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• Entry into force: 2013-06-28 (the publisher's qualifier, word for word: DATPUB +1 V ART 521.1)
• Application: 2014-01-01 (the publisher's qualifier, word for word: V ART 521.2)
• Application: 2014-12-31 (the publisher's qualifier, word for word: MA/PART V ART 521.2.c)
• Application: 2015-01-01 (the publisher's qualifier, word for word: MA/PART V ART 521.2.a)
• Application: 2016-01-01 (the publisher's qualifier, word for word: MA/PART V ART 521.2.b)
• Deadline: 2027-01-01 (the publisher's qualifier, word for word: V ART 520a ET 32025R1496)

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790 articles quoted, 0 held without text.

Page 13 of 22: Article 325aj to Article 325c.

396. 325AJ Article 325aj

     Article 325aj Correlations across buckets for credit spread risk for non-securitisations The correlation parameter γbc that applies to the aggregation of sensitivities between different buckets shall be set as follows: γbc = γbc(rating) · γbc(sector) where: γbc(rating) shall be equal to: (a) 1, where buckets b and c are buckets 1 to 17 and both buckets have the same credit quality category (either credit quality step 1 to 3 or credit quality step 4 to 6); otherwise it shall be equal to 50 %; for the purposes of that calculation, bucket 1 shall be considered as belonging to the same credit quality category as buckets that have credit quality step 1 to 3; (b) 1, where either bucket b or c is bucket 18; (c) 1, where bucket b or c is bucket 19 and the other bucket has credit quality step 1 to 3; otherwise it shall be equal to 50 %; (d) 1, where bucket b or c is bucket 20 and the other bucket has credit quality step 4 to 6; otherwise it shall be equal to 50 %; γbc(sector) shall be equal to 1 where the two buckets belong to the same sector, and otherwise shall be equal to the corresponding percentage set out in Table 5: Table 5 Bucket1, 2 and 113 and 124 and 135 and 146 and 157 and 168 and 179 and 101819201, 2 and 1175 %10 %20 %25 %20 %15 %10 %0 %45 %45 %3 and 125 %15 %20 %15 %10 %10 %0 %45 %45 %4 and 135 %15 %20 %5 %20 %0 %45 %45 %5 and 1420 %25 %5 %5 %0 %45 %45 %6 and 1525 %5 %15 %0 %45 %45 %7 and 165 %20 %0 %45 %45 %8 and 175 %0 %45 %45 %9 and 100 %45 %45 %180 %0 %1975 %20

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397. 325AK Article 325ak

     Article 325ak Risk weights for credit spread risk for securitisations included in the ACTP Risk weights for the sensitivities to credit spread risk factors for securitisations included in the ACTP risk factors shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket and shall be specified for each bucket in Table 6 pursuant to the delegated act referred to in Article 461a: Table 6 Bucket numberCredit qualitySectorRisk weight1AllCentral government, including central banks, of Member States4,0 %2Credit quality step 1 to 10Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 1184,0 %3Regional or local authority and public sector entities4,0 %4Financial sector entities including credit institutions incorporated or established by a central government, a regional government or a local authority and promotional lenders8,0 %5Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying5,0 %6Consumer goods and services, transportation and storage, administrative and support service activities4,0 %7Technology, telecommunications3,0 %8Health care, utilities, professional and technical activities2,0 %9Covered bonds issued by credit institutions established in Member States3,0 %10Covered bonds issued by credit institutions in third countries6,0 %11Credit quality step 11 to 17Central government, including central banks, of a third country, multilateral development banks and international organisations referred to in Article 117(2) or Article 11813,0 %12Regional or local authority and public sector entities13,0 %13Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, promotional lenders and covered bonds16,0 %14Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying10,0 %15Consumer goods and services, transportation and storage, administrative and support service activities12,0 %16Technology, telecommunications12,0 %17Health care, utilities, professional and technical activities12,0 %18Other sector13,0 % For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the standardised approach for credit risk set out in Title II, Chapter 2. By way of derogation from the second paragraph, institutions may assign a risk exposure of an unrated covered bond to bucket 4 where the institution that issues the covered bond has a credit quality step 1 to 3.

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398. 325AL Article 325al

     Article 325al Correlations for credit spread risk for securitisations included in the ACTP 1. The delta risk correlation ρkl shall be derived in accordance with Article 325ai, except that, for the purposes of this paragraph, ρkl(basis) shall be equal to 1 where the two sensitivities are related to the same curves, otherwise it shall be equal to 99,00 %. 2. The correlation γbc shall be derived in accordance with Article 325aj.

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399. 325AM Article 325am

     Article 325am Risk weights for credit spread risk for securitisations not included in the ACTP 1. Risk weights for the sensitivities to credit spread risk factors for securitisation not included in the ACTP shall be the same for all maturities (0,5 years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 7 and shall be specified for each bucket in Table 7 pursuant to the delegated act referred to in Article 461a: Table 7 Bucket numberCredit qualitySectorRisk weight1Senior and credit quality step 1 to 10RMBS — Prime0,9 %2RMBS — Mid-Prime1,5 %3RMBS — Sub-Prime2,0 %4CMBS2,0 %5Asset backed securities (ABS) — Student loans0,8 %6ABS — Credit cards1,2 %7ABS — Auto1,2 %8Collateralised loan obligations (CLO) non-ACTP1,4 %9Non-senior and credit quality step 1 to 10RMBS — Prime1,125 %10RMBS — Mid-Prime1,875 %11RMBS — Sub-Prime2,5 %12CMBS2,5 %13ABS — Student loans1 %14ABS — Credit cards1,5 %15ABS — Auto1,5 %16CLO non-ACTP1,75 %17Credit quality step 11 to 17 and unratedRMBS — Prime1,575 %18RMBS — Mid-Prime2,625 %19RMBS — Sub-Prime3,5 %20CMBS3,5 %21ABS — Student loans1,4 %22ABS — Credit cards2,1 %23ABS — Auto2,1 %24CLO non-ACTP2,45 %25Other sector3,5 % 2. To assign a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each tranche to one of the sector buckets in Table 7. Risk exposures from any tranche that an institution cannot assign to a sector in such a manner shall be assigned to bucket 25. 3. For the purposes of this Article, an exposure shall be assigned the credit quality category corresponding to the credit quality category that it would be assigned under the External Rating Based Approach set out in Title II, Chapter 5.

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400. 325AN Article 325an

     Article 325an Intra-bucket correlations for credit spread risk for securitisations not included in the ACTP 1. Between two sensitivities WSk and WSl within the same bucket, the correlation parameter ρkl shall be set as follows: ρkl = ρkl(tranche) · ρkl(tenor) · ρkl(basis) where: ρkl(tranche) shall be equal to 1 where the two names of sensitivities k and l are within the same bucket and are related to the same securitisation tranche (more than 80 % overlap in notional terms), otherwise it shall be equal to 40 %; ρkl(tenor) shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 80 %; and ρkl(basis) shall be equal to 1 where the two sensitivities are related to the same curves, otherwise it shall be equal to 99,90 %. 2. The correlation parameters referred to in paragraph 1 shall not apply to bucket 25 in Table 7 of Article 325am(1). The own funds requirement for the delta risk aggregation formula within bucket 25 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket: Kbbucket 25kWSk

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401. 325AO Article 325ao

     Article 325ao Correlations across buckets for credit spread risk for securitisations not included in the ACTP 1. The correlation parameter γbc shall apply to the aggregation of sensitivities between different buckets and shall be set at 0 %. 2. The own funds requirement for bucket 25 shall be added to the overall risk class level capital, with no diversification or hedging effects recognised with any other bucket.

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402. 325AP Article 325ap

     Article 325ap Risk weights for equity risk 1. Risk weights for the sensitivities to equity and equity repo rate risk factors shall be specified for each bucket in Table 8 pursuant to the delegated act referred to in Article 461a: Table 8 Bucket numberMarket capitali-sationEconomySectorRisk weight for equity spot priceRisk weight for equity repo rate1LargeEmerging market economyConsumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities55 %0,55 %2Telecommunications, industrials60 %0,60 %3Basic materials, energy, agriculture, manufacturing, mining and quarrying45 %0,45 %4Financials including government-backed financials, real estate activities, technology55 %0,55 %5Advanced economyConsumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities30 %0,30 %6Telecommunications, industrials35 %0,35 %7Basic materials, energy, agriculture, manufacturing, mining and quarrying40 %0,40 %8Financials including government-backed financials, real estate activities, technology50 %0,50 %9SmallEmerging market economyAll sectors described under bucket numbers 1, 2, 3 and 470 %0,70 %10Advanced economyAll sectors described under bucket numbers 5, 6, 7 and 850 %0,50 %11Other sector70 %0,70 %12Large market cap, advanced economy indices15 %0,15 %13Other indices25 %0,25 % 2. For the purposes of this Article, what constitutes a small and a large market capitalisation shall be specified in the regulatory technical standards referred to in Article 325bd(7). 3. For the purposes of this Article, EBA shall develop draft regulatory technical standards to specify what constitutes an emerging market and to specify what constitutes an advanced economy. EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021. Power 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. 4. When assigning a risk exposure to a sector, institutions shall rely on a classification that is commonly used in the market for grouping issuers by sector. Institutions shall assign each issuer to one of the sector buckets in Table 8 and shall assign all issuers from the same industry to the same sector. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to bucket 11 in Table 8. Multinational or multi-sector equity issuers shall be assigned to a particular bucket on the basis of the most material region and sector in which the equity issuer operates.

