Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) (repealed)

EU Directive 2006/49 · Adopted 14 June 2006 · Extends to United Kingdom

Contents

1. Chapter I: Subject matter, scope and definitions Repealed
2. Subject matter and scope Repealed
3. 1Article 1 Repealed
4. 2Article 2 Repealed
5. Definitions Repealed
6. 3Article 3 Repealed
7. Chapter II: Initial capital Repealed
8. 4Article 4 Repealed
9. 5Article 5 Repealed
10. 6Article 6 Repealed
11. 7Article 7 Repealed
12. 8Article 8 Repealed
13. 9Article 9 Repealed
14. 10Article 10 Repealed
15. Chapter III: Trading book Repealed
16. 11Article 11 Repealed
17. Chapter IV: Own funds Repealed
18. 12Article 12 Repealed
19. 13Article 13 Repealed
20. 14Article 14 Repealed
21. 15Article 15 Repealed
22. 16Article 16 Repealed
23. 17Article 17 Repealed
24. Chapter V Repealed
25. Provisions against risks Repealed
26. 18Article 18 Repealed
27. 19Article 19 Repealed
28. 20Article 20 Repealed
29. 21Article 21 Repealed
30. Application of requirements on a consolidated basis Repealed
31. 22Article 22 Repealed
32. 23Article 23 Repealed
33. 24Article 24 Repealed
34. 25Article 25 Repealed
35. Calculation of consolidated requirements Repealed
36. 26Article 26 Repealed
37. 27Article 27 Repealed
38. Monitoring and control of large exposures Repealed
39. 28Article 28 Repealed
40. 29Article 29 Repealed
41. 30Article 30 Repealed
42. 31Article 31 Repealed
43. 32Article 32 Repealed
44. Valuation of positions for reporting purposes Repealed
45. 33Article 33 Repealed
46. Risk management and capital assessment Repealed
47. 34Article 34 Repealed
48. Reporting requirements Repealed
49. 35Article 35 Repealed
50. Chapter VI Repealed
51. Competent authorities Repealed
52. 36Article 36 Repealed
53. Supervision Repealed
54. 37Article 37 Repealed
55. 38Article 38 Repealed
56. Chapter VII: Disclosure Repealed
57. 39Article 39 Repealed
58. Chapter VIII Repealed
59. Repealed
60. 40Article 40 Repealed
61. Delegated acts and powers of execution Repealed
62. 41Article 41 Repealed
63. 42Article 42 Repealed
64. 42aExercise of the delegation Repealed
65. 42bRevocation of the delegation Repealed
66. 42cObjections to delegated acts Repealed
67. Transitional provisions Repealed
68. 43Article 43 Repealed
69. 44Article 44 Repealed
70. 45Article 45 Repealed
71. 46Article 46 Repealed
72. 47Article 47 Repealed
73. 48Article 48 Repealed
74. Final provisions Repealed
75. 49Article 49 Repealed
76. 50Article 50 Repealed
77. 51Article 51 Repealed
78. 52Article 52 Repealed
79. 53Article 53 Repealed
80. 54Article 54 Repealed
81. Annex I: CALCULATING CAPITAL REQUIREMENTS FOR POSITION RISK Repealed
82. GENERAL PROVISIONS Repealed
83. Netting Repealed
84. 1Division 1 Repealed
85. 2Division 2 Repealed
86. 3Division 3 Repealed
87. Repealed
88. 4Interest-rate futures, forward-rate agreements (FRAs) and forward commitments to buy or sell debt instruments shall be treated as combinations of long and short positions. Thus a long interest-rate futures position shall be treated as a combination of a borrowing maturing on the delivery date of the futures contract and a holding of an asset with maturity date equal to that of the instrument or notional position underlying the futures contract in question. Similarly a sold FRA will be treated as a long position with a maturity date equal to the settlement date plus the contract period, and a short position with maturity equal to the settlement date. Both the borrowing and the asset holding shall be included in the first category set out in Table 1 in point 14 in order to calculate the capital required against specific risk for interest-rate futures and FRAs. A forward commitment to buy a debt instrument shall be treated as a combination of a borrowing maturing on the delivery date and a long (spot) position in the debt instrument itself. The borrowing shall be included in the first category set out in Table 1 in point 14 for purposes of specific risk, and the debt instrument under whichever column is appropriate for it in the same table. Repealed
89. 5Options on interest rates, debt instruments, equities, equity indices, financial futures, swaps and foreign currencies shall be treated as if they were positions equal in value to the amount of the underlying instrument to which the option refers, multiplied by its delta for the purposes of this Annex. The latter positions may be netted off against any offsetting positions in the identical underlying securities or derivatives. The delta used shall be that of the exchange concerned, that calculated by the competent authorities or, where that is not available or for OTC-options, that calculated by the institution itself, subject to the competent authorities being satisfied that the model used by the institution is reasonable. Repealed
90. 6Division 6 Repealed
91. 7Division 7 Repealed
92. TREATMENT OF THE PROTECTION SELLER Repealed
