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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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Page 16 of 22: Article 383b to Article 405.

514. 383B Article 383b

     Article 383b Own funds requirements for delta and vega risks 1. Institutions shall apply the delta and vega risk factors described in Articles 383c to 383h, and the process set out in paragraphs 2 to 8 of this Article, to calculate the own funds requirements for delta and vega risks. 2. For each risk class referred to in Article 383(2), the sensitivity of the aggregate CVAs and the sensitivity of all positions in eligible hedges falling within the scope of the own funds requirements for delta or vega risk to each of the applicable delta or vega risk factors included in that risk class shall be calculated by using the corresponding formulae set out in Articles 383i and 383j. Where the value of an instrument depends on several risk factors, the sensitivity shall be determined separately for each risk factor. For the calculation of the vega risk sensitivities of the aggregate CVAs, sensitivities both to volatilities used in the exposure model to simulate risk factors and to volatilities used to reprice option transactions in the portfolio with the counterparty shall be included. By way of derogation from paragraph 1 of this Article, subject to the permission of the competent authority, an institution may use alternative definitions of delta and vega risk sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets all of the following conditions: (a) those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution; (b) the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities of the position than the formulae set out in Articles 383i and 383j, and that the resulting delta and vega risk sensitivities do not materially differ from the ones obtained applying the formulae set out in Articles 383i and 383j, respectively. 3. Where an eligible hedge is an index instrument, institutions shall calculate the sensitivities of that eligible hedge to all relevant risk factors by applying the shift of one of the relevant risk factors to each of the index constituents. 4. An institution may introduce additional risk factors that correspond to qualified index instruments for the following risk classes: (a) counterparty credit spread risk; (b) reference credit spread risk; and (c) equity risk. For the purposes of delta risks, an index instrument shall be considered qualified where it meets the conditions set out in Article 325i. For vega risks, all index instruments shall be considered qualified. An institution shall calculate sensitivities of CVA and eligible hedges to qualified index risk factors in addition to sensitivities to the non-index risk factors. An institution shall calculate delta and vega risk sensitivities to a qualified index risk factor as a single sensitivity to the underlying qualified index. Where 75 % of the constituents of a qualified index are mapped to the same sector as set out in Articles 383p, 383s and 383v, the institution shall map the qualified index to that same sector. Otherwise, the institution shall map the sensitivity to the applicable qualified index bucket. 5. The weighted sensitivities of the aggregate CVA and of the market value of all eligible hedges to each risk factor shall be calculated by multiplying the respective net sensitivities by the corresponding risk weight, in accordance with the following formulae: where: k = the index that denotes the risk factor k; = the weighted sensitivity of the aggregate CVA to risk factor k; RWk = the risk weight applicable to the risk factor k; = the net sensitivity of the aggregate CVA to risk factor k; = the weighted sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k; = the net sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k. 6. Institutions shall calculate the net-weighted sensitivity WSk of the CVA portfolio to risk factor k in accordance with the following formula: 7. The net-weighted sensitivities within the same bucket shall be aggregated in accordance with the following formula, using the corresponding correlations ρkl to weighted sensitivities within the same bucket set out in Articles 383l, 383t and 383q giving rise to the bucket-specific sensitivity Kb: where: Kb = the bucket-specific sensitivity of bucket b; WSk = the net-weighted sensitivities; ρkl = the corresponding intra-bucket correlation parameters; R = the hedging disallowance parameter equal to . 8. The bucket-specific sensitivity shall be calculated in accordance with paragraphs 5, 6 and 7 of this Article for each bucket within a risk class. Once the bucket-specific sensitivity has been calculated for all buckets, weighted sensitivities to all risk factors across buckets shall be aggregated in accordance with the following formula, using the corresponding correlations γbc for weighted sensitivities in different buckets set out in Articles 383l, 383o, 383r, 383u, 383w and 383z giving rise to the risk-class specific own funds requirements for delta or vega risk: where: mCVA = a multiplier factor which is equal to 1; the competent authority may increase the value of mCVA where the institution’s regulatory CVA model shows deficiencies preventing the appropriate measurement of the own funds requirements for CVA risk; Kb = the bucket-specific sensitivity of bucket b; γbc = the correlation parameter between buckets b and c; for all risk factors in bucket b; for all risk factors in bucket c.

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515. 383C Article 383c

     Article 383c Interest rate risk factors 1. For the interest rate delta risk factors, including inflation rate risk, there shall be one bucket per currency, with each bucket containing different types of risk factors. The interest rate delta risk factors that are applicable to interest-rate sensitive instruments in the CVA portfolio shall be the risk-free rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years. The interest rate delta risk factors applicable to inflation-rate sensitive instruments in the CVA portfolio shall be the inflation rates per currency concerned and per each of the following maturities: 1 year, 2 years, 5 years, 10 years and 30 years. 2. The currencies for which an institution shall apply the interest rate delta risk factors in accordance with paragraph 1 shall be euro, Swedish krona, Australian dollar, Canadian dollar, British pound sterling, Japanese yen and US dollar, the institution’s reporting currency and the currency of a Member State participating in ERM II. 3. For currencies not specified in paragraph 2, the interest rate delta risk factors shall be the absolute change of the inflation rate and the parallel shift of the entire risk-free curve for a given currency. 4. Institutions shall obtain the risk-free rates per currency from money market instruments held in their trading book that have the lowest credit risk, including overnight index swaps. 5. Where institutions cannot apply the approach referred to in paragraph 4, the risk-free rates shall be based on one or more market-implied swap curves used by the institutions to mark positions to market, such as the interbank offered rate swap curves. Where the data on market-implied swap curves described in the first subparagraph are insufficient, the risk-free rates may be derived from the most appropriate sovereign bond curve for a given currency. 6. The interest rate vega risk factor applicable to instruments in the CVA portfolio sensitive to interest rate volatility shall be all the volatilities of the interest rate of all tenors for a given currency. The inflation rate vega risk factor applicable to instruments in the CVA portfolio sensitive to inflation rate volatility shall be all the volatilities of the inflation rate of all tenors for a given currency. There shall be one net interest rate sensitivity and one net inflation rate sensitivity computed for each currency.

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516. 383D Article 383d

     Article 383d Foreign exchange risk factors 1. The foreign exchange delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange spot rates shall be the spot foreign exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency or the institution’s base currency where the institution is using a base currency in accordance with Article 325q(7). There shall be one bucket per currency pair, containing a single risk factor and a single net sensitivity. 2. The foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility shall be the implied volatilities of foreign exchange rates between the currency pairs referred to in paragraph 1. There shall be one bucket for all currencies and maturities, containing all foreign exchange vega risk factors and a single net sensitivity. 3. Institutions shall not be required to distinguish between onshore and offshore variants of a currency for foreign exchange delta and vega risk factors.

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517. 383E Article 383e

     Article 383e Counterparty credit spread risk factors 1. The counterparty credit spread delta risk factors applicable to counterparty credit spread sensitive instruments in the CVA portfolio shall be the credit spreads of individual counterparties and reference names and qualified indices for the following maturities: years, 1 year, 3 years, 5 years and 10 years. 2. The counterparty credit spread risk class shall not be subject to vega risk own funds requirements.

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518. 383F Article 383f

     Article 383f Reference credit spread risk factors 1. The reference credit spread delta risk factors applicable to reference credit spread sensitive instruments in the CVA portfolio shall be the credit spreads of all maturities for all reference names within a bucket. There shall be one net sensitivity computed for each bucket. 2. The reference credit spread vega risk factors applicable to instruments in the CVA portfolio sensitive to reference credit spread volatility shall be the volatilities of the credit spreads of all tenors for all reference names within a bucket. There shall be one net sensitivity computed for each bucket.

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519. 383G Article 383g

     Article 383g Equity risk factors 1. The buckets for all equity risk factors shall be the buckets referred to in Article 383t. 2. The equity delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to equity spot prices shall be the spot prices of all equities mapped to the same bucket referred to in paragraph 1. There shall be one net sensitivity computed for each bucket. 3. The equity vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to equity volatility shall be the implied volatilities of all equities mapped to the same bucket referred to in paragraph 1. There shall be one net sensitivity computed for each bucket.

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520. 383H Article 383h

     Article 383h Commodity risk factors 1. The buckets for all commodity risk factors shall be the sector buckets referred to in Article 383x. 2. The commodity delta risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to commodity spot prices shall be the spot prices of all commodities mapped to the same sector bucket referred to in paragraph 1. There shall be one net sensitivity computed for each sector bucket. 3. The commodity vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to commodity price volatility shall be the implied volatilities of all commodities mapped to the same sector bucket referred to in paragraph 1. There shall be one net sensitivity computed for each sector bucket.

