Changes from report parliamentary committee draft to plenary report

RemovedArticle 1 – paragraph 1 – point 131, Article 317 – paragraph 10 – subparagraph 1: 10. For the purposes of paragraph 8, EBA shall develop guidelines explaining the technical elements necessary to ensure the soundness, robustness and performance of governance arrangements to maintain the loss data set, with a particular focus on IT systems and infrastructures.

Added‘5. To calculate their own funds requirements for market risk, institutions shall assign each of their non-trading book positions that are subject to foreign exchange risk or commodity risk to trading desks established in accordance with paragraph 1 that manage risks that are similar to those positions.

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Added6. By way of derogation from paragraph 5, institutions may, when calculating their own funds requirements for market risk, establish one or more trading desks to which they assign exclusively non-trading book positions subject to foreign exchange risk or commodity risk. Those trading desks shall not be subject to the requirements set out in paragraphs 1, 2 and 3.’;

RemovedArticle 1 – paragraph 1 – point 131, Article 318 – paragraph 2 – point a – point i: (i) where the operational risk event relates to market risk, the costs to unwind market positions in the recorded loss amount of the operational risk items;

Added(29) the following Article 104c is inserted:

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Added‘Article 104c Treatment of foreign exchange risk hedges of capital ratios

RemovedArticle 1 – paragraph 1 – point 131, Article 320 – paragraph 1 – point a: (a) the institution can demonstrate to the satisfaction of the competent authority that the cause of the operational risk event at the origin of those operational risk losses will not occur again;

Added1. An institution which has deliberately taken a risk position in order to hedge, at least partially, against adverse movements in foreign exchange rates on any of its capital ratios as referred to in Article 92(1), points (a), (b) and (c), may, subject to permission of the competent authorities, exclude that risk position from the own funds requirements for foreign exchange risk set out in Article 325(1), provided that all of the following conditions are met:

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Added(a) the maximum amount of the risk position that is excluded from the own funds requirements for market risk is limited to the amount of the risk position that neutralises the sensitivity of any of the capital ratios to the adverse movements in foreign exchange rates;

RemovedArticle 1 – paragraph 1 – point 131, Article 322 – title: Comprehensiveness, accuracy and quality of the loss data

Added(b) the risk position is excluded from the own funds requirements for market risk for at least 6 months;

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Added(c) the institution has established an appropriate risk management framework for hedging the adverse movements in foreign exchange rates on any of its capital ratios, including a clear hedging strategy and governance structure;

RemovedArticle 1 – paragraph 1 – point 131, Article 322 – paragraph 1: 1. Institutions shall have in place the organisation and processes to ensure the comprehensiveness, accuracy and quality of the loss data and to review it independently.

Added(d) the institution has provided to the competent authorities a justification for excluding a risk position from the own funds requirements for market risk, the details of that risk position and the amount to be excluded from the own funds requirements for market risk.

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Added2. Any exclusion of risk positions from the own funds requirements for market risk in accordance with paragraph 1 shall be applied consistently.

RemovedArticle 1 – paragraph 1 – point 132 – point a, Article 325 – paragraph 1 – subparagraph 2: By way of derogation from the first subparagraph, an institution shall not calculate an 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. Institutions shall document the use of the provision set out in this paragraph, including its impact, and make the information available upon request of their competent authority.

Added3. The competent authorities shall approve any changes by the institution to the risk management framework referred to in paragraph 1, point (c), and to the details of the risk positions referred to in paragraph 1, point (d).

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Added4. EBA shall develop draft regulatory technical standards to specify:

RemovedArticle 1 – paragraph 1 – point 132 – point a, Article 325 – paragraph 4: 4. An institution may use a combination of the alternative standardised approach referred to in paragraph 1, point (a), and the alternative internal model approach referred to in paragraph 1, point (b), on a permanent basis within a group. The institution shall not use either of those approaches in combination with the simplified standardised approach referred to in paragraph 1, point (c).

Added(a) the risk positions that an institution can deliberately take in order to hedge, at least partially, against the adverse movements of foreign exchange rates on any of an institution’s capital ratios referred to paragraph 1, first subparagraph;

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Added(b) how to determine the maximum amount referred to in paragraph 1, point (a), and the manner in which an institution shall exclude this amount for each of the approaches set out in Article 325(1);

RemovedArticle 1 – paragraph 1 – point 133 – point e a (new), Article 325a – paragraph 8: (e a) paragraph 8 is deleted / deleted

Added(c) the criteria that shall be met by an institution’s risk management framework referred to in paragraph 1, point(c), in order to be considered appropriate for the purpose of this Article.

