable, all items shall be presented in the following five buckets according to the closest of their maturity date and the earliest date at which they can contractually be called: (a) within three months; (b) between three and six months; (c) between six and nine months; (d) between nine and 12 months; (e) after 12 months.

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Article 428 Items requiring stable funding 1. Unless deducted from own funds, the following items shall be reported to competent authorities separately in order to allow an assessment of the needs for stable funding: (a) the assets that would qualify as liquid assets in accordance with Article 416, broken down by asset type; (b) the following securities and money market instruments not included in point (a): (i) assets qualifying for credit step 1 under Article 122; (ii) assets qualifying for credit step 2 under Article 122; (iii) other assets; (c) equity securities of non-financial entities listed on a major index in a recognised exchange; (d) other equity securities; (e) gold; (f) other precious metals; (g) non-renewable loans and receivables, and separately those non-renewable loans and receivables for which borrowers are: (i) natural persons other than commercial sole proprietors and partnerships; (ii) SMEs that qualify for the retail exposure class under the Standardised or IRB approaches for credit risk or to a company which is eligible for the treatment set out in Article 153(4) and where the aggregate deposit placed by that client or group of connected clients is less than EUR 1 million; (iii) sovereigns, central banks and public sector entities; (iv) clients not referred to in points (i) and (ii) other than financial customers; (v) clients not referred to in points (i), (ii) and (iii) that are financial customers, and thereof separately those that are credit institutions and other financial customers; (h) non-renewable loans and receivables referred to in point (g), and thereof separately those that are: (i) collateralised by commercial real estate immovable property (CRE); (ii) collateralised by residential real estate property (RRE); (iii) match funded (pass-through) via bonds eligible for the treatment set out in Article 129(4) or (5) or via bonds as referred to in Article 52(4) of Directive 2009/65/EC; (i) derivatives receivables; (j) any other assets; (k) undrawn committed credit facilities that qualify as medium risk or medium/low risk under Annex I. 2. Where applicable, all items shall be presented in the five buckets described in Article 427(2).

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Article 430 Reporting requirement 1. Institutions shall submit to the competent authorities all necessary information on the leverage ratio and its components in accordance with Article 429. Competent authorities shall take into account this information when undertaking the supervisory review referred to in Article 97 of Directive 2013/36/EU. Institutions shall also submit to the competent authorities the information required for the purposes of the preparation of the reports referred to in Article 511. Competent authorities shall submit the information received from institutions to EBA upon its request to facilitate the review referred to in Article 511. 2. EBA shall develop draft implementing technical standards to determine the uniform reporting template, the instructions on how to use such template, the frequencies and dates of reporting and the IT solutions, for the purposes of the reporting requirement laid down in paragraph 1. EBA shall submit those draft implementing technical standards to the Commission by 1 February 2015. 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 437 Own funds 1. Institutions shall disclose the following information regarding their own funds: (a) a full reconciliation of Common Equity Tier 1 items, Additional Tier 1 items, Tier 2 items and filters and deductions applied pursuant to Articles 32 to 35, 36, 56, 66 and 79 to own funds of the institution and the balance sheet in the audited financial statements of the institution; (b) a description of the main features of the Common Equity Tier 1 and Additional Tier 1 instruments and Tier 2 instruments issued by the institution; (c) the full terms and conditions of all Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments; (d) separate disclosure of the nature and amounts of the following: (i) each prudential filter applied pursuant to Articles 32 to 35; (ii) each deduction made pursuant to Articles 36, 56 and 66; (iii) items not deducted in accordance with Articles 47, 48, 56, 66 and 79; (e) a description of all restrictions applied to the calculation of own funds in accordance with this Regulation and the instruments, prudential filters and deductions to which those restrictions apply; (f) where institutions disclose capital ratios calculated using elements of own funds determined on a basis other than that laid down in this Regulation, a comprehensive explanation of the basis on which those capital ratios are calculated. 2. EBA shall develop draft implementing technical standards to specify uniform templates for disclosure under points (a), (b), (d) and (e) of paragraph 1. EBA shall submit those draft implementing technical standards to the Commission by 1 February 2015. 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 439 Exposure to counterparty credit risk Institutions shall disclose the following information regarding the institution's exposure to counterparty credit risk as referred to in Part Three, Title II, Chapter 6: (a) a discussion of the methodology used to assign internal capital and credit limits for counterparty credit exposures; (b) a discussion of policies for securing collateral and establishing credit reserves; (c) a discussion of policies with respect to wrong-way Wrong-Way risk exposures; (d) a discussion of the impact of the amount of collateral the institution would have to provide given a downgrade in its credit rating; (e) gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held and net derivatives credit exposure. Net derivatives credit exposure is the credit exposure on derivatives transactions after considering both the benefits from legally enforceable netting agreements and collateral arrangements; (f) measures for exposure value under the methods set out in Part Three, Title II, Chapter 6, Sections 3 to 6 whichever method is applicable; (g) the notional value of credit derivative hedges, and the distribution of current credit exposure by types of credit exposure; (h) the notional amounts of credit derivative transactions, segregated between use for the institution's own credit portfolio, as well as in its intermediation activities, including the distribution of the credit derivatives products used, broken down further by protection bought and sold within each product group; (i) the estimate of α if the institution has received the permission of the competent authorities to estimate α.

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Article 443 Unencumbered assets EBA shall issue guidelines specifying the disclosure of unencumbered assets, taking into account Recommendation ESRB/2012/2 of the European Systemic Risk Board of 20 December 2012 on funding of credit institutionsOJ C 119, 25.4.2013, p. 1. and in particular Recommendation D - — Market transparency on asset encumbrance, by 30 June 2014. Those guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010. EBA shall develop draft regulatory technical standards to specify disclosure of the balance sheet value per exposure class broken down by asset quality and the total amount of the balance sheet value that is unencumbered, taking into account Recommendation ESRB/2012/2 and conditional on EBA considering in its report that such additional disclosure offers reliable and meaningful information. EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2016. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 447 Exposures in equities not included in the trading book Institutions shall disclose the following information regarding the exposures in equities not included in the trading book: (a) the differentiation between exposures based on their objectives, including for capital gains relationship and strategic reasons, and an overview of the accounting techniques and valuation methodologies used, including key assumptions and practices affecting valuation and any significant changes in these practices; (b) the balance sheet value, the fair value and, for those exchange-traded, a comparison to the market price where it is materially different from the fair value; (c) the types, nature and amounts of exchange-traded exposures, private equity exposures in sufficiently diversified portfolios, and other exposures; (d) the cumulative realised gains or losses arising from sales and liquidations in the period; and (e) the total unrealised gains or losses, the total latent revaluation gains or losses, and any of these amounts included in the original or additional own funds. Common Equity Tier 1 capital.

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Article 449 Exposure to securitisation positions Institutions calculating risk weighted risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 5 or own funds requirements in accordance with Article 337 or 338 shall disclose the following information, where relevant, separately for their trading and non-trading book: (a) a description of the institution's objectives in relation to securitisation activity; (b) the nature of other risks including liquidity risk inherent in securitised assets; (c) the type of risks in terms of seniority of underlying securitisation positions and in terms of assets underlying those latter securitisation positions assumed and retained with re-securitisation activity; (d) the different roles played by the institution in the securitisation process; (e) an indication of the extent of the institution's involvement in each of the roles referred to in point (d); (f) a description of the processes in place to monitor changes in the credit and market risk of securitisation exposures including, how the behaviour of the underlying assets impacts securitisation exposures and a description of how those processes differ for re-securitisation exposures; (g) a description of the institution's policy governing the use of hedging and unfunded protection to mitigate the risks of retained securitisation and re-securitisation exposures, including identification of material hedge counterparties by relevant type of risk exposure; (h) the approaches to calculating risk weighted risk-weighted exposure amounts that the institution follows for its securitisation activities including the types of securitisation exposures to which each approach applies; (i) the types of SSPE that the institution, as sponsor, uses to securitise third-party exposures including whether and in what … 568 unchanged words … by the institution and subject to a capital requirement for market risk, broken down into traditional/synthetic and by exposure type; (r) where applicable, whether the institution has provided support within the terms of Article 248(1) and the impact on own funds.

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Article 452 Use of the IRB Approach to credit risk Institutions calculating the risk-weighted exposure amounts under the IRB Approach shall disclose the following information: (a) the competent authority's permission of the approach or approved transition; (b) an explanation and review of: (i) the structure of internal rating systems and relation between internal and external ratings; (ii) the use of internal estimates other than for calculating risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 3; (iii) the process for managing and recognising credit risk mitigation; (iv) the control mechanisms for rating systems including a description of independence, accountability, and rating systems review; (c) a description of the internal ratings process, provided separately for the following exposure classes: (i) central governments and central banks; (ii) institutions; (iii) corporate, including SMEs, specialised lending and purchased corporate receivables; (iv) retail, for each of the categories of exposures to which the different correlations in Article 154(1) to (4) correspond; (v) equities; (d) the exposure values for each of the exposure classes specified in Article 147. Exposures to central governments and central banks, institutions and corporates where institutions use own estimates of LGDs or conversion factors for the calculation of risk-weighted exposure amounts amounts, shall be disclosed separately from exposures for which the institutions do not use such estimates; (e) for each of the exposure classes central governments and central banks, institutions, corporate corporates and equity, and across a sufficient number of obligor grades (including default) to allow for a meaningful differentiation of credit risk, institutions shall disclose: (i) the total exposures, including for the exposure classes central governments and central banks, institutions and corporate, corporates, the sum of outstanding loans and exposure values for undrawn commitments; and for equities the outstanding amount; (ii) the exposure-weighted average risk weight; (iii) for the institutions using own estimates of conversion factors for the calculation of risk-weighted exposure amounts, the amount … 417 unchanged words … point (j), the relevant geographical location of credit exposures means exposures in the Member States in which the institution has been authorised and Member States or third countries in which institutions carry out activities through a branch or a subsidiary.