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521. 383I Article 383i

     Article 383i Delta risk sensitivities 1. Institutions shall calculate delta sensitivities consisting of interest rate risk factors as follows: (a) the delta sensitivities of the aggregate CVA to risk factors consisting of risk-free rates, as well as of an eligible hedge to those risk factors, shall be calculated as follows: where: = the sensitivities of the aggregate CVA to a risk-free rate risk factor; rkt = the value of the risk-free rate risk factor k with maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than rkt in VCVA; = the sensitivities of the eligible hedge i to a risk-free rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than rkt in the pricing function Vi; (b) the delta sensitivities to risk factors consisting of inflation rates as well as of an eligible hedge to those risk factors, shall be calculated as follows: where: = the sensitivities of the aggregate CVA to an inflation rate risk factor; inflkt = the value of an inflation rate risk factor k with maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than inflkt in VCVA; = the sensitivities of the eligible hedge i to an inflation rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than inflkt in the pricing function Vi. 2. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of foreign exchange spot rates, as well as of an eligible hedge instrument to those risk factors, as follows: where: = the sensitivities of the aggregate CVA to a foreign exchange spot rate risk factor; FXk = the value of the foreign exchange spot rate risk factor k; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than FXk in VCVA; = the sensitivities of the eligible hedge i to a foreign exchange spot rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than FXk in the pricing function Vi. 3. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of counterparty credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows: where: = the sensitivities of the aggregate CVA to a counterparty credit spread rate risk factor; ccskt = the value of the counterparty credit spread rate risk factor k at maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than ccskt in VCVA; = the sensitivities of the eligible hedge i to a counterparty credit spread rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than ccskt in the pricing function Vi. 4. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of reference credit spread rates, as well as of an eligible hedge instrument to those risk factors, as follows: where: = the sensitivities of the aggregate CVA to a reference credit spread rate risk factor; rcskt = the value of the reference credit spread rate risk factor k at maturity t; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than ccskt in VCVA ; = the sensitivities of the eligible hedge i to a reference credit spread rate risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than ccskt in the pricing function Vi. 5. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of equity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows: where: = the sensitivities of the aggregate CVA to an equity spot price risk factor; EQ = the value of the equity spot price; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than EQ in VCVA; = the sensitivities of the eligible hedge i to an equity spot price risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than EQ in the pricing function Vi. 6. Institutions shall calculate the delta sensitivities of the aggregate CVA to risk factors consisting of commodity spot prices, as well as of an eligible hedge instrument to those risk factors, as follows: where: = the sensitivities of the aggregate CVA to a commodity spot price risk factor; CTY = the value of the commodity spot price; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than CTY in VCVA; = the sensitivities of the eligible hedge i to a commodity spot price risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than CTY in the pricing function Vi.

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522. 383J Article 383j

     Article 383j Vega risk sensitivities Institutions shall calculate the vega risk sensitivities of the aggregate CVA to risk factors consisting of implied volatility, as well as of an eligible hedge instrument to those risk factors, as follows: where: = the sensitivities of the aggregate CVA to an implied volatility risk factor; volk = the value of the implied volatility risk factor; VCVA = the aggregate CVA calculated by the regulatory CVA model; x,y = risk factors other than volk in the pricing function VCVA; = the sensitivities of the eligible hedge instrument i to an implied volatility risk factor; Vi = the pricing function of the eligible hedge i; w,z = risk factors other than volk in the pricing function Vi.

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523. 383K Article 383k

     Article 383k Risk weights for interest rate risk 1. For the currencies referred to in Article 383c(2), the risk weights of risk-free rate delta sensitivities for each bucket in Table 1 shall be the following: Table 1 BucketMaturityRisk weight11 year %22 years %35 years %410 years %530 years % 2. For currencies other than the currencies referred to in Article 383c(2), the risk weight of risk-free rate delta sensitivities shall be %. 3. For inflation rate risk denominated in one of the currencies referred to in Article 383c(2), the risk weight of the delta sensitivity to the inflation rate risk shall be %. 4. For inflation rate risk denominated in a currency other than the currencies referred to in Article 383c(2), the risk weight of the delta sensitivity to the inflation rate risk shall be %. 5. The risk weights to be applied to sensitivities to interest rate vega risk factors and to inflation rate vega risk factors for all currencies shall be 100 %.

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524. 383L Article 383l

     Article 383l Intra-bucket correlations for interest rate risk 1. For the currencies referred to in Article 383c(2), the correlation parameters that institutions shall apply to the aggregation of the risk-free rate delta sensitivities between the different buckets set out in Article 383k, Table 1, shall be the following: Table 1 Bucket123451100 %91 %72 %55 %31 %2100 %87 %72 %45 %3100 %91 %68 %4100 %83 %5100 % 2. Institutions shall apply a correlation parameter of 40 % for the aggregation of inflation rate delta risk sensitivity and risk-free rate delta sensitivity denominated in the same currency. 3. Institutions shall apply a correlation parameter of 40 % for the aggregation of inflation rate vega risk factor sensitivity and interest rate vega risk factor sensitivity denominated in the same currency.

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525. 383M Article 383m

     Article 383m Correlation across buckets for interest rate risk The cross-bucket correlation parameter for interest rate delta and vega risks shall be set at for all currency pairs.

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526. 383N Article 383n

     Article 383n Risk weights for foreign exchange risk 1. The risk weights for all delta sensitivities to foreign exchange risk factor between an institution’s reporting currency and another currency shall be 11 %. 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 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 ECB, 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 that paragraph which participate in 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 weights for all vega sensitivities to foreign exchange risk factor shall be 100 %.

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527. 383O Article 383o

     Article 383o Correlations for foreign exchange risk 1. A uniform correlation parameter equal to 60 % shall apply to the aggregation of sensitivities to delta foreign exchange risk factor across buckets. 2. A uniform correlation parameter equal to 60 % shall apply to the aggregation of sensitivities to vega foreign exchange risk factor across buckets.

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528. 383P Article 383p

     Article 383p Risk weights for counterparty credit spread risk 1. The risk weights for the delta sensitivities to counterparty credit spread risk factors shall be the same for all maturities ( years, 1 year, 3 years, 5 years, 10 years) within each bucket in Table 1 and shall be the following: Table 1 Bucket numberCredit qualitySectorRisk weight1AllCentral government, including central banks, of Member States %2Credit quality step 1 to 3Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118 %3Regional government or local authority and public sector entities %4Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders %5Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying %6Consumer goods and services, transportation and storage, administrative and support service activities %7Technology, telecommunications %8Health care, utilities, professional and technical activities %9Covered bonds issued by credit institutions established in Member States %10Credit quality step 1Covered bonds issued by credit institutions in third countries %Credit quality steps 2 to 3 %11Credit quality steps 1 to 3Other sector %12Qualified indices %13Credit quality step 4 to 6 and unratedCentral government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118 %14Regional government or local authority and public sector entities %15Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders %16Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying %17Consumer goods and services, transportation and storage, administrative and support service activities %18Technology, telecommunications %19Health care, utilities, professional and technical activities %20Other sector %21Qualified indices % Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied. 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 issuer to only one of the sector buckets set out in Table 1. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to either bucket 11 or bucket 20 in Table 1, depending on the credit quality of the issuer. 3. Institutions shall assign to buckets 12 and 21 in Table 1 only exposures that reference qualified indices as referred to in Article 383b(4). 4. Institutions shall use a look-through approach to determine the sensitivities of an exposure referencing a non-qualified index.

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529. 383Q Article 383q

     Article 383q Intra-bucket correlations for counterparty credit spread risk 1. Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 1 to 11 and 13 to 20, as set out in Article 383p(1), Table 1, the correlation parameter ρkl shall be set as follows: where: shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %; shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %; shall be equal to 1 where the two names are both in buckets 1 to 11 or are both in buckets 13 to 20, otherwise it shall be equal to 80 %. 2. Between two sensitivities WSk and WSl resulting from risk exposures assigned to sector buckets 12 and 21, the correlation parameter ρkl shall be set as follows: where: shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %; shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %; shall be equal to 1 where the two names are both in bucket 12 or both in bucket 21, otherwise it shall be equal to 80 %.