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403. 325AQ Article 325aq

     Article 325aq Intra-bucket correlations for equity risk 1. The delta risk correlation parameter ρkl between two sensitivities WSk and WSl 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. 2. In other cases than the cases referred to in paragraph 1, the correlation parameter ρkl between two sensitivities WSk and WSl to equity spot price within the same bucket shall be set as follows: (a) 15 % between two sensitivities within the same bucket that fall under the category large market capitalisation, emerging market economy (bucket number 1, 2, 3 or 4); (b) 25 % between two sensitivities within the same bucket that fall under the category large market capitalisation, advanced economy (bucket number 5, 6, 7 or 8); (c) 7,5 % between two sensitivities within the same bucket that fall under the category small market capitalisation, emerging market economy (bucket number 9); (d) 12,5 % between two sensitivities within the same bucket that fall under the category small market capitalisation, advanced economy (bucket number 10); (e) 80 % between two sensitivities within the same bucket that fall under either index bucket (bucket number 12 or 13). 3. The correlation parameter ρkl between two sensitivities WSk and WSl to equity repo rates within the same bucket shall be set in accordance with points (a) to (d) of paragraph 2. 4. Between two sensitivities WSk and WSl within the same bucket where one is a sensitivity to an equity spot price and the other a sensitivity to an equity repo rate and both sensitivities relate to a different equity issuer name, the correlation parameter ρkl shall be set to the correlation parameters specified in paragraph 2, multiplied by 99,90 %. 5. The correlation parameters specified in paragraphs 1 to 4 shall not apply to bucket 11. The capital requirement for the delta risk aggregation formula within bucket 11 shall be equal to the sum of the absolute values of the net weighted sensitivities allocated to that bucket: Kbbucket 11kWSk

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404. 325AR Article 325ar

     Article 325ar Correlations across buckets for equity risk The correlation parameter γbc shall apply to the aggregation of sensitivities between different buckets. It shall be set in relation to the buckets of Table 8 in Article 325ap as follows: (a) 15 % where the two buckets fall within bucket numbers 1 to 10; (b) 0 % where either of the two buckets fall within bucket number 11; (c) 75 % where the two buckets fall within bucket number 12 and 13; (d) 45 % otherwise.

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405. 325AS Article 325as

     Article 325as Risk weights for commodity risk Risk weights for sensitivities to commodity risk factors shall be the following: Table 9 Bucket numberBucket nameRisk weight1Energy — solid combustibles30 %2Energy — liquid combustibles35 %3Energy — electricity60 %3aEnergy — EU ETS carbon trading40 %3bEnergy — non-EU ETS carbon trading60 %4Freight80 %5Metals — non-precious40 %6Gaseous combustibles45 %7Precious metals (including gold)20 %8Grains and oilseed35 %9Livestock and dairy25 %10Softs and other agricultural commodities35 %11Other commodities50 %

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406. 325AT Article 325at

     Article 325at Intra-bucket correlations for commodity risk 1. For the purposes of this Article, any two commodities shall be considered distinct commodities where there exist in the market two contracts that are differentiated only by the underlying commodity to be delivered against each contract. 2. The correlation parameter ρkl between two sensitivities WSk and WSl within the same bucket shall be set as follows: ρkl = ρkl(commodity) · ρkl(tenor) · ρkl(basis) where: ρkl(commodity) shall be equal to 1 where the two commodities of sensitivities k and l are identical, otherwise it shall be equal to the intra-bucket correlations in Table 10; ρkl(tenor) shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 99 %; and ρkl(basis) shall be equal to 1 where the two sensitivities are identical in the delivery location of a commodity, otherwise it shall be equal to 99,90 %. 3. The intra-bucket correlations ρkl(commodity) are: Table 10 Bucket numberBucket name Correlation ρkl (commodity) 1Energy - solid combustibles55 %2Energy - liquid combustibles95 %3Energy - electricity and carbon trading40 %4Freight80 %5Metals – non-precious60 %6Gaseous combustibles65 %7Precious metals (including gold)55 %8Grains and oilseed45 %9Livestock and dairy15 %10Softs and other agricultural commodities40 %11Other commodity15 % 4. Notwithstanding paragraph 1, the following provisions apply: (a) two risk factors that are allocated to bucket 3 in Table 10 and that concern electricity which is generated in different regions or is delivered at different periods under the contractual agreement shall be considered distinct commodity risk factors; (b) two risk factors that are allocated to bucket 4 in Table 10 and that concern freight where the freight route or week of delivery differ shall be considered distinct commodity risk factors.

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407. 325AU Article 325au

     Article 325au Correlations across buckets for commodity risk The correlation parameter γbc applying to the aggregation of sensitivities between different buckets shall be set at: (a) 20 % where the two buckets fall within bucket numbers 1 to 10; (b) 0 % where either of the two buckets is bucket number 11.

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408. 325AV Article 325av

     Article 325av Risk weights for foreign exchange risk 1. A risk weight of 15 % shall be applied to all sensitivities of foreign exchange risk factors. 2. The risk weight of the foreign exchange risk factors concerning currency pairs which are composed of the euro and the currency of a Member State participating in the second stage of the economic and monetary union (ERM II) shall be one of the following: (a) the risk weight referred to in paragraph 1, divided by 3; (b) the maximum fluctuation within the fluctuation band formally agreed by the Member State and the European Central Bank, if that fluctuation band is narrower than the fluctuation band defined under ERM II. 3. Notwithstanding paragraph 2, the risk weight of the foreign exchange risk factors concerning currencies referred to in paragraph 2 which participate in the ERM II with a formally agreed fluctuation band narrower than the standard band of plus or minus 15 % shall equal the maximum percentage fluctuation within that narrower band. 4. The risk weight of the foreign exchange risk factors included in the most liquid currency pairs sub-category as referred to in point (c) of 325bd(7) shall be the risk weight referred to in paragraph 1 of this Article divided by √2. 5. Where the daily exchange-rate data for the preceding three years show that a currency pair composed of euro and a non-euro currency of a Member State is constant and that the institution is always able to face a zero bid/ask spread on the respective trades related to that currency pair, the institution may apply the risk weight referred to in paragraph 1 divided by 2, provided that it has the express permission of its competent authority to do so.

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409. 325AW Article 325aw

     Article 325aw Correlations for foreign exchange risk A uniform correlation parameter γbc equal to 60 % shall apply to the aggregation of sensitivities to foreign exchange risk factors.

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410. 325AX Article 325ax

     Article 325ax Vega and curvature risk weights 1. Buckets for vega risk factors shall be similar to the buckets established for delta risk factors in accordance with Section 3, Subsection 1. 2. Risk weights for sensitivities to vega risk factors shall be assigned in accordance with the risk class of the risk factors, as follows: Table 1 Risk classRisk weightsGIRR100 %CSR non-securitisations100 %CSR securitisations (ACTP)100 %CSR securitisations (non-ACTP)100 %Equity (large cap and indices) %Equity (small cap and other sector)100 %Commodity100 %Foreign exchange100 % 3. The share referred to in paragraph 2 shall be made dependent on the presumed liquidity of each type of risk factor in accordance with the following formula: RWkValue of risk factor kminRWσLHrisk class10 ; 100% where: RWk = the risk weight for a given vega risk factor k; RWσ shall be set at 55 %; and LHrisk class is the regulatory liquidity horizon to be prescribed in the determination of each vega risk factor k. LHrisk class is determined in accordance with the following table: Table 11 Risk classLHrisk classRisk weightsGIRR60100 %CSR non-securitisations120100 %CSR securitisations (ACTP)120100 %CSR securitisations (non-ACTP)120100 %Equity (large cap and indices)2077,78 %Equity (small cap and other sector)60100 %Commodity120100 %Foreign exchange40100 % 4. Buckets used in the context of delta risk in Subsection 1 shall be used in the curvature risk context unless specified otherwise in this Chapter. 5. For foreign exchange and equity curvature risk factors, the curvature risk weights shall be relative shifts equal to the delta risk weights referred to in Subsection 1. 6. For general interest rate, credit spread and commodity curvature risk factors, the curvature risk weight shall be the parallel shift of all vertices for each curve on the basis of the highest prescribed delta risk weight referred to in Subsection 1 for the relevant risk bucket.