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AddedEBA shall submit those draft regulatory technical standards to the Commission by [OP please insert the date = 2 years after the entry into force of this Regulation].

RemovedArticle 1 – paragraph 1 – point 135 – point c, Article 325c – paragraph 4 – subparagraph 1: 4. 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.

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

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Added(30) Article 106 is amended as follows:

RemovedArticle 1 – paragraph 1 – point 135 – point c, Article 325c – paragraph 5 – subparagraph 2: An institution shall conduct the review referred to in the first subparagraph once every two years or on a more frequent basis up to once every year where the competent authority considers that the size and complexity of the institution justifies a more frequent review."

Added(a) in paragraph 3, the last subparagraph is replaced by the following:

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Added‘Both an internal hedge recognised in accordance with the first subparagraph and the credit derivative entered into with the third party shall be included in the trading book to calculate the own funds requirements for market risk. To calculate the own funds requirements for market risk using the approach set out in Article 325(1), point (b), both positions shall be assigned to the same trading desk established in accordance to Article 104b(1) that manages similar risks.’

RemovedArticle 1 – paragraph 1 – point 136 – point a, Article 325j – paragraph 1 – subparagraph 2: deleted

Added(b) in paragraph 4, the last subparagraph is replaced by the following:

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Added‘Both an internal hedge recognised in accordance with the first subparagraph and the equity derivative entered into with the eligible third party protection provider shall be included in the trading book for the purposes of calculating the own funds requirements for market risk. For the purposes of calculating the own funds requirements for market risks using the approach set out in Article 325(1), point (b) both positions shall be assigned to the same trading desk established in accordance to Article 104b(1) that manages similar risks.’

RemovedArticle 1 – paragraph 1 – point 136 – point b, Article 325j – paragraph 1a – point a: (a) apply the own funds requirements for the 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 calculation approach referred to in in paragraph 1, point (b)(i), 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;

Added(c) paragraph 5 is replaced by the following:

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Added‘5. Where an institution hedges non-trading book interest rate risk exposures using an interest rate risk position booked in its trading book, that interest rate risk position shall be considered to be an internal hedge to assess the interest rate risk arising from non-trading positions in accordance with Articles 84 and 98 of Directive 2013/36/EU where the following conditions are met:

RemovedArticle 1 – paragraph 1 – point 136 – point c, Article 325j – paragraph 4 – subparagraph 1: 4. For the purposes of paragraph 1, point (b)(ii), an institution shall determine the calculation of 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.

Added(a) to calculate the own funds requirements for market risk using the approaches referred to in Article 325(1), points (a), (b) and (c), the interest rate risk position has been assigned to a separate portfolio from the other trading book positions, the business strategy of which is solely dedicated to manage and mitigate the market risk of internal hedges of interest rate risk exposure▌;

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Added(b) to calculate the own funds requirements for market risk using the approaches referred to in Article 325(1), point (b), the position has been assigned to a trading desk established in accordance with Article 104b the business strategy of which is solely dedicated to manage and mitigate the market risk of internal hedges of interest rate risk exposure;

RemovedArticle 1 – paragraph 1 – point 138 a (new), Article 325s a (new): (138a) the following Article 325sa is inserted: / ‘Article 325sa / Intra-bucket correlation for the reference credit spread risk / 1. The cross-bucket correlations for reference credit spread delta risk and reference credit spread vega risk shall be the same as the cross-bucket correlation for counterparty credit spread delta risk, set out in Article 383q, Table 4. / 2. By derogation from paragraph 1, the cross-bucket correlation values calculated in paragraph 1 shall be divided by 2 for buckets 1 to 8 and 11 to 17.’

Added(c) the institution has fully documented how the position mitigates the interest rate risk arising from non-trading book positions for the purposes of the requirements laid down in Articles 84 and 98 of Directive 2013/36/EU.’;

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Added(d) the following paragraphs 5a and 5b are inserted:

RemovedArticle 1 – paragraph 1 – point 150 – point b a (new), Article 325ax – paragraph 6: (ba) 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 the vertices for each curve on the basis of the highest prescribed delta risk weight referred to in Subsection 1 for the relevant bucket."

Added‘5a. For the purposes of paragraph 5, point (a), the institution may assign to that portfolio other interest rate risk positions entered into with third parties, or with its own trading book, as long as the institution perfectly offsets the market risk of those interest rate risk positions entered into with its own trading book by entering into opposite interest rate risk positions with third parties.

Removed(https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0575&from=EN)

Added5b. The following requirements apply to the trading desk referred to in paragraph 5, point (b):