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530. 383R Article 383r

     Article 383r Correlations across buckets for counterparty credit spread risk The cross-bucket correlations for counterparty credit spread delta risk shall be the following: Table 1 Bucket1, 2, 3, 13 and 144 and 155 and 166 and 177 and 188 and 199 and 1011 and 2012 and 211, 2, 3, 13 and 14100 %10 %20 %25 %20 %15 %10 %0 %45 %4 and 15100 %5 %15 %20 %5 %20 %0 %45 %5 and 16100 %20 %25 %5 %5 %0 %45 %6 and 17100 %25 %5 %15 %0 %45 %7 and 18100 %5 %20 %0 %45 %8 and 19100 %5 %0 %45 %9 and 10100 %0 %45 %11 and 20100 %0 %12 and 21100 %

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531. 383S Article 383s

     Article 383s Risk weights for reference credit spread risk 1. The risk weights for the delta sensitivities to reference credit spread risk factors shall be the same for all maturities ( years, 1 year, 3 years, 5 years, 10 years) and all reference credit spread exposures within each bucket in Table 1 and shall be the following: Table 1 Bucket numberCredit qualitySectorRisk weight1AllCentral government, including central banks, of Member States %2Credit quality step 1 to 3Central government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118 %3Regional government or local authority and public sector entities %4Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders %5Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying %6Consumer goods and services, transportation and storage, administrative and support service activities %7Technology, telecommunications %8Health care, utilities, professional and technical activities %9Covered bonds issued by credit institutions established in Member States %10Credit quality step 1Covered bonds issued by credit institutions in third countries %Credit quality steps 2 to 3 %11Credit Quality Step 1 to 3Qualified indices %12Credit quality step 4 to 6 and unratedCentral government, including central banks, of third countries, multilateral development banks and international organisations referred to in Article 117(2) and Article 118 %13Regional government or local authority and public sector entities %14Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders %15Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying %16Consumer goods and services, transportation and storage, administrative and support service activities %17Technology, telecommunications %18Health care, utilities, professional and technical activities %19Qualified indices %20Other sector % Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6. Otherwise, the risk weights for unrated exposures shall be applied. 2. Risk weights for reference credit spread volatilities shall be set at 100 %. 3. 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 issuer to only one of the sector buckets in Table 1. Risk exposures from any issuer that an institution cannot assign to a sector in such a manner shall be assigned to bucket 20 in Table 1. 4. Institutions shall assign to buckets 11 and 19 only exposures that reference qualified indices as referred to in Article 383b(4). 5. Institutions shall use a look-through approach to determine the sensitivities of an exposure referencing a non-qualified index.

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532. 383T Article 383t

     Article 383t Intra-bucket correlations for reference credit spread risk 1. Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 1 to 10, 12 to 18 and 20 of Article 383s(1), Table 1, the correlation parameter ρkl shall be set as follows: where: shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %; shall be equal to 1 where the two names of sensitivities k and l are identical, 90 % if the two names are distinct but legally related, otherwise it shall be equal to 50 %; shall be equal to 1 where the two names are both in buckets 1 to 10, are both in buckets 12 to 18, or are both in bucket 20, otherwise it shall be equal to 80 %. 2. Between two sensitivities WSk and WSl, resulting from risk exposures assigned to sector buckets 11 and 19, the correlation parameter ρkl shall be set as follows: where: shall be equal to 1 where the two vertices of the sensitivities k and l are identical, otherwise it shall be equal to 90 %; shall be equal to 1 where the two names of sensitivities k and l are identical and the two indices are of the same series, 90 % if the two indices are the same but of distinct series, otherwise it shall be equal to 80 %; shall be equal to 1 where the two names are both in bucket 11 or both in bucket 19, otherwise it shall be equal to 80 %.

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533. 383U Article 383u

     Article 383u Correlations across buckets for reference credit spread risk 1. The cross-bucket correlations for reference credit spread delta risk and reference credit spread vega risk shall be the following: Table 1 Bucket1, 2 and 123 and 144 and 155 and 166 and 177 and 188 and 199 and 102011191, 2, and 12100 %75 %10 %20 %25 %20 %15 %10 %0 %45 %45 %3 and 14100 %5 %15 %20 %15 %10 %10 %0 %45 %45 %4 and 15100 %5 %15 %20 %5 %20 %0 %45 %45 %5 and 16100 %20 %25 %5 %5 %0 %45 %45 %6 and 17100 %25 %5 %15 %0 %45 %45 %7 and 18100 %5 %20 %0 %45 %45 %8 and 19100 %5 %0 %45 %45 %9 and 10100 %0 %45 %45 %20100 %0 %0 %11100 %75 %19100 % 2. By way of derogation from paragraph 1, the cross-bucket correlation values calculated in that paragraph shall be divided by 2 for correlations between a bucket from the group of buckets 1 to 10 and a bucket from the group of buckets 12 to 18.

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534. 383V Article 383v

     Article 383v Risk weight buckets for equity risk 1. The risk weights for the delta sensitivities to equity spot price risk factors shall be the same for all equity risk exposures within each bucket in Table 1 and shall be the following: Table 1 Bucket numberMarket capitalisationEconomySectorRisk weight for equity spot price1LargeEmerging market economyConsumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities55 %2Telecommunications, industrials60 %3Basic materials, energy, agriculture, manufacturing, mining and quarrying45 %4Financials, including government-backed financials, immovable property activities, technology55 %5Advanced economyConsumer goods and services, transportation and storage, administrative and support service activities, healthcare, utilities30 %6Telecommunications, industrials35 %7Basic materials, energy, agriculture, manufacturing, mining and quarrying40 %8Financials, including government-backed financials, immovable property activities, technology50 %9SmallEmerging market economyAll sectors described under bucket numbers 1, 2, 3 and 470 %10Advanced economyAll sectors described under bucket numbers 5, 6, 7 and 850 %11Other sector70 %12LargeAdvanced economyQualified indices15 %13OtherQualified indices25 % 2. For the purposes of paragraph 1 of this Article, what constitutes a small and a large capitalisation shall be specified in the regulatory technical standards referred to in Article 325bd(7). 3. For the purposes of paragraph 1 of this Article, what constitutes an emerging market and an advanced economy shall be specified in the regulatory technical standards referred to in Article 325ap(3). 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 industry sector. Institutions shall assign each issuer to one of the sector buckets in paragraph 1, Table 1, 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 that manner shall be assigned to bucket 11. Multinational or multi-sector equity issuers shall be allocated to a particular bucket on the basis of the most material region and sector in which the equity issuer operates. 5. The risk weights for equity vega risk shall be set at 78 % for buckets 1 to 8 and bucket 12, and at 100 % for all other buckets.

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535. 383W Article 383w

     Article 383w Correlations across buckets for equity risk The cross-bucket correlation parameter for equity delta and vega risk shall be set at: (a) 15 %, where the two buckets fall within buckets 1 to 10 in Article 383v(1), Table 1; (b) 75 %, where the two buckets are buckets 12 and 13 in Article 383v(1), Table 1; (c) 45 %, where one of the buckets is bucket 12 or 13 in Article 383v(1), Table 1, and the other bucket falls within buckets 1 to 10 in Article 383v(1), Table 1; (d) 0 %, where one of the two buckets is bucket 11 in Article 383v(1), Table 1.

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536. 383X Article 383x

     Article 383x Risk weight buckets for commodity risk 1. The risk weights for the delta sensitivities to commodity spot price risk factors shall be the same for all commodity risk exposures within each bucket in Table 1 and shall be the following: Table 1 Bucket numberBucket nameRisk weight for commodity spot price1Energy — solid combustibles30 %2Energy — liquid combustibles35 %3Energy — electricity60 %4Energy — EU ETS carbon trading40 %5Energy — non-EU ETS carbon trading60 %6Freight80 %7Metals — non-precious40 %8Gaseous combustibles45 %9Precious metals, including gold20 %10Grains and oilseed35 %11Livestock and dairy25 %12Softs and other agricultural commodities35 %13Other commodity50 % 2. The risk weights for commodity vega risk shall be set at 100 %.

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537. 383Z Article 383z

     Article 383z Correlations across buckets for commodity risk 1. The cross-bucket correlation parameter for commodity delta risk shall be set at: (a) 20 %, where the two buckets fall within buckets 1 to 12 in Article 383x(1), Table 1; (b) 0 %, where one of the two buckets is bucket 13 in Article 383x(1), Table 1. 2. The cross-bucket correlation parameter for commodity vega risk shall be set at: (a) 20 %, where the two buckets fall within buckets 1 to 12 in Article 383x(1), Table 1; (b) 0 %, where one of the two buckets is bucket 13 in Article 383x(1), Table 1.