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Article 456 Delegated acts 1. The Commission shall be empowered to adopt delegated acts in accordance with Article 462, concerning the following matters: (a) clarification of the definitions set out in Articles 4, 5, 142, 153, 192, 242, 272, 300, 381 and 411 to ensure uniform application of this Regulation; (b) clarification of the definitions set out in Articles 4, 5, 142, 153, 192, 242, 272, 300, 381 and 411 in order to take account, in the application of this Regulation, of developments on financial markets; (c) amendment of the list of exposure classes in Articles 112 and 147 in order to take account of developments on financial markets; (d) the amount specified in point (c) of Article 123, Article 147(5)(a), Article 153(4) and Article 162(4), to take into account the effects of inflation; (e) the list and classification of the off-balance sheet items in Annexes I and II, in order to take account of developments on financial markets; (f) adjustment of the categories of investment firms in Article 95(1) and Article 96(1) to take account of developments on financial markets; (g) clarification of the requirement laid down in Article 97 to ensure uniform application of this Regulation. (h) amendment of the own funds requirements as set out in Articles 301 to 311 of this Regulation and Articles 50a to 50d of Regulation (EU) No 648/2012 to take account of developments or amendments of the international standards for exposures to a central counterparty; (i) clarification of the terms referred to in the exemptions provided for in Article 400; (j) amendment of the capital measure and the total exposure measure of the leverage ratio referred to in Article 429(2) in order to correct any shortcomings discovered on the basis of the reporting referred to in Article 430(1) before the leverage ratio has to be published by institutions as set out in Article 451(1)(a). 2. EBA shall monitor the own fund funds requirements for credit valuation adjustment risk and by 1 January 2015 submit a report to the Commission. In particular, the report shall assess: (a) the treatment of CVA risk as a stand-alone charge versus an integrated component of the market risk framework; (b) the scope of the CVA risk charge including the exemption in Article 482; (c) eligible hedges; (d) calculation of capital requirements of CVA risk. On the basis of that report and where the findings are that such action is necessary the Commission shall also be empowered to adopt a delegated act in accordance with Article 462 to amend Article 381, Article 382(1) to (3) and Articles 383 to 386 concerning those items.

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Article 458 Macroprudential or systemic risk identified at the level of a Member State 1. Member States shall designate the authority in charge of the application of this Article. This authority shall be the competent authority or the designated authority. 2. Where the authority determined in accordance with paragraph 1 identifies changes in the intensity of macroprudential or systemic risk in the financial system with the potential to have serious negative consequences to the financial system and the real economy in a specific Member State and which that authority considers would better be addressed by means of stricter national measures, it shall notify the European Parliament, the Council, the Commission, the ESRB and EBA of that fact and submit relevant quantitative or qualitative evidence of all of the following: (a) the changes in the intensity of macroprudential or systemic risk; (b) the reasons why such changes could pose a threat to financial stability at national level; (c) a justification of why Articles 124 and 164 of this Regulation and Articles 101, 103, 104, 105, 133, and 136 of Directive 2013/36/EU cannot adequately address the macroprudential or systemic risk identified, taking into account the relative effectiveness of those measures; (d) draft national measures for domestically authorised institutions, or a subset of those institutions, intended to mitigate the changes in the intensity of risk and concerning: (i) the level of own funds laid down in Article 92; (ii) the requirements for large exposures laid down in Article 392 and Article 395 to 403; (iii) the public disclosure requirements laid down in Articles 431 to 455; (iv) the level of the capital conservation buffer laid down in Article 129 of Directive 2013/36/EU; (v) liquidity requirements laid down in Part Six; (vi) risk weights for targeting asset bubbles in the residential property and commercial immovable property sector; or (vii) intra financial sector exposures; (e) an explanation as to why the draft measures are deemed by the authority determined in accordance with paragraph 1 to be suitable, effective and proportionate to address the situation; and (f) an assessment of … 796 unchanged words … to 15 % for a period of up to two years or until the macroprudential or systemic risk ceases to exist if that occurs sooner, provided that the conditions and notification requirements in paragraph 2 of this Article are met.

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Article 462 Exercise of the delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Articles 456 to 460 shall be conferred for an indeterminate period of time from 31 December 2014. 28 June 2013. 3. The delegation of power referred to in Articles 456 to 460 may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of the delegated acts already in force. 4. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5. A delegated act adopted pursuant to Articles 456 to 460 shall enter into force only if no objection has been expressed by the European Parliament or the Council within a period of three months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by three months at the initiative of the European Parliament or of the Council.

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Article 466 First time application of International Financial Reporting Standards By way of derogation from Article 24(2), competent authorities shall grant institutions which are required to effect the valuation of assets and off-balance sheet items and the determination of own funds in accordance with International Accounting Standards the international accounting standards as applicable under Regulation (EC) No 1606/2002 for the first time a lead time of 24 months for the implementation of the necessary internal processes and technical requirements.

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Article 468 Unrealised gains measured at fair value 1. By way of derogation from Article 35, during the period from 1 January 2014 to 31 December 2017, institutions shall remove from their Common Equity Tier 1 items the applicable percentage of unrealised gains related to assets or liabilities measured at fair value and reported on the balance sheet, excluding those referred to in Article 33 and all other unrealised gains with the exception of those related to investment properties reported as part of the profit and loss account. The resulting residual amount shall not be removed from Common Equity Tier 1 items. 2. For the purposes of paragraph 1, the applicable percentage shall be 100 % during the period from 1 January 2014 to 31 December 2014, and shall, after that date, fall within the following ranges: (a) 60 % to 100 % during the period from 1 January 2015 to 31 December 2015; (b) 40 % to 100 % during the period from 1 January 2016 to 31 December 2016; (c) 20 % to 100 % for the period from 1 January 2017 to 31 December 2017. From 1 January 2015, where under Article 467 a competent authority requires institutions to include in the calculation of Common Equity Tier 1 capital 100 % of their unrealised losses measured at fair value, that competent authority may also permit institutions to include in that calculation 100 % of their unrealised gains at fair value. From 1 January 2015, where under Article 467 a competent authority requires institutions to include a percentage of unrealised losses measured at fair value in the calculation of Common Equity Tier 1 capital capital, that competent authority may shall not set an applicable percentage of unrealised gains under paragraph 2 of this Article which results in a percentage of unrealised gains that is included in the calculation of Common Equity Tier 1 capital that exceeds the applicable percentage of unrealised losses set in accordance with Article 467. 3. Competent authorities shall determine and publish the applicable percentage of unrealised gains in the ranges specified in points (a) to (c) of paragraph 2 that is not removed from Common Equity Tier 1 capital. 4. By way of derogation from Article 33(1)(c), during the period from 1 January 2013 to 31 December 2017, institutions shall not include in their own funds the applicable percentage, as specified in Article 478, of the fair value gains and losses from derivative liabilities arising from their changes in the own credit risk. standing of the institution. The percentage applied to fair value losses arising from changes in the own credit standing of the institution shall not exceed the percentage applied to fair value gains arising from changes in the own credit standing of the institution.

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Article 473 Introduction of amendments to IAS 19 1. By way of derogation from Article 481 during the period from 1 January 2014 until 31 December 2018, competent authorities may permit institutions that prepare their accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) of Regulation (EC) No 1606/2002 to add to their Common Equity Tier 1 capital the applicable amount in accordance with paragraph 2 or 3 of this Article, as applicable, multiplied by the factor applied in accordance with paragraph 4. 2. The applicable amount shall be calculated by deducting from the sum derived in accordance with point (a) the sum derived in accordance with point (b): (a) institutions shall determine the values of the assets of their defined benefit pension funds or plans, as applicable, in accordance with Regulation (EC) No 1126/2008Commission Regulation (EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (OJ L 320, 29.11.2008, p. 1). as amended by Regulation (EU) No 1205/2011Commission Regulation (EU) No 1205/2011 of 22 November 2011 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standard (IFRS) 7 (OJ L 305, 23.11.2011, p. 16).. Institutions shall then deduct from the values of these assets the values of the obligations under the same funds or plans determined according to the same accounting rules; (b) institutions shall determine the values of the assets of their defined pension funds or plans, as applicable, according to in accordance with the rules set out in Regulation (EC) No 1126/2008. Institutions shall then deduct from the values of those assets, the values of the obligations under the same funds or plans determined according to in accordance with the same accounting rules. 3. The amount determined in accordance with paragraph 2 shall be limited to the amount not required to be deducted from own funds, prior to 1 January 2014, under national transposition measures of Directive 2006/48/EC, insofar as those national transposition measures would be eligible for the treatment set out in Article 481 of this Regulation in the Member State concerned. 4. The following factors apply: (a) 1 in the period from 1 January 2014 to 31 December 2014; (b) 0,8 in the period from 1 January 2015 to 31 December 2015; (c) 0,6 in the period from 1 January 2016 to 31 December 2016; (d) 0,4 in the period from 1 January 2017 to 31 December 2017; (e) 0,2 in the period from 1 January 2018 to 31 December 2018. 5. Institutions shall disclose the values of assets and liabilities in accordance with paragraph 2 in their published financial statements.