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411. 325AY Article 325ay

     Article 325ay Vega and curvature risk correlations 1. Between vega risk sensitivities within the same bucket of the general interest rate risk (GIRR) class, the correlation parameter ρkl shall be set as follows:. ρklminρ kloption maturityρ klunderlying maturity;1 where: ρkloption maturity shall be equal to eαTkTlminTk; Tl where α shall be set at 1 %, Tk and Tl shall be equal to the maturities of the options for which the vega sensitivities are derived, expressed as a number of years; and ρklunderlying maturity is equal to eαTUkTUlminTUk; TUl, where α is set at 1 %, TUk and TUl shall be equal to the maturities of the underlyings of the options for which the vega sensitivities are derived, minus the maturities of the corresponding options, expressed in both cases as a number of years. 2. Between vega risk sensitivities within a bucket of the other risk classes, the correlation parameter ρkl shall be set as follows: ρklminρ klDELTAρ kloption maturity;1 where: ρklDELTA shall be equal to the delta intra-bucket correlation corresponding to the bucket to which vega risk factors k and l would be allocated; and ρkloption maturity shall be set in accordance with paragraph 1. 3. With regard to vega risk sensitivities between buckets within a risk class (GIRR and non-GIRR), the same correlation parameters for γbc, as specified for delta correlations for each risk class in Section 4, shall be used in the vega risk context. 4. There shall be no diversification or hedging benefit recognised in the standardised approach between vega risk factors and delta risk factors. Vega risk charges and delta risk charges shall be aggregated by simple summation. 5. The curvature risk correlations shall be the square of corresponding delta risk correlations ρkl and γbc referred to in Subsection 1.

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412. 325AZ Article 325az

     Article 325az Alternative internal model approach and permission to use alternative internal models 1. The alternative internal model approach may be used by an institution to calculate its own funds requirements for market risk, provided that the institution meets all of the requirements laid down in this Chapter. 2. After having verified institutions' compliance with the requirements set out in Articles 325bh, 325bi and 325bj, competent authorities shall grant permission to those institutions to calculate their own funds requirements for the portfolio of all positions assigned to trading desks by using their alternative internal models in accordance with Article 325ba, provided that all the following requirements are met: (a) the trading desks were established in accordance with Article 104b; (b) the institution has provided to the competent authority a rationale for the inclusion of the trading desks in the scope of the alternative internal model approach; (c) the trading desks have met the back-testing requirements referred to in Article 325bf(3); (d) the trading desks have met the profit and loss attribution (‘P&L attribution’) requirements referred to in Article 325bg; (e) for trading desks that have been assigned at least one of those trading book positions referred to in Article 325bl, the trading desks fulfil the requirements set out in Article 325bm for the internal default risk model; (f) no securitisation or re-securitisation positions have been assigned to the trading desks; (g) no positions in CIUs that meet the condition set out in Article 104(8), point (b), have been assigned to the trading desks. For the purposes of point (b) of the first subparagraph of this paragraph, not including a trading desk in the scope of the alternative internal model approach shall not be motivated by the fact that the own funds requirement calculated under the alternative standardised approach set out in point (a) of Article 325(3) would be lower than the own funds requirement calculated under the alternative internal model approach. 3. Institutions that have been granted permission to use the alternative internal model approach shall also meet the reporting requirement set out in Article 325(3). 4. An institution that has been granted the permission referred to in paragraph 2 shall immediately notify its competent authorities that one of its trading desks no longer meets at least one of the requirements set out in that paragraph. That institution shall no longer be permitted to apply this Chapter to any of the positions assigned to that trading desk and shall calculate the own funds requirements for market risk in accordance with the approach set out in Chapter 1a for all the positions assigned to that trading desk from the earliest reporting date and until the institution demonstrates to the competent authorities that the trading desk again fulfils all the requirements set out in paragraph 2. 5. By way of derogation from paragraph 4, in extraordinary circumstances, competent authorities may permit an institution to continue using its alternative internal models for the purpose of calculating the own funds requirements for the market risk of a trading desk that no longer meets the conditions referred to in point (c) of paragraph 2 of this Article and in Article 325bg(1). When competent authorities exercise that discretion, they shall notify EBA and substantiate their decision. 6. For positions assigned to the trading desks for which an institution has not been granted permission as referred to in paragraph 2, the own funds requirements for market risk shall be calculated by that institution in accordance with Chapter 1a of this Title. For the purposes of that calculation, all those positions shall be considered on a stand-alone basis as a separate portfolio. 7. Material changes to the use of alternative internal models that an institution has received permission to use, the extension of the use of alternative internal models that the institution has received permission to use, and material changes to the institution's choice of the subset of the modellable risk factors referred to in Article 325bc(2), shall require separate permission from its competent authorities. Institutions shall notify the competent authorities of all other extensions and changes to the use of the alternative internal models for which the institution has received permission. 8. EBA shall develop draft regulatory technical standards to specify: (a) the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc; (b) the assessment methodology under which competent authorities verify an institution’s compliance with the requirements set out in this Chapter. EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2024. Power 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. 9. EBA shall issue an opinion as to whether extraordinary circumstances as referred to in paragraph 5 of this Article and in Article 325bf(6), second subparagraph, have occurred. For the purpose of providing that opinion, EBA shall monitor the market conditions to assess whether extraordinary circumstances have occurred and, where that is the case, shall notify the Commission immediately. 10. EBA shall develop draft regulatory technical standards to specify the conditions and indicators that EBA is to use to determine whether extraordinary circumstances have occurred. EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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413. 325B Article 325b

     Article 325b Permission for consolidated requirements 1. Subject to paragraph 2, and only for the purpose of calculating net positions and own funds requirements in accordance with this Title on a consolidated basis, institutions may use positions in one institution or undertaking to offset positions in another institution or undertaking. 2. Institutions may apply paragraph 1 only with the permission of the competent authorities which shall be granted if all the following conditions are met: (a) there is a satisfactory allocation of own funds within the group; (b) the regulatory, legal or contractual framework in which the institutions operate guarantees mutual financial support within the group. 3. Where there are undertakings located in third countries, all the following conditions shall be met in addition to those set out in paragraph 2: (a) such undertakings have been authorised in a third country and either satisfy the definition of a credit institution or are recognised third-country investment firms; (b) on an individual basis, such undertakings comply with own funds requirements equivalent to those laid down in this Regulation; (c) no regulations exist in the third countries in question which might significantly affect the transfer of funds within the group. 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: (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; (b) the institution shall calculate net positions and own funds requirements in accordance with this Title individually for all positions in each institution or undertaking of the group for which the institution has not been granted the permission referred to in paragraph 2; (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. For the purposes of the calculation referred to in the first subparagraph, points (a) and (b), institutions and undertakings referred to therein 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.

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414. 325BA Article 325ba

     Article 325ba Own funds requirements when using alternative internal models 1. An institution using an alternative internal model shall calculate the own funds requirements for the portfolio of all positions assigned to the trading desks for which the institution has been granted permission as referred to in Article 325az(2) as the higher of the following: (a) the sum of the following values: (i) the institution's previous day's expected shortfall risk measure, calculated in accordance with Article 325bb (ESt-1), and (ii) the institution's previous day's stress scenario risk measure, calculated in accordance with Section 5 (SSt-1); or (b) the sum of the following values: (i) the average of the institution's daily expected shortfall risk measure, calculated in accordance with Article 325bb for each of the preceding sixty business days (ESavg), multiplied by the multiplication factor (mc); and (ii) the average of the institution's daily stress scenario risk measure, calculated in accordance with Section 5 for each of the preceding sixty business days (SSavg). Where calculating the own funds requirements for market risk using an internal model in accordance with the first subparagraph, an institution shall not include its own credit spreads in the calculation of the measures referred to in points (a) and (b) for positions in the institution’s own debt instruments. 2. Institutions holding positions in traded debt and equity instruments that are included in the scope of the internal default risk model and assigned to the trading desks referred to in paragraph 1 shall fulfil an additional own funds requirement, expressed as the higher of the following values: (a) the most recent own funds requirement for default risk, calculated in accordance with Section 3; (b) the average of the amount referred to in point (a) over the preceding 12 weeks. By way of derogation from the first subparagraph, an institution shall not be subject to the additional own funds requirement for the holdings of its own debt instruments. 3. An institution using an alternative internal model shall calculate the total own funds requirements for market risk for all trading book positions and all non-trading book positions generating foreign exchange risk or commodity risk in accordance with the following formula: where: AIMA = the sum of the own funds requirements referred to in paragraphs 1 and 2; PLAaddon = the additional own funds requirement referred to in Article 325bg(2); 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 risk or commodity risk for which the institution uses the alternative standardised approach to calculate the own funds requirements for market risk; ASAall portofolio = 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 all trading book positions and all non-trading book positions generating foreign exchange risk or commodity risk; ASAaima = 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 risk or commodity risk for which the institution uses the approach referred to in Article 325(1), point (b), to calculate the own funds requirements for market risk.

