Article 323 — CRR III

1. Institutions shall have in place:

(a)

a well-documented assessment and management system for operational risk which is closely integrated into day-to-day risk management processes, forms an integral part of the process of monitoring and controlling the institution’s operational risk profile, and for which clear responsibilities have been assigned; the assessment and management system for operational risk shall identify the institution’s exposures to operational risk and track relevant operational risk data, including material loss data;

(b)

an operational risk management function that is independent from the institution’s business and operational units;

(c)

a system of reporting to senior management that provides operational risk reports to relevant functions within the institution;

(d)

a system of regular monitoring and reporting of operational risk exposures and loss experience, and procedures for taking appropriate corrective actions;

(e)

routines for ensuring compliance, and policies for the treatment of non-compliance;

(f)

regular reviews of the institution’s operational risk assessment and management processes and systems, carried out by internal or external auditors that possess the necessary knowledge;

(g)

internal validation processes that operate in a sound and effective manner;

(h)

transparent and accessible data flows and processes associated with the institution’s operational risk assessment system.

2. EBA shall develop draft regulatory technical standards to specify the obligations under paragraph 1, points (a) to (h), taking into consideration the size and complexity of the institution.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2027.

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

(*14) Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down implementing technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to supervisory reporting of institutions and repealing Implementing Regulation (EU) No 680/2014 (OJ L 97, 19.3.2021, p. 1).’;"

(156)

Article 325 is amended as follows:

(a)

paragraphs 1 to 5 are replaced by the following:

‘1. An institution shall calculate the own funds requirements for market risk for all its trading book positions and all its non-trading book positions that are subject to foreign exchange risk or commodity risk in accordance with the following approaches:

(a)

the alternative standardised approach set out in Chapter 1a;

(b)

the alternative internal model approach set out in Chapter 1b for those positions assigned to trading desks for which the institution has been granted permission by its competent authority to use that alternative approach as set out in Article 325az(1);

(c)

the simplified standardised approach referred to in paragraph 2 of this Article, provided that the institution meets the conditions set out in Article 325a(1).

By way of derogation from the first subparagraph, an institution shall not calculate own funds requirements for foreign exchange risk for trading book positions and non-trading book positions that are subject to foreign exchange risk where those positions are deducted from the institution’s own funds. The institution shall document its use of the derogation set out in this subparagraph, including its impact and materiality, and make the information available, upon request, to its competent authority.

2. The own funds requirements for market risk calculated in accordance with the simplified standardised approach shall be the sum of the following own funds requirements, as applicable:

(a)

the own funds requirements for position risk referred to in Chapter 2, multiplied by:

(i)

1,3, for the general and specific risks of positions in debt instruments, excluding securitisation instruments as referred to in Article 337;

(ii)

3,5, for the general and specific risks of positions in equity instruments;

(b)

the own funds requirements for foreign exchange risk referred to in Chapter 3, multiplied by 1,2;

(c)

the own funds requirements for commodity risk referred to in Chapter 4, multiplied by 1,9;

(d)

the own funds requirements for securitisation instruments as referred to in Article 337.

3. An institution using the alternative internal model approach referred to in paragraph 1, point (b), of this Article to calculate the own funds requirements for market risk of trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk shall report to its competent authority the monthly calculation of the own funds requirements for market risk using the alternative standardised approach referred to in paragraph 1, point (a), of this Article for each trading desk to which those positions have been assigned in accordance with Article 104b.

4. An institution may use a combination of the alternative standardised approach referred to in paragraph 1, point (a), of this Article and the alternative internal model approach referred to in paragraph 1, point (b), of this Article on a permanent basis, provided that the total own funds requirements for market risk calculated using the alternative internal model approach represent at least 10 % of the total own funds requirements for market risk. On an individual basis, an institution shall not use either of those approaches in combination with the simplified standardised approach referred to in paragraph 1, point (c), of this Article. At consolidated level, an institution may use a combination of those three approaches to calculate the own funds requirements for market risk in accordance with Article 325b(4), point (b), as long as the simplified standardised approach is not used in combination with the other two approaches within a single legal entity.

5. An institution shall not use the alternative internal model approach referred to in paragraph 1, point (b), for instruments in its trading book that are securitisation positions or positions included in the alternative correlation trading portfolio (ACTP) set out in paragraphs 6, 7 and 8.’

;

(b)

paragraph 9 is replaced by the following:

‘9. EBA shall develop draft regulatory technical standards to specify how institutions are to calculate the own funds requirements for market risk for non-trading book positions that are subject to foreign exchange risk or commodity risk in accordance with the approaches set out in paragraph 1, points (a) and (b), of this Article, taking into account the requirements set out in Article 104b(5) and (6), where applicable.

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

;

(157)

Article 325a is amended as follows:

(a)

the title is replaced by the following:

‘ Conditions for using the simplified standardised approach ’;

(b)

in paragraph 1, the introductory wording is replaced by the following:

‘An institution may calculate the own funds requirements for market risk by using the simplified standardised approach referred to in Article 325(1), point (c), provided that the size of the institution’s on- and off-balance-sheet business that is subject to market risk is equal to or less than each of the following thresholds, on the basis of an assessment carried out on a monthly basis using data as of the last day of the month:’

;

(c)

paragraph 2 is amended as follows:

(i)

point (b) is replaced by the following:

‘(b)

all non-trading book positions that are subject to foreign exchange risk or commodity risk shall be included, except those positions that are excluded from the calculation of the own funds requirements for foreign exchange risk in accordance with Article 104c or that are deducted from the institutions’ own funds;’

;

(ii)

point (f) is replaced by the following:

‘(f)

the absolute value of the aggregated long position shall be summed with the absolute value of the aggregated short position.’

;

(iii)

the following subparagraphs are added:

‘For the purposes of the first subparagraph, the meaning of long and short positions is the same as the meaning set out in Article 94(3).

For the purposes of the first subparagraph, the value of the aggregated long (short) position shall be equal to the sum of the values of the individual long (short) positions included in the calculation in accordance with points (a) and (b) of that subparagraph.’

;

(d)

in paragraph 5, the introductory wording is replaced by the following:

‘Institutions shall cease to calculate the own funds requirements for market risk in accordance with the approach referred to in Article 325(1), point (c), within three months of either of the following cases:’

;

(e)

paragraph 6 is replaced by the following:

‘6. An institution that has ceased to calculate the own funds requirements for market risk using the approach referred to in Article 325(1), point (c), shall only be permitted to start calculating the own funds requirements for market risk using that approach where it demonstrates to the competent authority that all of the conditions set out in paragraph 1 of this Article have been met for an uninterrupted period of one year.’

;

(f)

paragraph 8 is deleted;

(158)

in Article 325b, the following paragraph is added:

‘4. Where a competent authority has not granted an institution the permission referred to in paragraph 2 for at least one institution or undertaking of the group, the following requirements shall apply for the calculation of the own funds requirements for market risk on a consolidated basis in accordance with this Title:

(a)

the institution shall calculate net positions and own funds requirements in accordance with this Title for all positions in institutions or undertakings of the group for which the institution has been granted the permission referred to in paragraph 2, using the treatment set out in paragraph 1;

(b)

the institution shall calculate net positions and own funds requirements in accordance with this Title individually for all positions in each institution or undertaking of the group for which the institution has not been granted the permission referred to in paragraph 2;

(c)

the institution shall calculate the total own funds requirements in accordance with this Title on a consolidated basis by adding the amounts calculated in points (a) and (b) of this paragraph.

For the purposes of the calculation referred to in the first subparagraph, points (a) and (b), institutions and undertakings referred to therein shall use the same reporting currency as the reporting currency used to calculate the own funds requirements for market risk in accordance with this Title on a consolidated basis for the group.’

;

(159)

Article 325c is amended as follows:

(a)

the title is replaced by the following:

‘ Scope, structure and qualitative requirements of the alternative standardised approach ’;

(b)

paragraph 1 is replaced by the following:

‘1. Institutions shall have in place, and make available to the competent authorities, a documented set of internal policies, procedures and controls for monitoring and ensuring compliance with the requirements of this Chapter. Any changes to those policies, procedures and controls shall be notified to the competent authorities in due course.’

;

(c)

the following paragraphs are added:

‘3. By way of derogation from paragraph 2, an institution shall calculate the own funds requirements for market risk in accordance with the alternative standardised approach for the institution’s holdings of its own debt instruments as the sum of the two components referred to in paragraph 2, points (a) and (c). When calculating the own funds requirements for market risk for own debt instruments under the sensitivities-based method referred to in paragraph 2, point (a), the institution shall exclude from that calculation the risks from the institution’s own credit spread.

4. Institutions shall have a risk control unit that is independent from business trading units and that reports directly to senior management. That risk control unit shall be responsible for designing and implementing the alternative standardised approach. It shall produce and analyse monthly reports on the output of the alternative standardised approach, as well as the appropriateness of the institution’s trading limits.

5. Institutions shall independently review the alternative standardised approach they use for the purposes of this Chapter to the satisfaction of the competent authorities, either as part of their regular internal auditing process, or by mandating a third-party undertaking to conduct that review. The outcome of such a review shall be reported to the appropriate management bodies.

For the purposes of the first subparagraph, “third-party undertaking” means an undertaking that provides auditing or consulting services to institutions and that has staff with sufficient skills in the area of market risk.

6. The review of the alternative standardised approach referred to in paragraph 5 shall cover the activities of both the business trading units and of the independent risk control unit and shall assess at least the following:

(a)

the internal policies, procedures and controls for monitoring and ensuring compliance with the requirements referred to in paragraph 1 of this Article;

(b)

the adequacy of the documentation of the risk management system and processes and the organisation of the risk control unit referred to in paragraph 4 of this Article;

(c)

the accuracy of sensitivity computations and of the process used to derive those computations from the institution’s pricing models that serve as a basis for reporting profit and loss to senior management, as referred to in Article 325t;

(d)

the verification process that the institution employs to evaluate the consistency, timeliness and reliability of the data sources used in the calculation of the own funds requirements for market risk using the alternative standardised approach, including the independence of those data sources.