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Article 478 Applicable percentages for deduction from Common Equity Tier 1, Additional Tier 1 and Tier 2 items 1. The applicable percentage for the purposes of Article 468(4), points (a) and (c) of Article 469(1), point (a) of Article 474 and point (a) of Article 476 shall fall within the following ranges: (a) 20 % to 100 % for the period from 1 January 2014 to 31 December 2014; (b) 40 % to 100 % for the period from 1 January 2015 to 31 December 2015; (c) 60 % to 100 % for the period from 1 January 2016 to 31 December 2016; (d) 80 % to 100 % for the period from 1 January 2017 to 31 December 2017. 2. By way of derogation from paragraph 1, for the items referred in point (c) of Article 36(1) that existed prior to …, 1 January 2014, the applicable percentage for the purpose of point (c) of Article 469(1) shall fall within the following ranges: (a) 0 % to 100 % for the period from 1 January 2014 to 2 January 2015; 31 December 2014; (b) 10 % to 100 % for the period from 2 1 January 2015 to 2 January 2016; 31 December 2015; (c) 20 % to 100 % for the period from 2 1 January 2016 to 2 January 2017; 31 December 2016; (d) 30 % to 100 % for the period from 2 1 January 2017 to 2 January 2018; 31 December 2017; (e) 40 % to 100 % for the period from 2 1 January 2018 to 2 January 2019; 31 December 2018; (f) 50 % to 100 % for the period from 2 1 January 2019 to 2 January 2020; 31 December 2019; (g) 60 % to 100 % for the period from 2 1 January 2020 to 2 January 2021; 31 December 2020; (h) 70 % to 100 % for the period from 2 1 January 2021 to 2 January 2022; 31 December 2021; (i) 80 % to 100 % for the period from 2 1 January 2022 to 2 January 2023; 31 December 2022; (j) 90 % to 100 % for the period from 2 1 January 2023 to 2 January 2024. 31 December 2023. 3. Competent authorities shall determine and publish an applicable percentage in the ranges specified in paragraphs 1 and 2 for each of the following deductions: (a) the individual deductions required pursuant to points (a) to (h) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences; (b) the aggregate amount of deferred tax assets that rely on future profitability and arise from temporary differences and the items referred to in point (i) of Article 36(1) that is required to be deducted pursuant to Article 48; (c) each deduction required pursuant to points (b) to (d) of Article 56; (d) each deduction required pursuant to points (b) to (d) of Article 66.

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Article 481 Additional filters and deductions 1. By way of derogation from Articles 32 to 36, 56 and 66, during the period from 1 January 2014 to 31 December 2017, institutions shall make adjustments to include in or deduct from Common Equity Tier 1 items, Tier 1 items, Tier 2 items or own funds items the applicable percentage of filters or deductions required under national transposition measures for Articles 57, 61, 63, 63a, 64 and 66 of Directive 2006/48/EC, and for Articles 13 and 16 of Directive 2006/49/EC, and which are not required in accordance with Part Two of this Regulation. 2. By way of derogation from Article 36(1)(i) and Article 49(1) and (3), 49(1), during the period from the 1 January 2014 to 31 December 2014, competent authorities may require or permit institutions to apply the methods referred to in Article 49(1) where the requirements laid down in points point (b) and (e) of Article 49(1) are not met, rather than the deduction required pursuant to Article 36(1). In such cases, the proportion of holdings of the own funds instruments of a financial sector entity in which the parent undertaking has a significant investment that is not required to be deducted in accordance with Article 49(1) shall be determined by the applicable percentage referred to in paragraph 4 of this Article. The amount that is not deducted shall be subject to the requirements of Article 49(4), as applicable. 3. For the purposes of paragraph 1, the applicable percentage shall fall within the following ranges: (a) 0 % to 80 % for the period from 1 January 2014 to 31 December 2014; (b) 0 % to 60 % for the period from 1 January 2015 to 31 December 2015; (c) 0 % to 40 % for the period from 1 January 2016 to 31 December 2016; (d) 0 % to 20 % for the period from 1 January 2017 to 31 December 2017. 4. For the purpose of paragraph 2, the applicable percentage shall fall between 0 % and 50 % for the period from 1 January 2014 to 31 December 2014. 5. For each filter or deduction referred to in paragraphs 1 and 2, competent authorities shall determine and publish the applicable percentages in the ranges specified in paragraphs 3 and 4. 6. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities shall determine whether adjustments made to own funds, or elements thereof, in accordance with national transposition measures for Directive 2006/48/EC or Directive 2006/49/EC that are not included in Part Two of this Regulation are, for the purposes of this Article, to be made to Common Equity Tier 1 items, Additional Tier 1 items, Tier 1 items, Tier 2 items or own funds. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2014. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 483 Grandfathering of State aid instruments 1. By way of derogation from Articles 26 to 29, 51, 52, 62 and 63 63, during the period from 1 January 2014 to 31 December 2017, 2017 this Article applies to capital instruments and items where the following conditions are met: (a) the instruments were issued prior to 1 January 2014; (b) the instruments were issued within the context of recapitalisation measures pursuant to State aid rules. Insofar as part of the instruments are privately subscribed, they must be issued prior to 30 June 2012 and in conjunction with those parts that are subscribed by the Member State; (c) the instruments were considered compatible with the internal market by the Commission under Article 107 TFEU; (d) in cases where TFEU. Where the instruments are subscribed by both the Member State and private investors, where investors and there is a partial redemption of the instruments subscribed by the Member State, a corresponding share of the privately subscribed part of the instruments shall be grandfathered in accordance with Article 484. When all the instruments subscribed by the Member State have been redeemed, the remaining instruments subscribed by private investors shall be grandfathered in accordance with Article 484. 2. Instruments that qualified in accordance with the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding either of the following: (a) the conditions laid down in Article 28 of this Regulation are not met; (b) the instruments were issued by an undertaking referred to in Article 27 of this Regulation and the conditions laid down in Article 28 of this Regulation or, where applicable, Article 29 of this Regulation are not met. 3. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 instruments notwithstanding the fact that the requirements of point (a) or (b) of paragraph 2 of this Article are not being met, provided that the requirements of paragraph 8 of this Article are met. Instruments that qualify as Common Equity Tier 1 pursuant to the first subparagraph may shall not qualify as Additional Tier 1 instruments or Tier 2 instruments under paragraph 5 or 7. 4. Instruments that qualified in accordance with the national transposition measures for point (ca) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments notwithstanding that the conditions laid down in Article 52(1) of this Regulation are not being met. 5. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under the national transposition measures for point (ca) of Article 57 of Directive 2006/48/EC shall qualify as Additional Tier 1 instruments notwithstanding that the conditions laid down in Article 52(1) of this Regulation are not being met, provided that the requirements of paragraph 8 of this Article are met. Instruments that qualify as Additional Tier 1 instruments pursuant to the first subparagraph may shall not qualify as Common Equity Tier 1 instruments or Tier 2 instruments under paragraph 3 or 7. 6. Items that qualified in accordance with national transposition measures for points (f), (g) or (h) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments notwithstanding that the items are not being referred to in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not being met. 7. Instruments referred to in point (c) of paragraph 1 of this Article that do not qualify under the national transposition measures for point (f), (g) or (h) of Article 57 and for Article 66(1) of Directive 2006/48/EC shall qualify as Tier 2 instruments notwithstanding that the items are not being referred to in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not being met, provided that the conditions in paragraph 8 of this Article are met. Instruments that qualify as Tier 2 instruments pursuant to the first subparagraph may shall not qualify as Common Equity Tier 1 instruments or Additional Tier 1 instruments under paragraph 3 or 5. 8. Instruments referred to paragraphs 3, 5 and 7 may qualify as own funds instruments referred to in those paragraphs only where the condition in point (a) of paragraph 1 is met and where they are issued by institutions that are incorporated in a Member State that is subject to an Economic Adjustment Programme, and the issuance of those instruments is agreed or eligible under that programme.

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Article 484 Eligibility for grandfathering of items that qualified as own funds under national transposition measures for Directive 2006/48/EC 1. This Article shall apply only to instruments and items that were issued on or prior to 31 December 2011 and that were eligible as own funds prior to on 31 December 2011 and are not those referred to in Article 483(1). 2. By way of derogation from Articles 26 to 29, 51, 52, 62 and 63, this Article shall apply during the period from 1 January 2014 to 31 December 2021. 3. Subject to Article 485 of this Regulation and to the limit specified in Article 486(2) thereof, capital within the meaning of Article 22 of Directive 86/635/EEC, and the related share premium accounts, that qualified as original own funds under the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 items notwithstanding that capital not meeting the conditions laid down in Article 28 or, where applicable, Article 29 of this Regulation. Regulation are not met. 4. Subject to the limit specified Article 486(3) of this Regulation, instruments, and the related share premium accounts, that qualified as original own funds under national transposition measures for point (ca) of Article 57 and Article 154(8) and (9) of Directive 2006/48/EC shall qualify as Additional Tier 1 items, notwithstanding that the conditions laid down in Article 52 of this Regulation are not being met. 5. Subject to the limits specified in Article 486(4) of this Regulation, items, and the related share premium accounts, that qualified under national transposition measures for points (e), (f), (g) or (h) of Article 57 of Directive 2006/48/EC shall qualify as Tier 2 items, notwithstanding that those items are not being included in Article 62 of this Regulation or that the conditions laid down in Article 63 of this Regulation are not being met.

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Article 485 Eligibility for inclusion in the Common Equity Tier 1 of share premium accounts related to items that qualified as own funds under national transposition measures for Directive 2006/48/EC 1. This Article shall apply only to instruments that were issued prior to 31 December 2010 and are not those referred to in Article 483(1). 2. Share premium accounts related to capital within the meaning of Article 22 of Directive 86/635/EEC, 86/635/EEC that qualified as original own funds under the national transposition measures for point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 items if they meet the conditions laid down in points (i) and (j) of Article 28 of this Regulation.