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415. 325BB Article 325bb

     Article 325bb Expected shortfall risk measure 1. Institutions shall calculate the expected shortfall risk measure referred to in point (a) of Article 325ba(1) for any given date ‘t’ and for any given portfolio of trading book positions and non-trading book positions that are subject to foreign exchange or commodity risk as follows: EStρUESt1ρi UESit where: EStthe expected shortfall risk measure;ithe index that denotes the five broad categories of risk factors listed in the first column of Table 2 of Article 325bd;UESt the unconstrained expected shortfall measure calculated as follows: UEStPESRStmaxPESFCtPESRCt , 1UESti the unconstrained expected shortfall measure for broad risk factor category i and calculated as follows: UESitPESRS,itmaxPESFC,itPESRC,it , 1ρthe supervisory correlation factor across broad categories of risk; ρ = 50 %;PEStRSthe partial expected shortfall measure that shall be calculated for all the positions in the portfolio in accordance with Article 325bc(2);PEStRCthe partial expected shortfall measure that shall be calculated for all the positions in the portfolio in accordance with Article 325bc(3);PEStFCthe partial expected shortfall measure that shall be calculated for all the positions in the portfolio in accordance with Article 325bc(4);PEStRS,ithe partial expected shortfall measure for broad risk factor category i that shall be calculated for all the positions in the portfolio in accordance with Article 325bc(2);PEStRC,ithe partial expected shortfall measure for broad risk factor category i that shall be calculated for all the positions in the portfolio in accordance with Article 325bc(3); andPEStFC,ithe partial expected shortfall measure for broad risk factor category i that shall be calculated for all the positions in the portfolio in accordance with of Article 325bc(4). 2. Institutions shall only apply scenarios of future shocks to the specific set of modellable risk factors applicable to each partial expected shortfall measure, as set out in Article 325bc, when determining each partial expected shortfall measure for the calculation of the expected shortfall risk measure in accordance with paragraph 1. 3. Where at least one transaction of the portfolio has at least one modellable risk factor which has been mapped to the broad risk factor category i in accordance with Article 325bd, institutions shall calculate the unconstrained expected shortfall measure for the broad risk factor category i and include it in the formula for the expected shortfall risk measure referred to in paragraph 1 of this Article. 4. By way of derogation from paragraph 1, an institution may reduce the frequency of the calculation of the unconstrained expected shortfall measures UESit and of the partial expected shortfall measures PESRS,it, PESRC,it and PESFC,it for all broad risk factor categories i from daily to weekly, provided that both of the following conditions are met: (a) the institution is able to demonstrate to its competent authority that calculating the unconstrained expected shortfall measure UESit does not underestimate the market risk of the relevant trading book positions; (b) the institution is able to increase the frequency of calculation of UESit, PESRS,it, PESRC,it and PESFC,it from weekly to daily where required by its competent authority.

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416. 325BC Article 325bc

     Article 325bc Partial expected shortfall calculations 1. Institutions shall calculate all the partial expected shortfall measures referred to in Article 325bb(1) as follows: (a) daily calculations of the partial expected shortfall measures; (b) at 97,5th percentile, one tailed confidence interval; (c) for a given portfolio of trading book positions and non-trading book positions that are subject to foreign exchange or commodity risk, institutions shall calculate the partial expected shortfall measure at time ‘t’ in accordance with the following formula: where: PEStthe partial expected shortfall measure at time t;jthe index that denotes the five liquidity horizons listed in the first column of Table 1;LHjthe length of liquidity horizons j as expressed in days in Table 1;Tthe base time horizon, where T = 10 days;PESt(T)the partial expected shortfall measure that is determined by applying scenarios of future shocks with a 10-day time horizon only to the specific set of modellable risk factors of the positions in the portfolio set out in paragraphs 2, 3 and 4 for each partial expected shortfall measure referred to in Article 325bb(1); andPESt(T, j) the partial expected shortfall measure that is determined by applying scenarios of future shocks with a 10-day time horizon only to the specific set of modellable risk factors of the positions in the portfolio set out in paragraphs 2, 3 and 4 for each partial expected shortfall measure referred to in Article 325bb(1) and of which the effective liquidity horizon, as determined in accordance with Article 325bd(2), is equal or longer than LHj. Table 1 Liquidity horizon j Length of liquidity horizon j (in days) 1102203404605120 2. For the purpose of calculating the partial expected shortfall measures PESRSt and PESRS,it referred to in Article 325bb(1), in addition to the requirements set out in paragraph 1 of this Article, institutions shall meet the following requirements: (a) in calculating PESRSt, institutions shall only apply scenarios of future shocks to a subset of the modellable risk factors of the positions in the portfolio which has been chosen by the institution, to the satisfaction of the competent authorities, so that the following condition is met with the sum taken over from the preceding 60 business days: 16059k0PESRCtkPESFCtk75% An institution that no longer meets the requirement referred to in the first paragraph of this point shall immediately notify the competent authorities thereof and shall update the subset of the modellable risk factors within two weeks in order to meet that requirement; where, after two weeks, that institution has failed to meet that requirement, the institution shall revert to the approach set out in Chapter 1a to calculate the own funds requirements for market risk for some trading desks, until that institution is able to demonstrate to the competent authority that it is meeting the requirement set out in the first subparagraph of this point; (b) in calculating PESRS,it, institutions shall only apply scenarios of future shocks to the subset of the modellable risk factors of the positions in the portfolio chosen by the institution for the purposes of point (a) of this paragraph and which have been mapped to the broad risk factor category ‘i’ in accordance with Article 325bd; (c) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors referred to in points (a) and (b) shall be calibrated to historical data from a continuous 12-month period of financial stress that shall be identified by the institution in order to maximise the value of PESRSt; for the purpose of identifying that stress period, institutions shall use an observation period starting at least from 1 January 2007, to the satisfaction of the competent authorities; and (d) the data inputs of PESRS,it shall be calibrated to the 12-month stress period that has been identified by the institution for the purposes of point (c). 3. For the purpose of calculating the partial expected shortfall measures PESRCt and PESRC,it referred to in Article 325bb(1), institutions shall, in addition to the requirements set out in paragraph 1 of this Article, meet the following requirements: (a) in calculating PESRCt, institutions shall only apply scenarios of future shocks to the subset of the modellable risk factors of the positions in the portfolio referred to in point (a) of paragraph 2; (b) in calculating PESRC,it, institutions shall only apply scenarios of future shocks to the subset of the modellable risk factors of the positions in the portfolio referred to in point (b) of paragraph 2; (c) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors referred to in points (a) and (b) of this paragraph shall be calibrated to historical data referred to in point (c) of paragraph 4; those data shall be updated on at least a monthly basis. 4. For the purpose of calculating the partial expected shortfall measures PESFCt and PESFC,it referred to in Article 325bb(1), institutions shall, in addition to the requirements set out in paragraph 1 of this Article, meet the following requirements: (a) in calculating PESFCt, institutions shall apply scenarios of future shocks to all the modellable risk factors of the positions in the portfolio; (b) in calculating PESFC,it, institutions shall apply scenarios of future shocks to all the modellable risk factors of the positions in the portfolio which have been mapped to the broad risk factor category i in accordance with Article 325bd; (c) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors referred to in points (a) and (b) shall be calibrated to historical data from the preceding 12-month period; where there is a significant upsurge in the price volatility of a material number of modellable risks factors of an institution's portfolio which are not in the subset of the risk factors referred to in point (a) of paragraph 2, competent authorities may require an institution to use historical data for a period shorter than the preceding 12-months, but such a shorter period shall not be shorter than the preceding six-months; competent authorities shall notify EBA of any decision to require an institution to use historical data from a shorter period than 12 months and shall substantiate that decision. 5. In calculating a given partial expected shortfall measure as referred to in Article 325bb(1), institutions shall maintain the values of the modellable risks factors for which they have not been required to apply scenarios of future shocks for that partial expected shortfall measure under paragraphs 2, 3 and 4 of this Article. 6. EBA shall develop draft regulatory technical standards to specify the criteria for the use of data inputs in the risk-measurement model referred to in this Article, including criteria on data accuracy and criteria on the calibration of the data inputs where market data are insufficient. EBA shall submit those draft regulatory technical standards to the Commission by 10 January 2026. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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417. 325BD Article 325bd