An institution shall conduct the review referred to in the first subparagraph at least once a year, or on a less frequent basis of up to every two years where the institution can demonstrate to the satisfaction of the competent authority that the size, systemic importance, nature, scale and complexity of its trading book business justifies a less frequent review.

7. Competent authorities shall verify that the calculation referred to in paragraph 2 of this Article, including the implementation by an institution of the requirements set out in this Chapter and in Article 325a, is performed with integrity.

8. EBA shall develop draft regulatory technical standards to specify the assessment methodology under which competent authorities conduct the verification referred to in paragraph 7;

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2028.

;

(160)

Article 325j is amended as follows:

(a)

paragraph 1 is replaced by the following:

‘1. An institution shall calculate the own funds requirements for market risk of a position in a CIU using one of the following approaches:

(a)

an institution that meets the condition set out in Article 104(8), point (a), shall calculate the own funds requirements for market risk of that position by looking through the underlying positions of the CIU, on a monthly basis, as if those positions were directly held by the institution;

(b)

an institution that meets the condition set out in Article 104(8), point (b), shall calculate the own funds requirements for market risk of that position by using either of the following approaches:

(i)

it shall consider the position in the CIU as a single equity position allocated to the bucket “other sector” in Article 325ap(1), Table 8;

(ii)

it shall consider the limits set in the CIU’s mandate and in the relevant law.

For the purposes of the calculation referred to in the first subparagraph, point (b)(ii), of this paragraph the institution may calculate the own funds requirements for counterparty credit risk and own funds requirements for credit valuation adjustment risk of derivative positions of the CIU using the simplified approach set out in Article 132a(3).’

;

(b)

the following paragraph is inserted:

‘1a. For the purposes of the approaches referred to in paragraph 1, point (b), of this Article the institution shall:

(a)

apply the own funds requirements for default risk set out in Section 5 and the residual risk add-on set out in Section 4 to a position in a CIU, where the mandate of that CIU allows it to invest in exposures that shall be subject to those own funds requirements; when using the approach referred to in paragraph 1, point (b)(i), of this Article the institution shall consider the position in the CIU as a single unrated equity position allocated to the bucket “unrated” in Article 325y(1), Table 2; and

(b)

for all positions in the same CIU, use the same approach among the approaches set out in paragraph 1, point (b), of this Article to calculate the own funds requirements on a stand-alone basis as a separate portfolio.’

;

(c)

paragraphs 3, 4 and 5 are replaced by the following:

‘3. An institution may use a combination of the approaches referred to in paragraph 1, points (a) and (b), for its positions in CIUs. However, an institution shall use only one of those approaches for all positions in the same CIU.

4. For the purposes of paragraph 1, point (b)(ii), of this Article an institution shall calculate the own funds requirements for market risk by determining the hypothetical portfolio of the CIU that would attract the highest own funds requirements in accordance with Article 325c(2), point (a), based on the CIU’s mandate or relevant law, taking into account the leverage to the maximum extent, where applicable.

The institution shall use the same hypothetical portfolio as the one referred to in the first subparagraph to calculate, where applicable, the own funds requirements for default risk set out in Section 5 and the residual risk add-on set out in Section 4 to a position in a CIU.

The methodology developed by the institution to determine the hypothetical portfolios of all positions in CIUs for which the calculations referred to in the first subparagraph are used shall be approved by its competent authority.

5. An institution may use the approaches referred to in paragraph 1 only where the CIU meets all of the conditions set out in Article 132(3). Where the CIU does not meet all of the conditions set out in Article 132(3), the institution shall assign its positions in that CIU to the non-trading book.

6. To calculate the own funds requirements for market risk of a CIU position in accordance with the approach set out in paragraph 1, point (a), institutions may rely on a third party to perform such calculation, provided that all of the following conditions are met:

(a)

the third party is one of the following:

(i)

the depository institution or the depository financial institution of the CIU, provided that the CIU exclusively invests in securities and deposits all securities at that depository institution or depository financial institution;

(ii)

for CIUs not covered by point (i) of this point, the CIU management company, provided that the CIU management company meets the criteria set out in Article 132(3), point (a);

(iii)

a third-party vendor on condition that the data, information or risk metrics are provided or calculated by the third parties referred to in point (i) or (ii) of this point or by another such third-party vendor;

(b)

the third party provides the institution with the data, information or risk metrics to calculate the own funds requirement for market risk of the CIU position in accordance with the approach referred to in paragraph 1, point (a), of this Article;

(c)

an external auditor of the institution has confirmed the adequacy of the third-party’s data, information or risk metrics referred to in point (b) of this paragraph and the institution’s competent authority has unrestricted access to those data, information or risk metrics upon request.

7. EBA shall develop draft regulatory technical standards to further specify the technical elements of the methodology to determine hypothetical portfolios for the purposes of the approach set out in paragraph 4, including the manner in which institutions are to take into account in the methodology, where applicable, leverage to the maximum extent.

EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2027.

;

(161)

in Article 325q, paragraph 2 is replaced by the following:

‘2. The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates between currency pairs. Those implied volatilities shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years and 10 years.’

;

(162)

in Article 325s(1), the formula sk for is replaced by the following:

‘

’;

(163)

Article 325t is amended as follows:

(a)

in paragraph 1, the second subparagraph is replaced by the following:

‘By way of derogation from the first subparagraph of this paragraph, competent authorities may require an institution that has been granted permission to use the alternative internal model approach set out in Chapter 1b to use the pricing functions of the risk-measurement system of their internal model approach in the calculation of sensitivities under this Chapter for the purposes of the calculation and the reporting requirements set out in Article 325(3).’

;

(b)

in paragraph 5, point (a) is replaced by the following:

‘(a)

those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution;’

;

(c)

in paragraph 6, points (a) and (b) are replaced by the following:

‘(a)

(b)

the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities for the position than are the formulae set out in this Subsection, that the linear transformation referred to in the first subparagraph reflects a vega risk sensitivity, and that the resulting sensitivities do not materially differ from the ones applying those formulae.’

;

(164)

Article 325u is amended as follows:

(a)

the following paragraph is inserted:

‘4a. By way of derogation from paragraph 1, until 31 December 2032, an institution shall not apply the own funds requirement for residual risks to instruments that aim solely to hedge the market risk of positions in the trading book that generate an own funds requirement for residual risks and are subject to the same type of residual risks as the positions they hedge.

The competent authority shall grant permission to apply the treatment referred to in the first subparagraph if the institution can demonstrate on an ongoing basis to the satisfaction of the competent authority that the instruments comply with the criteria to be treated as hedging positions.

The institution shall report to the competent authority the result of the calculation of the own funds requirements for the residual risks for all instruments for which the derogation referred to in the first subparagraph is applied.’

;

(b)

the following paragraphs are added:

‘6. EBA shall develop draft regulatory technical standards to specify the criteria that the institutions are to use to identify the positions qualifying for the derogation referred to in paragraph 4a. Those criteria shall include, at least, the nature of the instruments referred to in that paragraph, the net profit and loss of the combined positions, the sensitivities of the combined positions and the risks remaining unhedged in the combined positions, taking into account in particular the possibility that the original position can be hedged by a partial amount.

EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024.

7. By 31 December 2029, EBA shall submit a report to the Commission on the impact of the application of the treatment referred to in paragraph 4a. On the basis of the findings of that report, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal to prolong the treatment referred to in that paragraph.’

;

(165)

in Article 325v, the following paragraph is added:

‘3. For traded non-securitisation credit and equity derivatives, JTD amounts by individual constituents shall be determined by applying a look-through approach.’

;

(166)

in Article 325x, the following paragraph is added:

‘5. Where the contractual or legal terms of a derivative position having a debt or equity cash instrument as an underlying, and hedged with that debt or equity cash instrument, allow an institution to close out both legs of that position at the time of the expiry of the first-to-mature of the two legs with no exposure to default risk of the underlying, the net jump-to-default amount of the combined position shall be set equal to zero.’

;

(167)

in Article 325y, the following paragraph is added:

‘6. For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the standardised approach for credit risk set out in Title II, Chapter 2.’

;

(168)

in Article 325ab, paragraph 2 is deleted;

(169)

Article 325ad is amended as follows:

(a)

paragraph 1 is replaced by the following

‘1. Net JTD amounts shall be multiplied by:

(a)

for non-tranched products, the default risk weights corresponding to their credit quality as specified in Article 325y(1) and (2);

(b)

for tranched products, the default risk weights referred to in Article 325aa(1).’

;

(b)

in paragraph 3, the formula for DRCb is replaced by the following:

‘

’;

(170)

in Article 325ae, paragraph 3 is replaced by the following:

‘3. The risk weights of risk factors based on the currencies included in the most liquid currency sub-category as referred to in Article 325bd(7), point (b), and the domestic currency of the institution shall be the following:

(a)

for risk-free rate risk factors, the risk weights referred to in paragraph 1, Table 3, of this Article divided by

;

(b)

for inflation risk factor and cross currency basis risk factors, the risk weights referred to in paragraph 2 of this Article divided by

.’
;

(171)

Article 325ah is amended as follows:

(a)

paragraph 1 is amended as follows:

(i)

in Table 4, the sector of bucket 13 is replaced by the following:

‘Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, promotional lenders and covered bonds’

;

(ii)

the following subparagraph is added:

‘For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the standardised approach for credit risk set out in Title II, Chapter 2.’