93. 8When calculating the capital requirement for market risk of the party who assumes the credit risk (the ‘protection seller’), unless specified differently, the notional amount of the credit derivative contract shall be used. Notwithstanding the first sentence, the institution may elect to replace the notional value by the notional value, minus any market value changes of the credit derivative since trade inception. For the purpose of calculating the specific risk charge, other than for total return swaps, the maturity of the credit derivative contract, rather than the maturity of the obligation, shall apply. Positions are determined as follows: Repealed
94. BTREATMENT OF THE PROTECTION BUYER Repealed
95. First-to-default credit derivatives Repealed
96. Nth-to-default credit derivatives Repealed
97. 9Division 9 Repealed
98. 10Division 10 Repealed
99. 11Division 11 Repealed
100. Specific and general risks Repealed
101. 12Division 12 Repealed
102. TRADED DEBT INSTRUMENTS Repealed
103. 13Division 13 Repealed
104. Specific risk Repealed
105. 14The institution shall assign its net positions in the trading book in instruments that are not securitisation positions as calculated in accordance with point 1 to the appropriate categories in Table 1 on the basis of their issuer/obligor, external or internal credit assessment, and residual maturity, and then multiply them by the weightings shown in that table. It shall sum its weighted positions resulting from the application of this point (regardless of whether they are long or short) in order to calculate its capital requirement against specific risk. It shall calculate its capital requirement against specific risk for positions that are securitisation positions in accordance with point 16a. Repealed
106. 14aBy way of derogation from point 14, an institution may determine the larger of the following amounts as the specific risk capital charge for the correlation trading portfolio: Repealed
107. 14bThe correlation trading portfolio shall consist of securitisation positions and n-th-to-default credit derivatives that meet the following criteria: Repealed
108. 14cPositions which reference either of the following shall not be part of the correlation trading portfolio: Repealed
109. 15For the purposes of point 14 qualifying items shall include: Repealed
110. 16Division 16 Repealed
111. 16aFor instruments in the trading book that are securitisation positions, the institution shall weight with the following its net positions as calculated in accordance with point 1: Repealed
112. General risk Repealed
113. Maturity-based Repealed
114. 17Division 17 Repealed
115. 18Division 18 Repealed
116. 19Division 19 Repealed
117. 20Division 20 Repealed
118. 21Division 21 Repealed
119. 22Division 22 Repealed
120. 23Division 23 Repealed
121. 24Division 24 Repealed
122. 25Division 25 Repealed
123. Duration-based Repealed
124. 26Division 26 Repealed
125. 27Division 27 Repealed
126. 28The institution shall then calculate the modified duration of each debt instrument on the basis of the following formula: modified duration = ((duration (D))/(1 + r)), where: Repealed
127. 29Division 29 Repealed
128. 30Division 30 Repealed
129. 31The institution shall calculate its duration-weighted long and its duration-weighted short positions within each zone. The amount of the former which are matched by the latter within each zone shall be the matched duration-weighted position for that zone. Repealed
130. 32Division 32 Repealed
131. EQUITIES Repealed
132. 33Division 33 Repealed
133. Specific risk Repealed
134. 34Division 34 Repealed
135. 35By derogation from point 34, the competent authorities may allow the capital requirement against specific risk to be 2 % rather than 4 % for those portfolios of equities that an institution holds which meet the following conditions: Repealed
136. General risk Repealed
137. 36Division 36 Repealed
138. Stock-index futures Repealed
139. 37Division 37 Repealed
140. 38Division 38 Repealed
141. 39Division 39 Repealed
142. 40Division 40 Repealed
143. UNDERWRITING Repealed
144. 41Division 41 Repealed
145. SPECIFIC RISK CAPITAL CHARGES FOR TRADING BOOK POSITIONS HEDGED BY CREDIT DERIVATIVES Repealed
146. 42Division 42 Repealed
147. 43Full allowance shall be given when the value of two legs always move in the opposite direction and broadly to the same extent. This will be the case in the following situations: Repealed
148. 44Division 44 Repealed
149. 45Partial allowance shall be given when the value of two legs usually move in the opposite direction. This would be the case in the following situations: Repealed
150. 46Division 46 Repealed
151. Capital charges for CIUs in the trading book Repealed
152. 47Division 47 Repealed
153. 48Division 48 Repealed
154. 49Division 49 Repealed
155. 50Division 50 Repealed
156. GENERAL CRITERIA Repealed
157. 51Division 51 Repealed
158. 52Division 52 Repealed
159. SPECIFIC METHODS Repealed
160. 53Division 53 Repealed
161. 54Division 54 Repealed
162. 55Division 55 Repealed
163. 56Division 56 Repealed
164. Annex II: CALCULATING CAPITAL REQUIREMETNS FOR SETTLEMENT AND COUNTERPARTY CREDIT RISK Repealed
165. SETTLEMENT/DELIVERY RISK Repealed