     Article 325bd Liquidity horizons 1. Institutions shall map each risk factor of positions assigned to the trading desks for which they have been granted permission as referred to in Article 325az(2), or for which they are in the process of being granted such permission, to one of the broad categories of risk factors listed in Table 2 and to one of the broad sub-categories of risk factors listed in that Table. 2. The liquidity horizon of a risk factor of the positions referred to in paragraph 1 shall be the liquidity horizon of the corresponding broad sub-category of risk factors to which it has been mapped. 3. By way of derogation from paragraph 1 of this Article, for a given trading desk, an institution may decide to replace the liquidity horizon of a broad sub-category of risk factors listed in Table 2 of this Article with one of the longer liquidity horizons listed in Table 1 of Article 325bc. Where an institution takes such a decision, the longer liquidity horizon shall apply to all the modellable risk factors of the positions assigned to that trading desk that have been mapped to that broad sub-category of risk factors for the purpose of calculating the partial expected shortfall measures in accordance with point (c) of Article 325bc(1). An institution shall notify the competent authorities of the trading desks and the broad sub-categories of risk factors to which it decides to apply the treatment referred to in the first subparagraph. 4. For the purpose of calculating the partial expected shortfall measures in accordance with point (c) of Article 325bc(1), the effective liquidity horizon of a given modellable risk factor of a given trading book position or a non-trading book position that is subject to foreign exchange or commodity risk shall be calculated as follows: EffectiveLH =SubCatLH if Mat > LH5min (SubCatLH, minj{LHj/LHj ≥ Mat}) if LH1 ≤ Mat ≤ LH5LH1 if Mat < LH1 where: EffectiveLHthe effective liquidity horizon;Matthe maturity of the trading book position;SubCatLHthe length of liquidity horizon of the modellable risk factor determined in accordance with paragraph 1; andminj {LHj/LHj ≥ Mat}the length of one of the liquidity horizons listed in Table 1 of Article 325bc which is the nearest liquidity horizon above the maturity of the trading book position. 5. Currency pairs that are composed of the euro and the currency of a Member State participating in ERM II shall be included in the most liquid currency pairs sub-category within the broad category of foreign exchange risk factor of Table 2. 5a. Currencies of Member States participating in ERM II shall be included in the most liquid currencies and domestic currency sub-category within the broad category of interest rate risk factor of Table 2. 6. An institution shall verify the appropriateness of the mapping referred to in paragraph 1 on at least a monthly basis. 7. EBA shall develop draft regulatory technical standards to specify: (a) how institutions are to map the risk factors of the positions referred to in paragraph 1 to broad categories of risk factors and broad sub-categories of risk factors for the purposes of paragraph 1; (b) which currencies constitute the most liquid currencies sub-category of the broad category of interest rate risk factor of Table 2; (c) which currency pairs constitute the most liquid currency pairs sub-category of the broad category of foreign exchange risk factor of Table 2; (d) the definitions of small market capitalisation and large market capitalisation for the purposes of the equity price and volatility sub-category of the broad category of equity risk factor of Table 2. EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020. Power 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. Table 2 Broad categories of risk factorsBroad sub-categories of risk factorsLiquidity horizonsLength of the liquidity horizon (in days)Interest rateMost liquid currencies and domestic currency110Other currencies (excluding most liquid currencies)220Volatility460Other types460Credit spreadCentral government, including central banks, of Member States220Covered bonds issued by credit institutions in Member States (Investment Grade)220Sovereign (Investment grade)220Sovereign (High yield)340Corporate (Investment grade)340Corporate (High yield)460Volatility5120Other types5120EquityEquity price (Large market capitalisation)110Equity price (Small market capitalisation)220Volatility (Large market capitalisation)220Volatility (Small market capitalisation)460Other types460Foreign exchangeMost liquid currency pairs110Other currency pairs (excluding most liquid currency pairs)220Volatility340Other types340CommodityEnergy price and carbon emissions price220Precious metal price and non-ferrous metal price220Other commodity prices (excluding energy price, carbon emissions price, precious metal price and non-ferrous metal price)460Energy volatility and carbon emissions volatility460Precious metal volatility and non-ferrous metal volatility460Other commodity volatilities (excluding energy volatility, carbon emissions volatility, precious metal volatility and non-ferrous metal volatility)5120Other types5120

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418. 325BE Article 325be

     Article 325be Assessment of the modellability of risk factors 1. Institutions shall assess the modellability of all the risk factors of the positions assigned to the trading desks for which they have been granted permission as referred to in Article 325az(2) or are in the process of being granted such permission. For the purposes of the assessment referred to in first subparagraph, competent authorities may allow institutions to use market data provided by third-party vendors. 1a. Competent authorities may require an institution to consider not modellable a risk factor that has been assessed as modellable by the institution in accordance with paragraph 1 of this Article, where the data inputs used to determine the scenarios of future shocks applied to the risk factor do not meet, to the satisfaction of the competent authorities, the requirements referred to in Article 325bc(6). 2. As part of the assessment referred to in paragraph 1 of this Article, institutions shall calculate the own funds requirements for market risk in accordance with Article 325bk for those risk factors that are not modellable. 2a. In extraordinary circumstances, occurring during periods of significant reduction in certain trading activities across financial markets, competent authorities may allow institutions using the approach set out in this Chapter to consider as modellable risk factors that have been assessed as not modellable by those institutions in accordance with paragraph 1, provided that the following conditions are met: (a) the risk factors subject to the treatment correspond to the trading activities which are significantly reduced across financial markets; (b) the treatment is applied temporarily, and for not more than six months within one financial year; (c) the treatment does not significantly reduce the total own funds requirements for market risk of the institutions applying it; (d) competent authorities immediately notify EBA of any decision to allow institutions to apply the approach set out in this Chapter to consider as modellable risk factors that have been assessed as non-modellable, as well as of the trading activities concerned, and substantiate that decision. 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. EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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419. 325BF Article 325bf

     Article 325bf Regulatory back-testing requirements and multiplication factors 1. For the purposes of this Article, an ‘overshooting’ means a one-day change in the value of a portfolio composed of all the positions assigned to the trading desk that exceeds the related value-at-risk number calculated on the basis of the institution's alternative internal model in accordance with the following requirements: (a) the calculation of the value at risk shall be subject to a one-day holding period; (b) scenarios of future shocks shall apply to the risk factors of the trading desk's positions referred to in Article 325bg(3) and which are considered modellable in accordance with Article 325be; (c) data inputs used to determine the scenarios of future shocks applied to the modellable risk factors shall be calibrated to historical data referred to in point (c) of Article 325bc(4); (d) unless stated otherwise in this Article, the institution's alternative internal model shall be based on the same modelling assumptions as those used for the calculation of the expected shortfall risk measure referred to in point (a) of Article 325ba(1). 2. Institutions shall count daily overshootings on the basis of back-testing of the hypothetical and actual changes in the value of the portfolio composed of all the positions assigned to the trading desk. 3. An institution's trading desk shall be deemed to meet the back-testing requirements where the number of overshootings for that trading desk that occurred over the most recent 250 business days does not exceed any of the following: (a) 12 overshootings for the value-at-risk number, calculated at a 99th percentile one tailed-confidence interval on the basis of back-testing of the hypothetical changes in the value of the portfolio; (b) 12 overshootings for the value-at-risk number, calculated at a 99th percentile one tailed-confidence interval on the basis of back-testing of the actual changes in the value of the portfolio; (c) 30 overshootings for the value-at-risk number, calculated at a 97,5th percentile one tailed-confidence interval on the basis of back-testing of the hypothetical changes in the value of the portfolio; (d) 30 overshootings for the value-at-risk number, calculated at a 97,5th percentile one tailed-confidence interval on the basis of back-testing of the actual changes in the value of the portfolio. 4. Institutions shall count daily overshootings in accordance with the following: (a) the back-testing of hypothetical changes in the value of the portfolio shall be based on a comparison between the end-of-day value of the portfolio and, assuming unchanged positions, the value of the portfolio at the end of the subsequent day; (b) the back-testing of actual changes in the value of the portfolio shall be based on a comparison between the end-of-day value of the portfolio and its actual value at the end of the subsequent day, excluding fees and commissions; (c) an overshooting shall be counted for each business day for which the institution is not able to assess the value of the portfolio or is not able to calculate the value-at-risk number referred to in paragraph 3. 5. An institution shall calculate, in accordance with paragraphs 6 and 7 of this Article, the multiplication factor (mc) referred to in Article 325ba for the portfolio of all the positions assigned to the trading desks for which it has been granted permission to use alternative internal models as referred to in Article 325az(2). 6. The multiplication factor (mc) shall be equal to at least the sum of and an add-on determined in accordance with Table 3. For the portfolio referred to in paragraph 5, that add-on shall be calculated on the basis of the number of overshootings that occurred over the most recent 250 business days as evidenced by the institution’s back-testing of the value-at-risk number calculated in accordance with point (a) of this subparagraph. The calculation of the add-on shall be subject to the following requirements: (a) an overshooting shall be a one-day change in the portfolio's value that exceeds the related value-at-risk number calculated by the institution's internal model in accordance with the following: (i) a one-day holding period; (ii) a 99th percentile, one tailed confidence interval; (iii) scenarios of future shocks shall apply to the risk factors of the trading desks' positions referred to in Article 325bg(3) and which are considered modellable in accordance with Article 325be; (iv) the data inputs used to determine the scenarios of future shocks applied to the modellable risk factors shall be calibrated to historical data referred to in point (c) of Article 325bc(4); (v) unless stated otherwise in this Article, the institution's internal model shall be based on the same modelling assumptions as those used for the calculation of the expected shortfall risk measure referred to in point (a) of Article 325ba(1); (b) the number of overshootings shall be equal to the greater of the number of overshootings under hypothetical and the actual changes in the value of the portfolio. Table 3 Number of overshootingsAdd-onFewer than 50,0050,2060,2670,3380,3890,42More than 90,50 In extraordinary circumstances, competent authorities may permit an institution to do one or both of the following: (a) limit the calculation of the add-on to that resulting from overshootings under the back-testing of hypothetical changes where the number of overshootings under the back-testing of actual changes does not result from deficiencies in the institution’s alternative internal model; (b) exclude the overshootings evidenced by the back-testing of hypothetical or actual changes from the calculation of the add-on where those overshootings do not result from deficiencies in the institution’s alternative internal model. For the purposes of the first subparagraph, competent authorities may increase the value of mc above the sum referred to in that subparagraph, where an institution’s alternative internal model shows deficiencies preventing the appropriate measurement of the own funds requirements for market risk. 7. Competent authorities shall monitor the appropriateness of the multiplication factor referred to in paragraph 5 and the compliance of trading desks with the back-testing requirements referred to in paragraph 3. Institutions shall promptly notify, the competent authorities of overshootings that result from their back-testing programme and provide an explanation for those overshootings, and in any case shall notify the competent authorities thereof no later than within five business days after the occurrence of an overshooting. 8. By way of derogation from paragraphs 2 and 6, competent authorities may permit an institution not to count an overshooting where a one-day change in the value of its portfolio that exceeds the related value-at-risk number calculated by that institution’s internal model is attributable to a non-modellable risk factor. 9. EBA shall develop draft regulatory technical standards to specify the technical elements to be included in the actual and hypothetical changes to the value of the portfolio of an institution for the purposes of this Article. EBA shall submit those draft regulatory technical standards to the Commission by 28 March 2020. Power 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. 10. EBA shall develop draft regulatory technical standards to specify the conditions and the criteria according to which an institution may be permitted not to count an overshooting where the one-day change in the value of its portfolio that exceeds the related value-at-risk number calculated by that institution’s internal model is attributable to a non-modellable risk factor. EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2026. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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420. 325BG Article 325bg