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Article 486 Limits for grandfathering of items within Common Equity Tier 1, Additional Tier 1 and Tier 2 items 1. During the period from From 1 January 2014 to 31 December 2021, the extent to which instruments and items referred to in Article 484 shall qualify as own funds shall be limited in accordance with this Article. 2. The amount of items referred to in Article 484(3) that shall qualify as Common Equity Tier 1 items is limited to the applicable percentage of the sum of the amounts specified in points (a) and (b) of this paragraph: (a) the nominal amount of capital referred to in Article 484(3) that were in issue on 31 December 2012; (b) the share premium accounts related to the items referred to in point (a). 3. The amount of items referred to in Article 484(4) that shall qualify as Additional Tier 1 items is limited to the applicable percentage multiplied by the result of subtracting from the sum of the amounts specified in points (a) and (b) of this paragraph the sum of the amounts specified in points (c) to (f) of this paragraph: (a) the nominal amount of instruments referred to in Article 484(4), that remained in issue on 31 December 2012; (b) the share premium accounts related to the instruments referred to in point (a); (c) the amount of instruments referred to in Article 484(4) which on 31 December 2012 exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) and Article 66(1a) of Directive 2006/48/EC; (d) the share premium accounts related to the instruments referred to in point (c); (e) the nominal amount of instruments referred to Article 484(4) that were in issue on 31 December 2012 but do not qualify as Additional Tier 1 instruments pursuant to Article 489(4); (f) the share premium accounts related to the instruments referred to in point (e). 4. The amount of items referred to in Article 484(5) that shall qualify as Tier 2 items is limited to the applicable percentage of the result of subtracting from the sum of the amounts specified in points (a) to (d) of this paragraph the sum of amounts specified in points (e) to (h) of this paragraph: (a) the nominal amount of instruments referred to in Article 484(5) that remained in issue on 31 December 2012; (b) the share premium accounts related to the instruments referred to in point (a); (c) the nominal amount of subordinated loan capital that remained in issue on 31 December, December 2012, reduced by the amount required pursuant to national transposition measures for point (c) of Article 64(3) of Directive 2006/48/EC; (d) the nominal amount of items referred to in Article 484(5), other than the instruments and subordinated loan capital referred to in points (a) and (c) of this paragraph, that were in issue on 31 December 2012; (e) the nominal amount of instruments and items referred to in Article 484(5) that were in issue on 31 December 2012 that exceeded the limits specified in the national transposition measures for point (a) of Article 66(1) of Directive 2006/48/EC; (f) the share premium accounts related to the instruments referred to in point (e); (g) the nominal amount of instruments referred to in Article 484(5) that were in issue on 31 December 2012 that do not qualify as Tier 2 items pursuant to Article 490(4); (h) the share premium accounts related to the instruments referred to in point (g). 5. For the purposes of this Article, the applicable percentages referred to in paragraphs 2 to 4 shall fall within the following ranges: (a) 60 % to 80 % during the period from 1 January 2014 to 31 December 2014; (b) 40 % to 70 % during the period from 1 January 2015 to 31 December 2015; (c) 20 % to 60 % during the period from 1 January 2016 to 31 December 2016; (d) 0 % to 50 % during the period from 1 January 2017 to 31 December 2017; (e) 0 % to 40 % during the period from 1 January 2018 to 31 December 2018; (f) 0 % to 30 % during the period from 1 January 2019 to 31 December 2019; (g) 0 % to 20 % during the period from 1 January 2020 to 31 December 2020; (h) 0 % to 10 % during the period from 1 January 2021 to 31 December 2021. 6. Competent authorities shall determine and publish the applicable percentages in the ranges specified in paragraph 5.

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Article 487 Items excluded from grandfathering in Common Equity Tier 1 or Additional Tier 1 items in other elements of own funds 1. By From 1 January 2014 to 31 December 2021, institutions may, by way of derogation from Articles 51, 52, 62 and 63, during the period from 1 January 2014 to 31 December 2021, institutions may treat as items referred to in Article 484(4), capital, and the related share premium accounts, referred to in Article 484(3) that are excluded from Common Equity Tier 1 items because they exceed the applicable percentage specified in Article 486(2), to the extent that the inclusion of that capital and the related share premium accounts, does not exceed the applicable percentage limit referred to in Article 486(3). 2. By From 1 January 2014 to 31 December 2021, institutions may, by way of derogation from Articles 51, 52, 62 and 63, during the period from 1 January 2014 to 31 December 2021, institutions may treat the following as items referred to in Article 484(5), to the extent that their inclusion does not exceed the applicable percentage limit referred to in Article 486(4): (a) capital, and the related share premium accounts, referred to in Article 484(3) that are excluded from Common Equity Tier 1 items because they exceed the applicable percentage specified in Article 486(2); (b) instruments, and the related share premium accounts, referred to in Article 484(4) that exceed the applicable percentage referred to in Article 486(3). 3. EBA shall develop draft regulatory technical standards to specify the conditions for treating own funds instruments referred to in paragraphs 1 and 2 as falling under Article 486(4) or (5) during the period from 1 January 2014 to 31 December 2021. EBA shall submit those draft regulatory technical standards to the Commission by 1 February 2014. 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 489 Hybrid instruments with a call and incentive to redeem 1. By way of derogation from Articles 51 and 52, during the period from From 1 January 2014 to 31 December 2021, instruments referred to in Article 484(4) that include in their terms and conditions a call with an incentive for them to be redeemed by the institution shall shall, by way of derogation from Articles 51 and 52, be subject to the requirements laid down in paragraphs 2 to 7 of this Article. 2. The instruments shall qualify as Additional Tier 1 instruments provided that the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013; (b) the institution did not exercise the call; (c) the conditions laid down in Article 52 are met from 1 January 2013. 3. The instruments shall qualify as Additional Tier 1 instruments with their recognition reduced in accordance with Article 484(4) until the date of their effective maturity and thereafter shall qualify as Additional Tier 1 items without limit provided: provided that: (a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the instruments; (c) the conditions laid down in Article 52 are met from the date of the effective maturity of the instruments. 4. The instruments shall not qualify as Additional Tier 1 instruments, and shall not be subject to Article 484(4), from 1 January 2014 where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem between 31 December 2011 and 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the instruments; (c) the conditions laid down in Article 52 are not met from the date of the effective maturity of the instruments. 5. The instruments shall qualify as Additional Tier 1 instruments with their recognition reduced in accordance with Article 484(4) until the date of their effective maturity, and shall not qualify as Additional Tier 1 instruments thereafter, where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the instruments; (c) the conditions laid down in Article 52 are not met from the date of the effective maturity of the instruments. 6. The instruments shall qualify as Additional Tier 1 instruments in accordance with Article 484(4) where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011; (b) the institution did not exercise the call on the date of the effective maturity of the instruments; (c) the conditions laid down in Article 52 were not met from the date of the effective maturity of the instruments.

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Article 490 Tier 2 items with an incentive to redeem 1. By way of derogation from Articles 62 and 63, during the period from 1 January 2014 to 31 December 2021, items referred to in Article 484(5) that qualified under the national transposition measures for point (f) or (h) of Article 57 of Directive 2006/48/EC and include in their terms and conditions a call with an incentive for them to be redeemed by the institution shall be subject to the requirements laid down in paragraphs 2 to 7 of this Article. 2. The items shall qualify as Tier 2 instruments provided: provided that: (a) the institution was able to exercise a call with an incentive to redeem only prior to 1 January 2013; (b) the institution did not exercise the call; (c) from 1 January 2013 the conditions laid down in Article 63 are met. 3. The items shall qualify as Tier 2 items in accordance with Article 484(5) until the date of their effective maturity, and shall qualify thereafter as Tier 2 items without limit, provided that the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only on or after 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the items; (c) the conditions laid down in Article 63 are met from the date of the effective maturity of the items. 4. The items shall not qualify as Tier 2 items from 1 January 2013 2014 where the following conditions are met: (a) the institution was able to exercise a call with an incentive to redeem only between 31 December 2011 and 1 January 2013; (b) the institution did not exercise the call on the date of the effective maturity of the items; (c) the conditions laid down in Article 63 are not met from the date of the effective maturity of the items. 5. The items shall qualify as Tier 2 items with their recognition reduced in accordance with Article 484(5) until the date of their effective maturity, and shall not qualify as Tier 2 items thereafter, where: (a) the institution was able to exercise a call with an incentive to redeem on or after 1 January 2013; (b) the institution did not exercise the call on the date of their effective maturity; (c) the conditions set out in Article 63 are not met from the date of effective maturity of the items. 6. The items shall qualify as Tier 2 items in accordance with Article 484(5) where: (a) the institution was able to exercise a call with an incentive to redeem only prior to or on 31 December 2011; (b) the institution did not exercise the call on the date of the effective maturity of the items; (c) the conditions laid down in Article 63 are not met from the date of the effective maturity of the items.

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Article 491 Effective maturity For the purposes of Articles 489 and 490, effective maturity shall be determined as follows: (a) for the items referred to in paragraphs 3 and 5 of those Articles, it is the date of the first call with an incentive to redeem occurring on or after 1 January 2013; (b) for the items referred to in paragraph 4 of those Articles, it is the date of the first call with an incentive to redeem occurring between 31 December 2011 and 1 January 2013; (c) for the items referred to in paragraph 6 of those Articles, it is the date of the first call with an incentive to redeem prior to 31 December 2011.