;

(b)

the following paragraph is added:

‘3. By way of derogation from paragraph 2, institutions may assign a risk exposure of an unrated covered bond to bucket 4 where the institution that issued the covered bond has credit quality step 1 to 3.’

;

(172)

in Article 325ai(1), the definition of ρkl (name) is replaced by the following:

‘ρkl (name) shall be equal to 1 where the two names of sensitivities k and l are identical; it shall be equal to 35 % where the two names of sensitivities k and l are in buckets 1 to 18 in Article 325ah(1), Table 4, otherwise it shall be equal to 80 %’

;

(173)

in Article 325aj, the definition of γbc (rating) is replaced by the following:

‘γbc (rating) shall be equal to:

(a)

1, where buckets b and c are buckets 1 to 17 and both buckets have the same credit quality category (either credit quality step 1 to 3 or credit quality step 4 to 6); otherwise it shall be equal to 50 %; for the purposes of that calculation, bucket 1 shall be considered as belonging to the same credit quality category as buckets that have credit quality step 1 to 3;

(b)

1, where either bucket b or c is bucket 18;

(c)

1, where bucket b or c is bucket 19 and the other bucket has credit quality step 1 to 3; otherwise it shall be equal to 50 %;

(d)

1, where bucket b or c is bucket 20 and the other bucket has credit quality step 4 to 6; otherwise it shall be equal to 50 %;’

;

(174)

Article 325ak is amended as follows:

(a)

Table 6 is amended as follows:

(i)

the column ‘credit quality’ is amended as follows:

(1)

the second row is replaced by the following:

‘Credit quality step 1 to 10’

;

(2)

the third row is replaced by the following:

‘Credit quality step 11 to 17’

;

(ii)

the sector of bucket 13 is replaced by the following:

‘Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, promotional lenders and covered bonds’

;

(b)

the following paragraphs are added:

By way of derogation from the second paragraph, institutions may assign a risk exposure of an unrated covered bond to bucket 4 where the institution that issues the covered bond has a credit quality step 1 to 3.’

;

(175)

Article 325am is amended as follows:,

(a)

in paragraph 1, Table 7, the column ‘credit quality’ is amended as follows:

(i)

the first row is replaced by the following:

‘Senior and credit quality step 1 to 10’

;

(ii)

the second row is replaced by the following:

‘Non-senior and credit quality step 1 to 10’

;

(iii)

the third row is replaced by the following:

‘Credit quality step 11 to 17 and unrated’

;

(b)

the following paragraph is added:

‘3. For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the External Rating Based Approach set out in Title II, Chapter 5.’

;

(176)

in Article 325as, Table 9 is amended as follows:

(a)

the bucket name of bucket 3 is replaced by the following:

‘Energy — electricity’

;

(b)

the following fields are inserted:

‘

Energy — EU ETS carbon trading

40 %

Energy — non-EU ETS carbon trading

60 %

’;

(177)

Article 325ax is amended as follows:

(a)

paragraphs 1 and 2 are replaced by the following:

‘1. Buckets for vega risk factors shall be similar to the buckets established for delta risk factors in accordance with Section 3, Subsection 1.

2. Risk weights for sensitivities to vega risk factors shall be assigned in accordance with the risk class of the risk factors, as follows:

Table 1

Risk class

Risk weights

GIRR

100 %

CSR non-securitisations

100 %

CSR securitisations (ACTP)

100 %

CSR securitisations (non-ACTP)

100 %

Equity (large cap and indices)

77,78 %

Equity (small cap and other sector)

100 %

Commodity

100 %

Foreign exchange

100 %

’;

(b)

paragraph 3 is deleted;

(c)

paragraph 6 is replaced by the following:

‘6. For general interest rate, credit spread and commodity curvature risk factors, the curvature risk weight shall be the parallel shift of all vertices for each curve on the basis of the highest prescribed delta risk weight referred to in Subsection 1 for the relevant risk bucket.’

;

(178)

Article 325az is amended as follows:

(a)

paragraph 1 is replaced by the following:

‘1. The alternative internal model approach may be used by an institution to calculate its own funds requirements for market risk, provided that the institution meets all of the requirements laid down in this Chapter.’

;

(b)

in paragraph 2, the first subparagraph is amended as follows:

(i)

points (c) and (d) are replaced by the following:

‘(c)

the trading desks have met the back-testing requirements referred to in Article 325bf(3);

(d)

the trading desks have met the profit and loss attribution (“P&L attribution”) requirements referred to in Article 325bg;’

;

(ii)

the following point is added:

‘(g)

no positions in CIUs that meet the condition set out in Article 104(8), point (b), have been assigned to the trading desks.’

;

(c)

paragraph 3 is replaced by the following:

‘3. Institutions that have been granted permission to use the alternative internal model approach shall also meet the reporting requirement set out in Article 325(3).’

;

(d)

in paragraph 8, point (b) is replaced by the following:

‘(b)

the assessment methodology under which competent authorities verify an institution’s compliance with the requirements set out in this Chapter.’

;

(e)

paragraph 9 is replaced by the following:

‘9. EBA shall issue an opinion as to whether extraordinary circumstances as referred to in paragraph 5 of this Article and in Article 325bf(6), second subparagraph, have occurred.

For the purpose of providing that opinion, EBA shall monitor the market conditions to assess whether extraordinary circumstances have occurred and, where that is the case, shall notify the Commission immediately.

10. EBA shall develop draft regulatory technical standards to specify the conditions and indicators that EBA is to use to determine whether extraordinary circumstances have occurred.

EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024.

;

(179)

Article 325ba, is amended as follows:

(a)

in paragraph 1, the following subparagraph is added:

‘Where calculating the own funds requirements for market risk using an internal model in accordance with the first subparagraph, an institution shall not include its own credit spreads in the calculation of the measures referred to in points (a) and (b) for positions in the institution’s own debt instruments.’

;

(b)

in paragraph 2, the following subparagraph is added:

‘By way of derogation from the first subparagraph, an institution shall not be subject to the additional own funds requirement for the holdings of its own debt instruments.’

;

(c)

the following paragraph is added:

‘3. An institution using an alternative internal model shall calculate the total own funds requirements for market risk for all trading book positions and all non-trading book positions generating foreign exchange risk or commodity risk in accordance with the following formula:

where:

AIMA

= the sum of the own funds requirements referred to in paragraphs 1 and 2;

PLAaddon

= the additional own funds requirement referred to in Article 325bg(2);

ASAnon–aima

= the own funds requirements for market risk as calculated under the alternative standardised approach referred to in Article 325(1), point (a), for the portfolio of trading book positions and non-trading book positions generating foreign exchange risk or commodity risk for which the institution uses the alternative standardised approach to calculate the own funds requirements for market risk;

ASAall portofolio

= the own funds requirements for market risk as calculated under the alternative standardised approach referred to in Article 325(1), point (a), for the portfolio of all trading book positions and all non-trading book positions generating foreign exchange risk or commodity risk;

ASAaima

= the own funds requirements for market risk as calculated under the alternative standardised approach referred to in Article 325(1), point (a), for the portfolio of trading book positions and non-trading book positions generating foreign exchange risk or commodity risk for which the institution uses the approach referred to in Article 325(1), point (b), to calculate the own funds requirements for market risk.’

;

(180)

in Article 325bc, the following paragraph is added:

‘6. EBA shall develop draft regulatory technical standards to specify the criteria for the use of data inputs in the risk-measurement model referred to in this Article, including criteria on data accuracy and criteria on the calibration of the data inputs where market data are insufficient.

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

;

(181)

in Article 325bd, the following paragraph is inserted:

‘5a. Currencies of Member States participating in ERM II shall be included in the most liquid currencies and domestic currency sub-category within the broad category of interest rate risk factor of Table 2.’

;

(182)

Article 325be is amended as follows:

(a)

in paragraph 1, the following subparagraph is added:

‘For the purposes of the assessment referred to in first subparagraph, competent authorities may allow institutions to use market data provided by third-party vendors.’

;

(b)

the following paragraph is inserted:

‘1a. Competent authorities may require an institution to consider not modellable a risk factor that has been assessed as modellable by the institution in accordance with paragraph 1 of this Article, where the data inputs used to determine the scenarios of future shocks applied to the risk factor do not meet, to the satisfaction of the competent authorities, the requirements referred to in Article 325bc(6).’

;

(c)

the following paragraph is inserted:

‘2a. In extraordinary circumstances, occurring during periods of significant reduction in certain trading activities across financial markets, competent authorities may allow institutions using the approach set out in this Chapter to consider as modellable risk factors that have been assessed as not modellable by those institutions in accordance with paragraph 1, provided that the following conditions are met:

(a)

the risk factors subject to the treatment correspond to the trading activities which are significantly reduced across financial markets;

(b)

the treatment is applied temporarily, and for not more than six months within one financial year;

(c)

the treatment does not significantly reduce the total own funds requirements for market risk of the institutions applying it;

(d)

competent authorities immediately notify EBA of any decision to allow institutions to apply the approach set out in this Chapter to consider as modellable risk factors that have been assessed as non-modellable, as well as of the trading activities concerned, and substantiate that decision.’

;

(d)

paragraph 3 is replaced by the following:

‘3. EBA shall develop draft regulatory technical standards to specify the criteria to assess the modellability of risk factors in accordance with paragraph 1, including where market data provided by third-party vendors are used, and the frequency of that assessment.

