Changes from report parliamentary committee draft to plenary report

RemovedRegulation (EU) No 575/2013

Added(a) that trading desk may include other interest rate risk positions entered into with third parties or with other trading desks of the institution, as long as those positions meet the requirements for inclusion in the trading book referred to in Article 104 and those other trading desks perfectly offset the market risk of those other interest rate risk positions by entering into opposite interest rate risk positions with third parties;

RemovedArticle 1 – paragraph 1 – point 152, Article 325ba – paragraph 3: 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 or commodity risks for which the institution uses the alternative standardized approach to calculate the own funds requirements for market risk;

Added(b) no trading book positions other than those referred to in point (a) are assigned to that trading desk;

RemovedRegulation (EU) No 575/2013

Added(c) by way of derogation from Article 104b, that trading desk shall not be subject to the requirements set out in paragraphs 1, 2 and 3 of that Article.

RemovedArticle 1 – paragraph 1 – point 154 – point d, Article 325be – paragraph 3 – subparagraph 1: 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.

Added(e) paragraphs 6 and 7 are replaced by the following:

RemovedRegulation (EU) No 575/2013

Added‘6. The own funds requirements for the market risk of all the positions assigned to the separate portfolio referred to in paragraph 5, point (a), or to the trading desk referred to in point (b) of that paragraph, shall be calculated on a stand-alone basis, in addition to the own funds requirements for the other trading book positions.

RemovedArticle 1 – paragraph 1 – point 157 – point a, Article 325bh – paragraph 1 – point i – introductory part: (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; if an institution looks through less regularly than daily, it shall identify, measure and monitor any risk occurring from its less than daily look through and avoid any significant risk underestimation; institutions that do not have adequate data inputs or information to calculate the own fund requirement 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 the following conditions are met:.

Added7. Where an institution hedges a CVA risk exposure using a derivative instrument entered into with its trading book, the position in that derivative instrument shall be recognised as an internal hedge for the CVA risk exposure for the purpose of calculating the own funds requirements for CVA risks in accordance with the approaches set out in Articles 383 or 384, where the following conditions are met:

RemovedRegulation (EU) No 575/2013

Added(a) the derivative position is recognised as an eligible hedge in accordance with Article 386;

RemovedArticle 1 – paragraph 1 – point 163, Article 361 – point c: (163) in Article 361, point (c) is deleted;

Added(b) where the derivative position is subject to any of the requirements set out in Article 325c(2), points (b) or (c), or in Article 325e(1), point (c), the institution perfectly offsets the market risk of that derivative position by entering into opposite positions with third parties;

RemovedRegulation (EU) No 575/2013

AddedThe opposite trading book position of the internal hedge recognised in accordance with the first subparagraph shall be included in the institution’s trading book to calculate the own funds requirements for market risk.’

RemovedArticle 1 – paragraph 1 – point 163 a (new), Article 361 – paragraph 2: (163 a) in Article 361, paragraph 2 is replaced by the following: / ‘Institutions shall notify the use they make of this Article to their competent authorities.’;

Added(31) in Article 107, paragraphs 1, 2 and 3 are replaced by the following:

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

Added‘1. Institutions shall apply either the Standardised Approach provided for in Chapter 2 or, where permitted by the competent authorities in accordance with Article 143, the Internal Ratings Based Approach provided for in Chapter 3 to calculate their risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (f).

RemovedRegulation (EU) No 575/2013

Added2. For trade exposures and for default fund contributions to a central counterparty, institutions shall apply the treatment set out in Chapter 6, Section 9 to calculate their risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (f). For all other types of exposures to a central counterparty, institutions shall treat those exposures as follows:

RemovedArticle 1 – paragraph 1 – point 166 – point c, Article 382 – paragraph 6 – subparagraph 1: 6. EBA shall develop draft regulatory technical standards to specify the conditions and the criteria that institutions shall 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.

Added(a) as exposures to an institution for other types of exposures to a qualifying CCP;

RemovedRegulation (EU) No 575/2013

Added(b) as exposures to a corporate for other types of exposures to a non- qualifying CCP.

RemovedArticle 1 – paragraph 1 – point 169, Article 383a – paragraph 1 – subparagraph 1 – introductory part: 1. A regulatory CVA model used for the calculation of the own funds requirements for CVA risk in accordance with Article 383 shall be conceptually sound, shall be implemented with integrity, and shall comply with all of the following requirements:

Added3. For the purposes of this Regulation, exposures to third country investment firms and exposures to third country credit institutions and exposures to third country clearing houses and exchanges, as well as exposures to third country financial institutions authorised and supervised by third country authorities and subject to prudential requirements comparable to those applied to institutions in terms of robustness, shall be treated as exposures to an institution only if the third country applies prudential and supervisory requirements to that entity that are at least equivalent to those applied in the Union.”’;

RemovedRegulation (EU) No 575/2013

Added(32) Article 108 is replaced by the following:

RemovedArticle 1 – paragraph 1 – point 169, Article 383a – paragraph 1 – subparagraph 1 – point b: (b) the institution estimates the counterparty’s probabilities of default referred to in point (a) from the counterparty’s credit spreads and market-consensus expected loss-given-default for that counterparty.

Added‘Article 108 Use of credit risk mitigation techniques under the Standardised Approach and the IRB Approach for credit risk and dilution risk

RemovedRegulation (EU) No 575/2013

Added1. For an exposure to which an institution applies the Standardised Approach under Chapter 2 or applies the IRB Approach under Chapter 3 but without using its own estimates of loss given default (LGD) under Article 143, the institution may take into account the effect of FCP in accordance with Chapter 4 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (f), or, where relevant, expected loss (EL) amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d).