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Article 492 Disclosure of own funds 1. Institutions shall apply this Article during the period from 1 January 2014 to 31 December 2021. 2. During the period from From 1 January 2014 to 31 December 2015, institutions shall disclose the extent to which the level of Common Equity Tier 1 capital and Tier 1 capital exceed the requirements laid down in Article 465. 3. During the period from From 1 January 2014 to 31 December 2017, institutions shall disclose the following additional information about their own funds: (a) the nature and effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds of the individual filters and deductions applied in accordance with Articles 467 to 470, 474, 476 and 479; (b) the amounts of minority interests and Additional Tier 1 and Tier 2 instruments, and related retained earnings and share premium accounts, issued by subsidiaries that are included in consolidated Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds in accordance with Section 4 of Chapter 1; (c) the effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds of the individual filters and deductions applied in accordance with Article 481; (d) the nature and amount of items that qualify as Common Equity Tier 1 items, Tier 1 items and Tier 2 items by virtue of applying the derogations specified in Section 2 of Chapter 2. 4. During the period from From 1 January 2014 to 31 December 2021, institutions shall disclose the amount of instruments that qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments by virtue of applying Article 484. 5. EBA shall develop draft implementing technical standards to specify uniform templates for disclosure made in accordance with this Article. The templates shall include the items listed in points (a), (b), (d) and (e) of Article 437(1), as amended by Chapters 1 and 2 of this Title. EBA shall submit those draft implementing technical standards to the Commission by 1 February 2014. 28 July 2013. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

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Article 493 Transitional provisions for large exposures 1. The provisions on large exposures as laid down in Articles 387 to 403 shall not apply to investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to whom Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities fieldOJ L 141, 11.6.1993, p. 27. did not apply on 31 December 2006. This exemption is available until 31 December 2017 or the date of entry into force of any amendments pursuant to paragraph 2 of this Article, whichever is the earlier. 2. By 31 December 2015, the Commission shall, on the basis of public consultations and in the light of discussions with the competent authorities, report to the European Parliament and the Council on: (a) an appropriate regime for the prudential supervision of investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the commodity derivatives or derivatives contracts set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC; (b) the desirability of amending Directive 2004/39/EC to create a further category of investment firm whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC relating to energy supplies. On the basis of this that report, the Commission may submit proposals for amendments to amend this Regulation Regulation. 3. By way of derogation from Article 400(2) and (3), Member States may, for a transitional period until the entry into force of any legal act following the review in accordance with Article 507, but not after 2 January 2029, 31 December 2028, fully or partially exempt the following exposures from the application of Article 395(1): (a) covered bonds falling within Article 129(1), (3) and (6); (b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be … 436 unchanged words … mutual guarantee schemes possessing the status of credit institutions; (j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk- weighted exposure amounts; (k) assets items constituting claims on and other exposures to recognised exchanges.

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Article 494 Transitional provisions for eligible capital By way of derogation from point (71)(b) points (71)(a)(ii) and (b)(ii) of Article 4(1), eligible capital may include Tier 2 capital up to the following amounts: (a) 100 % of Tier 1 capital during the period from 1 January 2014 to 31 December 2014; (b) 75 % of Tier 1 capital during the period from 1 January 2015 to 31 December 2015; (c) 50 % of Tier 1 capital during the period from 1 January 2016 to 31 December 2016.

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Article 495 Treatment of equity exposures under the IRB Approach 1. By Until 31 December 2017, the competent authorities may, by way of derogation from Chapter 3 of Part Three, until 31 December 2017, the competent authorities may exempt from the IRB treatment certain categories of equity exposures held by institutions and EU subsidiaries of institutions in that Member State as at 31 December 2007. The competent authority shall publish the categories of equity exposures which benefit from that such treatment in accordance with Article 143 of Directive 2013/36/EU. The exempted position shall be measured as the number of shares as at 31 December 2007 and any additional share arising directly as a result of owning those holdings, provided that they do not increase the proportional share of ownership in a portfolio company. If an acquisition increases the proportional share of ownership in a specific holding the part of the holding which constitutes the excess shall not be subject to the exemption. Nor shall the exemption apply to holdings that were originally subject to the exemption, but have been sold and then bought back. Equity exposures subject to this provision shall be subject to the capital requirements calculated in accordance with the Standardised Approach under Part Three, Title II, Chapter 2 and the requirements set out in Title IV of Part Three, as applicable. Competent authorities shall notify the Commission and EBA of the implementation of this paragraph. 2. In the calculation of risk weighted risk-weighted exposure amounts for the purposes of Article 114(4), until 31 December 2015 2017 the same risk weight shall be assigned in relation to exposures to the central governments or central banks of Member States denominated and funded in the domestic currency of any Member State as would be applied to such exposures denominated and funded in their domestic currency. 3. EBA shall develop draft regulatory technical standards to specify the conditions according to which competent authorities shall afford the exemption referred to in paragraph 1. EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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Article 496 Own funds requirements for covered bonds 1. Until 31 December 2017 2017, competent authorities may waive in full or in part the 10 % limit for senior units issued by French Fonds Communs de Créances or by securitisation entities which are equivalent to French Fonds Communs de Créances laid down in points (d) and (e) (f) of Article 129(1), provided that both of the following conditions are fulfilled: (a) the securitised residential property or commercial immovable property exposures were originated by a member of the same consolidated group of which the issuer of the covered bonds is a member, or by an entity affiliated to the same central body to which the issuer of the covered bonds is affiliated, where that common group membership or affiliation shall be determined at the time the senior units are made collateral for covered bonds; (b) a member of the same consolidated group of which the issuer of the covered bonds is a member, or an entity affiliated to the same central body to which the issuer of the covered bonds is affiliated, retains the whole first loss tranche supporting those senior units. 2. Until 31 December 2014, for the purposes of point (c) of Article 129(1), institutions' the senior unsecured exposures of institutions which qualified for a 20 % risk weight under national law before the entry into force of this Regulation 28 June 2013 shall be considered to qualify for credit quality step 1. 3. Until 31 December 2014, for the purposes of Article 129(5), institutions' the senior unsecured exposures of institutions which qualified for a 20 % risk weight under national law before the entry into force of this Regulation shall 28 June 2013shall be considered to qualify for a 20 % risk weight.

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Article 497 Own funds requirements for exposures to CCPs 1. Up until Until 15 months after the date of entry into force of the latest of the eleven regulatory technical standards referred to at the end of the first subparagraph of Article 89(3) in Articles 16, 25, 26, 29, 34, 41, 42, 44, 45, 47 and 49 of Regulation (EU) No 648/2012, or until a decision is made under Article 14 of that Regulation on the authorisation of the CCP, whichever date is earlier, an institution may consider that CCP to be a QCCP, provided that the condition laid down CCP was authorised in its Member State of establishment to provide clearing services in accordance with the first part national law of that subparagraph has Member State before all the regulatory technical standards in Articles 5, 8 to 11, 16, 18, 25, 26, 29, 34, 41, 42, 44, 45, 46, 47, 49, 56 and 81 of that Regulation have been met. adopted. 2. Up until Until 15 months after the date of entry into force of the latest of the ten regulatory technical standards referred to at the end of the second subparagraph of Article 89(3) in Articles 16, 26, 29, 34, 41, 42, 44, 45, 47 and 49 of Regulation (EU) No 648/2012, or until a decision is made under Article 25 of that Regulation on the recognition of the CCP established in a third country, whichever date is earlier, an institution may consider that CCP to be a QCCP, 3. The Commission may adopt an implementing act under Article 5 of Regulation (EU) No 182/2011 extending the transitional provisions in paragraphs 1 and 2 of this Article by a further six months, in exceptional circumstances where it is necessary and proportionate to avoid disruption to international financial markets. 4. Up until Until the deadlines defined in paragraphs 1 and 2, and extended under paragraph 3, as applicable, where a CCP does not have neither has a default fund and it does not have nor has in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, an institution shall substitute the right formula for calculating the own funds requirement (Ki) in Article 308(2) with the following one:Ki = 1 + β · NN – 2 · IMiIM · KCM where IMi the initial margin posted to the CCP by clearing member i IM the total amount of initial margin communicated to the institution by the CCP.

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Article 498 Exemption for Commodities dealers 1. The provisions on own funds requirements as set out in this Regulation shall not apply to investment firms whose the main business of which consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to whom which Directive 93/22/EEC did not apply on 31 December 2006. This exemption shall apply until 31 December 2017 or the date of entry into force of any amendments pursuant to paragraphs 2 and 3, whichever is the earlier. 2. By 31 December 2015, the Commission shall, on the basis of public consultations and in the light of discussions with the competent authorities, report to the European Parliament and the Council on: (a) an appropriate regime for the prudential supervision of investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the commodity derivatives or derivatives contracts set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC; (b) the desirability of amending Directive 2004/39/EC to create a further category of investment firm whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC relating to energy supplies, including electricity, coal, gas and oil. 3. On the basis of the report referred to in paragraph 2, the Commission may submit proposals for amendments to amend this Regulation.

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Article 500 Transitional provisions – — Basel I floor 1. Until 31 December 2017, institutions calculating risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 3 and institutions using the Advanced Measurement Approaches as specified in Part Three, Title III, Chapter 4 for the calculation of their own funds requirements for operational risk shall meet both of the following requirements: (a) they shall hold own funds as required by Article 92; (b) they shall hold own funds which are at all times more than or equal to 80 % of the total minimum amount of own funds that the institution would be required to hold under Article 4 of Directive 93/6/EEC as that Directive and Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutionsOJ L 126, 26.5.2000, p. 1. stood prior to 1 January 2007. 2. Subject to the approval of the competent authorities, the amount referred to in point (b) of paragraph 1 may be replaced by a requirement to hold own funds which are at all times more than or equal to 80 % of the own funds that the institution would be required to hold under Article 92 calculating risk weighted risk-weighted exposure amounts in accordance with Part Three, Title II, Chapter 2, and Part Three, Title III, Chapter 2 or 3, as applicable, instead of in accordance with Part Three, Title II, Chapter 3, or Part Three, Title III, Chapter 4, as applicable. 3. A credit institution may apply paragraph 2 only if it started to use the IRB Approach or the Advanced Measurements Approaches for the calculation of its capital requirements on or after 1 January 2010. 4. Compliance with the requirements of point (b) of paragraph 1 shall be on the basis of amounts of own funds fully adjusted to reflect differences in the calculation of own funds under Directive 93/6/EEC and Directive 2000/12/EC as those Directives stood prior to 1 January 2007 and the calculation of own funds under this Regulation deriving from the separate treatments of expected loss and unexpected loss under Part Three, Title II, Chapter 3, of this Regulation. 5. The competent authorities may, after having consulted consulting EBA, waive the application of point (b) of paragraph 1 to institutions provided that all the requirements for the Internal Ratings Based IRB Approach set out in Part Three, Title II, Chapter 3, Section 6 or the qualifying criteria for the use of the Advanced Measurement Approach set out in Part Three, Title III, Chapter 4, as applicable, are met. 6. The By 1 January 2017, the Commission shall by 1 January 2017 submit a report to the European Parliament and the Council on whether it is appropriate to extend the application of the Basel I floor beyond 31 December 2017 to ensure that there is a backstop to internal models, taking into account international developments and internationally agreed standards. That report shall be accompanied by a legislative proposal if appropriate.