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

;

(183)

Article 325bf is amended as follows:

(a)

paragraph 6 is amended as follows:

(i)

in the first subparagraph, the introductory wording is replaced by the following:

‘The multiplication factor (mc) shall be equal to at least the sum of 1,5 and an add-on determined in accordance with Table 3. For the portfolio referred to in paragraph 5, that add-on shall be calculated on the basis of the number of overshootings that occurred over the most recent 250 business days as evidenced by the institution’s back-testing of the value-at-risk number calculated in accordance with point (a) of this subparagraph. The calculation of the add-on shall be subject to the following requirements:’

;

(ii)

the second subparagraph is replaced by the following:

‘In extraordinary circumstances, competent authorities may permit an institution to do one or both of the following:

(a)

limit the calculation of the add-on to that resulting from overshootings under the back-testing of hypothetical changes where the number of overshootings under the back-testing of actual changes does not result from deficiencies in the institution’s alternative internal model;

(b)

exclude the overshootings evidenced by the back-testing of hypothetical or actual changes from the calculation of the add-on where those overshootings do not result from deficiencies in the institution’s alternative internal model.’

;

(iii)

the following subparagraph is added:

‘For the purposes of the first subparagraph, competent authorities may increase the value of mc above the sum referred to in that subparagraph, where an institution’s alternative internal model shows deficiencies preventing the appropriate measurement of the own funds requirements for market risk.’

;

(b)

paragraph 8 is replaced by the following:

‘8. By way of derogation from paragraphs 2 and 6, competent authorities may permit an institution not to count an overshooting where a one-day change in the value of its portfolio that exceeds the related value-at-risk number calculated by that institution’s internal model is attributable to a non-modellable risk factor.’

;

(c)

the following paragraph is added:

‘10. EBA shall develop draft regulatory technical standards to specify the conditions and the criteria according to which an institution may be permitted not to count an overshooting where the one-day change in the value of its portfolio that exceeds the related value-at-risk number calculated by that institution’s internal model is attributable to a non-modellable risk factor.

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

;

(184)

Article 325bg is amended as follows:

(a)

paragraphs 1, 2 and 3 are replaced by the following:

‘1. An institution’s trading desk meets the P&L attribution requirements where the theoretical changes in the value of that trading desk’s portfolio, based on the institution’s risk-measurement model, are either close or sufficiently close to the hypothetical changes in the value of that trading desk’s portfolio, based on the institution’s pricing model.

2. Notwithstanding paragraph 1 of this Article, where the theoretical changes in the value of a trading desk’s portfolio, based on the institution’s risk-measurement model, are sufficiently close to the hypothetical changes in the value of that trading desk’s portfolio, based on the institution’s pricing model, the institution shall calculate, for all positions assigned to that trading desk, an additional own funds requirement to the own funds requirements referred to in Article 325ba(1) and (2).

3. On the basis of the results of the P&L attribution requirement referred to in paragraph 1 of this Article, an institution shall determine and document a precise list of risk factors included in the institution’s risk-measurement model that are deemed appropriate for verifying the institution’s compliance with the back-testing requirement set out in Article 325bf. The institution shall track any change to the list of those risk factors.’

;

(b)

paragraph 4 is amended as follows:

(i)

points (a) and (b) are replaced by the following:

‘(a)

the criteria specifying whether the theoretical changes in the value of a trading desk’s portfolio are either close or sufficiently close to the hypothetical changes in the value of a trading desk’s portfolio for the purposes of paragraph 1, taking into account international regulatory developments;

(b)

the additional own funds requirement referred to in paragraph 2;’

;

(ii)

point (e) is deleted;

(iii)

the second subparagraph is replaced by the following:

‘EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025.’

;

(185)

Article 325bh is amended as follows:

(a)

paragraph 1 is amended as follows:

(i)

point (d) is replaced by the following:

‘(d)

the internal risk-measurement model shall incorporate risk factors corresponding to gold and to the individual foreign currencies in which the institution’s positions are denominated; for CIUs, the actual foreign exchange positions of the CIU shall be taken into account; institutions may rely on third-party reporting of the foreign exchange position of the CIU, provided that the correctness of that report is adequately ensured;’

;

(ii)

the following point is added:

‘(i)

for positions in CIUs, institutions shall look through the underlying positions of the CIUs at least on a weekly basis to calculate their own funds requirements in accordance with this Chapter; where the look-through approach is carried out weekly, institutions shall be able to monitor the risks resulting from significant changes in the composition of the CIU; institutions that do not have adequate data inputs or information to calculate the own funds requirements for market risk of a CIU position in accordance with the look-through approach may rely on a third party to obtain those data inputs or information, provided that all of the following conditions are met:

(i)

the third party is one of the following:

(1)

(2)

the CIU management company, provided that it meets the criteria set out in Article 132(3), point (a);

(3)

a third-party vendor on the condition that the data, information or risk metrics are provided or calculated by the third parties referred to in point (1) or (2) of this point or another such third-party vendor;

(ii)

the third party provides the institution with the data, information or risk metrics to calculate the own funds requirements for market risk of the CIU position in accordance with the look-through approach referred to in the first subparagraph;

(iii)

an external auditor of the institution has confirmed the adequacy of the third party data, information or risk metrics referred to in point (ii) and the competent authority has unrestricted access to those data, information or risk metrics upon request.’

;

(b)

paragraph 2 is replaced by the following:

‘2. An institution may use empirical correlations within broad categories of risk factors and, for the purpose of calculating the unconstrained expected shortfall measure UESt as referred to in Article 325bb(1) across broad categories of risk factors only where the institution’s approach for measuring those correlations is sound, consistent with either the applicable liquidity horizons or, to the satisfaction of the competent authority, with the base time horizon of 10 days set out in Article 325bc(1), and implemented with integrity.’

;

(c)

paragraph 3 is deleted;

(186)

in Article 325bi, paragraph 1 is amended as follows:

(a)

point (b) is replaced by the following:

‘(b)

an institution shall have a risk control unit that is independent from business trading units and that reports directly to senior management; that unit shall:

(i)

be responsible for designing and implementing any internal risk-measurement model used in the alternative internal model approach for the purposes of this Chapter;

(ii)

be responsible for the overall risk management system;

(iii)

produce and analyse daily reports on the output of any internal model used to calculate own funds requirements for market risk, and on the appropriateness of measures to be taken in terms of trading limits;’

;

(b)

the following subparagraph is inserted after the first subparagraph:

‘A validation unit, which is separate from the risk control unit referred to in the first subparagraph, point (b), shall conduct the initial and ongoing validation of any internal risk-measurement model used in the alternative internal model approach for the purposes of this Chapter.’

;

(187)

in Article 325bo, paragraph 3 is replaced by the following:

‘3. In their internal default risk models, institutions shall capture material basis risks in hedging strategies that arise from differences in the type of product, seniority in the capital structure, internal or external ratings, vintage and other differences.

Institutions shall ensure that maturity mismatches between a hedging instrument and the hedged instrument that could occur during the one-year time horizon, where those mismatches are not captured in their internal default risk model, do not lead to a material underestimation of risk.

Institutions shall recognise a hedging instrument only to the extent that it can be maintained even as the obligor approaches a credit event or other event.’

;

(188)

Article 325bp is amended as follows:

(a)

paragraph 5 is amended as follows:

(i)

point (a) is replaced by the following:

‘(a)

the default probabilities shall be floored at 0,01 % for exposures to which a 0 % risk weight is applied in accordance with Articles 114 to 118 and at 0,01 % for covered bonds to which a 10 % risk weight is applied in accordance with Article 129; otherwise, the default probabilities shall be floored at 0,03 %;’

;

(ii)

points (d) and (e) are replaced by the following:

‘(d)

an institution that has been granted permission to estimate default probabilities in accordance with Title II, Chapter 3, Section 1 for the exposure class and the rating system corresponding to a given issuer shall use the methodology set out therein to calculate the default probabilities of that issuer, provided that the data to make such an estimate are available;

(e)

an institution that has not been granted permission to estimate default probabilities referred to in point (d) shall develop an internal methodology or use external sources to estimate these default probabilities consistently with the requirements applicable to estimates of default probability under this Article.’

;

(iii)

the following subparagraph is added:

‘For the purposes of the first subparagraph, point (d), the data to estimate the default probabilities of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same obligor for which it estimates default probabilities in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter.’

;

(b)

paragraph 6 is amended as follows:

(i)

points (c) and (d) are replaced by the following:

‘(c)

an institution that has been granted permission to estimate LGD in accordance with Title II, Chapter 3, Section 1, for the exposure class and the rating system corresponding to a given exposure shall use the methodology set out therein to calculate LGD estimates of that issuer, provided that the data to make such an estimate are available;

(d)

an institution that has not been granted permission to estimate LGD referred to in point (c) shall develop an internal methodology or use external sources to estimate LGD consistently with the requirements applying to estimates of LGD under this Article.’

;

(ii)

the following subparagraph is added:

‘For the purposes of the first subparagraph, point (c), the data to estimate the LGD of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same exposure for which it estimates LGD in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter.’

;

(189)

in Article 332, paragraph 3 is replaced by the following:

‘3. Credit derivatives in accordance with Article 325(6) or (8) shall be included only in the determination of the specific risk own funds requirement in accordance with Article 338(2).’

;

(190)

Article 337 is amended as follows:

(a)

paragraph 2 is replaced by the following:

‘2. When determining risk weights for the purposes of paragraph 1, institutions shall use exclusively the approach set out in Title II, Chapter 5, Section 3.’

;

(b)

paragraph 4 is replaced by the following:

‘4. The institution shall sum its weighted positions resulting from the application of paragraphs 1, 2 and 3 of this Article regardless of whether they are long or short, in order to calculate its own funds requirement against specific risk, except for securitisation positions subject to Article 338(2).’

;

(191)

Article 338 is replaced by the following:

‘Article 338

Own funds requirement for the correlation trading portfolio

1. For the purposes of this Article, an institution shall determine its correlation trading portfolio in accordance with Article 325(6), (7) and (8).

2. An institution shall determine the larger of the following amounts as the specific risk own funds requirement for the correlation trading portfolio:

(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.’