     Article 325bg Profit and loss attribution requirement 1. An institution’s trading desk meets the P&L attribution requirements where the theoretical changes in the value of that trading desk’s portfolio, based on the institution’s risk-measurement model, are either close or sufficiently close to the hypothetical changes in the value of that trading desk’s portfolio, based on the institution’s pricing model. 2. Notwithstanding paragraph 1 of this Article, where the theoretical changes in the value of a trading desk’s portfolio, based on the institution’s risk-measurement model, are sufficiently close to the hypothetical changes in the value of that trading desk’s portfolio, based on the institution’s pricing model, the institution shall calculate, for all positions assigned to that trading desk, an additional own funds requirement to the own funds requirements referred to in Article 325ba(1) and (2). 3. On the basis of the results of the P&L attribution requirement referred to in paragraph 1 of this Article, an institution shall determine and document a precise list of risk factors included in the institution’s risk-measurement model that are deemed appropriate for verifying the institution’s compliance with the back-testing requirement set out in Article 325bf. The institution shall track any change to the list of those risk factors. 4. EBA shall develop draft regulatory technical standards to specify: (a) the criteria specifying whether the theoretical changes in the value of a trading desk’s portfolio are either close or sufficiently close to the hypothetical changes in the value of a trading desk’s portfolio for the purposes of paragraph 1, taking into account international regulatory developments; (b) the additional own funds requirement referred to in paragraph 2; (c) the frequency at which the P&L attribution is to be performed by an institution; (d) the technical elements to be included in the theoretical and hypothetical changes in the value of a trading desk's portfolio for the purposes of this Article; (e) the manner in which institutions that use the internal model are to aggregate the total own funds requirement for market risk for all their trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk, taking into account the consequences referred to in point (b). EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2025. Power 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.

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421. 325BH Article 325bh

     Article 325bh Requirements on risk measurement 1. Institutions using an internal risk-measurement model that is used to calculate the own funds requirements for market risk as referred to in Article 325ba shall ensure that that model meets all the following requirements: (a) the internal risk-measurement model shall capture a sufficient number of risk factors, which shall include at least the risk factors referred to in Subsection 1 of Section 3 of Chapter 1a unless the institution demonstrates to the competent authorities that the omission of those risk factors does not have a material impact on the results of the P&L attribution requirement referred to in Article 325bg; an institution shall be able to explain to the competent authorities why it has incorporated a risk factor in its pricing model but not in its internal risk-measurement model; (b) the internal risk-measurement model shall capture nonlinearities for options and other products as well as correlation risk and basis risk; (c) the internal risk-measurement model shall incorporate a set of risk factors that correspond to the interest rates in each currency in which the institution has interest rate sensitive on- or off-balance-sheet positions; the institution shall model the yield curves using one of the generally accepted approaches; the yield curve shall be divided into various maturity segments to capture the variations of volatility of rates along the yield curve; for material exposures to interest-rate risk in the major currencies and markets, the yield curve shall be modelled using a minimum of six maturity segments, and the number of risk factors used to model the yield curve shall be proportionate to the nature and complexity of the institution's trading strategies, the model shall also capture the risk spread of less than perfectly correlated movements between different yield curves or different financial instruments on the same underlying issuer; (d) the internal risk-measurement model shall incorporate risk factors corresponding to gold and to the individual foreign currencies in which the institution’s positions are denominated; for CIUs, the actual foreign exchange positions of the CIU shall be taken into account; institutions may rely on third-party reporting of the foreign exchange position of the CIU, provided that the correctness of that report is adequately ensured; (e) the sophistication of the modelling technique shall be proportionate to the materiality of the institutions' activities in the equity markets; the internal risk-measurement model shall use a separate risk factor at least for each of the equity markets in which the institution holds significant positions and at least one risk factor that captures systemic movements in equity prices and the dependency of that risk factor on the individual risk factors for each equity market; (f) the internal risk-measurement model shall use a separate risk factor at least for each commodity in which the institution holds significant positions, unless the institution has a small aggregate commodity position compared to all its trading activities, in which case it may use a separate risk factor for each broad commodity type; for material exposures to commodity markets, the model shall capture the risk of less than perfectly correlated movements between commodities that are similar, but not identical, the exposure to changes in forward prices arising from maturity mismatches, and the convenience yield between derivative and cash positions; (g) the proxies used shall show a good track record for the actual position held, shall be appropriately conservative, and shall be used only where the available data are insufficient, such as during the period of stress referred to in point (c) of Article 325bc(2); (h) for material exposures to volatility risks in instruments with optionality, the internal risk-measurement model shall capture the dependency of implied volatilities across strike prices and options' maturities; (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; where the look-through approach is carried out weekly, institutions shall be able to monitor the risks resulting from significant changes in the composition of the CIU; institutions that do not have adequate data inputs or information to calculate the own funds requirements 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 of the following conditions are met: (i) the third party is one of the following: (1) 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; (2) the CIU management company, provided that it meets the criteria set out in Article 132(3), point (a); (3) a third-party vendor on the condition that the data, information or risk metrics are provided or calculated by the third parties referred to in point (1) or (2) of this point or another such third-party vendor; (ii) the third party provides the institution with the data, information or risk metrics to calculate the own funds requirements for market risk of the CIU position in accordance with the look-through approach referred to in the first subparagraph; (iii) an external auditor of the institution has confirmed the adequacy of the third party data, information or risk metrics referred to in point (ii) and the competent authority has unrestricted access to those data, information or risk metrics upon request. 2. An institution may use empirical correlations within broad categories of risk factors and, for the purpose of calculating the unconstrained expected shortfall measure UESt as referred to in Article 325bb(1) across broad categories of risk factors only where the institution’s approach for measuring those correlations is sound, consistent with either the applicable liquidity horizons or, to the satisfaction of the competent authority, with the base time horizon of 10 days set out in Article 325bc(1), and implemented with integrity. 3. By 28 September 2020, EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying criteria for the use of data inputs in the risk-measurement model referred to in Article 325bc.