166. 1Division 1 Repealed
167. FREE DELIVERIES Repealed
168. 2Division 2 Repealed
169. 3In applying a risk weight to free delivery exposures treated according to column 3 of Table 2, institutions using the approach set out in Articles 84 to 89 of Directive 2006/48/EC, may assign PDs to counterparties, for which they have no other non-trading book exposure, on the basis of the counterparty's external rating. Institutions using own estimates of loss given defaults (‘LGDs’) may apply the LGD set out in point 8 of Part 2 of Annex VII to Directive 2006/48/EC to free delivery exposures treated according to column 3 of Table 2 provided that they apply it to all such exposures. Alternatively, institutions using the approach set out in Articles 84 to 89 of Directive 2006/48/EC may apply the risk weights, as set out in Articles 78 to 83 of that Directive provided that they apply them to all such exposures or may apply a 100 % risk weight to all such exposures. Repealed
170. 4Division 4 Repealed
171. COUNTERPARTY CREDIT RISK (CCR) Repealed
172. 5Division 5 Repealed
173. 6Division 6 Repealed
174. 7For the purposes of point 6: Repealed
175. 8Division 8 Repealed
176. 9For the purposes of point 6 , in the case of repurchase transactions and securities or commodities lending or borrowing transactions booked in the trading book, all financial instruments and commodities that are eligible to be included in the trading book may be recognised as eligible collateral. For exposures due to OTC derivative instruments booked in the trading book, commodities that are eligible to be included in the trading book may also be recognised as eligible collateral. For the purposes of calculating volatility adjustments where such financial instruments or commodities which are not eligible under Annex VIII of Directive 2006/48/EC are lent, sold or provided, or borrowed, purchased or received by way of collateral or otherwise under such a transaction, and the institution is using the Supervisory volatility adjustments approach under Part 3 of Annex VIII to that Directive, such instruments and commodities shall be treated in the same way as non-main index equities listed on a recognised exchange. Repealed
177. 10Division 10 Repealed
178. 11Division 11 Repealed
179. 12Division 12 Repealed
180. Annex III: CALCULATING CAPITAL REQUIREMENTS FOR FOREIGN-EXCHANGE RISK Repealed
181. 1Division 1 Repealed
182. 2Division 2 Repealed
183. 2.1Firstly, the institution's net open position in each currency (including the reporting currency) and in gold shall be calculated. Repealed
184. 2.2Division 2.2 Repealed
185. 3Division 3 Repealed
186. 3.1Division 3.1 Repealed
187. 3.2The competent authorities may allow institutions to remove positions in any currency which is subject to a legally binding intergovernmental agreement to limit its variation relative to other currencies covered by the same agreement from whichever of the methods described in points 1, 2 and 3.1 that they apply. Institutions shall calculate their matched positions in such currencies and subject them to a capital requirement no lower than half of the maximum permissible variation laid down in the intergovernmental agreement in question in respect of the currencies concerned. Unmatched positions in those currencies shall be treated in the same way as other currencies. Repealed
188. 4Division 4 Repealed
189. Annex IV: CALCULATING CAPITAL REQUIREMENTS FOR COMMODITIES RISK Repealed
190. 1Division 1 Repealed
191. 2Division 2 Repealed
192. 3Division 3 Repealed
193. 4Division 4 Repealed
194. 5Division 5 Repealed
195. 6For the purpose of point 19, the excess of an institution's long (short) positions over its short (long) positions in the same commodity and identical commodity futures, options and warrants shall be its net position in each commodity. Repealed
196. 7The competent authorities may regard the following positions as positions in the same commodity: Repealed
197. Part icular instruments Repealed
198. 8Commodity futures and forward commitments to buy or sell individual commodities shall be incorporated in the measurement system as notional amounts in terms of the standard unit of measurement and assigned a maturity with reference to expiry date. Repealed
199. 9Commodity swaps where one side of the transaction is a fixed price and the other the current market price shall be incorporated into the maturity ladder approach, as set out in points 13 to 18, as a series of positions equal to the notional amount of the contract, with one position corresponding with each payment on the swap and slotted into the maturity ladder set out in Table 1 to point 13. The positions would be long positions if the institution is paying a fixed price and receiving a floating price and short positions if the institution is receiving a fixed price and paying a floating price. Repealed