;

(192)

in Article 348, paragraph 1 is replaced by the following:

‘1. Without prejudice to other provisions in this Section, positions in CIUs shall be subject to an own funds requirement for position risk, comprising general and specific risk, of 32 %. Without prejudice to Article 353 taken together with the amended gold treatment set out in Article 352(4) positions in CIUs shall be subject to an own funds requirement for position risk, comprising general and specific risk, and foreign exchange risk of 40 %.’

;

(193)

Article 351 is replaced by the following:

‘Article 351

De minimis and weighting for foreign exchange risk

If the sum of an institution’s overall net foreign exchange position and its net gold position, calculated in accordance with the procedure set out in Article 352, exceeds 2 % of its total own funds, the institution shall calculate an own funds requirement for foreign exchange risk. The own funds requirement for foreign exchange risk shall be the sum of its overall net foreign exchange position and its net gold position in the reporting currency, multiplied by 8 %.’

;

(194)

in Article 352, paragraph 2 is deleted;

(195)

Article 361 is amended as follows:

(a)

point (c) is deleted;

(b)

the second paragraph is replaced by the following:

‘Institutions shall notify the use they make of this Article to their competent authorities.’

;

(196)

in Part Three, Title IV, Chapter 5 is deleted;

(197)

in Article 381, the following paragraph is added:

‘For the purposes of this Title, “CVA risk” means the risk of losses arising from changes in the value of CVA, calculated for the portfolio of transactions with a counterparty as set out in the first paragraph, due to movements in counterparty credit spread risk factors and in other risk factors embedded in the portfolio of transactions.’

;

(198)

Article 382 is amended as follows:

(a)

paragraph 2 is replaced by the following:

‘2. An institution shall include in the calculation of own funds required by paragraph 1 securities financing transactions that are fair-valued under the accounting framework applicable to the institution where the institution’s CVA risk exposures arising from those transactions are material.’

;

(b)

the following paragraphs are inserted:

‘4a. By way of derogation from paragraph 4 of this Article, an institution may choose to calculate the own funds requirements for CVA risk, using any of the approaches referred to in Article 382a(1), for the transactions that are excluded pursuant to paragraph 4 of this Article, where the institution uses eligible hedges determined in accordance with Article 386 to mitigate the CVA risk of those transactions. Institutions shall establish policies to specify the application and calculation of the own funds requirements for CVA risk for such transactions.

4b. Institutions shall report to their competent authorities the results of the calculations of the own funds requirements for CVA risk for all transactions referred to in paragraph 4 of this Article. For the purposes of that reporting requirement, institutions shall calculate the own funds requirements for CVA risk using the relevant approaches set out in Article 382a(1) that they would have used to satisfy an own funds requirement for CVA risk if those transactions were not excluded from the scope pursuant to paragraph 4 of this Article.’

;

(c)

the following paragraph is added:

‘6. EBA shall develop draft regulatory technical standards to specify the conditions and the criteria that institutions are to use to assess whether the CVA risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment.

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

;

(199)

the following article is inserted:

‘Article 382a

Approaches for calculating the own funds requirements for CVA risk

1. An institution shall calculate the own funds requirements for CVA risk for all transactions referred to in Article 382 in accordance with the following approaches:

(a)

the standardised approach set out in Article 383, where the institution has been granted permission by the competent authority to use that approach;

(b)

the basic approach set out in Article 384;

(c)

the simplified approach set out in Article 385, provided that the institution meets the conditions set out in paragraph 1 of that Article.

2. An institution shall not use the approach referred to in paragraph 1, point (c), in combination with the approach referred to in point (a) or (b) of that paragraph.

3. An institution may use a combination of the approaches referred to in paragraph 1, points (a) and (b), to calculate the own funds requirements for CVA risk on a permanent basis for:

(a)

different counterparties;

(b)

different eligible netting sets with the same counterparty;

(c)

different transactions of the same eligible netting set, provided that any of the conditions referred to in paragraph 5 are satisfied.

4. For the purposes of paragraph 3, point (c), institutions shall split the eligible netting set into a hypothetical netting set containing the transactions subject to the approach referred to in paragraph 1, point (a), and a hypothetical netting set containing the transactions subject to the approach referred to in paragraph 1, point (b).

5. For the purposes of paragraph 3, point (c), the conditions referred to therein shall comprise the following:

(a)

the split is consistent with the treatment of the legal netting set when calculating the CVA for accounting purposes;

(b)

the permission granted by competent authorities to use the approach referred to in paragraph 1, point (a), is limited to the corresponding hypothetical netting set and does not cover all transactions within the eligible netting set.

Institutions shall document how they use a combination of the approaches referred to in paragraph 1, points (a) and (b), and as set out in this paragraph, to calculate the own funds requirements for CVA risk on a permanent basis.’

;

(200)

Article 383 is replaced by the following:

‘Article 383

Standardised approach

1. The competent authority shall grant an institution permission to calculate its own funds requirements for CVA risk for a portfolio of transactions with one or more counterparties by using the standardised approach in accordance with paragraph 3 of this Article, after having assessed whether the institution complies with the following requirements:

(a)

the institution has established a distinct unit which is responsible for the institution’s overall risk management and hedging of CVA risk;

(b)

for each counterparty concerned, the institution has developed a regulatory CVA model to calculate the CVA of that counterparty in accordance with Article 383a;

(c)

for each counterparty concerned, the institution is able to calculate, at least on a monthly basis, the sensitivities of its CVA to the risk factors concerned as determined in accordance with Article 383b;

(d)

for all positions in eligible hedges recognised in accordance with Article 386 for the purpose of calculating the own funds requirements for CVA risk using the standardised approach, the institution is able to calculate, and at least on a monthly basis, the sensitivities of those positions to the relevant risk factors determined in accordance with Article 383b;

(e)

the institution has established a risk control unit that is independent from business trading units and the unit referred to in point (a) and that reports directly to the management body; that risk control unit shall be responsible for designing and implementing the standardised approach and shall produce and analyse monthly reports on the output of that approach and, moreover, the risk control unit shall assess the appropriateness of the institution’s trading limits and include the results of that assessment in its monthly reports; the risk control unit shall have a sufficient number of staff with a level of skills that is appropriate to fulfil its purpose.

For the purposes of the first subparagraph, point (c), of this paragraph the sensitivity of a counterparty’s CVA to a risk factor means the relative change in the value of that CVA, as a result of a change in the value of one of the relevant risk factors of that CVA, calculated using the institution’s regulatory CVA model in accordance with Articles 383i and 383j.

For the purposes of the first subparagraph, point (d), of this paragraph the sensitivity of a position in an eligible hedge to a risk factor means the relative change in the value of that position, as a result of a change in the value of one of the relevant risk factors of that position, calculated using the institution’s pricing model in accordance with Articles 383i and 383j.

2. For the purpose of calculating the own funds requirements for CVA risk, the following definitions apply:

(1)

“risk class” means any of the following categories:

(a)

interest rate risk;

(b)

counterparty credit spread risk;

(c)

reference credit spread risk;

(d)

equity risk;

(e)

commodity risk;

(f)

foreign exchange risk;

(2)

“CVA portfolio” means the portfolio composed of the aggregate CVA and the eligible hedges referred to in paragraph 1, point (d);

(3)

“aggregate CVA” means the sum of the CVAs calculated using the regulatory CVA model for the counterparties referred to in paragraph 1, first subparagraph.

3. Institutions shall determine the own funds requirements for CVA risk using the standardised approach as the sum of the following own funds requirements calculated in accordance with Article 383b:

(a)

the own funds requirements for delta risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant non-volatility related risk factors;

(b)

the own funds requirements for vega risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant volatility related risk factors.’

;

(201)

the following articles are inserted:

‘Article 383a

Regulatory CVA model

1. A regulatory CVA model used for calculating the own funds requirements for CVA risk in accordance with Article 383 shall be conceptually sound, implemented with integrity, and comply with all of the following requirements:

(a)

the regulatory CVA model is capable of modelling the CVA of a given counterparty, recognising netting and margin agreements at netting set level, where relevant, in accordance with this Article;

(b)

the institution estimates the counterparty’s probabilities of default from the counterparty credit spreads and market-consensus expected loss given default for that counterparty;

(c)

the expected loss given default referred to in point (a) shall be the same as the market-consensus expected loss given default referred to in point (b), unless the institution can demonstrate that the seniority of the portfolio of transactions with that counterparty differs from the seniority of senior unsecured bonds issued by that counterparty;

(d)

at each future time point, the simulated discounted future exposure of the portfolio of transactions with a counterparty is calculated with an exposure model by repricing all transactions in that portfolio, based on the simulated joint changes of the market risk factors that are material to those transactions using an appropriate number of scenarios, and discounting the prices to the date of calculation using risk-free interest rates;

(e)

the regulatory CVA model is capable of modelling significant dependency between the simulated discounted future exposure of the portfolio of transactions and the counterparty credit spreads;

(f)

where the transactions of the portfolio are included in a netting set subject to a margin agreement and daily mark-to-market valuation, the collateral posted and received as part of that agreement is recognised as a risk mitigant in the simulated discounted future exposure, where all of the following conditions are met:

(i)

the institution determines the margin period of risk relevant for that netting set in accordance with the requirements set out in Article 285(2) and (5), and reflects that margin period in the calculation of the simulated discounted future exposure;

(ii)

all applicable features of the margin agreement, including the frequency of margin calls, the type of contractually eligible collateral, the threshold amounts, the minimum transfer amounts, the independent amounts and the initial margins for both the institution and the counterparty are appropriately reflected in the calculation of the simulated discounted future exposure;

(iii)

the institution has established a collateral management unit that complies with Article 287 for all collateral recognised for calculating the own funds requirements for CVA risk using the standardised approach.