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538. 384 Article 384

     Article 384 Basic approach 1. An institution shall calculate the own funds requirements for CVA risk in accordance with paragraph 2 or 3 of this Article, as applicable, for a portfolio of transactions with one or more counterparties by using one of the following formulae, as appropriate: (a) the formula set out in paragraph 2 of this Article, where the institution includes in the calculation one or more eligible hedges recognised in accordance with Article 386; (b) the formula set out in paragraph 3 of this Article, where the institution does not include in the calculation any eligible hedges recognised in accordance with Article 386. The approaches set out in the first subparagraph, points (a) and (b), shall not be used in combination. 2. An institution that meets the condition referred to in paragraph 1, point (a), shall calculate the own funds requirements for CVA risk as follows: BACVAtotal = β · BACVAcsr–unhedged + DSCVA · (1 – β) · BACVAcsr–hedged where: BACVAtotal = the own funds requirements for CVA risk under the basic approach; BACVAcsr–unhedged = the own funds requirements for CVA risk under the basic approach as calculated in accordance with paragraph 3 for an institution that meets the condition set out in paragraph 1, point (b); DSCVA = ; β = ; where: α = ; ρ = ; c = the index that denotes all counterparties for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article; NS = the index that denotes all netting sets with a given counterparty for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article; h = the index that denotes all single-name instruments recognised as eligible hedges in accordance with Article 386 for a given counterparty for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article; I = the index that denotes all index instruments recognised as eligible hedges in accordance with Article 386 for all counterparties for which the institution calculates the own funds requirements for CVA risk using the approach laid down in this Article; RWc = the risk weight applicable to counterparty c; counterparty c shall be mapped to one of the risk weights based on a combination of sector and credit quality and determined in accordance with Table 1. Where there are no external ratings for a specific counterparty, institutions may, subject to approval by the competent authorities, map the internal rating to a corresponding external rating and assign a risk weight corresponding to either credit quality step 1 to 3 or credit quality step 4 to 6; otherwise, the risk weights for unrated exposures shall be applied. = the effective maturity for the netting set NS with counterparty c; shall be calculated in accordance with Article 162; however, for that calculation, shall not be capped at five years, but at the longest contractual remaining maturity in the netting set; = the counterparty credit risk exposure value of the netting set NS with counterparty c, including the effect of collateral in accordance with the methods set out in Title II, Chapter 6, Sections 3 to 6, as applicable to the calculation of the own funds requirements for counterparty credit risk referred to in Article 92(4), points (a) and (g); = the supervisory discount factor for the netting set NS with counterparty c. For an institution, using the methods set out in Title II, Chapter 6, Section 6, the supervisory discount factor shall be set at 1; in all other cases, the supervisory discount factor shall be calculated as follows: rhc = the supervisory correlation factor between the credit spread risk of counterparty c and the credit spread risk of a single-name instrument recognised as an eligible hedge h for counterparty c, determined in accordance with Table 2; = the residual maturity of a single-name instrument recognised as an eligible hedge; = the notional of a single name instrument recognised as an eligible hedge; = the supervisory discount factor for a single name instrument recognised as an eligible hedge, calculated as follows: = the supervisory risk weight of a single-name instrument recognised as an eligible hedge; those risk weights shall be based on a combination of sector and credit quality of the reference credit spread of the hedging instrument and determined in accordance with Table 1; = the residual maturity of one or more positions in the same index instrument recognised as an eligible hedge; in the case of more than one position in the same index instrument, shall be the notional-weighted maturity of all those positions; = the full notional of one or more positions in the same index instrument recognised as an eligible hedge; = the supervisory discount factor for one or more positions in the same index instrument recognised as an eligible hedge, calculated as follows: = the supervisory risk weight of an index instrument recognised as an eligible hedge; shall be based on a combination of sector and credit quality of all index constituents, calculated as follows: (a) where all index constituents belong to the same sector and have the same credit quality, as determined in accordance with Table 1, shall be calculated as the relevant risk weight of Table 1 for that sector and credit quality multiplied by ; (b) where all index constituents do not belong to the same sector or do not have the same credit quality, shall be calculated as a weighted average of the risk weights of all index constituents, as determined in accordance with Table 1, multiplied by ; Table 1 Sector of counterpartyCredit quality Credit quality step 1 to 3 Credit quality step 4 to 6 and not ratedCentral government, including central banks, multilateral development banks and international organisations referred to in Article 117(2) or Article 118 % %Regional government or local authority and public sector entities % %Financial sector entities, including credit institutions incorporated or established by a central government, a regional government or a local authority, and promotional lenders % %Basic materials, energy, industrials, agriculture, manufacturing, mining and quarrying % %Consumer goods and services, transportation and storage, administrative and support service activities % %Technology, telecommunications % %Health care, utilities, professional and technical activities % %Other sector % % Table 2 Correlations between credit spread of counterparty and single-name hedgeSingle-name hedge h of counterparty iValue of rhcCounterparties referred to in Article 386(3), point (a)(i)100 %Counterparties referred to in Article 386(3), point (a)(ii)80 %Counterparties referred to in Article 386(3), point (a)(iii)50 % 3. An institution that meets the condition referred to in paragraph 1, point (b), shall calculate the own funds requirements for CVA risk as follows: where all of the terms are the ones set out in paragraph 2.

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539. 385 Article 385

     Article 385 Simplified approach 1. An institution that meets all of the conditions set out in Article 273a(2) or has been permitted by its competent authority in accordance with Article 273a(4) to apply the approach set out in Article 282, may calculate the own funds requirements for CVA risk as the risk-weighted exposure amounts for counterparty risk for non-trading book and trading book positions, respectively, referred to in Article 92(4), points (a) and (g), divided by . 2. For the purposes of the calculation referred to in paragraph 1, the following requirements shall apply: (a) only transactions subject to the own funds requirements for CVA risk laid down in Article 382 are subject to that calculation; (b) credit derivatives that are recognised as internal hedges against counterparty risk exposures are not included in that calculation. 3. An institution that no longer meets one or more of the conditions set out in Article 273a(2) or (4), as applicable, shall comply with the requirements set out in Article 273b.

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540. 386 Article 386

     Article 386 Eligible hedges 1. Positions in hedging instruments shall be recognised as eligible hedges for the calculation of the own funds requirements for CVA risk in accordance with Articles 383 and 384 where those positions meet all of the following requirements: (a) they are used for the purpose of mitigating CVA risk and are managed as such; (b) they can be entered into with third parties or with the institution’s trading book as an internal hedge, in which case they are to comply with Article 106(7); (c) only positions in hedging instruments as referred to in paragraphs 2 and 3 of this Article can be recognised as eligible hedges for the calculation of the own funds requirements for CVA risk in accordance with Articles 383 and 384, respectively. For the purpose of calculating the own funds requirements for CVA risk in accordance with Article 383, positions in hedging instruments shall be recognised as eligible hedges where, in addition to the conditions set out in points (a) to (c) of this paragraph, such hedging instruments form a single position in an eligible hedge and are not split into more than one position in more than one eligible hedge. 2. For the calculation of the own funds requirements for CVA risk in accordance with Article 383, only positions in the following hedging instruments shall be recognised as eligible hedges: (a) instruments that hedge variability of the counterparty credit spread, with the exception of instruments referred to in Article 325(5); (b) instruments that hedge variability of the exposure component of CVA risk, with the exception of the instruments referred to in Article 325(5). 3. For the calculation of the own funds requirements for CVA risk in accordance with Article 384, only positions in the following hedging instruments shall be recognised as eligible hedges: (a) single-name credit default swaps and single-name contingent-credit default swaps, referencing: (i) the counterparty directly; (ii) an entity legally related to the counterparty, where legally related refers to cases where the reference name and the counterparty are either a parent undertaking and its subsidiary or two subsidiaries of a common parent; (iii) an entity that belongs to the same sector and region as the counterparty; (b) index credit default swaps. 4. Positions in hedging instruments entered into with third parties that are recognised as eligible hedges in accordance with paragraphs 1, 2 and 3 and included in the calculation of the own funds requirements for CVA risk shall not be subject to the own funds requirements for market risk set out in Title IV. 5. Positions in hedging instruments that are not recognised as eligible hedges in accordance with this Article shall be subject to the own funds requirements for market risk set out in Title IV.

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541. 387 Article 387

     Article 387 Subject matter Institutions shall monitor and control their large exposures in accordance with this Part.

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542. 388 Article 388

     Article 388 Negative Scope This Part shall not apply to investment firms that fulfil the criteria set out in Article 95(1) or Article 96(1). This Part shall not apply to a group on the basis of its consolidated situation, if that group only includes investment firms referred to in Article 95(1) or Article 96(1) and ancillary companies and where that group does not include credit institutions.

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543. 389 Article 389

     Article 389 Definition For the purposes of this Part, ‘exposures’, means any asset or off-balance sheet item referred to in Part Three, Title II, Chapter 2, without applying the risk weights or degrees of risk.