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Article 501 Capital requirements deduction for credit risk on exposures to SMEs 1. Capital requirements for credit risk on exposures to SMEs shall be multiplied by the factor 0,7619. 2. For the purpose of this Article: (a) the exposure shall be included either in the retail or in the corporates or secured by mortgages on immovable property classes. Exposures in default shall be excluded; (b) an SME is defined in accordance with Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprisesOJ L 124, 20.5.2003, p. 36.. Among the criteria listed in Article 2 of the Annex to that Recommendation only the annual turnover shall be taken into account; (c) the total amount owed to the institution and parent undertakings and its subsidiaries, including any exposure in default, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential property collateral, shall not, to the knowledge of the institution, exceed EUR 1,5 million. The institution shall take reasonable steps to acquire this such knowledge. 3. Institutions shall report to competent authorities every three months on the total amount of exposures to SMEs calculated in accordance with paragraph 2. 4. The Commission shall shall, by 2 January 2017, 28 June 2016, report on the impact of the own funds requirements laid down in this Regulation on lending to SMEs and natural persons and shall submit that report to the European Parliament and to the Council, together with a legislative proposal proposal, if appropriate. 5. For the purpose of paragraph 4, EBA shall report on the following to the Commission: (a) an analysis of the evolution of the lending trends and conditions for SMEs over the period referred to in paragraph 4; (b) an analysis of effective riskiness of Union SMEs over a full economic cycle; (c) the consistency of own funds requirements laid down in this Regulation for credit risk on exposures to SMEs with the outcomes of the analysis under points (a) and (b).

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Article 502 Cyclicality of capital requirements The Commission, in cooperation with EBA, ESRB and the Member States, and taking into account the opinion of the ECB, shall periodically monitor whether this Regulation taken as a whole, together with Directive 2013/36/EU 2013/36/EU, has significant effects on the economic cycle and, in the light of that examination, shall consider whether any remedial measures are justified. By 31 December 2013, EBA shall report to the Commission on whether, and if and how so how, methodologies of institutions under the IRB Approach should converge with a view to more comparable capital requirements while mitigating pro-cyclicality. Based on that analysis and taking into account the opinion of the ECB, the Commission shall draw up a biennial report and submit it to the European Parliament and to the Council, together with any appropriate proposals. Contributions from credit taking and credit lending parties shall be adequately acknowledged when the report is drawn up. By 31 December 2014 2014, the Commission shall review review, and report on on, the application of Article 33(1)(c) and shall submit that report to the European Parliament and the Council, together with a legislative proposal proposal, if appropriate. With respect to the potential elimination deletion of the Article 33(1)(c) and its potential application at the Union level, the review shall in particular ensure that sufficient safeguards are in place to ensure financial stability in all Member States.

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Article 503 Own funds requirements for exposures in the form of covered bonds 1. The Commission shall, by 31 December 2014, after consulting EBA, report to the European Parliament and to the Council, together with any appropriate proposals, on whether the risk weights laid down in Article 129 and the own funds requirements for specific risk in Article 336(3) are adequate for all the instruments that qualify for these treatments and whether the criteria in Article 129 are appropriate. 2. The report and the proposals referred to in paragraph 1 shall have regard to: take into account: (a) the extent to which the current regulatory capital requirements applicable to covered bonds adequately differentiate between variances in the credit quality of covered bonds and the collateral against which they are secured, including the extent of variations across Member States; (b) the transparency of the covered bond market and the extent to which this facilitates comprehensive internal analysis by investors in respect of the credit risk of covered bonds and the collateral against which they are secured and the asset segregation in case of the issuer's insolvency, including the mitigating effects of the underlying strict national legal framework in accordance with Article 129 of this Regulation and Article 52(4) of Directive 2009/65/EC on the overall credit quality of a covered bond and its implications on the level of transparency needed by investors; and (c) the extent to which covered bond issuance by a credit institution impacts on the credit risk to which other creditors of the issuing institution are exposed. 3. The Commission shall, by 31 December 2014, after consulting EBA, report to the European Parliament and the Council on whether loans secured by aircrafts (aircraft liens) and whether residential loans secured by a guarantee, guarantee but not secured by a registered mortgage, should under certain conditions be considered as an eligible asset in accordance with Article 129. 4. The Commission shall, by 31 December 2016, review the appropriateness of the derogation set out in Article 496 and, if relevant, the appropriateness of extending similar treatment to any other form of covered bond. In the light of that review, the Commission may, if appropriate, adopt delegated acts in accordance with Article 462 to make that derogation permanent permanent, or make legislative proposals to extend it to other forms of covered bonds.

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Article 504 Capital instruments subscribed by public authorities in emergency situations The Commission shall, by 31 December 2016, after consulting EBA, report to the European Parliament and the Council, together with any appropriate proposals, whether the treatment set out in Article 31 needs to be amended or removed. deleted.

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Article 506 Credit risk – — definition of default EBA shall, by 31 December 2017, report to the Commission on how replacing 90 days by 180 days past due, as provided in point (b) of Article 178(1), impacts risk-weighted exposure amounts and the appropriateness of the continued application of that provision after 31 December 2019. On the basis of that report, the Commission may submit a legislative proposal to amend this Regulation.

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Article 507 Large exposures By 31 December 2015, the Commission shall review and report on the application of Article 400(1)(j) and Article 400(2), including whether the exemptions set out in Article 400(2) is to be discretionary, and shall submit that report to the European Parliament and to the Council, together with a legislative proposal proposal, if appropriate. With respect to the potential elimination of the national discretion under Article 400(2)(c) and its potential application at the Union level, the review shall in particular take into account the efficiency of group risk management while ensuring that sufficient safeguards are in place to ensure financial stability in all Member States in which an entity belonging to a group is incorporated.

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Article 508 Level of application 1. By 31 December 2014, the Commission shall review review, and report on on, the application of Part One, Title II, and Article 113(6) and (7) and shall submit that report to the European Parliament and the Council, together with a legislative proposal proposal, if appropriate. 2. By 31 December 2015, the Commission shall report on whether and how the liquidity coverage requirement laid down in Part Six should apply to investment firms and shall, after consulting EBA, submit that report to the European Parliament and to the Council, together with a legislative proposal proposal, if appropriate. 3. By 31 December 2015, the Commission shall, after consulting EBA and ESMA and in the light of discussions with the competent authorities, report to the European Parliament and to the Council on an appropriate regime for the prudential supervision of investment firms and of firms referred to in points (2)(b) and (c) of Article 4(1). Where appropriate the report shall be followed by a legislative proposal.

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Article 509 Liquidity requirements 1. EBA shall monitor and evaluate the reports made in accordance with Article 415(1), across currencies and across different business models. EBA shall, after consulting the ESRB, non-financial end-users, the banking industry, competent authorities and the ESCB central banks banks, annually and for the first time by 31 December 2013 report to the Commission on whether a specification of the general liquidity coverage requirement in Part Six based on the items to be reported in accordance with Part Six, Title II and Annex III, considered either individually or cumulatively, is likely to have a material detrimental impact on the business and risk profile of institutions established in the Union or on the stability and orderly functioning of financial markets or on the economy and the stability of the supply of bank lending, with a particular focus on lending to SMEs and on trade financing, including lending under official export credit insurance schemes. The report referred to in the first subparagraph shall take due account of markets and international regulatory developments as well as of the interactions of the liquidity coverage requirement with other prudential requirements under this Regulation such as the risk based risk-based capital ratios as set out in Article 92 and the leverage ratio. The European Parliament and the Council shall be given the opportunity to state their views on the report referred to in the first subparagraph. 2. EBA shall shall, in the report referred to in paragraph 1 1, assess the following following, in particular: (a) the provision of mechanisms restricting the value of liquidity inflows, in particular with a view to determining an appropriate inflow cap and the conditions for its application, taking into account different business models including pass through financing, factoring, … 387 unchanged words … stress, including principles for the use of the stock of liquid assets and the necessary supervisory reactions under which institutions would be able to use their liquid assets to meet liquidity outflows and how to address non-compliance; (k) the definition of an established operational relationship for non-financial customer as referred to in Article 422(3)(c); (l) the calibration of the outflow rate applicable to correspondent banking and prime brokerage services as referred to in the first subparagraph of Article 422(4); (m) mechanisms for the grandfathering of government guaranteed bonds issued to credit institutions as part of Government government support measures with Union State aid approval, such as bonds issued by the National Asset Management Agency (NAMA) in Ireland and by the Spanish Asset Management Company in Spain, designed to remove problem assets from the balance sheets of credit institutions, as assets of extremely high liquidity and credit quality until at least December 2023. 3. EBA shall, after consulting ESMA and the ECB, by 31 December 2013, report to the Commission on appropriate uniform definitions of high and of extremely high liquidity and credit quality of transferable assets for the purposes of Article 416 and appropriate haircuts for assets that would qualify as liquid assets for the purposes of Article 416, with the exception of assets referred to in points (a), (b) and (c) of Article 416(1). The European Parliament and the Council shall be given the opportunity to state their views on that report. The report referred to in the first subparagraph shall also consider: (a) other categories of assets, in particular residential mortgage-backed securities of high liquidity and credit quality; (b) other categories of central bank eligible securities or loans, for example such as local government bonds and commercial paper; and (c) other non-central bank eligible but tradable assets, for example such as equities listed on a recognised exchange, gold, major index linked equity instruments, guaranteed bonds, covered bonds, corporate bonds and funds based on those assets. 4. The report referred to in paragraph 3 shall consider whether, and if, if so to what extent extent, standby credit facilities referred to in point (e) of Article 416(1) should be included as liquid assets in light of international development and taking into account European specificities, including the way monetary policy is performed in the Union. EBA shall in particular test the adequacy of the following criteria and the appropriate levels for such definitions: (a) minimum trade volume of the assets; (b) minimum outstanding volume of the assets; (c) transparent pricing and post-trade information; (d) credit quality steps referred to in Part Three, Title II, Chapter 2; (e) proven record of price stability; (f) average volume traded and average trade size; (g) maximum bid/ask spread; (h) remaining time to maturity; (i) minimum turnover ratio. 5. By 31 January 2014, EBA shall furthermore also report on the following: (a) uniform definitions of high and extremely high liquidity and credit quality; (b) the possible unintended consequences of the definition of liquid assets on the conduct of monetary policy operation and the extent to which: (i) a list of liquid assets that is disconnected from the list of central bank eligible assets may incentivise institutions to submit eligible assets which are not included in the definition of liquid assets in refinancing operations; (ii) regulation of liquidity may disincentivise institutions to lend from lending or borrow borrowing on the unsecured money market and whether this may lead to question the targeting of EONIA in monetary policy implementation; (iii) the introduction of the liquidity coverage requirement may make it more difficult for central banks to ensure price stability by using the existing monetary policy framework and instruments; (c) the operational requirements for the holdings of liquid assets, as referred in points (b) to (f) of Article. Article 417, in line with international regulatory developments.

