Commission Delegated Regulation (EU) 2021/424 of 17 December 2019 amending Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to the alternative standardised approach for market risk (Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (1), and in particular Article 461a thereof:

(1) In 2019, the Basel Committee on Banking Supervision (BCBS) published the revised ‘Minimum capital requirements for market risk’, which addressed the weaknesses in the prudential treatment of banks’ trading book activities (2).

(2) The alternative standardised approach laid down in Chapter 1a of Title IV of Part Three of Regulation (EU) No 575/2013 currently lacks technical specifications to be fully operational. Those specifications should be aligned with the BCBS Minimum capital requirements for market risk.

(3) The BCBS Minimum capital requirements for market risk specify the calculation of the own funds requirements for curvature risk for instruments with optionality. That calculation comprises a number of steps, including how to apply shocks to risk factors and how to aggregate curvature risk across risk factors. For foreign exchange risk factors, the calculation needs to be adjusted to avoid double-counting curvature risks. Without that adjustment, such double-counting may occur because in the BCBS Minimum capital requirements for market risk, foreign exchange risk factors are expressed using the reporting currency of an institution.

(4) Instruments without optionality should only be subject to own funds requirements for delta risk for the non-exotic underlying(s) of the instruments, but not for curvature risk. The BCBS Minimum capital requirements for market risk, however, gives institutions the option to subject all instruments, including those without optionality, to own funds requirements for curvature risk. That option can be helpful for institutions that manage and hedge positions with and without optionality together. However, to avoid that that option is used primarily for the purpose of reducing own funds requirements, an institution wishing to exercise that option should be required to notify its intention to use that option to its competent authority, which should have the possibility to refuse the use of that option. The same should apply where an institution no longer wishes to use that option.

(5) In relation to the treatment of positions in collective investment undertakings (CIUs), the look-through approach is the most accurate approach for the calculation of own funds requirements for positions in CIUs because that approach relies on the actual composition of the CIUs instead of a proxy composition. The availability of the look-through approach, however, requires certain strict conditions to be met. Institutions should therefore be allowed to use other approaches, provided they are aware of the content of the mandate of the CIU and can obtain daily price quotes. In that situation, institutions can set up a hypothetical portfolio to compute the own funds requirements for market risk of the position in the CIU. These institutions should also have the possibility to calculate the own funds requirements for credit valuation adjustment risk of derivative positions included in the CIU using a simplified approach where there is not sufficient information to calculate the own funds requirements for credit valuation adjustment risk based on the existing approaches. That possibility should be aligned with the simplified approach applicable to derivative positions included in the CIUs allocated to the non-trading book. Because of the number of assumptions that institutions need to make when using that approach, its use should be subject to the approval of the competent authority at the level of each individual CIU.

(6) In addition, institutions should have the option to treat a CIU position that tracks an index as a direct position in that index for the purposes of calculating the own funds requirements for market risk. That approach should be allowed where the difference in annualised return between the CIU and the index it tracks remains below 1 % over a 12-month period. Where less than 12 months of data are available, institutions should seek the permission from their competent authority to use that approach.

(7) In all other instances, positions in CIUs should be assigned to the non-trading book and treated accordingly for the purposes of calculating the own funds requirements of those positions.

(8) The BCBS Minimum capital requirements for market risk propose a ‘base currency’ approach as an additional approach to determine the own funds requirements for delta and curvature risks of foreign exchange risk factors. In line with that approach, institutions should, when calculating the own funds requirements for market risk, be able to choose another currency than their reporting currency to express the foreign exchange risk factors. That approach should be allowed where the institution meets a number of conditions related to the institution’s management of foreign exchange risk and should be subject to supervisory approval.

(9) The BCBS Minimum capital requirements for market risk specify the risk weights applicable to the sensitivities of the risk-free rate risk factors, of inflation and to cross currency basis risk factors, to the credit spread risk factors for non-securitisations of bucket 11 in Table 4 of Article 325ah of Regulation (EU) No 575/2013, of covered bonds risk factors issued by credit institutions in third countries, of credit spread risk factors for securitisations included in the ACTP, of credit spread risk factors for securitisations not included in the ACTP, of equity risk factors and of commodity risk factors. The risk weights applicable to the sensitivities of those risk factors in the alternative standardised approach should be aligned with the BCBS Minimum capital requirements for market risk.

(10) The BCBS Minimum capital requirements for market risk specify the intra-bucket correlations for covered bonds risk factors issued by credit institutions in third countries, the intra-bucket correlations for equity risk, and the correlations across buckets for equity risk. The correlations applicable in the alternative standardised approach should be aligned with the BCBS Minimum capital requirements for market risk.

(11) Regulation (EU) No 575/2013 should therefore be amended accordingly.

(12) Institutions should be given sufficient time to implement the changes to the alternative standardised approach for market risk introduced by this Delegated Regulation. The application of this Delegated Regulation should therefore be deferred,

HAS ADOPTED THIS REGULATION:

Article 1

Regulation (EU) No 575/2013 is amended as follows:

(14) in Article 325av, paragraph 1 is replaced by the following: ‘1.   A risk weight of 15 % shall be applied to all sensitivities of foreign exchange risk factors.’;

Article 2

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

It shall apply from 30 September 2021.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 17 December 2019.

For the Commission The President Ursula VON DER LEYEN

(1) OJ L 176, 27.6.2013, p. 1.

(2) Basel Committee on Banking Supervision, Minimum capital requirements for market risk. This publication is available on the website of the Bank for International Settlements (www.bis.org).