Capital Requirements Regulation

02013R0575-20150118 → 02013R0575-20160719

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 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 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 amounts using the Internal Ratings Based Approach (the IRB Approach), negative amounts resulting from the calculation of expected loss amounts laid down in Articles 158 and 159; (e) defined benefit pension fund assets on the balance sheet of the institution; (f) direct, indirect and synthetic holdings by an institution of own Common Equity Tier 1 instruments, including own Common Equity Tier 1 instruments that an institution is under an actual or contingent obligation to purchase by virtue of an existing contractual obligation; (g) direct, indirect and synthetic holdings of the Common Equity Tier 1 instruments of financial sector entities where those entities have a reciprocal cross holding with the institution that the competent authority considers to have been designed to inflate artificially the own funds of the institution; (h) the applicable amount of direct, indirect and synthetic holdings by the institution of Common Equity Tier 1 instruments of financial sector entities where the institution does not have a significant investment in those entities; (i) the applicable amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities; (j) the amount of items required to be deducted from Additional Tier 1 items pursuant to Article 56 that exceeds the Additional Tier 1 capital items of the institution; (k) the exposure amount of the following items which qualify for a risk weight of 1250 %, where the institution deducts that exposure amount from the amount of Common Equity Tier 1 items as an alternative to applying … 322 unchanged words … draft regulatory technical standards to the Commission by 28 July 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

02013R0575-20150118 → 02013R0575-20160719

Article 56 Deductions from Additional Tier 1 items Institutions shall deduct the following from Additional Tier 1 items: (a) direct, indirect and synthetic holdings by an institution of own Additional Tier 1 instruments, including own Additional Tier 1 instruments that an institution could be obliged to purchase as a result of existing contractual obligations; (b) direct, indirect and synthetic holdings of the Additional Tier 1 instruments of financial sector entities with which the institution has reciprocal cross holdings that the competent authority considers to have been designed to inflate artificially the own funds of the institution; (c) the applicable amount determined in accordance with Article 60 of direct, indirect and synthetic holdings of the Additional Tier 1 instruments of financial sector entities, where an institution does not have a significant investment in those entities; (d) direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities, excluding underwriting positions held for five working days or fewer; (e) the amount of items required to be deducted from Tier 2 items pursuant to Article 66 that exceed exceeds the Tier 2 capital items of the institution; (f) any tax charge relating to Additional Tier 1 items foreseeable at the moment of its calculation, except where the institution suitably adjusts the amount of Additional Tier 1 items insofar as such tax charges reduce the amount up to which those items may be applied to cover risks or losses.

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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 forms of collateral: (a) immovable property collateral in accordance with paragraphs 2, 3 and 4; (b) receivables in accordance with paragraph 5; (c) other physical collateral in accordance with paragraphs 6 and 8; (d) leasing in accordance with paragraph 7. 2. Unless otherwise specified under Article 124(2), institutions may use as eligible collateral residential property which is or will be occupied or let by the owner, or the beneficial owner in the case of personal investment companies, and commercial immovable property, including offices and other commercial premises, where both the following conditions are met: (a) the value of the property does not materially depend upon the credit quality of the obligor. 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 does not materially depend upon the performance of the underlying property or project, but on the underlying capacity of the borrower to repay the debt from other sources, and as a consequence the repayment of the facility does not materially depend on any cash flow generated by the underlying property serving as collateral. 3. Institutions may derogate from point (b) of paragraph 2 for exposures secured by residential property situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established residential property market is present in that territory with loss rates that do not exceed any of the following limits: (a) losses stemming from loans collateralised by residential property up to 80 % of the market value or 80 % of the mortgage-lending-value, mortgage lending value, unless otherwise provided under Article 124(2), do not exceed 0,3 % of the outstanding loans collateralised by residential property in any given year; (b) overall losses stemming from loans collateralised by residential property do not exceed 0,5 % of the outstanding loans collateralised by residential property in any given year. Where either of the conditions in points (a) and (b) of the first subparagraph is not met in a given year, institutions shall not use the treatment set out in that subparagraph until both conditions are satisfied in a subsequent year. 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 the mortgage-lending-value mortgage lending value do not exceed 0,3 % of the outstanding loans collateralised by commercial immovable property in any given year; (b) overall losses stemming from loans collateralised by commercial immovable property do not exceed 0,5 % of the outstanding loans collateralised by commercial … 377 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 250 Treatment of maturity mismatches in synthetic securitisations For the purposes of calculating risk-weighted exposure amounts in accordance with Article 249, any maturity mismatch between the credit protection which constitutes a tranche and by which the transfer of risk is achieved and the securitised exposures shall be taken into consideration as follows: (a) the maturity of the securitised exposures shall be taken to be the longest maturity of any of those exposures subject to a maximum of five years. The maturity of the credit protection shall be determined in accordance with Chapter 4; (b) an originator institution shall ignore any maturity mismatch in calculating risk-weighted exposure amounts for tranches appearing pursuant to this Section with a risk weighting of 1250 %. For all other tranches, the maturity mismatch treatment set out in Chapter 4 shall be applied in accordance with the following formula: RW *RWSP RW*RWSP t t*T t*RWAss T tT t* where: RW* risk-weighted exposure amounts for the purposes of Article 92(3)(a); RWAss risk-weighted exposure amounts for exposures if they had not been securitised, calculated on a pro-rata basis; RWSP risk-weighted exposure amounts calculated under Article 249 if there was no maturity mismatch; T maturity of the underlying exposures expressed in years; t maturity of credit protection. expressed in years; t* 0,25.

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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 SL T SLT where: S[x] = x, when x ≤ KIRBR KIRBR Kx KKIRBR1 expω KIRBR xKIRBR d KIRBRω, when x > KIRBR where:h1 KIRBRELGDNcKIRBR1 hvELGD KIRBR KIRBR0,25 1 ELGD KIRBRNfv KIRBR21 h c21 KIRBR KIRBR ν1 h τg1 c cf 1ag cbg 1 cd1 1 h 1 BetaKIRBR; a , bKx1 h 1 Betax ; a , b xBetax ; a 1, b Betax;a,b xBetax;a1,b c τ 1000; ω 20; Beta [x; a, b] the cumulative beta distribution with parameters a and b evaluated at x; T the thickness of the tranche in which the position is held, measured as the ratio of (a) the nominal amount of the tranche to (b) the … 328 unchanged words … 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:NC1 CmCm C1m C 1m 1 max1 m C1,01N1C1 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 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 … 360 unchanged words … 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 EPEmin 1 year, maturityk1 EE: Effective EEtk Δ tk EPE1min1year, maturitymin1year, maturityk1Effective EEtkΔtk 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 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. 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 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 2020 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 … 677 unchanged words … 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 498 Exemption for Commodities dealers 1. The provisions on own funds requirements as set out in this Regulation shall not apply to investment firms the main business of which consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to which Directive 93/22/EEC did not apply on 31 December 2006. This exemption shall apply until 31 December 2017 2020 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 to amend this Regulation.