For the purposes of the first subparagraph, point (a), CVA shall have a positive sign and shall be calculated as a function of the counterparty’s expected loss given default, an appropriate set of the counterparty’s probabilities of default at future time points and an appropriate set of simulated discounted future exposures of the portfolio of transactions with that counterparty at future time points until the maturity of the longest transaction in that portfolio.

For the purposes of the demonstration referred to in the first subparagraph, point (c), collateral received from the counterparty shall not change the seniority of the exposure.

For the purposes of the first subparagraph, point (f)(iii), of this paragraph where the institution has already established a collateral management unit for using the internal model method referred to in Article 283, the institution shall not be required to establish an additional collateral management unit where that institution demonstrates to its competent authority that such a unit complies with the requirements set out in Article 287 for the collateral recognised for calculating the own funds requirements for CVA risk using the standardised approach.

2. For the purposes of paragraph 1, point (b), where the credit default swap spreads of the counterparty are observable in the market, an institution shall use those spreads. Where such credit default swap spreads are not available, an institution shall use one of the following:

(a)

credit spreads from other instruments issued by the counterparty reflecting current market conditions;

(b)

proxy spreads that are appropriate considering the rating, industry and region of the counterparty.

3. An institution using a regulatory CVA model shall comply with all of the following qualitative requirements:

(a)

the exposure model referred to in paragraph 1 is part of the institution’s internal CVA risk management system that includes the identification, measurement, management, approval and internal reporting of CVA and CVA risk for accounting purposes;

(b)

the institution has in place a process for ensuring compliance with a documented set of internal policies, controls, assessment of model performance and procedures concerning the exposure model referred to in paragraph 1;

(c)

the institution shall have an independent validation unit that is responsible for the effective initial and ongoing validation of the exposure model referred to in paragraph 1 of this Article; that unit shall be independent from business credit and trading units, including the unit referred to in Article 383(1), point (a), and report directly to senior management; it shall have a sufficient number of staff with a level of skills that is appropriate to fulfil that purpose;

(d)

the senior management shall be actively involved in the risk control process and shall regard CVA risk control as an essential aspect of the business, to which appropriate resources need to be devoted;

(e)

the institution shall document the process for initial and ongoing validation of the exposure model referred to in paragraph 1 to a level of detail that would enable a third party to understand how the models operate, their limitations, and their key assumptions, and recreate the analysis; that documentation shall set out the minimum frequency with which ongoing validation will be conducted, as well as other circumstances, such as a sudden change in market behaviour, under which additional validation shall be conducted; it shall describe how the validation is conducted with respect to data flows and portfolios, what analyses are used and how representative counterparty portfolios are constructed;

(f)

the pricing models used in the exposure model referred to in paragraph 1 for a given scenario of simulated market risk factors shall be tested against appropriate independent benchmarks for a wide range of market states as part of the initial and ongoing model validation process; pricing models for options shall account for the non-linearity of option value with respect to market risk factors;

(g)

an independent review of the institution’s internal CVA risk management system referred to in point (a) of this paragraph shall be carried out by the institution’s internal auditing process on a regular basis; that review shall include the activities both of the unit referred to in Article 383(1), point (a), and of the independent validation unit referred to in point (c) of this paragraph;

(h)

the regulatory CVA model used by the institution for calculating the simulated discounted future exposure referred to in paragraph 1, shall reflect transaction terms and specifications and margin agreements in a timely, complete, and conservative manner; the terms and specifications shall reside in a secure database subject to formal and periodic audit; the transmission of transaction terms and specifications data and margin agreements to the exposure model shall also be subject to internal audit, and formal reconciliation processes shall be in place between the internal model and source data systems to verify on an ongoing basis that transaction terms, specifications and margin agreements are being reflected in the exposure system correctly or, at least, conservatively;

(i)

the current and historical market data inputs used in the model by the institution for calculating the simulated discounted future exposure referred to in paragraph 1 shall be acquired independently of the business lines and fed into that model in a timely and complete manner and maintained in a secure database subject to formal and periodic audit; an institution shall have a well-developed data integrity process to handle inappropriate data observations; where the model relies on proxy market data, an institution shall design internal policies to identify suitable proxies and shall demonstrate empirically on an ongoing basis that the proxies provide a conservative representation of the underlying risk;

(j)

the exposure model referred to in paragraph 1 shall capture the transaction specific and contractual information necessary in order to aggregate exposures at the level of the netting set; an institution shall verify that transactions are assigned to the appropriate netting set within the model.

For the purpose of calculating the own funds requirements for CVA risk, the exposure model referred to in paragraph 1 of this Article may have different specifications and assumptions in order to meet all requirements laid down in Article 383a, except that its market data inputs and netting recognition shall remain the same as the ones used for accounting purposes.

4. EBA shall develop draft regulatory technical standards to specify:

(a)

how proxy spreads referred to in paragraph 2, point (b), are to be determined by the institution for the purposes of calculating default probabilities;

(b)

further technical elements that institutions are to take into account when calculating the counterparty’s expected loss given default, the counterparty’s probabilities of default and the simulated discounted future exposure of the portfolio of transactions with that counterparty and CVA, as referred to in paragraph 1;

(c)

which other instruments referred to in paragraph 2, point (a), are appropriate to estimate the counterparty’s probabilities of default and how institutions are to make that estimate.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2027.

5. EBA shall develop draft regulatory technical standards to specify:

(a)

the conditions for assessing the materiality of extensions and changes to the use of the standardised approach as referred to in Article 383(3);

(b)

the assessment methodology under which competent authorities are to verify an institution’s compliance with the requirements set out in Articles 383 and 383a.

EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2028.

Article 383b

Own funds requirements for delta and vega risks

1. Institutions shall apply the delta and vega risk factors described in Articles 383c to 383h, and the process set out in paragraphs 2 to 8 of this Article, to calculate the own funds requirements for delta and vega risks.

2. For each risk class referred to in Article 383(2), the sensitivity of the aggregate CVAs and the sensitivity of all positions in eligible hedges falling within the scope of the own funds requirements for delta or vega risk to each of the applicable delta or vega risk factors included in that risk class shall be calculated by using the corresponding formulae set out in Articles 383i and 383j. Where the value of an instrument depends on several risk factors, the sensitivity shall be determined separately for each risk factor.

For the calculation of the vega risk sensitivities of the aggregate CVAs, sensitivities both to volatilities used in the exposure model to simulate risk factors and to volatilities used to reprice option transactions in the portfolio with the counterparty shall be included.

By way of derogation from paragraph 1 of this Article, subject to the permission of the competent authority, an institution may use alternative definitions of delta and vega risk sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets all of the following conditions:

(a)

(b)

the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities of the position than the formulae set out in Articles 383i and 383j, and that the resulting delta and vega risk sensitivities do not materially differ from the ones obtained applying the formulae set out in Articles 383i and 383j, respectively.

3. Where an eligible hedge is an index instrument, institutions shall calculate the sensitivities of that eligible hedge to all relevant risk factors by applying the shift of one of the relevant risk factors to each of the index constituents.

4. An institution may introduce additional risk factors that correspond to qualified index instruments for the following risk classes:

(a)

counterparty credit spread risk;

(b)

reference credit spread risk; and

(c)

equity risk.

For the purposes of delta risks, an index instrument shall be considered qualified where it meets the conditions set out in Article 325i. For vega risks, all index instruments shall be considered qualified.

An institution shall calculate sensitivities of CVA and eligible hedges to qualified index risk factors in addition to sensitivities to the non-index risk factors.

An institution shall calculate delta and vega risk sensitivities to a qualified index risk factor as a single sensitivity to the underlying qualified index. Where 75 % of the constituents of a qualified index are mapped to the same sector as set out in Articles 383p, 383s and 383v, the institution shall map the qualified index to that same sector. Otherwise, the institution shall map the sensitivity to the applicable qualified index bucket.

5. The weighted sensitivities of the aggregate CVA and of the market value of all eligible hedges to each risk factor shall be calculated by multiplying the respective net sensitivities by the corresponding risk weight, in accordance with the following formulae:

where:

= the index that denotes the risk factor k;

= the weighted sensitivity of the aggregate CVA to risk factor k;

RWk

= the risk weight applicable to the risk factor k;

= the net sensitivity of the aggregate CVA to risk factor k;

= the weighted sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k;

= the net sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k.

6. Institutions shall calculate the net-weighted sensitivity WSk of the CVA portfolio to risk factor k in accordance with the following formula:

7. The net-weighted sensitivities within the same bucket shall be aggregated in accordance with the following formula, using the corresponding correlations ρkl to weighted sensitivities within the same bucket set out in Articles 383l, 383t and 383q giving rise to the bucket-specific sensitivity Kb :

where:

= the bucket-specific sensitivity of bucket b;

WSk

= the net-weighted sensitivities;

ρkl

= the corresponding intra-bucket correlation parameters;

= the hedging disallowance parameter equal to 0,01.

8. The bucket-specific sensitivity shall be calculated in accordance with paragraphs 5, 6 and 7 of this Article for each bucket within a risk class. Once the bucket-specific sensitivity has been calculated for all buckets, weighted sensitivities to all risk factors across buckets shall be aggregated in accordance with the following formula, using the corresponding correlations γbc for weighted sensitivities in different buckets set out in Articles 383l, 383o, 383r, 383u, 383w and 383z giving rise to the risk-class specific own funds requirements for delta or vega risk:

where:

mCVA

= a multiplier factor which is equal to 1; the competent authority may increase the value of mCVA where the institution’s regulatory CVA model shows deficiencies preventing the appropriate measurement of the own funds requirements for CVA risk;

= the bucket-specific sensitivity of bucket b;

γbc

= the correlation parameter between buckets b and c;

for all risk factors in bucket b;

for all risk factors in bucket c.