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Article 510 Net Stable Funding Requirements 1. By 31 December 2015, EBA shall report to the Commission, on the basis of the items to be reported in accordance with Part Six, Title III, on whether and how it would be appropriate to ensure that institutions use stable sources of funding, including an assessment of the impact on the business and risk profile of institutions established in the Union or on financial markets or the economy and bank lending, with a particular focus on lending to SMEs and on trade financing, including lending under official export credit insurance schemes and pass through financing models, including match funded mortgage lending. In particular EBA shall analyse the impact of stable sources of funding on the refinancing structures of different banking models in the Union. 2. By 31 December 2015, EBA shall also report to the Commission, on the basis of the items to be reported in accordance with Part Six, Title III and and, in accordance with the uniform reporting formats referred to in point (a) of Article 415(3) and after consulting the ESRB, on methodologies for determining the amount of stable funding available to and required by institutions and on appropriate uniform definitions for calculating such a net stable funding requirement, examining in particular the following: (a) the categories and weightings applied to sources of stable funding in Article 427(1); (b) the categories and weightings applied to determine the requirement for stable funding in Article 428(1); (c) methodologies shall provide incentives and disincentives as appropriate to encourage a more stable longer term funding of assets, business activities, investment and funding of institutions; (d) the need to develop different methodologies for different types of institutions. 3. By 31 December 2016, the Commission shall, if appropriate, and taking into account the reports referred to in paragraphs 1 and 2, and taking full account of the diversity of the banking sector in the Union, submit a legislative proposal to the European Parliament and the Council on how to ensure that institutions use stable sources of funding.

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Article 511 Leverage 1. Based on the results of the report referred to in paragraph 3, the Commission shall submit by 31 December 2016 a report on the impact and effectiveness of the leverage ratio to the European Parliament and the Council. 2. Where appropriate, the report shall be accompanied by a legislative proposal on the introduction of an appropriate number of levels of the leverage ratio that institutions following different business models would be required to meet, suggesting an adequate calibration for those levels and any appropriate adjustments to the capital measure and the total exposure measure as referred to in Article 429, together with any connected flexibility measures if necessary, including appropriate amendments to Article 458 to introduce the leverage ratio within the scope of measures included in that Article. 3. For the purposes of paragraph 1, EBA shall report to the Commission by 31 October 2016 on at least the following: (a) whether the leverage ratio framework provided by this Regulation and by Articles 87 and 98 of Directive 2013/36/EU is the appropriate tool to suppress eliminate the risk of excessive leverage on the part of the institutions in a satisfactory manner and degree; (b) on identifying business models that reflect the overall risk profiles of the institutions and on introducing differentiated levels of the leverage ratio for those business models; (c) whether the requirements laid out in Articles 76 and 87 of Directive 2013/36/EU in accordance with Articles 73 and 97 of Directive 2013/36/EU for addressing the risk of excessive leverage are sufficient to ensure sound management of this risk by institutions and, if not, which further enhancements are needed in order to ensure these objectives; (d) whether – and and, if so, which - which, changes to the calculation methodology referred to in Article 429 would be necessary to ensure that the leverage ratio can be used as an appropriate indicator of an institution's risk of excessive leverage; (e) whether, in the context of the calculation of the total exposure measure of the leverage ratio, the exposure value of contracts listed in Annex II determined by using the Original Exposure Method differs in a material way from the exposure value determined by using the Mark-to-Market Method; (f) whether using either own funds or Common Equity Tier 1 capital as the capital measure of the leverage ratio could be more appropriate for the intended purpose of tracking the risk of excessive leverage and, if so, what would be the appropriate calibration of the leverage ratio; (g) whether the conversion factor referred to in point (a) of Article 429(10) for undrawn credit facilities, which may be cancelled unconditionally at any time without notice, is appropriately conservative based on the evidence collected during the observation period; (h) whether the frequency and format of the disclosure of items referred to in Article 451 are adequate; (i) what would be the appropriate level for of the leverage ratio for each of the business models indentified identified in accordance with point (b); (j) whether a range for each level of the leverage ratio should be defined; established; (k) whether introducing the leverage ratio as a requirement for institutions would necessitate any any, and, if so, which, changes to the leverage ratio framework provided by this Regulation and, if so, which ones; Regulation; (l) whether introducing the leverage ratio as a requirement for institutions would effectively constrain the risk of excessive leverage on the part of those institutions, and, if so, whether the level for the leverage ratio should be the same for all institutions or should be determined according to in accordance with the risk profile and business model as well as the size of institutions and, with regard to this, which additional calibrations or transition transitional period would be required. 4. The report referred to in paragraph 3 shall cover at least the period from 1 January 2014 until 30 June 2016 and shall take account of at least the following: (a) the impact of introducing the leverage ratio, determined in accordance with Article 429, as a requirement that institutions would have to meet on: (i) financial markets in general and markets for repurchase transactions, derivatives and covered bonds in particular; (ii) the robustness of institutions; (iii) the business models and the balance-sheet structures of institutions; in particular as regards low-risk areas of business, such as promotional credit by public development banks, municipal loans, financing of residential property and other low-risk areas regulated under national law; (iv) the migration of exposures to entities which are not subject to prudential supervision; (v) financial innovation, in particular the development of instruments with embedded leverage; (vi) institutions' risk-taking behaviour; (vii) clearing, settlement and custody activities and the operation of a central counterparty; (viii) cyclicality of the capital measure and the total exposure measure of the leverage ratio; (ix) bank lending, with a particular focus on lending to SMEs, local authorities, regional governments and public sector entities and on trade financing, including lending under official export credit insurance schemes; (b) the interaction of the leverage ratio with the risk-based own funds requirements and the liquidity requirements as specified in this Regulation; (c) the impact of accounting differences between accounting standards applicable under Regulation (EC) No 1606/2002, accounting standards applicable under Directive 86/635/EEC and other applicable accounting framework and other relevant accounting frameworks on the comparability of the leverage ratio.

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Article 512 Exposures to transferred credit risk By 31 December 2014 2014, the Commission shall report to the European Parliament and the Council on the application and effectiveness of the provisions of Part Five in the light of international market developments.

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Article 513 Macroprudential rules 1. By 30 June 2014, the Commission shall, after consulting the ESRB and EBA, review whether the macroprudential rules contained in this Regulation and Directive 2013/36/EU are sufficient to mitigate systemic risks in sectors, regions and Member States including assessing: (a) whether the current macroprudential tools in this Regulation and Directive 2013/36/EU are effective, efficient and transparent; (b) whether the coverage and the possible degrees of overlap between different macroprudential tools for targeting similar risks in this Regulation and Directive 2013/36/EU are adequate and, if appropriate, propose new macroprudential rules; (c) how internationally agreed standards for systemic institutions interacts with the provisions in this Regulation and Directive 2013/36/EU and, if appropriate, propose new rules taking into account those internationally agreed standards. 2. By 31 December 2014, the Commission shall, on the basis of the consultation with of the ESRB and EBA, report to the European Parliament and the Council on the assessment referred to in paragraph 1 and, where appropriate, submit a legislative proposal to the European Parliament and the Council.