200. 10Options on commodities or on commodity derivatives shall be treated as if they were positions equal in value to the amount of the underlying to which the option refers, multiplied by its delta for the purposes of this Annex. The latter positions may be netted off against any offsetting positions in the identical underlying commodity or commodity derivative. The delta used shall be that of the exchange concerned, that calculated by the competent authorities or, where none of those is available, or for OTC options, that calculated by the institution itself, subject to the competent authorities being satisfied that the model used by the institution is reasonable. Repealed
201. 11Division 11 Repealed
202. 12Division 12 Repealed
203. Maturity ladder approach Repealed
204. 13The institution shall use a separate maturity ladder in line with Table 1 for each commodity. All positions in that commodity and all positions which are regarded as positions in the same commodity pursuant to point 7 shall be assigned to the appropriate maturity bands. Physical stocks shall be assigned to the first maturity band. Repealed
205. 14Competent authorities may allow positions which are, or are regarded pursuant to point 7 as, positions in the same commodity to be offset and assigned to the appropriate maturity bands on a net basis for the following: Repealed
206. 15Division 15 Repealed
207. 16Division 16 Repealed
208. 17The institution's capital requirement for each commodity shall be calculated on the basis of the relevant maturity ladder as the sum of the following: Repealed
209. 18Division 18 Repealed
210. Simplified approach Repealed
211. 19The institution's capital requirement for each commodity shall be calculated as the sum of: Repealed
212. 20Division 20 Repealed
213. Extended Maturity ladder approach Repealed
214. 21Competent authorities may authorise institutions to use the minimum spread, carry and outright rates set out in the following table (Table 2) instead of those indicated in points 13, 14, 17 and 18 provided that the institutions, in the opinion of their competent authorities: Repealed
215. Annex V: USE OF INTERNAL MODELS TO CALCULATE CAPITAL REQUIREMENTS Repealed
216. 1Division 1 Repealed
217. 2Recognition shall only be given if the competent authority is satisfied that the institution's risk-management system is conceptually sound and implemented with integrity and that, in particular, the following qualitative standards are met: Repealed
218. 3Institutions shall have processes in place to ensure that their internal models have been adequately validated by suitably qualified parties independent of the development process to ensure that they are conceptually sound and adequately capture all material risks. The validation shall be conducted when the internal model is initially developed and when any significant changes are made to the internal model. The validation shall also be conducted on a periodic basis but especially where there have been any significant structural changes in the market or changes to the composition of the portfolio which might lead to the internal model no longer being adequate. As techniques and best practices evolve, institutions shall avail themselves of these advances. Internal model validation shall not be limited to back-testing, but shall, at a minimum, also include the following: Repealed
219. 4The institution shall monitor the accuracy and performance of its model by conducting a back-testing programme. The back-testing has to provide for each business day a comparison of the one-day value-at-risk measure generated by the institution's model for the portfolio's end-of-day positions to the one-day change of the portfolio's value by the end of the subsequent business day. Repealed
220. 5For the purpose of calculating capital requirements for specific risk associated with traded debt and equity positions, the competent authorities shall recognise the use of an institution’s internal model if, in addition to compliance with the conditions in the remainder of this Annex, the internal model meets the following conditions: Repealed
221. 5aDivision 5a Repealed
222. Scope Repealed
223. 5bDivision 5b Repealed
224. Parameters Repealed
225. 5cThe approach to capture the incremental risks shall measure losses due to default and internal or external ratings migration at the 99,9 % confidence interval over a capital horizon of 1 year. Repealed
226. 5dThe liquidity horizons shall be set according to the time required to sell the position or to hedge all material relevant price risks in a stressed market, having particular regard to the size of the position. Liquidity horizons shall reflect actual practice and experience during periods of both systematic and idiosyncratic stresses. The liquidity horizon shall be measured under conservative assumptions and shall be sufficiently long that the act of selling or hedging, in itself, would not materially affect the price at which the selling or hedging would be executed. Repealed