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422. 325BI Article 325bi

     Article 325bi Qualitative requirements 1. Any internal risk-measurement model used for the purposes of this Chapter shall be conceptually sound, shall be calculated and implemented with integrity, and shall comply with all the following qualitative requirements: (a) any internal risk-measurement model used to calculate capital requirements for market risk shall be closely integrated into the daily risk management process of the institution and shall serve as the basis for reporting risk exposures to senior management; (b) an institution shall have a risk control unit that is independent from business trading units and that reports directly to senior management; that unit shall: (i) be responsible for designing and implementing any internal risk-measurement model used in the alternative internal model approach for the purposes of this Chapter; (ii) be responsible for the overall risk management system; (iii) produce and analyse daily reports on the output of any internal model used to calculate own funds requirements for market risk, and on the appropriateness of measures to be taken in terms of trading limits; (c) the management body and senior management shall be actively involved in the risk-control process, and the daily reports produced by the risk control unit shall be reviewed at a level of management with sufficient authority to require the reduction of positions taken by individual traders and to require the reduction of the institution's overall risk exposure; (d) the institution shall have a sufficient number of staff with a level of skills that is appropriate to the sophistication of the internal risk-measurement models, and a sufficient number of staff with skills in the trading, risk control, audit and back-office areas; (e) the institution shall have in place a documented set of internal policies, procedures and controls for monitoring and ensuring compliance with the overall operation of its internal risk-measurement models; (f) any internal risk-measurement model, including any pricing model, shall have a proven track record of being reasonably accurate in measuring risks, and shall not differ significantly from the models that the institution uses for its internal risk management; (g) the institution shall frequently conduct rigorous programmes of stress testing, including reverse stress tests, which shall encompass any internal risk-measurement model; the results of those stress tests shall be reviewed by senior management at least on a monthly basis and shall comply with the policies and limits approved by the management body; the institution shall take appropriate actions where the results of those stress tests show excessive losses arising from the trading's business of the institution under certain circumstances; (h) the institution shall conduct an independent review of its internal risk-measurement models, either as part of its regular internal auditing process, or by mandating a third-party undertaking to conduct that review, which shall be conducted to the satisfaction of the competent authorities. A validation unit, which is separate from the risk control unit referred to in the first subparagraph, point (b), shall conduct the initial and ongoing validation of any internal risk-measurement model used in the alternative internal model approach for the purposes of this Chapter. For the purposes of point (h) of the first subparagraph, a third-party undertaking means an undertaking that provides auditing or consulting services to institutions and that has staff who have sufficient skills in the area of market risk in trading activities. 2. The review referred to in point (h) of paragraph 1 shall include both the activities of the business trading units and the independent risk control unit. The institution shall conduct a review of its overall risk management process at least once a year. That review shall assess the following: (a) the adequacy of the documentation of the risk management system and process and the organisation of the risk control unit; (b) the integration of risk measures into daily risk management and the integrity of the management information system; (c) the processes the institution employs for approving the risk-pricing models and valuation systems that are used by front and back-office personnel; (d) the scope of risks captured by the model, the accuracy and appropriateness of the risk-measurement system, and the validation of any significant changes to the internal risk-measurement model; (e) the accuracy and completeness of position data, the accuracy and appropriateness of volatility and correlation assumptions, the accuracy of valuation and risk sensitivity calculations, and the accuracy and appropriateness for generating data proxies where the available data are insufficient to meet the requirement set out in this Chapter; (f) the verification process that the institution employs to evaluate the consistency, timeliness and reliability of the data sources used to run any of its internal risk-measurement models, including the independence of those data sources; (g) the verification process that the institution employs to evaluate back-testing requirements and P&L attribution requirements that are conducted in order to assess the accuracy of its internal risk-measurement models; (h) where the review is performed by a third-party undertaking in accordance with point (h) of paragraph 1 of this Article, the verification that the internal validation process set out in Article 325bj fulfils its objectives. 3. Institutions shall update the techniques and practices they use for any of the internal risk-measurement models used for the purposes of this Chapter to take into account the evolution of new techniques and best practices that develop in respect of those internal risk-measurement models.

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423. 325BJ Article 325bj

     Article 325bj Internal validation 1. Institutions shall have processes in place to ensure that any internal risk-measurement models used for the purposes of this Chapter have been adequately validated by suitably qualified parties that are independent of the development process, in order to ensure that any such models are conceptually sound and adequately capture all material risks. 2. Institutions shall conduct the validation referred to in paragraph 1 in the following circumstances: (a) when any internal risk-measurement model is initially developed and when any significant changes are made to that model; (b) on a periodic basis, and where there have been significant structural changes in the market or changes to the composition of the portfolio which might lead to the internal risk-measurement model no longer being adequate. 3. The validation of the internal risk-measurement models of an institution shall not be limited to back-testing and P&L attribution requirements, but shall, at a minimum, include the following: (a) tests to verify whether the assumptions made in the internal model are appropriate and do not underestimate or overestimate the risk; (b) own internal model validation tests, including back-testing in addition to the regulatory back-testing programmes, in relation to the risks and structures of their portfolios; (c) the use of hypothetical portfolios to ensure that the internal risk-measurement model is able to account for particular structural features that may arise, for example, material basis risks and concentration risk, or the risks associated with the use of proxies.

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424. 325BK Article 325bk

     Article 325bk Calculation of stress scenario risk measure 1. The ‘stress scenario risk measure’ of a given non-modellable risk factor means the loss that is incurred in all trading book positions or non-trading book positions that are subject to foreign exchange or commodity risk of the portfolio which includes that non-modellable risk factor when an extreme scenario of future shock is applied to that risk factor. 2. Institutions shall develop appropriate extreme scenarios of future shock for all non-modellable risk factors, to the satisfaction of their competent authorities. 3. EBA shall develop draft regulatory technical standards to specify: (a) how institutions are to develop extreme scenarios of future shock applicable to non-modellable risk factors and how they are to apply those extreme scenarios of future shock to those risk factors; (b) a regulatory extreme scenario of future shock for each broad sub-category of risk factors listed in Table 2 of Article 325bd, which institutions may use when they are unable to develop an extreme scenario of future shock in accordance with point (a) of this subparagraph, or which competent authorities may require that institution apply if those authorities are not satisfied with the extreme scenario of future shock developed by the institution; (c) the circumstances under which institutions may calculate a stress scenario risk measure for more than one non-modellable risk factor; (d) how institutions are to aggregate the stress scenario risk measures of all non-modellable risk factors included in their trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk. In developing those draft regulatory technical standards, EBA shall take into consideration the requirement that the level of own funds requirements for market risk of a non-modellable risk factor as set out in this Article shall be as high as the level of own funds requirements for market risk that would have been calculated under this Chapter if that risk factor were modellable. EBA shall submit those draft regulatory technical standards to the Commission by 28 September 2020. Power 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.

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425. 325BL Article 325bl

     Article 325bl Scope of the internal default risk model 1. All the positions of an institution that have been assigned to the trading desks for which the institution has been granted permission as referred to in Article 325az(2) shall be subject to an own funds requirement for default risk where those positions contain at least one risk factor that has been mapped to the broad categories of ‘equity’ or ‘credit spread’ risk factors in accordance with Article 325bd(1). That own funds requirement, which is incremental to the risks captured by the own funds requirements referred to in Article 325ba(1), shall be calculated using the institution's internal default risk model. That model which shall comply with the requirements laid down in this Section. 2. For each of the positions referred to in paragraph 1, an institution shall identify one issuer of traded debt or equity instruments related to at least one risk factor.

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426. 325BM Article 325bm

     Article 325bm Permission to use an internal default risk model 1. Competent authorities shall grant an institution permission to use an internal default risk model to calculate the own funds requirements referred to in Article 325ba(2) for all the trading book positions referred to in Article 325bl that are assigned to a trading desk for which the internal default risk model complies with the requirements set out in Articles 325bi, 325bj, 325bn, 325bo and 325bp. 2. Where the trading desk of an institution, to which at least one of the trading book positions referred to in Article 325bl has been assigned, does not meet the requirements set out in paragraph 1 of this Article, the own funds requirements for market risk of all positions in that trading desk shall be calculated in accordance with the approach set out in Chapter 1a.