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544. 390 Article 390

     Article 390 Calculation of the exposure value 1. The total exposures to a group of connected clients shall be calculated by adding together the exposures to individual clients in that group. 2. The overall exposures to individual clients shall be calculated by adding the exposures in the trading book and the exposures in the non-trading book. 3. For exposures in the trading book, institutions may: (a) offset their long positions and short positions in the same financial instruments issued by a given client, with the net position in each of the different instruments being calculated in accordance with the methods laid down in Chapter 2 of Title IV of Part Three; (b) offset their long positions and short positions in different financial instruments issued by a given client, but only where the financial instrument underlying the short position is junior to the financial instrument underlying the long position or where the underlying instruments are of the same seniority. For the purposes of points (a) and (b), financial instruments may be allocated into buckets on the basis of different degrees of seniority in order to determine the relative seniority of positions. 4. Institutions shall calculate the exposure values of the derivative contracts listed in Annex II and of credit derivative contracts directly entered into with a client in accordance with one of the methods set out in Sections 3, 4 and 5 of Chapter 6 of Title II of Part Three, as applicable. Exposures resulting from the transactions referred to in Articles 378, 379 and 380 shall be calculated in the manner laid down in those Articles. When calculating the exposure value for the contracts referred to in the first subparagraph, where those contracts are allocated to the trading book, institutions shall also comply with the principles set out in Article 299. By way of derogation from the first subparagraph, institutions with permission to use the methods referred to in Section 4 of Chapter 4 of Title II of Part Three and Section 6 of Chapter 6 of Title II of Part Three may use those methods for calculating the exposure value for securities financing transactions. 5. Institutions shall add to the total exposure to a client the exposures arising from derivative contracts listed in Annex II and credit derivative contracts, where the contract was not directly entered into with that client but the underlying debt or equity instrument was issued by that client. 6. Exposures shall not include any of the following: (a) in the case of foreign exchange transactions, exposures incurred in the ordinary course of settlement during the two business days following payment; (b) in the case of transactions for the purchase or sale of securities, exposures incurred in the ordinary course of settlement during the five business days following payment or delivery of the securities, whichever is the earlier; (c) in the case of the provision of money transmission including the execution of payment services, clearing and settlement in any currency and correspondent banking or financial instruments clearing, settlement and custody services to clients, delayed receipts in funding and other exposures arising from client activity which do not last longer than the following business day; (d) in the case of the provision of money transmission including the execution of payment services, clearing and settlement in any currency and correspondent banking, intra-day exposures to institutions providing those services; (e) exposures deducted from Common Equity Tier 1 items or Additional Tier 1 items in accordance with Articles 36 and 56 or any other deduction from those items that reduces the solvency ratio. 7. To determine the overall exposure to a client or a group of connected clients, in respect of clients to which the institution has exposures through transactions referred to in points (m) and (o) of Article 112 or through other transactions where there is an exposure to underlying assets, an institution shall assess its underlying exposures taking into account the economic substance of the structure of the transaction and the risks inherent in the structure of the transaction itself, in order to determine whether it constitutes an additional exposure. 8. EBA shall develop draft regulatory technical standards to specify: (a) the conditions and methodologies to be used to determine the overall exposure to a client or a group of connected clients for the types of exposures referred to in paragraph 7; (b) the conditions under which the structure of the transactions referred to in paragraph 7 do not constitute an additional exposure. EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. 9. For the purposes of paragraph 5, EBA shall develop draft regulatory technical standards to specify how to determine the exposures arising from derivative contracts listed in Annex II and credit derivative contracts, where the contract was not directly entered into with a client but the underlying debt or equity instrument was issued by that client for their inclusion into the exposures to the client. 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.

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545. 391 Article 391

     Article 391 Definition of an institution for large exposures purposes For the purposes of calculating the value of exposures in accordance with this Part the term ‘institution’ shall include a private or public undertaking, including its branches, which, were it established in the Union, would fulfil the definition of the term ‘institution’ and has been authorised in a third country that applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union. For the purposes of the first paragraph, the Commission may adopt, by means of implementing acts, and subject to the examination procedure referred to in Article 464(2), decisions as to whether a third country applies prudential supervisory and regulatory requirements at least equivalent to those applied in the Union.

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546. 392 Article 392

     Article 392 Definition of a large exposure An institution's exposure to a client or a group of connected clients shall be considered a large exposure where the value of the exposure is equal to or exceeds 10 % of its Tier 1 capital.

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547. 393 Article 393

     Article 393 Capacity to identify and manage large exposures An institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with this Regulation.

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548. 394 Article 394

     Article 394 Reporting requirements 1. Institutions shall report the following information to their competent authorities for each large exposure that they hold, including large exposures exempted from the application of Article 395(1): (a) the identity of the client or the group of connected clients to which the institution has a large exposure; (b) the exposure value before taking into account the effect of the credit risk mitigation, where applicable; (c) where used, the type of funded or unfunded credit protection; (d) the exposure value, after taking into account the effect of the credit risk mitigation calculated for the purposes of Article 395(1), where applicable. Institutions that are subject to Chapter 3 of Title II of Part Three shall report their 20 largest exposures to their competent authorities on a consolidated basis, excluding the exposures exempted from the application of Article 395(1). Institutions shall also report exposures of a value greater than or equal to EUR 300 million but less than 10 % of the institution's Tier 1 capital to their competent authorities on a consolidated basis. 2. In addition to the information referred to in paragraph 1 of this Article, institutions shall report the following information to their competent authorities in relation to their 10 largest exposures to institutions on a consolidated basis, as well as their 10 largest exposures to shadow banking entities on a consolidated basis, including large exposures exempted from the application of Article 395(1): (a) the identity of the client or the group of connected clients to which an institution has a large exposure; (b) the exposure value before taking into account the effect of the credit risk mitigation, where applicable; (c) where used, the type of funded or unfunded credit protection; (d) the exposure value after taking into account the effect of the credit risk mitigation calculated for the purposes of Article 395(1), where applicable. In addition to the information referred to in the first subparagraph, institutions shall report to their competent authorities their aggregate exposure to shadow banking entities. 3. Institutions shall report the information referred to in paragraphs 1 and 2 to their competent authorities on at least a semi-annual basis. 4. EBA shall develop draft regulatory technical standards to specify the criteria for the identification of shadow banking entities referred to in paragraph 2. In developing those draft regulatory technical standards, EBA shall take into account international developments and internationally agreed standards on shadow banking and shall consider whether: (a) the relation with an individual entity or a group of entities may carry risks to the institution's solvency or liquidity position; (b) entities that are subject to solvency or liquidity requirements similar to those imposed by this Regulation and Directive 2013/36/EU should be entirely or partially excluded from the obligation to be reported referred to in paragraph 2 on shadow banking entities. EBA shall submit those draft regulatory technical standards to the Commission by 28 June 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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549. 395 Article 395