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Article 514 Counterparty Credit Risk credit risk and the Original Exposure Method By 31 December 2016 2016, the Commission shall review and report on the application of Article 275 and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

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Article 515 Monitoring and evaluation 1. By 28 June 2014, EBA, together with ESMA, shall by 2 January 2015 report on the functioning of this Regulation with the related obligations under Regulation (EU) No 648/2012 and in particular with regard to institutions operating a central counterparty, in order to avoid duplication of requirements for derivative transactions and thereby avoid increased regulatory risk and increased costs for monitoring by competent authorities. 2. EBA shall monitor and evaluate the operation of the provisions for own funds requirements for exposures to a central counterparty as set out in Section 9 of Chapter 6 of Title II of Part Three. By 1 January 2015 EBA shall report to the Commission on the impact and effectiveness of such provisions. 3. By 31 December 2016 2016, the Commission shall review review, and report on on, the reconciliation of this Regulation with the related obligations under Regulation (EU) No 648/2012, the own funds requirements as set out in Section 9 of Chapter 6 of Title II of Part Three and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

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Article 516 Long-term financing By 31 December 2015 2015, the Commission shall report on the impact of this Regulation on the encouragement of long-term investments in growth promoting infrastructure.

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Article 517 Definition of eligible capital By 31 December 2014 2014, the Commission shall review review, and report on on, the appropriateness of the definition of eligible capital being applied for the purposes of Title III of Part Two and Part Four and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.

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Article 518 Review of capital instruments which may be written down or converted at the point of non-viability By 31 December 2015, the Commission shall review review, and report on on, whether this Regulation should contain a requirement that Additional Tier 1 or Tier 2 capital instruments are to be written down in the event of a determination that an institution is no longer viable. The Commission shall submit that report to the European Parliament and the Council, together with a legislative proposal proposal, if appropriate.

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Article 519 Deduction of defined benefit pension fund assets from Common Equity Tier 1 items By 30 June 2014, EBA shall by 30 June 2014 prepare a report on whether the revised IAS 19 in conjunction with the deduction of net pension assets as set out in Article 36(1)(e) and changes in the net pension liabilities lead to undue volatility of institutions' own funds. Taking into account the EBA report, the Commission shall by by, 31 December 2014 prepare a report to for the European Parliament and the Council on the issue referred to in the first paragraph, together with a legislative proposal, if appropriate, to introduce a treatment which adjusts defined net benefit pension fund assets or liabilities for the calculation of own funds.

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Article 520 Amendment of Regulation (EU) No 648/2012 Regulation (EU) No 648/2012 is amended as follows: (1) the following Chapter is added in Title IV: CHAPTER 4 Calculations and reporting for the purposes of Regulation (EU) No 575/2013 Article 50a Calculation of KCCP 1. For the purposes of Article 308 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firmsOJ L 176, 27.6.2013, p. 1.;, where 27.6.2013,p.1.;, a CCP has received the notification referred to in Article 301(2)(b) of that Regulation, it shall calculate KCCP as specified in paragraph 2 of this Article for all contracts and transactions it clears for all its clearing members falling within the coverage of the given default fund. 2. A CCP shall calculate the hypothetical capital (KCCP) as follows:KCCP = ΣimaxEBRMi – IMi – DFi;0 · RW · captial ratio where: EBRMi exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member; IMi the initial margin posted to the CCP by clearing member i; DFi the pre-funded contribution of clearing member i; RW a risk weight of 20 %; capital ratio 8 %. All values in the formula in the first subparagraph shall relate to the valuation at the end of the day before the margin called on the final margin call of that day is exchanged. 3. A CCP shall undertake the calculation required by paragraph 2 at least quarterly or more frequently where required by the competent authorities of those of its clearing members which are institutions. 4. For the purpose of paragraph 3, EBA shall develop draft implementing technical standards to specify the following for the purpose of paragraph 3: following: (a) the frequency and dates of the calculation laid down in paragraph 2; (b) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than those referred to in point (a). EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. Article 50b General rules for the calculation of KCCP For the purposes of the calculation laid down in Article 50a(2), the following shall apply: (a) a CCP shall calculate the value of the exposures it has to its clearing members as follows: (i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013; 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof; (ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply; (iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation; (b) for institutions that fall under the scope of Regulation (EU) No 575/2013 the netting sets are the same as those defined in Part Three, Title II of that Regulation; (c) when calculating the values referred to in point (a), the CCP shall subtract from its exposures the collateral posted by its clearing members, appropriately reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of Regulation (EU) No 575/2013; (d) a CCP shall calculate its securities financing transaction exposures to its clearing members in accordance with the Financial Collateral Comprehensive method, with supervisory volatility adjustments, specified in Articles 223 and 224 of Regulation (EU) No 575/2013; (e) where a CCP has exposures to one or more CCPs it shall treat any such exposures as if they were exposures to clearing members and include any margin or pre-funded contributions received from those CCPs in the calculation of KCCP; (f) where a CCP has in place a binding contractual arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the CCP shall consider that initial margin as prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin; (g) when applying the Mark-to-Market Method, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013 with the following: PCEred = 0.15 · PCEgross + 0.85 · NGR · PCEgross; where the numerator of NGR is calculated in accordance with Article 274(1) of Regulation (EU) No 575/2013 and just before the variation margin is actually exchanged at the end of the settlement period, and the denominator is the gross replacement cost; (h) when applying the Mark-to-Market Method as set out in Article 274 of Regulation (EU) No 575/2013, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of that Regulation with the following: PCEred = 0.15 · PCEgross + 0.85 · NGR · PCEgross where the numerator of NGR is calculated in accordance with Article 274(1) of that Regulation and just before the variation margins are margin is actually exchanged at the end of the settlement period, and the denominator is gross replacement cost; (i) where a CCP cannot calculate the value of NGR as set out in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013, it shall: (i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation; (ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCEred specified in point (g); (h) of this Article; (j) where, at the end of the period specified in point (ii) of point (i), the CCP would still be unable to calculate the value of NGR, it shall do the following: (i) stop calculating KCCP; (ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating KCCP; (k) for the purpose of calculating the potential future exposure for options and swaptions in accordance with the Mark-to-Market Method specified in Article 274 of Regulation (EU) No 575/2013, a CCP shall multiply the notional amount of the contract by the absolute value of the option's delta δV/δp as deltaδV/δpas set out in point (a) of Article 280(1) of that Regulation; (l) where a CCP has more than one default fund, it shall carry out the calculation laid down in Article 50a(2) for each default fund separately. Article 50c Reporting of information 1. For the purposes of Article 308 of Regulation (EU) No 575/2013, a CCP shall report the following information to those of its clearing members which are institutions and to their competent authorities: (a) the hypothetical capital (KCCP); (b) the sum of pre-funded contributions (DFCM); (c) the amount of its pre-funded financial resources that it is required to use - — by law or due to a contractual agreement with its clearing members - — to cover its losses following the default of one or more of its clearing members before using the default fund contributions of the remaining clearing members (DFCCP); (d) the total number of its clearing members (N); (e) the concentration factor (β), as set out in Article 50d; (f) the sum of all of the contractually committed contributions DFCMc. 50d. Where the CCP has more than one default fund, it shall report the information in the first subparagraph for each default fund separately. 2. The CCP shall notify those of its clearing members which are institutions at least quarterly or more frequently where required by the competent authorities of those clearing members. 3. EBA shall develop draft implementing technical standards to specify the following: (a) the uniform template for the purpose of the reporting specified in paragraph 1; (b) the frequency and dates of the reporting specified in paragraph 2; (c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of reporting than those referred to in point (b). EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. Article 50d Calculation of specific items to be reported by the CCP For the purposes of Article 50c, the following shall apply: (a) where the rules of a CCP provide that it use part or all of its financial resources in parallel to the pre-funded contributions of its clearing members in a manner that makes those resources equivalent to pre-funded contributions of a clearing member in terms of how they absorb the losses incurred by the CCP in the case of the default or insolvency of one or more of its clearing members, the CCP shall add the corresponding amount of those resources to DFCM; (b) where the rules of a CCP provide that it use part or all of its financial resources to cover its losses due to the default of one or more of its clearing members after it has depleted its default fund, but before it calls on the contractually committed contributions of its clearing members, the CCP shall add the corresponding amount of those additional financial resources DFCCPa to DFCCPato the total amount of pre-funded contributions (DF) as follows: DF = DFCCP + DFCM + DFCCPa. (c) a CCP shall calculate the concentration factor (β) in accordance with the following formula: β = PCEred,1 + PCEred,2ΣiPCEred,i where: PCEred,i the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i; PCEred,1 the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCEred value; PCEred,2 the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCEred value. (2) in Article 11(15), point (b) is deleted; (3) in Article 89, the following paragraph is inserted: 5a. Up until Until 15 months after the date of entry into force of the latest of the eleven regulatory technical standards referred to at the end of the first subparagraph of paragraph 3, in Articles 16, 25, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 14 on the authorisation of the CCP, whichever date is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Up until Until 15 months after the date of entry into force of the latest of the eleven regulatory technical standards referred to at the end of the second subparagraph of paragraph 3, in Articles 16, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 25 on the recognition of the CCP, whichever date is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Where Until the deadlines defined in the first two subparagraphs of this paragraph, and subject to the fourth subparagraph of this paragraph, where a CCP does not have neither has a default fund and it does not have nor has in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the information it shall is to report in accordance with Article 50c(1) shall include the total amount of initial margin it has received from its clearing members (IM). members. The deadlines referred to in the first and second subparagraphs of this paragraph may be extended by an additional six months where the in accordance with a Commission has adopted the implementing act referred adopted pursuant to in Article 497(3) of Regulation (EU) No 575/2013..

32013R0575 → 02013R0575-20130628

Article 521 Entry into force and date of application 1. This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union. 2. This Regulation shall apply from 1 January 2014, with the exception of: (a) Article 8(3), Article 21 and Article 451(1), which shall apply from 1 January 2015; (b) Article 413(1), which shall apply from 1 January 2016; (c) the provisions of this Regulation that require the ESAs to submit to the Commission draft technical standards and the provisions of this Regulation that empower the Commission to adopt delegated acts or implementing acts, which shall apply from 31 December 2014. 28 June 2013.