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427. 325BN Article 325bn

     Article 325bn Own funds requirements for default risk using an internal default risk model 1. Institutions shall calculate the own funds requirements for default risk using an internal default risk model for the portfolio of all trading book positions as referred to in Article 325bl as follows: (a) the own funds requirements shall be equal to a value-at-risk number measuring potential losses in the market value of the portfolio caused by the default of issuers related to those positions at the 99,9 % confidence interval over a one-year time horizon; (b) the potential loss referred to in point (a) means a direct or indirect loss in the market value of a position which was caused by the default of the issuers and which is incremental to any losses already taken into account in the current valuation of the position; the default of the issuers of equity positions shall be represented by the value for the issuers' equity prices being set to zero; (c) institutions shall determine default correlations between different issuers on the basis of a conceptually sound methodology, using objective historical data on market credit spreads or equity prices that cover at least a 10 year period that includes the stress period identified by the institution in accordance with Article 325bc(2); the calculation of default correlations between different issuers shall be calibrated to a one-year time horizon; (d) the internal default risk model shall be based on a one-year constant position assumption. 2. Institutions shall calculate the own funds requirement for default risk using an internal default risk model as referred to in paragraph 1 on at least a weekly basis. 3. By way of derogation from points (a) and (c) of paragraph 1, an institution may replace the one-year time horizon with a time horizon of sixty days for the purpose of calculating the default risk of some or all of the equity positions, where appropriate. In such case, the calculation of default correlations between equity prices and default probabilities shall be consistent with a time horizon of sixty days and the calculation of default correlations between equity prices and bond prices shall be consistent with a one-year time horizon.

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428. 325BO Article 325bo

     Article 325bo Recognition of hedges in an internal default risk model 1. Institutions may incorporate hedges in their internal default risk model and may net positions where the long positions and short positions relate to the same financial instrument. 2. In their internal default risk models, institutions may only recognise hedging or diversification effects associated with long and short positions involving different instruments or different securities of the same obligor, as well as long and short positions in different issuers by explicitly modelling the gross long and short positions in the different instruments, including modelling of basis risks between different issuers. 3. In their internal default risk models, institutions shall capture material basis risks in hedging strategies that arise from differences in the type of product, seniority in the capital structure, internal or external ratings, vintage and other differences. Institutions shall ensure that maturity mismatches between a hedging instrument and the hedged instrument that could occur during the one-year time horizon, where those mismatches are not captured in their internal default risk model, do not lead to a material underestimation of risk. Institutions shall recognise a hedging instrument only to the extent that it can be maintained even as the obligor approaches a credit event or other event.

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429. 325BP Article 325bp

     Article 325bp Particular requirements for an internal default risk model 1. The internal default risk model referred to in Article 325bm(1) shall be capable of modelling the default of individual issuers as well as the simultaneous default of multiple issuers, and shall take into account the impact of those defaults in the market values of the positions that are included in the scope of that model. For that purpose, the default of each individual issuer shall be modelled using two types of systematic risk factors. 2. The internal default risk model shall reflect the economic cycle, including the dependency between recovery rates and the systematic risk factors referred to in paragraph 1. 3. The internal default risk model shall reflect the nonlinear impact of options and other positions with material nonlinear behaviour with respect to price changes. Institutions shall also have due regard to the amount of model risk inherent in the valuation and estimation of price risks associated with those products. 4. The internal default risk model shall be based on data that are objective and up-to-date. 5. To simulate the default of issuers in the internal default risk model, the institution's estimates of default probabilities shall meet the following requirements: (a) the default probabilities shall be floored at % for exposures to which a 0 % risk weight is applied in accordance with Articles 114 to 118 and at % for covered bonds to which a 10 % risk weight is applied in accordance with Article 129; otherwise, the default probabilities shall be floored at %; (b) the default probabilities shall be based on a one-year time horizon, unless stated otherwise in this Section; (c) the default probabilities shall be measured using, solely or in combination with current market prices, data observed during a historical period of at least five years of actual past defaults and extreme declines in market prices equivalent to default events; default probabilities shall not be inferred solely from current market prices; (d) an institution that has been granted permission to estimate default probabilities in accordance with Title II, Chapter 3, Section 1 for the exposure class and the rating system corresponding to a given issuer shall use the methodology set out therein to calculate the default probabilities of that issuer, provided that the data to make such an estimate are available; (e) an institution that has not been granted permission to estimate default probabilities referred to in point (d) shall develop an internal methodology or use external sources to estimate these default probabilities consistently with the requirements applicable to estimates of default probability under this Article. For the purposes of the first subparagraph, point (d), the data to estimate the default probabilities of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same obligor for which it estimates default probabilities in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter. 6. To simulate the default of issuers in the internal default risk model, the institution's estimates of loss given default shall meet the following requirements: (a) the loss given default estimates are floored at 0 %; (b) the loss given default estimates shall reflect the seniority of each position; (c) an institution that has been granted permission to estimate LGD in accordance with Title II, Chapter 3, Section 1, for the exposure class and the rating system corresponding to a given exposure shall use the methodology set out therein to calculate LGD estimates of that issuer, provided that the data to make such an estimate are available; (d) an institution that has not been granted permission to estimate LGD referred to in point (c) shall develop an internal methodology or use external sources to estimate LGD consistently with the requirements applying to estimates of LGD under this Article. For the purposes of the first subparagraph, point (c), the data to estimate the LGD of a given issuer of a trading book position are available where, at the calculation date, the institution has a non-trading book position on the same exposure for which it estimates LGD in accordance with Title II, Chapter 3, Section 1 to calculate its own funds requirements set out in that Chapter. 7. As part of the independent review and validation of the internal models that they use for the purposes of this Chapter, including for the risk-measurement system, institutions shall: (a) verify that their approach for the modelling of correlations and price changes is appropriate for their portfolio, including the choice and weights of the systematic risk factors in the model; (b) perform a variety of stress tests, including sensitivity analyses and scenario analyses, to assess the qualitative and quantitative reasonableness of the internal default risk model, in particular with regard to the treatment of concentrations; and (c) apply appropriate quantitative validation including relevant internal modelling benchmarks. The tests referred to in point (b) shall not be limited to the range of past events experienced. 8. The internal default risk model shall appropriately reflect issuer concentrations and concentrations that can arise within and across product classes under stressed conditions. 9. The internal default risk model shall be consistent with the institution's internal risk management methodologies for identifying, measuring, and managing trading risks. 10. Institutions shall have clearly defined policies and procedures for determining the default assumptions for correlations between different issuers in accordance with point (c) of Article 325bn(1) and the preferred choice of method for estimating the default probabilities in point (e) of paragraph 5 of this Article and the loss given default in point (d) of paragraph 6 of this Article. 11. Institutions shall document their internal models so that their correlation assumptions and other modelling assumptions are transparent to the competent authorities. 12. EBA shall develop draft regulatory technical standards to specify the requirements that an institution's internal methodology or external sources are to fulfil for estimating default probabilities and losses given default in accordance with point (e) of paragraph 5 and point (d) of paragraph 6. EBA shall submit those draft regulatory technical standards to the Commission by 28 September 2020. Power 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.

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430. 325C Article 325c

     Article 325c Scope, structure and qualitative requirements of the alternative standardised approach 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 those policies, procedures and controls shall be notified to the competent authorities in due course. 2. Institutions shall calculate the own funds requirements for market risk in accordance with the alternative standardised approach for a portfolio of trading book positions or non-trading book positions that are subject to foreign exchange or commodity risk as the sum of the following three components: (a) the own funds requirement under the sensitivities-based method set out in Section 2; (b) the own funds requirement for the default risk set out in Section 5 which is only applicable to the trading book positions referred to in that Section; (c) the own funds requirement for residual risks set out in Section 4 which is only applicable to the trading book positions referred to in that Section. 3. By way of derogation from paragraph 2, an institution shall calculate the own funds requirements for market risk in accordance with the alternative standardised approach for the institution’s holdings of its own debt instruments as the sum of the two components referred to in paragraph 2, points (a) and (c). When calculating the own funds requirements for market risk for own debt instruments under the sensitivities-based method referred to in paragraph 2, point (a), the institution shall exclude from that calculation the risks from the institution’s own credit spread. 4. 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. 5. 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. For the purposes of the first subparagraph, ‘third-party undertaking’ means an undertaking that provides auditing or consulting services to institutions and that has staff with sufficient skills in the area of market risk. 6. The review of the alternative standardised approach referred to in paragraph 5 shall cover the activities of both the business trading units and of the independent risk control unit and shall assess at least the following: (a) the internal policies, procedures and controls for monitoring and ensuring compliance with the requirements referred to in paragraph 1 of this Article; (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 4 of this Article; (c) the accuracy of sensitivity computations and of the process used to derive those 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; (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. An institution shall conduct the review referred to in the first subparagraph at least once a year, or on a less frequent basis of up to every two years where the institution can demonstrate to the satisfaction of the competent authority that the size, systemic importance, nature, scale and complexity of its trading book business justifies a less frequent review. 7. Competent authorities shall verify that the calculation referred to in paragraph 2 of this Article, including the implementation by an institution of the requirements set out in this Chapter and in Article 325a, is performed with integrity. 8. EBA shall develop draft regulatory technical standards to specify the assessment methodology under which competent authorities conduct the verification referred to in paragraph 7; EBA shall submit those draft regulatory technical standards to the Commission by 10 July 2028. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

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