RemovedArticle 1 – paragraph 1 – point 169, Article 383a – paragraph 1 – subparagraph 1 – point c: (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 justify that the seniority of the portfolio of transactions with that counterparty differs from the seniority of senior unsecured bonds issued by that counterparty;

Added2. For an exposure to which an institution applies the IRB Approach by using its own estimates of LGD under Article 143, the institution may take into account the effect of FCP in accordance with Chapter 3 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (f), and expected loss (EL) amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d).

RemovedRegulation (EU) No 575/2013

Added2a. Where an institution applies the IRB Approach by using its own estimates of LGD under Article 143 for both the original exposure and for comparable direct exposures to the protection provider, the institution may take into account the effect of UFCP in accordance with Chapter 3 in the calculation of risk-weighted exposure amounts for the purposes of Article 92(4), points (a) and (f), and expected loss (EL) amounts for the purposes of the calculation referred to in Article 36(1), point (d), and Article 62, point (d). In all other cases, the institution may take into account the effect of UFCP in risk-weighted exposure amounts and EL amounts for the purposes in accordance with Chapter 4.

RemovedArticle 1 – paragraph 1 – point 169, Article 383a – paragraph 1 – subparagraph 1 – point e – point i: (i) the institution determines the margin period of risk relevant for that netting set in accordance with the requirements set out in Article 285, paragraphs 2 and 5, and reflects that margin period in the calculation of the simulated discounted future exposure;

Added3. Subject to the conditions set out in paragraph 4, ▌loans to natural persons may be regarded as exposures secured by a mortgage on residential property, instead of being treated as guaranteed exposures, for the purposes of Part three, Title II, Chapters 2, 3 and 4 as applicable, where in a Member State the following conditions for those▌loans to natural persons have been fulfilled:

RemovedRegulation (EU) No 575/2013

Added(a) the majority of loans to natural persons for the purchase of residential properties in that Member State are not provided as mortgages in legal form;

RemovedArticle 1 – paragraph 1 – point 169, Article 383a – paragraph 1 – subparagraph 5: For the purposes of point (e)(iii), where the institution has already established such 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 authorities that such unit complies with the requirements set out in Article 287 for all the collateral recognised for calculating the own funds requirements for CVA risks using the standardised approach.

Added(b) the majority of loans to natural persons for the purchase of residential properties in that Member State are guaranteed by a guarantor with a credit assessment by an nominated ECAI corresponding to a credit quality step of 1 or 2, that is required to repay the institution in full where the original borrower defaults;

RemovedRegulation (EU) No 575/2013

Added(c) the institution has the legal right to take a mortgage on the residential property in the event that the guarantor referred to in point (b) does not meet its obligations under the guarantee provided.

RemovedArticle 1 – paragraph 1 – point 169, Article 383a – paragraph 2 – subparagraph 1 – point i: (i) the current and historical market data inputs used in the model used by the institution for calculating the simulated discounted future exposure referred to in paragraph 1, point (a), shall be acquired independently of business lines. They shall be fed into the model used by the institution for calculating the simulated discounted future exposure referred to in paragraph 1, point (a), in a timely and complete fashion, 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. In the case 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;

AddedCompetent authorities shall inform EBA where the conditions referred in points (a), (b) and (c) are met in the national territories of their jurisdictions, and shall provide the names of guarantors eligible to that treatment which fulfil the conditions of this paragraph and paragraph 4.

RemovedRegulation (EU) No 575/2013

AddedEBA shall publish the list of all such eligible guarantors on its website and update that list yearly.

RemovedArticle 1 – paragraph 1 – point 169, Article 383b – paragraph 2 – subparagraph 3 – point a: (a) those alternative definitions are used for internal risk management purposes and for the reporting of profits or losses to senior management by an independent risk control unit within the institution;

Added4. For the purposes of paragraph 3, loans referred to in that paragraph may be treated as exposures secured by a mortgage on residential property, instead of being treated as guaranteed exposures, where all of the following conditions are met:

RemovedRegulation (EU) No 575/2013

Added(a) for an exposure that is treated under the Standardised Approach the exposure meets all of the requirements to be assigned to the Standardised Approach ‘exposures secured by mortgages on immovable property’ exposure class pursuant to Articles 124 and 125 with the exception that the institution granting the loan does not hold a mortgage over the residential property;

RemovedArticle 1 – paragraph 1 – point 169, Article 383b – paragraph 4 – subparagraph 1: 4. An institution may introduce additional risk classes to the ones referred to in Article 383(2) that correspond to qualified index instruments. For the purposes of delta risks, an index instrument shall be considered to be qualified where it meets the conditions set out in Article 325i. For vega risks, all index instruments shall be considered qualified.

Added(b) for an exposure that is treated under the IRB Approach, the exposure meets all of the requirements to be assigned to the IRB exposure class ‘retail exposures secured by residential property’ referred to in Article 147(2), (d)(ii), with the exception that the institution granting the loan does not hold a mortgage over the property;

RemovedRegulation (EU) No 575/2013

Added(c) there is no mortgage lien on the residential property when the loan is granted and for the loans granted from 1 January 2014 the borrower is contractually committed not to grant any mortgage lien without the consent of the institution that originally granted the loan;