     Article 395 Limits to large exposures 1. An institution shall not incur an exposure to a client or group of connected clients the value of which exceeds 25 % of its Tier 1 capital, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403. Where that client is an institution or an investment firm, or where a group of connected clients includes one or more institutions or investment firms, that value shall not exceed 25 % of the institution’s Tier 1 capital or EUR 150 million, whichever is higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions or investment firms, does not exceed 25 % of the institution’s Tier 1 capital. Where the amount of EUR 150 million is higher than 25 % of the institution's Tier 1 capital, the value of the exposure, after having taken into account the effect of credit risk mitigation in accordance with Articles 399 to 403 of this Regulation, shall not exceed a reasonable limit in terms of that institution's Tier 1 capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of Directive 2013/36/EU in order to address and control concentration risk. That limit shall not exceed 100 % of the institution's Tier 1 capital. Competent authorities may set a lower limit than EUR 150 million, in which case they shall inform EBA and the Commission thereof. By way of derogation from the first subparagraph of this paragraph, a G-SII shall not incur an exposure to another G-SII or a non-EU G-SII, the value of which, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, exceeds 15 % of its Tier 1 capital. A G-SII shall comply with such limit no later than 12 months from the date on which it came to be identified as a G-SII. Where the G-SII has an exposure to another institution or group which comes to be identified as a G-SII or as a non-EU G-SII, it shall comply with such limit no later than 12 months from the date on which that other institution or group came to be identified as a G-SII or as a non-EU G-SII. 2. EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403 as well as the outcomes of developments in the area of shadow banking and large exposures at the Union and international levels, issue guidelines by 31 December 2014 to set appropriate aggregate limits to such exposures or tighter individual limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework. In developing those guidelines, EBA shall consider whether the introduction of additional limits would have a material detrimental impact on the risk profile of institutions established in the Union, on the provision of credit to the real economy or on the stability and orderly functioning of financial markets. By 31 December 2015 the Commission shall assess the appropriateness and the impact of imposing limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework, taking into account Union and international developments in the area of shadow banking and large exposures as well as credit risk mitigation in accordance with Articles 399 to 403. The Commission shall submit the report to the European Parliament and the Council, together, if appropriate, with a legislative proposal on exposure limits to shadow banking entities which carry out banking activities outside a regulated framework. 2a. By 10 January 2027, EBA, after consulting ESMA, shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, to update the guidelines referred to in paragraph 2 of this Article. In updating those guidelines, EBA shall take due account, among other considerations, of the contribution of shadow banking entities to the capital markets union, the potential adverse impact that any changes of those guidelines, including additional limits, could have on the business model and risk profile of the institutions and on the stability and the orderly functioning of financial markets. In addition, by 31 December 2027, EBA, after consulting ESMA, shall submit a report to the Commission on the contribution of shadow banking entities to the capital markets union and on institutions’ exposures to such entities, including on the appropriateness of aggregate limits or tighter individual limits to those exposures, while taking due account of the regulatory framework and business models of such entities. By 31 December 2028, the Commission shall, where appropriate, on the basis of that report, submit to the European Parliament and to the Council a legislative proposal on exposure limits to shadow banking entities. 3. Subject to Article 396, an institution shall at all times comply with the relevant limit laid down in paragraph 1. 4. Assets constituting claims and other exposures onto recognised third-country investment firms may be subject to the same treatment as set out in paragraph 1. 5. The limits laid down in this Article may be exceeded for the exposures in the institution's trading book, provided that all the following conditions are met: (a) the exposure in the non-trading book to the client or group of connected clients in question does not exceed the limit laid down in paragraph 1, this limit being calculated with reference to Tier 1 capital, so that the excess arises entirely in the trading book; (b) the institution meets an additional own funds requirement on the part of the exposure in excess of the limit laid down in paragraph 1 of this Article which is calculated in accordance with Articles 397 and 398; (c) where 10 days or less have elapsed since the excess referred to in point (b) occurred, the trading-book exposure to the client or group of connected clients in question does not exceed 500 % of the institution's Tier 1 capital; (d) any excesses that have persisted for more than 10 days do not, in aggregate, exceed 600 % of the institution's Tier 1 capital. Each time the limit has been exceeded, the institution shall report to the competent authorities without delay the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned. 6. For the purpose of this paragraph, structural measures mean measures adopted by a Member State and implemented by the relevant competent authorities of that Member State before the entry into force of a legal act explicitly harmonising such measures, that require credit institutions authorised in that Member State to reduce their exposures to different legal entities depending on their activities, irrespective of where those activities are located, with a view to protecting depositors and preserving financial stability. Notwithstanding paragraph 1 of this Article and Article 400(1)(f), where Member States adopt national laws requiring structural measures to be taken within a banking group, competent authorities may require the institutions of the banking group which hold deposits that are covered by a Deposit Guarantee Scheme in accordance with Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes or an equivalent deposit guarantee scheme in a third country to apply a large exposure limit below 25 % but not lower than 15 % between 28 June 2013 and 30 June 2015, and than 10 % from 1 July 2015 on a sub-consolidated basis in accordance with Article 11(5) to intragroup exposures where these exposures consist of exposures to an entity that does not belong to the same subgroup as regards the structural measures. For the purpose of this paragraph, the following conditions shall be met: (a) all entities belonging to a same subgroup as regards the structural measures are considered as one client or group of connected clients; (b) the competent authorities apply a uniform limit to the exposures referred to in the first subparagraph. Applying this approach shall be without prejudice to effective supervision on a consolidated basis and shall not entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole or form or create an obstacle to the functioning of the internal market. 7. Before adopting the specific structural measures as referred to in paragraph 6 relating to large exposures, the competent authorities shall notify the Council, the Commission, the competent authorities concerned and EBA at least two months prior to the publication of the decision to adopt the structural measures, and submit relevant quantitative or qualitative evidence of all of the following: (a) the scope of the activities that are subject to the structural measures; (b) an explanation as to why such draft measures are deemed to be suitable, effective and proportionate to protect depositors; (c) an assessment of the likely positive or negative impact of the measures on the internal market based on information which is available to the Member State. 8. The power to adopt an implementing act to accept or reject the proposed national measures referred to in paragraph 7 is conferred on the Commission acting in accordance with the procedure referred to in Article 464(2). Within one month of receiving the notification referred to in paragraph 7, EBA shall provide its opinion on the points mentioned in that paragraph to the Council, the Commission and the Member State concerned. Competent authorities concerned may also provide their opinions on the points mentioned in that paragraph to the Council, the Commission and the Member State concerned. Taking utmost account of the opinions referred to in the second subparagraph and if there is robust and strong evidence that the measures have a negative impact on the internal market that outweighs the financial stability benefits, the Commission shall, within two months of receiving the notification, reject the proposed national measures. Otherwise, the Commission shall accept the proposed national measures for an initial period of 2 years and where appropriate the measures may be subject to amendment. The Commission shall only reject the proposed national measures if it considers the proposed national measures entail disproportionate adverse effects on the whole or parts of the financial system in other Member States or in the Union as a whole, thus forming or creating an obstacle to the functioning of the internal market or to the free movement of capital in accordance with the provisions of the TFEU. The assessment of the Commission shall take account of the opinion of EBA and shall take into account the evidence presented in accordance with paragraph 7. Before the expiry of the measures, the competent authorities may propose new measures for the extension of the period of application for an additional period of 2 years each time. In this case, they shall notify the Commission, the Council, the competent authorities concerned and EBA. Approval of the new measures shall be subject to the process set out in this Article. This Article shall be without prejudice to Article 458.

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550. 396 Article 396

     Article 396 Compliance with large exposures requirements 1. If, in an exceptional case, exposures exceed the limit set out in Article 395(1), the institution shall report the value of the exposure without delay to the competent authorities which may, where the circumstances warrant it, allow the institution a limited period of time in which to comply with the limit. Where the amount of EUR 150 million referred to in Article 395(1) is applicable, the competent authorities may allow the 100 % limit in terms of the institution's Tier 1 capital to be exceeded on a case-by-case basis. Where, in the exceptional cases referred to in the first and second subparagraph of this paragraph, a competent authority allows an institution to exceed the limit set out in Article 395(1) for a period longer than three months, the institution shall present a plan for a timely return to compliance with that limit to the satisfaction of the competent authority and shall carry out that plan within the period agreed with the competent authority. The competent authority shall monitor the implementation of the plan and shall require a more rapid return to compliance if appropriate. 2. Where compliance by an institution on an individual or sub-consolidated basis with the obligations imposed in this Part is waived under Article 7(1), or the provisions of Article 9 are applied in the case of parent institutions in a Member State, measures shall be taken to ensure the satisfactory allocation of risks within the group. 3. For the purposes of paragraph 1, EBA shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 to specify how the competent authorities may determine: (a) the exceptional cases referred to in paragraph 1 of this Article; (b) the time considered appropriate for returning to compliance; (c) the measures to be taken to ensure the timely return to compliance of the institution.

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551. 397 Article 397

     Article 397 Calculating additional own funds requirements for large exposures in the trading book 1. The excess referred to in Article 395(5)(b) shall be calculated by selecting those components of the total trading exposure to the client or group of connected clients in question which attract the highest specific-risk requirements in Part Three, Title IV, Chapter 2 and/or requirements in Article 299 and Part Three, Title V, the sum of which equals the amount of the excess referred to in point (a) of Article 395(5). 2. Where the excess has not persisted for more than 10 days, the additional capital requirement shall be 200 % of the requirements referred to in paragraph 1, on these components. 3. As from 10 days after the excess has occurred, the components of the excess, selected in accordance with paragraph 1, shall be allocated to the appropriate line in Column 1 of Table 1 in ascending order of specific-risk requirements in Part Three, Title IV, Chapter 2 and/or requirements in Article 299 and Part Three, Title V. The additional own funds requirement shall be equal to the sum of the specific-risk requirements in Part Three, Title IV, Chapter 2 and/or the Article 299 and Part Three, Title V requirements on these components, multiplied by the corresponding factor in Column 2 of Table 1. Table 1 Column 1: Excess over the limits (on the basis of a percentage of Tier 1 capital) Column 2: FactorsUp to 40 %200 %From 40 % to 60 %300 %From 60 % to 80 %400 %From 80 % to 100 %500 %From 100 % to 250 %600 %Over 250 %900 %

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552. 398 Article 398

     Article 398 Procedures to prevent institutions from avoiding the additional own funds requirement Institutions shall not deliberately avoid the additional own funds requirements set out in Article 397 that they would otherwise incur, on exposures exceeding the limit laid down in Article 395(1) once those exposures have been maintained for more than 10 days, by means of temporarily transferring the exposures in question to another company, whether within the same group or not, and/or by undertaking artificial transactions to close out the exposure during the 10-day period and create a new exposure. Institutions shall maintain systems which ensure that any transfer which has the effect referred to in the first subparagraph is immediately reported to the competent authorities.

