Changes from report parliamentary committee draft to plenary report

Added‘6. An institution that has ceased to calculate the own funds requirements for market risk using the approach set out 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 the conditions set out in paragraph 1 have been met for an uninterrupted full-year period.’;

Added(ea) paragraph 8 is deleted;

Added(134) in Article 325b, the following paragraph 4 is added:

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:

Added(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;

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

Added(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.

AddedFor the purposes of the calculation referred to in points (a) and (b), institutions and undertakings referred to in points (a) and (b) 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.’;

Added(135) Article 325c is amended as follows:

Added(a) the title is replaced by the following:

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

Added(b) paragraph 1 is replaced by the following:

Added‘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 these policies, procedures and controls shall be notified to the competent authorities in due course.’;

Added(c) the following paragraphs are added:

Added‘3. 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.

Added4. 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.

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

Added5. The review of the alternative standardised approach referred to in paragraph 4 shall cover both the activities of the business trading units and of the independent risk control unit and shall assess at least the following:

Added(a) the internal policies, procedures and controls for monitoring and ensuring compliance with the requirements referred to in paragraph 1;

Added(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 2;

Added(c) the accuracy of sensitivity computations and of the process used to derive these 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;

Added(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.

AddedAn 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.’;

Added5a. Competent authorities shall verify that the calculation referred to in paragraph 2, including the implementation by an institution of the requirements set out in this Chapter and in Article 325a, is performed with integrity.

AddedCompetent authorities shall establish the frequency and intensity of the verification referred to in the previous subparagraph having regard to the size, systemic importance, nature, scale and complexity of the activities of the institution concerned and taking into account the principle of proportionality.

Added5b. EBA shall develop draft regulatory technical standards to specify the assessment methodology under which competent authorities conduct the verification referred to in paragraph 3.’;

Added(136) Article 325j is amended as follows:

Added(a) paragraph 1 is replaced by the following:

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

Added(a) an institution that meets the condition set out in Article 104(7), 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;

Added(b) an institution that meets the condition set out in Article 104(7), point (b), shall calculate the own funds requirements for market risk of that position by using either of the following approaches:

Added(i) it shall calculate the own funds requirement for market risk of the CIU by considering the position in the CIU as a single equity position allocated to the bucket ’Other sector‘ in Article 325ap(1), Table 8;

Added(ii) it shall calculate the own funds requirement for market risk of the CIU in accordance with the limits set in the CIU’s mandate and in the relevant law.

Added▌

AddedFor the purposes of the calculation referred to in point (ii), 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).’;

Added(b) the following paragraph 1a is inserted:

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

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

Added(c) paragraph 4 is replaced by the following:

Added‘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 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.

AddedThe 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 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.

AddedThe 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.’;

Added(d) the following paragraphs 6 and 7 are added:

Added‘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 the following conditions are met:

Added(a) the third party is one of the following:

Added(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;

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

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

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

Added(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) and the institution’s competent authority has unrestricted access to these data, information or risk metrics upon request.

Added7. EBA shall develop draft regulatory technical standards to specify further 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 shall take into account in the methodology, where applicable, leverage to the maximum extent.

AddedEBA shall submit those draft regulatory technical standards to the Commission by [OP please insert the date = 12 months after the date of entry into force of this Regulation].

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

Added(137) in Article 325q, paragraph 2 is replaced by the following:

Added‘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.’;

Added(138) in Article 325s(1), the formula for is replaced by the following:

Added‘ ’;

Added(139) Article 325t is amended as follows:

Added(a) in paragraph 1, the second subparagraph is replaced by the following: