Changes from report parliamentary committee draft to plenary report

RemovedRegulation (EU) No 575/2013

Added(a) the institution is the subsidiary of an EU parent institution, an EU parent financial holding company or an EU parent mixed financial holding company;

RemovedArticle 1 – paragraph 1 – point 35 – introductory part, Article 112 – point k: (35) in Article 112, points (i) and (k) are replaced by the following:

Added(b) the institution is located in another Member State than its parent institution, parent financial holding company or parent mixed financial holding company;

RemovedRegulation (EU) No 575/2013

Added(c) the institution has no subsidiary itself and does not hold any participation in an institution or financial institution;’;

RemovedArticle 1 – paragraph 1 – point 35, Article 112 – point i: ‘(i) exposures secured by mortgages on immovable property and ADC exposures;’

Added(j) in point (37) the reference to ‘Article 1 of Directive 83/349/EEC’ is replaced by a reference to ‘Article 22 of Directive 2013/34/EU’;

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

Added(k) point (52) is replaced by the following:

RemovedRegulation (EU) No 575/2013

Added‘(52) ‘operational risk’ means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including, but not limited to, legal risk, model risk and ICT risk, but excluding strategic and reputational risk;’;

RemovedArticle 1 – paragraph 1 – point 36 a (new), Article 115 – paragraph 3: (36 a) Article 115(3) is replaced by the following / “3. Where an exposure is subject to credit protection, the exposure value or the applicable risk weight to that exposure, as appropriate, may be amended in accordance with this Chapter and Chapter 4. / Exposures to churches or religious communities constituted in the form of a legal person under public law shall, in so far as they raise taxes in accordance with legislation conferring on them the right to do so, be treated as exposures to regional governments and local authorities. In this case, paragraph 2 shall not apply.”

Added(l) the following points (52a) to (52i) are inserted:

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

Added‘(52a) ‘legal risk’ means the risk of losses, including, but not limited to, expenses, fines, penalties or punitive damages, which an institution may incur as a consequence of events that result in legal proceedings, including the following:

RemovedRegulation (EU) No 575/2013

Added(a) supervisory actions and private settlements;

RemovedArticle 1 – paragraph 1 – point 36 b (new), Article 116 – paragraph 4 – subparagraph 1 a (new): (36 b) in Article 116(4), the following subparagraph is added: / ‘EBA shall maintain a publicly available database of all public-sector entities within the Union which relevant competent authorities consider as having no difference in risk as exposures to the central government, regional government or local authority in whose jurisdiction the public-sector entity is established.’

Added(b) failure to act where action is necessary to comply with a legal obligation;

RemovedRegulation (EU) No 575/2013

Added(c) action taken to avoid compliance with a legal obligation;

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 2 – Table 6aa: 1 / 20 %

Added(d) misconduct events, which are events that arise from wilful or negligent misconduct, including inappropriate supply of financial services or where the institution does not follow the obligation to provide fair, clear and not misleading information to its retail clients in accordance with Article 24(3) of Directive 2014/65/EU;

RemovedRegulation (EU) No 575/2013

Added(e) non-compliance with any requirement derived from national or international statutory or legislative provisions;

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 3 – point a: (a) where the purpose of a specialised lending exposure is to finance the acquisition of physical assets, including ships, aircraft, satellites, railcars, and fleets, and the income to be generated by those assets comes in the form of cash flows generated by the specific physical assets that have been financed and pledged or assigned to the lender (‘object finance exposures’), institutions shall apply a risk weight of 100%. / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted)

Added(f) non-compliance with any requirement derived from contractual arrangements, or with internal rules and codes of conduct established in accordance with national or international norms and practices;

RemovedRegulation (EU) No 575/2013

Added(g) non-compliance with ethical rules.

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 3 – point c – introductory part: (c) where the purpose of a specialised lending exposure is to finance a single project, either in the form of construction of a new capital installation or refinancing of an existing installation, with or without improvements, in particular projects for the development or acquisition of large, complex and expensive installations, including power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure, and the income to be generated by the financed project serves both as primary source of repayment and as security for the loan (‘project finance exposures’), institutions shall apply the following risk weights:

AddedLegal risk does not comprise refunds to third parties or employees and goodwill payments due to business opportunities, where no breach of any rules or ethical conduct has occurred and where the institution has fulfilled its obligations on a timely basis; and external legal costs where the event giving rise to those external costs is not an operational risk event.

RemovedRegulation (EU) No 575/2013

Added(52b) ‘model risk’ means the risk of loss an institution may incur as a consequence of decisions that could be principally based on the output of internal models, due to errors in the design, development, implementation▌, use or monitoring of such models, including the following:

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 3 – point c – point ii – indent 2: — the obligor has sufficient reserve funds fully funded in cash, or other financial arrangements to cover the contingency funding and working capital requirements over the lifetime of the project being financed;

Added(a) the improper set-up of a selected internal model and its characteristics;

RemovedRegulation (EU) No 575/2013

Added(b) the inadequate verification of a selected internal model’s suitability for the financial instrument to be evaluated or for the product to be priced, or of the selected internal model’s suitability for the applicable market conditions;

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 3 – point c – point ii – indent 3: — the income generated by the financed project is availability-based or subject to a rate-of-return regulation or take-or-pay contract; for this purpose "availability-based" means that, once the construction is completed, the obligor is entitled, as long as the contract conditions are fulfilled, to payments from its contractual counterparties which cover operating and maintenance costs, debt service costs and equity returns as the obligor operates the project, and these payments are not subject to swings in demand, such as traffic levels, and are adjusted typically only for lack of performance or lack of availability of the asset to the public;

Added(c) errors in the implementation of a selected internal model;

RemovedRegulation (EU) No 575/2013

Added(d) incorrect mark-to-market valuations and risk measurement as a result of a mistake when booking a trade into the trading system;

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 3 – point c – point ii – indent 6: — the main counterparty or other counterparties which meet the eligibility criteria for the main counterparty effectively protect the lending institution against losses resulting from the termination of the project;

Added(e) the use of a selected internal model or of its outputs for a purpose for which that model was not intended or designed, including manipulation of the modelling parameters;

RemovedRegulation (EU) No 575/2013

Added(f) the untimely and ineffective monitoring of model performance to assess whether the selected internal model remains fit for purpose;

RemovedArticle 1 – paragraph 1 – point 41, Article 122a – paragraph 3 – point c – point ii – indent 8: — the lending institution is able to take control of the obligor entity in the case of an event of default;

Added(52c) ‘ICT risk’ means the risk of losses or potential losses related to any reasonable identifiable circumstances in relation to the use of network and information systems which, if materialised, may compromise the security of the network and information systems, of any technology dependent tool or process, of operations and processes, or of the provision of services by producing adverse effects in the digital or physical environment;

RemovedRegulation (EU) No 575/2013

Added(52d) ‘environmental, social or governance ▌risk’ or ‘ESG risk’ means the risk of ▌any negative financial impact on the institution stemming from the current or prospective impacts of environmental, social or governance (ESG) factors on the institution’s counterparties or invested assets; ESG risks materialise through the traditional categories of financial risks, including credit risk, market risk, operational and reputation risks, liquidity and funding risks;

RemovedArticle 1 – paragraph 1 – point 42, Article 123 – paragraph 1 – subparagraph 1 – point a: (a) the total exposure value aggregated across all exposures to the obligor or group of connected clients, including any exposure in default but excluding exposures secured by residential property up to the property value, does not, to the knowledge of the institution, which shall have taken reasonable steps to be informed in that regard, exceed EUR 1 million; / (deleted) / (deleted)

Added(52e) ‘environmental risk’ means the risk of ▌ any negative financial impact on the institution stemming from the current or prospective impacts of environmental factors on the institution’s counterparties or invested assets, including factors related to the transition towards the following environmental objectives:

RemovedRegulation (EU) No 575/2013

Added(a) climate change mitigation ;

RemovedArticle 1 – paragraph 1 – point 42, Article 123 – paragraph 1 – subparagraph 1 a (new): Where any of the criteria listed in the first subparagraph are not met for an exposure to one or more natural persons, the risk weight shall be 100%.

Added(b) climate change adaptation;

RemovedRegulation (EU) No 575/2013

Added(c) the sustainable use and protection of water and marine resources;

RemovedArticle 1 – paragraph 1 – point 43, Article 123a – paragraph 1 – introductory part: 1. Where the following conditions are met for an exposure to natural person or natural persons which is assigned to the exposure class laid down in point (h) of Article 112 or, if it is secured by residential immovable property, to the exposure class laid down in point (i) of Article 112, the risk weight assigned to such exposures in accordance with Chapter 2 shall be multiplied by a factor of 1,5, whereby the resulting risk weight shall not be higher than 150 %:

Added(d) the transition to a circular economy;