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553. 399 Article 399

     Article 399 Eligible credit mitigation techniques 1. An institution shall use a credit risk mitigation technique in the calculation of an exposure where it has used that technique to calculate capital requirements for credit risk in accordance with Title II of Part Three, provided that the credit risk mitigation technique meets the conditions set out in this Article. For the purposes of Articles 400 to 403, the term ‘guarantee’ shall include credit derivatives recognised under Chapter 4 of Title II of Part Three other than credit linked notes. 2. Subject to paragraph 3 of this Article, where, under Articles 400 to 403 the recognition of funded or unfunded credit protection is permitted, this shall be subject to compliance with the eligibility requirements and other requirements set out in Part Three, Title II, Chapter 4. 3. Credit risk mitigation techniques which are available only to institutions using one of the IRB approaches shall not be used to reduce exposure values for large exposure purposes, except for exposures secured by immovable properties in accordance with Article 402. 4. Institutions shall analyse, to the extent possible, their exposures to collateral issuers, providers of unfunded credit protection and underlying assets pursuant to Article 390(7) for possible concentrations and where appropriate take action and report any significant findings to their competent authority.

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554. 400 Article 400

     Article 400 Exemptions 1. The following exposures shall be exempted from the application of Article 395(1): (a) asset items constituting claims on central governments, central banks or public sector entities which, unsecured, would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2; (b) asset items constituting claims on international organisations or multilateral development banks which, unsecured, would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2; (c) asset items constituting claims carrying the explicit guarantees of central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity providing the guarantee would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2; (d) other exposures attributable to, or guaranteed by, central governments, central banks, international organisations, multilateral development banks or public sector entities, where unsecured claims on the entity to which the exposure is attributable or by which it is guaranteed would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2; (e) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2; (f) exposures to counterparties referred to in Article 113(6) or (7) if they would be assigned a 0 % risk weight under Part Three, Title II, Chapter 2. Exposures that do not meet those criteria, whether or not exempted from Article 395(1) shall be treated as exposures to a third party; (g) asset items and other exposures secured by collateral in the form of cash deposits placed with the lending institution or with an institution which is the parent undertaking or a subsidiary of the lending institution; (h) asset items and other exposures secured by collateral in the form of certificates of deposit issued by the lending institution or by an institution which is the parent undertaking or a subsidiary of the lending institution and lodged with either of them; (i) exposures arising from undrawn credit facilities that are classified as bucket 5 off-balance-sheet items in Annex I or contractual arrangements that meet the conditions for not being treated as commitments and provided that an agreement has been concluded with the client or group of connected clients under which the facility may be drawn only if it has been ascertained that it will not cause the limit applicable under Article 395(1) to be exceeded; (j) clearing members' trade exposures and default fund contributions to qualified central counterparties; (k) exposures to deposit guarantee schemes under Directive 94/19/EC arising from the funding of those schemes, if the member institutions of the scheme have a legal or contractual obligation to fund the scheme; (l) clients' trade exposures referred to in Article 305(2) or (3); (m) holdings by resolution entities, or by their subsidiaries which are not themselves resolution entities, of own funds instruments and eligible liabilities referred to in Article 45f(2) of Directive 2014/59/EU that have been issued by any of the following entities: (i) in respect of resolution entities, other entities belonging to the same resolution group; (ii) in respect of subsidiaries of a resolution entity that are not themselves resolution entities, the relevant subsidiary's subsidiaries belonging to the same resolution group; (n) exposures arising from a minimum value commitment that meets all the conditions set out in Article 132c(3). Cash received under a credit linked note issued by the institution and loans and deposits of a counterparty to or with the institution which are subject to an on-balance sheet netting agreement recognised under Part Three, Title II, Chapter 4 shall be deemed to fall under point (g). 2. Competent authorities may fully or partially exempt the following exposures: (a) covered bonds as referred to in Article 129; (b) asset items constituting claims on regional governments or local authorities of Member States where those claims would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2 and other exposures to or guaranteed by those regional governments or local authorities, claims on which would be assigned a 20 % risk weight under Part Three, Title II, Chapter 2; (c) exposures incurred by an institution, including through participations or other kinds of holdings, to its parent undertaking, to other subsidiaries of that parent undertaking, or to its own subsidiaries and qualifying holdings, in so far as those undertakings are covered by the supervision on a consolidated basis to which the institution itself is subject, in accordance with this Regulation, Directive 2002/87/EC or with equivalent standards in force in a third country; exposures that do not meet those criteria, whether or not exempted from Article 395(1) of this Regulation, shall be treated as exposures to a third party; (d) asset items constituting claims on and other exposures, including participations or other kinds of holdings, to regional or central credit institutions with which the credit institution is associated in a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network; (e) asset items constituting claims on and other exposures to credit institutions incurred by credit institutions, one of which operates on a non-competitive basis and provides or guarantees loans under legislative programmes or its statutes, to promote specified sectors of the economy under some form of government oversight and restrictions on the use of the loans, provided that the respective exposures arise from such loans that are passed on to the beneficiaries via credit institutions or from the guarantees of these loans; (f) asset items constituting claims on and other exposures to institutions, provided that those exposures do not constitute such institutions' own funds, do not last longer than the following business day and are not denominated in a major trading currency; (g) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies; (h) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the competent authority, the credit assessment of those central governments assigned by a nominated ECAI is investment grade; (i) 50 % of bucket 4 off-balance-sheet documentary credits and of bucket 3 off-balance-sheet undrawn credit facilities referred to in Annex I with an original maturity of up to and including one year and subject to the competent authorities’ agreement, 80 % of guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions; (j) legally required guarantees used when a mortgage loan financed by issuing mortgage bonds is paid to the mortgage borrower before the final registration of the mortgage in the land register, provided that the guarantee is not used as reducing the risk in calculating the risk -weighted exposure amounts; (k) exposures in the form of a collateral or a guarantee for residential loans, provided by an eligible protection provider referred to in Article 201 qualifying for the credit rating which is at least the lower of the following: (i) credit quality step 2; (ii) the credit quality step corresponding to the central government foreign currency rating of the Member State where the protection provider's headquarters are located; (l) exposures in the form of a guarantee for officially supported export credits, provided by an export credit agency qualifying for the credit rating which is at least the lower of the following: (i) credit quality step 2; (ii) the credit quality step corresponding to the central government foreign currency rating of the Member State where the export credit agency's headquarters are located. 3. Competent authorities may only make use of the exemption provided for in paragraph 2 where the following conditions are met: (a) the specific nature of the exposure, the counterparty or the relationship between the institution and the counterparty eliminate or reduce the risk of the exposure; and (b) any remaining concentration risk can be addressed by other equally effective means such as the arrangements, processes and mechanisms provided for in Article 81 of Directive 2013/36/EU. Competent authorities shall inform EBA of whether they intend to use any of the exemptions provided for in paragraph 2 in accordance with points (a) and (b) of this paragraph and provide EBA with the reasons substantiating the use of those exemptions. 4. The simultaneous application of more than one exemption set out in paragraphs 1 and 2 to the same exposure shall not be permitted.

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555. 401 Article 401

     Article 401 Calculating the effect of the use of credit risk mitigation techniques 1. For calculating the value of exposures for the purposes of Article 395(1), an institution may use the fully adjusted exposure value (E*) as calculated under Chapter 4 of Title II of Part Three, taking into account the credit risk mitigation, volatility adjustments and any maturity mismatch referred to in that Chapter. 2. With the exception of institutions using the Financial Collateral Simple Method, for the purposes of the first paragraph, institutions shall use the Financial Collateral Comprehensive Method, regardless of the method used for calculating the own funds requirements for credit risk. By way of derogation from paragraph 1, institutions with permission to use the methods referred to in Section 4 of Chapter 4 of Title II of Part Three and Section 6 of Chapter 6 of Title II of Part Three, may use those methods for calculating the exposure value of securities financing transactions. 3. In calculating the value of exposures for the purposes of Article 395(1), institutions shall conduct periodic stress tests of their credit-risk concentrations, including in relation to the realisable value of any collateral taken. The periodic stress tests referred to in the first subparagraph shall address risks arising from potential changes in market conditions that could adversely impact the institutions' adequacy of own funds and risks arising from the realisation of collateral in stressed situations. The stress tests carried out shall be adequate and appropriate for the assessment of those risks. Institutions shall include the following in their strategies to address concentration risk: (a) policies and procedures to address risks arising from maturity mismatches between exposures and any credit protection on those exposures; (b) policies and procedures relating to concentration risk arising from the application of credit risk mitigation techniques, in particular from large indirect credit exposures, for example, exposures to a single issuer of securities taken as collateral. 4. Where an institution reduces an exposure to a client using an eligible credit risk mitigation technique in accordance with Article 399(1), the institution, in the manner set out in Article 403, shall treat the part of the exposure by which the exposure to the client has been reduced as having been incurred for the protection provider rather than for the client.

