Treatment of collective investment undertakings

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

where an institution is able to obtain sufficient information about the individual underlying exposures of the CIU, the institution shall calculate the own funds requirements for market risk of that CIU position by looking through to the underlying positions of the CIU as if those positions were directly held by the institution;

where the institution is not able to obtain sufficient information about the individual underlying exposures of the CIU, but the institution has knowledge of the content the mandate of the CIU and daily price quotes for the CIU can be obtained, the institution shall calculate the own funds requirements for market risk of that CIU position by using one of the following approaches:

the institution may consider the position in the CIU as a single equity position allocated to the bucket “other sector” in Table 8 of Article 325ap(1);

upon permission from its competent authority, an institution may calculate the own funds requirements for market risk of the CIU in accordance with the limits set in the CIU’s mandate and relevant law;

where the institution meets neither the conditions in point (a) nor (b), the institution shall allocate the CIU to the non-trading book.

An institution that uses one of the approaches set out in point (b) shall apply the own funds requirement for the default risk set out in Section 5 of this Chapter and the residual risk add-on set out in Section 4 of this Chapter where the mandate of the CIU implies that some exposures in the CIU shall be subject to those own funds requirements.

An institution that uses the approach set out in point (ii) of point (b) 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 paragraph 3 of Article 132a.

2. By way of derogation from paragraph 1, where an institution has a position in a CIU that tracks an index benchmark so that the annualised return difference between the CIU and the tracked index benchmark over the last 12 months is below 1 % in absolute terms, ignoring fees and commissions, the institution may treat that position as a position in the tracked index benchmark. An institution shall verify compliance with that condition when the institution enters into the position and, after that, at least annually.

However, where data for the last 12 months are not fully available, an institution may, subject to permission from the institution’s competent authority, use an annualised return difference from a period shorter than 12 months.

3. An institution may use a combination of the approaches referred to in points (a), (b) and (c) of paragraph 1 for its positions in CIUs. However, an institution shall use only one of those approaches for all the positions in the same CIU.

4. For the purposes of point (b) of paragraph 1, an institution shall carry out the calculations under the following provisions:

for the purposes of calculating the own funds requirement under the sensitivities-based method set out in Section 2 of this Chapter, the CIU shall first take position to the maximum extent allowed under its mandate or relevant law in the exposures attracting the highest own funds requirements set out under that Section and shall then continue taking positions in descending order until the maximum total loss limit is reached;

for the purposes of the own fund requirements for the default risk set out in Section 5 of this Chapter, the CIU shall first take position to the maximum extent allowed under its mandate or relevant law in the exposures attracting the highest own funds requirements set out under that Section and shall then continue taking positions in descending order until the maximum total loss limit is reached;

the CIU shall apply leverage to the maximum extent allowed under its mandate or relevant law, where applicable.

The own funds requirements for all positions in the same CIU for which the calculations referred to in the first subparagraph are used shall be calculated on a stand-alone basis as a separate portfolio using the approach set out in this Chapter.

5. An institution may use the approaches referred to in point (a) or (b) of paragraph 1 only where the CIU meets all the conditions set out in Article 132(3) and point (a) of Article 132(4).’;

Article 325q is amended as follows:

paragraph 1 is replaced by the following:

‘1. The foreign exchange delta risk factors to be applied by institutions to foreign exchange sensitive instruments shall be all the spot exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency or the institution’s base currency where the institution is using a base currency in accordance with paragraph 7. There shall be one bucket per currency pair, containing a single risk factor and a single net sensitivity.’;

paragraph 3 is replaced by the following:

‘3. The foreign exchange curvature risk factors to be applied by institutions to instruments with underlyings that are sensitive to foreign exchange shall be the foreign exchange delta risk factors referred to in paragraph 1.’;

the following paragraphs 5, 6 and 7 are added:

‘5. Where a foreign exchange rate that is the underlying of an instrument i that is subject to own funds requirements for curvature risks neither refers to the institution’s reporting currency nor the institution’s base currency, the institution may divide by 1,5 the corresponding components and set out in paragraph 2 of Article 325g for which x k is the foreign exchange risk factor between one of the two currencies of the underlying and the institution’s reporting currency or the institution’s base currency, as applicable.

6. Subject to permission from its competent authority, an institution may divide by 1,5 the components and set out in Article 325g(2) consistently for all the foreign exchange risk factors of instruments concerning foreign exchange and subject to own funds requirement for curvature risk, provided that any foreign exchange risk factors based on the institution’s reporting currency or the institution’s base currency, as applicable, that are included in the calculation of those components are shifted simultaneously.

7. By way of derogation from paragraphs 1 and 3, an institution may replace, subject to permission from its competent authority, its reporting currency by another currency (“the base currency”) in all the spot exchange rates to express the delta and curvature foreign exchange risk factors where all of the following conditions are met:

the institution uses only one base currency;

the institution applies the base currency consistently to all its trading book and non-trading book positions;

the institution has demonstrated to the satisfaction of its competent authority that:

using the chosen base currency provides an appropriate risk representation for the institution’s positions subject to foreign exchange risks;

the choice of base currency is compatible with the manner in which the institution manages those foreign exchange risks internally;

the choice of base currency is not driven primarily by the desire to reduce the institution’s own funds requirements;

the institution takes into account the translation risk between the reporting currency and the base currency.