Article 383c

Interest rate risk factors

1. For the interest rate delta risk factors, including inflation rate risk, there shall be one bucket per currency, with each bucket containing different types of risk factors.

The interest rate delta risk factors that are applicable to interest-rate sensitive instruments in the CVA portfolio shall be the risk-free rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years.

The interest rate delta risk factors applicable to inflation-rate sensitive instruments in the CVA portfolio shall be the inflation rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years.

2. The currencies for which an institution shall apply the interest rate delta risk factors in accordance with paragraph 1 shall be euro, Swedish krona, Australian dollar, Canadian dollar, British pound sterling, Japanese yen and US dollar, the institution’s reporting currency and the currency of a Member State participating in ERM II.

3. For currencies not specified in paragraph 2, the interest rate delta risk factors shall be the absolute change of the inflation rate and the parallel shift of the entire risk-free curve for a given currency.

4. Institutions shall obtain the risk-free rates per currency from money market instruments held in their trading book that have the lowest credit risk, including overnight index swaps.

5. Where institutions cannot apply the approach referred to in paragraph 4, the risk-free rates shall be based on one or more market-implied swap curves used by the institutions to mark positions to market, such as the interbank offered rate swap curves.

Where the data on market-implied swap curves described in the first subparagraph are insufficient, the risk-free rates may be derived from the most appropriate sovereign bond curve for a given currency.

6. The interest rate vega risk factor applicable to instruments in the CVA portfolio sensitive to interest rate volatility shall be all the volatilities of the interest rate of all tenors for a given currency. The inflation rate vega risk factor applicable to instruments in the CVA portfolio sensitive to inflation rate volatility shall be all the volatilities of the inflation rate of all tenors for a given currency. There shall be one net interest rate sensitivity and one net inflation rate sensitivity computed for each currency.

Article 383d

Foreign exchange risk factors

1. The foreign exchange delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange spot rates shall be the spot foreign exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency or the institution’s base currency where the institution is using a base currency in accordance with Article 325q(7). There shall be one bucket per currency pair, containing a single risk factor and a single net sensitivity.

2. The foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility shall be the implied volatilities of foreign exchange rates between the currency pairs referred to in paragraph 1. There shall be one bucket for all currencies and maturities, containing all foreign exchange vega risk factors and a single net sensitivity.

3. Institutions shall not be required to distinguish between onshore and offshore variants of a currency for foreign exchange delta and vega risk factors.

Article 383e

Counterparty credit spread risk factors

1. The counterparty credit spread delta risk factors applicable to counterparty credit spread sensitive instruments in the CVA portfolio shall be the credit spreads of individual counterparties and reference names and qualified indices for the following maturities: 0,5 years, 1 year, 3 years, 5 years and 10 years.

2. The counterparty credit spread risk class shall not be subject to vega risk own funds requirements.

Article 383f

Reference credit spread risk factors

1. The reference credit spread delta risk factors applicable to reference credit spread sensitive instruments in the CVA portfolio shall be the credit spreads of all maturities for all reference names within a bucket. There shall be one net sensitivity computed for each bucket.

2. The reference credit spread vega risk factors applicable to instruments in the CVA portfolio sensitive to reference credit spread volatility shall be the volatilities of the credit spreads of all tenors for all reference names within a bucket. There shall be one net sensitivity computed for each bucket.

Article 383g

Equity risk factors

1. The buckets for all equity risk factors shall be the buckets referred to in Article 383t.

2. The equity delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to equity spot prices shall be the spot prices of all equities mapped to the same bucket referred to in paragraph 1. There shall be one net sensitivity computed for each bucket.

3. The equity vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to equity volatility shall be the implied volatilities of all equities mapped to the same bucket referred to in paragraph 1. There shall be one net sensitivity computed for each bucket.

Article 383h

Commodity risk factors

1. The buckets for all commodity risk factors shall be the sector buckets referred to in Article 383x.

2. The commodity delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to commodity spot prices shall be the spot prices of all commodities mapped to the same sector bucket referred to in paragraph 1. There shall be one net sensitivity computed for each sector bucket.

3. The commodity vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to commodity price volatility shall be the implied volatilities of all commodities mapped to the same sector bucket referred to in paragraph 1. There shall be one net sensitivity computed for each sector bucket.

Article 383i

Delta risk sensitivities

1. Institutions shall calculate delta sensitivities consisting of interest rate risk factors as follows:

(a)

the delta sensitivities of the aggregate CVA to risk factors consisting of risk-free rates, as well as of an eligible hedge to those risk factors, shall be calculated as follows:

where:

= the sensitivities of the aggregate CVA to a risk-free rate risk factor;

rkt

= the value of the risk-free rate risk factor k with maturity t;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than rkt in VCVA ;

= the sensitivities of the eligible hedge i to a risk-free rate risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than rkt in the pricing function Vi ;

(b)

the delta sensitivities to risk factors consisting of inflation rates as well as of an eligible hedge to those risk factors, shall be calculated as follows:

where:

= the sensitivities of the aggregate CVA to an inflation rate risk factor;

inflkt

= the value of an inflation rate risk factor k with maturity t;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than inflkt in VCVA ;

= the sensitivities of the eligible hedge i to an inflation rate risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than inflkt in the pricing function Vi .

2. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of foreign exchange spot rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a foreign exchange spot rate risk factor;

FXk

= the value of the foreign exchange spot rate risk factor k;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than FXk in VCVA ;

= the sensitivities of the eligible hedge i to a foreign exchange spot rate risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than FXk in the pricing function Vi .

3. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of counterparty credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a counterparty credit spread rate risk factor;

ccskt

= the value of the counterparty credit spread rate risk factor k at maturity t;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than ccskt in VCVA ;

= the sensitivities of the eligible hedge i to a counterparty credit spread rate risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than ccskt in the pricing function Vi .

4. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of reference credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a reference credit spread rate risk factor;

rcskt

= the value of the reference credit spread rate risk factor k at maturity t;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than ccskt in VCVA ;

= the sensitivities of the eligible hedge i to a reference credit spread rate risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than ccskt in the pricing function Vi .

5. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of equity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to an equity spot price risk factor;

= the value of the equity spot price;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than EQ in VCVA ;

= the sensitivities of the eligible hedge i to an equity spot price risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than EQ in the pricing function Vi .

6. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of commodity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to a commodity spot price risk factor;

CTY

= the value of the commodity spot price;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than CTY in VCVA ;

= the sensitivities of the eligible hedge i to a commodity spot price risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than CTY in the pricing function Vi .

Article 383j

Vega risk sensitivities

Institutions shall calculate the vega risk sensitivities of the aggregate CVA to risk factors consisting of implied volatility, as well as of an eligible hedge instrument to those risk factors, as follows:

where:

= the sensitivities of the aggregate CVA to an implied volatility risk factor;

volk

= the value of the implied volatility risk factor;

VCVA

= the aggregate CVA calculated by the regulatory CVA model;

x,y

= risk factors other than volk in the pricing function VCVA ;

= the sensitivities of the eligible hedge instrument i to an implied volatility risk factor;

= the pricing function of the eligible hedge i;

w,z

= risk factors other than volk in the pricing function Vi .

Article 383k

Risk weights for interest rate risk

1. For the currencies referred to in Article 383c(2), the risk weights of risk-free rate delta sensitivities for each bucket in Table 1 shall be the following:

Table 1

Bucket

Maturity

Risk weight

1 year

1,11 %

2 years

0,93 %

5 years

0,74 %

10 years

0,74 %

30 years

0,74 %

2. For currencies other than the currencies referred to in Article 383c(2), the risk weight of risk-free rate delta sensitivities shall be 1,58 %.

3. For inflation rate risk denominated in one of the currencies referred to in Article 383c(2), the risk weight of the delta sensitivity to the inflation rate risk shall be 1,11 %.

4. For inflation rate risk denominated in a currency other than the currencies referred to in Article 383c(2), the risk weight of the delta sensitivity to the inflation rate risk shall be 1,58 %.

5. The risk weights to be applied to sensitivities to interest rate vega risk factors and to inflation rate vega risk factors for all currencies shall be 100 %.

Article 383l

Intra-bucket correlations for interest rate risk

1. For the currencies referred to in Article 383c(2), the correlation parameters that institutions shall apply to the aggregation of the risk-free rate delta sensitivities between the different buckets set out in Article 383k, Table 1, shall be the following:

Table 1

Bucket

100 %

91 %

72 %

55 %

31 %

100 %

87 %

72 %

45 %

100 %

91 %

68 %

100 %

83 %

100 %

2. Institutions shall apply a correlation parameter of 40 % for the aggregation of inflation rate delta risk sensitivity and risk-free rate delta sensitivity denominated in the same currency.

3. Institutions shall apply a correlation parameter of 40 % for the aggregation of inflation rate vega risk factor sensitivity and interest rate vega risk factor sensitivity denominated in the same currency.

Article 383m

Correlation across buckets for interest rate risk

The cross-bucket correlation parameter for interest rate delta and vega risks shall be set at 0,5 for all currency pairs.

Article 383n

Risk weights for foreign exchange risk

1. The risk weights for all delta sensitivities to foreign exchange risk factor between an institution’s reporting currency and another currency shall be 11 %.

2. The risk weight of the foreign exchange risk factors concerning currency pairs which are composed of the euro and the currency of a Member State participating in ERM II shall be one of the following:

(a)

the risk weight referred to in paragraph 1, divided by 3;

(b)

the maximum fluctuation within the fluctuation band formally agreed by the Member State and the ECB, if that fluctuation band is narrower than the fluctuation band defined under ERM II.

3. Notwithstanding paragraph 2, the risk weight of the foreign exchange risk factors concerning currencies referred to in that paragraph which participate in ERM II with a formally agreed fluctuation band narrower than the standard band of plus or minus 15 % shall equal the maximum percentage fluctuation within that narrower band.