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556. 402 Article 402

     Article 402 Exposures arising from mortgage lending 1. For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is secured by residential property in accordance with Article 125(1) by the pledged amount of the property value, but by not more than 55 % of the property value, provided that all of the following conditions are met: (a) the competent authorities have not set a risk weight higher than 20 % for exposures or parts of exposures secured by residential property in accordance with Article 124(9); (b) the exposure or part of the exposure is fully secured by any of the following: (i) one or more mortgages on residential property; or (ii) a residential property in a leasing transaction under which the lessor retains full ownership of the residential property and the lessee has not yet exercised his or her option to purchase; (c) the requirements laid down in Article 208 and Article 229(1) are met. 2. For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is secured by commercial immovable property in accordance with Article 126(1) by the pledged amount of the property value, but by not more than 55 % of the property value, provided that all of the following conditions are met: (a) the competent authorities have not set a risk weight higher than 60 % for exposures or parts of exposures secured by commercial immovable property in accordance with Article 124(9); (b) the exposure is fully secured by any of the following: (i) one or more mortgages on offices or other commercial premises; or (ii) one or more offices or other commercial premises and the exposures related to property leasing transactions; (c) the requirements in Article 124(3), point (c), and in Article 208 and Article 229(1) are met; (d) the commercial immovable property is fully constructed. 3. An institution may treat an exposure to a counterparty that results from a reverse repurchase agreement under which the institution has purchased from the counterparty non-accessory independent mortgage liens on immovable property of third parties as a number of individual exposures to each of those third parties, provided that all of the following conditions are met: (a) the counterparty is an institution or an investment firm; (b) the exposure is fully secured by liens on the immovable property of those third parties that have been purchased by the institution and the institution is able to exercise those liens; (c) the institution has ensured that the requirements in Article 208 and Article 229(1) are met; (d) the institution becomes beneficiary of the claims that the counterparty has against the third parties in the event of default, insolvency or liquidation of the counterparty; (e) the institution reports to the competent authorities in accordance with Article 394 the total amount of exposures to each other institution or investment firm that are treated in accordance with this paragraph. For these purposes, the institution shall assume that it has an exposure to each of those third parties for the amount of the claim that the counterparty has on the third party instead of the corresponding amount of the exposure to the counterparty. The remainder of the exposure to the counter party, if any, shall continue to be treated as an exposure to the counter party.

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557. 403 Article 403

     Article 403 Substitution approach 1. Where an exposure to a client is guaranteed by a third party or is secured by collateral issued by a third party, an institution shall: (a) treat the portion of the exposure which is guaranteed as exposure to the guarantor rather than to the client, provided that the unsecured exposure to the guarantor would be assigned a risk weight that is equal to or lower than the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three; (b) treat the portion of the exposure collateralised by the market value of recognised collateral as exposure to the third party rather than to the client, provided that the exposure is secured by collateral and provided that the collateralised portion of the exposure would be assigned a risk weight that is equal to or lower than the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three. The approach referred to in point (b) of the first subparagraph shall not be used by an institution where there is a mismatch between the maturity of the exposure and the maturity of the protection. For the purposes of this Part, an institution may use both the Financial Collateral Comprehensive Method and the treatment set out in point (b) of the first subparagraph of this paragraph only where it is permitted to use both the Financial Collateral Comprehensive Method and the Financial Collateral Simple Method for the purposes of Article 92. 2. Where an institution applies point (a) of paragraph 1, the institution: (a) where the guarantee is denominated in a currency different from that in which the exposure is denominated, shall calculate the amount of the exposure that is deemed to be covered in accordance with the provisions on the treatment of currency mismatch for unfunded credit protection set out in Part Three; (b) shall treat any mismatch between the maturity of the exposure and the maturity of the protection in accordance with the provisions on the treatment of maturity mismatch set out in Chapter 4 of Title II of Part Three; (c) may recognise partial coverage in accordance with the treatment set out in Chapter 4 of Title II of Part Three. 3. For the purposes of point (b) of paragraph 1, an institution may replace the amount in point (a) of this paragraph with the amount in point (b) of this paragraph, provided that the conditions set out in points (c), (d) and (e) of this paragraph are met: (a) the total amount of the institution's exposure to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent; (b) the full amount of the limits that the institution has instructed the tri-party agent referred to in point (a) to apply to the securities issued by the collateral issuer referred to in that point; (c) the institution has verified that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits referred to in point (b); (d) the competent authority has not expressed to the institution any material concerns; (e) the sum of the amount of the limit referred to in point (b) of this paragraph and any other exposures of the institution to the collateral issuer does not exceed the limit set out in Article 395(1). 4. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying the conditions for the application of the treatment referred to in paragraph 3 of this Article, including the conditions and frequency for determining, monitoring and revising the limits referred to in point (b) of that paragraph. EBA shall publish those guidelines by 31 December 2019.

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558. 404 Article 404

     Article 404 Scope of application Titles II and III shall apply to new securitisations issued on or after 1 January 2011. Titles II and III shall, after 31 December 2014, apply to existing securitisations where new underlying exposures are added or substituted after that date.

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559. 405 Article 405

     Article 405 Retained interest of the issuer 1. An institution, other than when acting as an originator, a sponsor or original lender, shall be exposed to the credit risk of a securitisation position in its trading book or non-trading book only if the originator, sponsor or original lender has explicitly disclosed to the institution that it will retain, on an ongoing basis, a material net economic interest which, in any event, shall not be less than 5 %. Only any of the following qualifies as retention of a material net economic interest of not less than 5 %: (a) retention of no less than 5 % of the nominal value of each of the tranches sold or transferred to the investors; (b) in the case of securitisations of revolving exposures, retention of the originator's interest of no less than 5 % of the nominal value of the securitised exposures; (c) retention of randomly selected exposures, equivalent to no less than 5 % of the nominal value of the securitised exposures, where such exposures would otherwise have been securitised in the securitisation, provided that the number of potentially securitised exposures is no less than 100 at origination; (d) retention of the first loss tranche and, if necessary, other tranches having the same or a more severe risk profile than those transferred or sold to investors and not maturing any earlier than those transferred or sold to investors, so that the retention equals in total no less than 5 % of the nominal value of the securitised exposures; (e) retention of a first loss exposure not less than 5 % of every securitised exposure in the securitisation. Net economic interest is measured at the origination and shall be maintained on an ongoing basis. The net economic interest, including retained positions, interest or exposures, shall not be subject to any credit risk mitigation or any short positions or any other hedge and shall not be sold. The net economic interest shall be determined by the notional value for off-balance sheet items. There shall be no multiple applications of the retention requirements for any given securitisation. 2. Where an EU parent credit institution, an EU financial holding company, an EU mixed financial holding company or one of its subsidiaries, as an originator or a sponsor, securitises exposures from several credit institutions, investment firms or other financial institutions which are included in the scope of supervision on a consolidated basis, the requirement referred to in paragraph 1 may be satisfied on the basis of the consolidated situation of the related EU parent credit institution, EU financial holding company, or EU mixed financial holding company. The first subparagraph shall apply only where credit institutions, investment firms or financial institutions which created the securitised exposures have committed themselves to adhere to the requirements set out in Article 408 and deliver, in a timely manner, to the originator or sponsor and to the EU parent credit institution, EU financial holding company or EU mixed financial holding company the information needed to satisfy the requirements referred to in Article 409. 3. Paragraph 1 shall not apply where the securitised exposures are exposures on or fully, unconditionally and irrevocably guaranteed by the following entities: (a) central governments or central banks; (b) regional governments, local authorities and public sector entities of Member States; (c) institutions to which a 50 % risk weight or less is assigned under Part Three, Title II, Chapter 2; (d) multilateral development banks. 4. Paragraph 1 shall not apply to transactions based on a clear, transparent and accessible index, where the underlying reference entities are identical to those that make up an index of entities that is widely traded, or are other tradable securities other than securitisation positions.

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