An institution that has been permitted to use a base currency as set out in the first subparagraph shall convert the resulting own funds requirements for foreign exchange risk into the reporting currency using the prevailing spot exchange rate between the base currency and the reporting currency.’;

in Article 325ae, paragraphs 1 and 2 are replaced by the following:

‘1. For currencies not included in the most liquid currency sub-category as referred to in point (b) Article 325bd(7), the risk weights of the sensitivities to the risk-free rate risk factors shall be the following:

Table 3

Bucket

Maturity

Risk Weight

0,25 years

0,5 years

1 year

2 years

3 years

5 years

10 years

15 years

20 years

30 years

2. Institutions shall apply a risk weight of 1,6 % to all sensitivities of inflation and to cross currency basis risk factors.’;

in paragraph 1 of Article 325ah, Table 4 is replaced by the following:

‘Table 4

Bucket number

Credit quality

Sector

Risk weight

Central government, including central banks, of Member States

Credit quality step 1 to 3

Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118

Regional or local authority and public sector entities

Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

Consumer goods and services, transportation and storage, administrative and support service activities

Technology, telecommunications

Health care, utilities, professional and technical activities

Covered bonds issued by credit institutions established in Member States

Credit quality step 1

Covered bonds issued by credit institutions in third countries

Credit quality steps 2 to 3

Credit quality step 4 to 6 and unrated

Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118

Regional or local authority and public sector entities

Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders

12,0 %

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

Consumer goods and services, transportation and storage, administrative and support service activities

Technology, telecommunications

Health care, utilities, professional and technical activities

Other sector

12,0 %

Listed credit indices with a majority of its individual constituents being investment grade

Listed credit indices with a majority of its individual constituents being non-investment grade or unrated

in Article 325aj, Table 5 is replaced by the following:

‘Table 5

Bucket

1, 2 and 11

3 and 12

4 and 13

5 and 14

6 and 15

7 and 16

8 and 17

9 and 10

1, 2 and 11

3 and 12

4 and 13

5 and 14

6 and 15

7 and 16

8 and 17

9 and 10

in Article 325ak, Table 6 is replaced by the following:

‘Table 6

Bucket number

Credit quality

Sector

Risk weight

Central government, including central banks, of Member States

Credit quality step 1 to 3

Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118

Regional or local authority and public sector entities

Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

Consumer goods and services, transportation and storage, administrative and support service activities

Technology, telecommunications

Health care, utilities, professional and technical activities

Covered bonds issued by credit institutions established in Member States

Covered bonds issued by credit institutions in third countries

Credit quality step 4 to 6 and unrated

Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 118

13,0 %

Regional or local authority and public sector entities

13,0 %

Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders

16,0 %

Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying

10,0 %

Consumer goods and services, transportation and storage, administrative and support service activities

12,0 %

Technology, telecommunications

12,0 %

Health care, utilities, professional and technical activities

12,0 %

Other sector

13,0 %’

in paragraph 1 of Article 325am, Table 7 is replaced by the following:

‘Table 7

Bucket number

Credit quality

Sector

Risk weight

Senior and Credit quality step 1 to 3

RMBS — Prime

RMBS — Mid-Prime

RMBS — Sub-Prime

Asset backed securities (ABS) — Student loans

ABS — Credit cards

ABS — Auto

Collateralised loan obligations (CLO) non-ACTP

Non-senior and credit quality step 1 to 3

RMBS — Prime

1,125 %

RMBS — Mid-Prime

1,875 %

RMBS — Sub-Prime

ABS — Student loans

ABS — Credit cards

ABS — Auto

CLO non-ACTP

1,75 %

Credit quality step 4 to 6 and unrated

RMBS — Prime

1,575 %

RMBS — Mid-Prime

2,625 %

RMBS — Sub-Prime

ABS — Student loans

ABS — Credit cards

ABS — Auto

CLO non-ACTP

2,45 %

Other sector

3,5 %’

in paragraph 1 of Article 325ap, Table 8 is replaced by the following:

‘Table 8

Bucket number

Market capitali-sation

Economy

Sector

Risk weight for equity spot price

Risk weight for equity repo rate

Emerging market economy

Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities

0,55 %

Telecommunications, industrials

0,60 %

Basic materials, energy, agriculture, manufacturing, mining and quarrying

0,45 %

Financials including government-backed financials, real estate activities, technology

0,55 %

Advanced economy

Consumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities

0,30 %

Telecommunications, industrials

0,35 %

Basic materials, energy, agriculture, manufacturing, mining and quarrying

0,40 %

Financials including government-backed financials, real estate activities, technology

0,50 %

Emerging market economy

All sectors described under bucket numbers 1, 2, 3 and 4

0,70 %

Advanced economy

All sectors described under bucket numbers 5, 6, 7 and 8

0,50 %

Other sector

0,70 %

Large market cap, advanced economy indices

0,15 %

Other indices

0,25 %’

Article 325aq is amended as follows

paragraph 1 is replaced by the following:

‘1. The delta risk correlation parameter ρ kl between two sensitivities W S k and W S l within the same bucket shall be set at 99,90 % where one is a sensitivity to an equity spot price and the other is a sensitivity to an equity repo rate and where both sensitivities are related to the same equity issuer name.’;

in paragraph 2, the following point (e) is added:

80 % between two sensitivities within the same bucket that fall under either index bucket (bucket number 12 or 13).’;

paragraph 3 is replaced by the following:

‘3. The correlation parameter ρ kl between two sensitivities WS k and WS l to equity repo rates within the same bucket shall be set in accordance with points (a) to (d) of paragraph 2.’;

Articles 325ar and 325as are replaced by the following:

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