4. The risk weights for all vega sensitivities to foreign exchange risk factor shall be 100 %.

Article 383o

Correlations for foreign exchange risk

1. A uniform correlation parameter equal to 60 % shall apply to the aggregation of sensitivities to delta foreign exchange risk factor across buckets.

2. A uniform correlation parameter equal to 60 % shall apply to the aggregation of sensitivities to vega foreign exchange risk factor across buckets.

Article 383p

Risk weights for counterparty credit spread risk

1. The risk weights for the delta sensitivities to counterparty credit spread risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 1 and shall be the following:

Table 1

Bucket number

Credit quality

Sector

Risk weight

All

Central government, including central banks, of Member States

0,5 %

Credit quality step 1 to 3

Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118

0,5 %

Regional government or local authority and public sector entities

1,0 %

Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders

5,0 %

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

3,0 %

Consumer goods and services, transportation and storage, administrative and support service activities

3,0 %

Technology, telecommunications

2,0 %

Health care, utilities, professional and technical activities

1,5 %

Covered bonds issued by credit institutions established in Member States

1,0 %

Credit quality step 1

Covered bonds issued by credit institutions in third countries

1,5 %

Credit quality steps 2 to 3

2,5 %

Credit quality steps 1 to 3

Other sector

5,0 %

Qualified indices

1,5 %

Credit quality step 4 to 6 and unrated

Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118

2,0 %

Regional government or local authority and public sector entities

4,0 %

Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders

12,0 %

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

7,0 %

Consumer goods and services, transportation and storage, administrative and support service activities

8,5 %

Technology, telecommunications

5,5 %

Health care, utilities, professional and technical activities

5,0 %

Other sector

12,0 %

Qualified indices

5,0 %

Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied.

2. To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to only one of the sector buckets set out in Table 1. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to either bucket 11 or bucket 20 in Table 1, depending on the credit quality of the issuer.

3. Institutions shall assign to buckets 12 and 21 in Table 1 only exposures that reference qualified indices as referred to in Article 383b(4).

4. Institutions shall use a look-through approach to determine the sensitivities of an exposure referencing a non-qualified index.

Article 383q

Intra-bucket correlations for counterparty credit spread risk

1. Between two sensitivities WSk and WSl , resulting from risk exposures assigned to sector buckets 1 to 11 and 13 to 20, as set out in Article 383p(1), Table 1, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %;

shall be equal to 1 where the two names are both in buckets 1 to 11 or are both in buckets 13 to 20, otherwise it shall be equal to 80 %.

2. Between two sensitivities WSk and WSl resulting from risk exposures assigned to sector buckets 12 and 21, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %;

shall be equal to 1 where the two names are both in bucket 12 or both in bucket 21, otherwise it shall be equal to 80 %.

Article 383r

Correlations across buckets for counterparty credit spread risk

The cross-bucket correlations for counterparty credit spread delta risk shall be the following:

Table 1

Bucket

1, 2, 3, 13 and 14

4 and 15

5 and 16

6 and 17

7 and 18

8 and 19

9 and 10

11 and 20

12 and 21

1, 2, 3, 13 and 14

100 %

10 %

20 %

25 %

20 %

15 %

10 %

0 %

45 %

4 and 15

100 %

5 %

15 %

20 %

5 %

20 %

0 %

45 %

5 and 16

100 %

20 %

25 %

5 %

0 %

45 %

6 and 17

100 %

25 %

5 %

15 %

0 %

45 %

7 and 18

100 %

5 %

20 %

0 %

45 %

8 and 19

100 %

5 %

0 %

45 %

9 and 10

100 %

0 %

45 %

11 and 20

100 %

0 %

12 and 21

100 %

Article 383s

Risk weights for reference credit spread risk

1. The risk weights for the delta sensitivities to reference credit spread risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) and all reference credit spread exposures within each bucket in Table 1 and shall be the following:

Table 1

Bucket number

Credit quality

Sector

Risk weight

All

Central government, including central banks, of Member States

0,5 %

Credit quality step 1 to 3

Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118

0,5 %

Regional government or local authority and public sector entities

1,0 %

Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders

5,0 %

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

3,0 %

Consumer goods and services, transportation and storage, administrative and support service activities

3,0 %

Technology, telecommunications

2,0 %

Health care, utilities, professional and technical activities

1,5 %

Covered bonds issued by credit institutions established in Member States

1,0 %

Credit quality step 1

Covered bonds issued by credit institutions in third countries

1,5 %

Credit quality steps 2 to 3

2,5 %

Credit Quality Step 1 to 3

Qualified indices

1,5 %

Credit quality step 4 to 6 and unrated

Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118

2,0 %

Regional government or local authority and public sector entities

4,0 %

Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders

12,0 %

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

7,0 %

Consumer goods and services, transportation and storage, administrative and support service activities

8,5 %

Technology, telecommunications

5,5 %

Health care, utilities, professional and technical activities

5,0 %

Qualified indices

5,0 %

Other sector

12,0 %

2. Risk weights for reference credit spread volatilities shall be set at 100 %.

3. To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to only one of the sector buckets in Table 1. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to bucket 20 in Table 1.

4. Institutions shall assign to buckets 11 and 19 only exposures that reference qualified indices as referred to in Article 383b(4).

5. Institutions shall use a look-through approach to determine the sensitivities of an exposure referencing a non-qualified index.

Article 383t

Intra-bucket correlations for reference credit spread risk

1. Between two sensitivities WSk and WSl , resulting from risk exposures assigned to sector buckets 1 to 10, 12 to 18 and 20 of Article 383s(1), Table 1, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %;

shall be equal to 1 where the two names are both in buckets 1 to 10, are both in buckets 12 to 18, or are both in bucket 20, otherwise it shall be equal to 80 %.

2. Between two sensitivities WSk and WSl , resulting from risk exposures assigned to sector buckets 11 and 19, the correlation parameter ρkl shall be set as follows:

where:

shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %;

shall be equal to 1 where the two names are both in bucket 11 or both in bucket 19, otherwise it shall be equal to 80 %.

Article 383u

Correlations across buckets for reference credit spread risk

1. The cross-bucket correlations for reference credit spread delta risk and reference credit spread vega risk shall be the following:

Table 1

Bucket

1, 2 and 12

3 and 14

4 and 15

5 and 16

6 and 17

7 and 18

8 and 19

9 and 10

1, 2, and 12

100 %

75 %

10 %

20 %

25 %

20 %

15 %

10 %

0 %

45 %

3 and 14

100 %

5 %

15 %

20 %

15 %

10 %

0 %

45 %

4 and 15

100 %

5 %

15 %

20 %

5 %

20 %

0 %

45 %

5 and 16

100 %

20 %

25 %

5 %

0 %

45 %

6 and 17

100 %

25 %

5 %

15 %

0 %

45 %

7 and 18

100 %

5 %

20 %

0 %

45 %

8 and 19

100 %

5 %

0 %

45 %

9 and 10

100 %

0 %

45 %

100 %

0 %

100 %

75 %

100 %

2. By way of derogation from paragraph 1, the cross-bucket correlation values calculated in that paragraph shall be divided by 2 for correlations between a bucket from the group of buckets 1 to 10 and a bucket from the group of buckets 12 to 18.

Article 383v

Risk weight buckets for equity risk

1. The risk weights for the delta sensitivities to equity spot price risk factors shall be the same for all equity risk exposures within each bucket in Table 1 and shall be the following:

Table 1

Bucket number

Market capitalisation

Economy

Sector

Risk weight for equity spot price

Large

Emerging market economy

Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities

55 %

Telecommunications, industrials

60 %

Basic materials, energy, agriculture, manufacturing, mining and quarrying

45 %

Financials, including government-backed financials, immovable property activities, technology

55 %

Advanced economy

Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities

30 %

Telecommunications, industrials

35 %

Basic materials, energy, agriculture, manufacturing, mining and quarrying

40 %

Financials, including government-backed financials, immovable property activities, technology

50 %

Small

Emerging market economy

All sectors described under bucket numbers 1, 2, 3 and 4

70 %

Advanced economy

All sectors described under bucket numbers 5, 6, 7 and 8

50 %

Other sector

70 %

Large

Advanced economy

Qualified indices

15 %

Other

Qualified indices

25 %

2. For the purposes of paragraph 1 of this Article, what constitutes a small and a large capitalisation shall be specified in the regulatory technical standards referred to in Article 325bd(7).

3. For the purposes of paragraph 1 of this Article, what constitutes an emerging market and an advanced economy shall be specified in the regulatory technical standards referred to in Article 325ap(3).

4. When assigning a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by industry sector. Institutions shall assign each issuer to one of the sector buckets in paragraph 1, Table 1, and shall assign all issuers from the same industry to the same sector. Risk exposures from any issuer that an institution cannot assign to a sector in that manner shall be assigned to bucket 11. Multinational or multi-sector equity issuers shall be allocated to a particular bucket on the basis of the most material region and sector in which the equity issuer operates.

5. The risk weights for equity vega risk shall be set at 78 % for buckets 1 to 8 and bucket 12, and at 100 % for all other buckets.

Article 383w

Correlations across buckets for equity risk

The cross-bucket correlation parameter for equity delta and vega risk shall be set at:

(a)

15 %, where the two buckets fall within buckets 1 to 10 in Article 383v(1), Table 1;

(b)

75 %, where the two buckets are buckets 12 and 13 in Article 383v(1), Table 1;

(c)

45 %, where one of the buckets is bucket 12 or 13 in Article 383v(1), Table 1, and the other bucket falls within buckets 1 to 10 in Article 383v(1), Table 1;

(d)

0 %, where one of the two buckets is bucket 11 in Article 383v(1), Table 1.

Operational risk management framework