227. 5eHedges may be incorporated into an institution’s approach to capture the incremental default and migration risks. Positions may be netted when long and short positions refer to the same financial instrument. Hedging or diversification effects associated with long and short positions involving different instruments or different securities of the same obligor, as well as long and short positions in different issuers, may only be recognised by explicitly modelling gross long and short positions in the different instruments. Institutions shall reflect the impact of material risks that could occur during the interval between the hedge’s maturity and the liquidity horizon as well as the potential for significant basis risks in hedging strategies by product, seniority in the capital structure, internal or external rating, maturity, vintage and other differences in the instruments. An institution shall reflect a hedge only to the extent that it can be maintained even as the obligor approaches a credit or other event. Repealed
228. 5fDivision 5f Repealed
229. 5gDivision 5g Repealed
230. Validation Repealed
231. 5hAs part of the independent review of their risk measurement system and the validation of their internal models as required in this Annex, institutions shall, with a view to the approach to capture incremental default and migration risks, in particular: Repealed
232. Documentation Repealed
233. 5iDivision 5i Repealed
234. Internal approaches based on different parameters Repealed
235. 5jDivision 5j Repealed
236. Frequency of calculation Repealed
237. 5kDivision 5k Repealed
238. 5lThe competent authorities shall recognise the use of an internal approach for calculating an additional capital charge instead of a capital charge for the correlation trading portfolio in accordance with point 14a of Annex I provided that all conditions in this point are fulfilled. Repealed
239. 6Division 6 Repealed
240. 7Division 7 Repealed
241. 8For the purposes of points 10b(a) and (b), the multiplication factors (mc) and (ms) shall be increased by a plus-factor of between 0 and 1 in accordance with Table 1, depending on the number of overshootings for the most recent 250 business days as evidenced by the institution’s back-testing of the value-at-risk measure as set out in point 10. The competent authorities shall require the institutions to calculate overshootings consistently on the basis of back-testing on hypothetical and actual changes in the portfolio’s value. An overshooting is a one-day change in the portfolio’s value that exceeds the related one-day value-at-risk measure generated by the institution’s model. For the purpose of determining the plus-factor the number of overshootings shall be assessed at least quarterly and shall be equal to the higher of the number of overshootings under hypothetical and actual changes in the value of the portfolio. Repealed
242. 9Each institution must meet a capital requirement expressed as the higher of: Repealed
243. 10The calculation of the value-at-risk measure shall be subject to the following minimum standards: Repealed
244. 10aDivision 10a Repealed
245. 10bEach institution shall meet, on a daily basis, a capital requirement expressed as the sum of points (a) and (b) and an institution that uses its internal model to calculate the capital requirement for specific position risk shall meet a capital requirement expressed as the sum of points (c) and (d), as follows: Repealed
246. 10cDivision 10c Repealed
247. 11Division 11 Repealed
248. 12Division 12 Repealed
249. Interest rate risk Repealed
250. Foreign-exchange risk Repealed
251. Equity risk Repealed
252. Commodity risk Repealed
253. 13Division 13 Repealed
254. Annex VI: CALCULATING CAPITAL REQUIREMENTS FOR LARGE EXPOSURES Repealed
255. 1Division 1 Repealed
256. 2Division 2 Repealed
257. 3As from 10 days after the excess has occurred, the components of the excess, selected in accordance with point 1, shall be allocated to the appropriate line in column 1 of Table 1 in ascending order of specific-risk requirements in Annex I and/or requirements in Annex II. The additional capital requirement shall be equal to the sum of the specific-risk requirements in Annex I and/or the Annex II requirements on these components, multiplied by the corresponding factor in column 2 of Table 1. Repealed
258. Annex VII: TRADING Repealed
259. Part A: Trading Intent Repealed
260. 1Positions/portfolios held with trading intent shall comply with the following requirements: Repealed
261. Part B: Systems and Controls Repealed
262. 1Division 1 Repealed
263. 2Systems and controls shall include at least the following elements: Repealed
264. Prudent Valuation Methods Repealed
265. 3Division 3 Repealed
266. 4Division 4 Repealed
267. 5Division 5 Repealed
268. 6The following requirements must be complied with when marking to model: Repealed
269. 7Division 7 Repealed
270. Valuation adjustments Repealed
271. 8Division 8 Repealed
272. General standards Repealed
273. 9Division 9 Repealed
274. Standards for less liquid positions Repealed
275. 10Division 10 Repealed
276. 11Division 11 Repealed
277. 12Division 12 Repealed
278. 13Division 13 Repealed
279. Part C: Internal Hedges Repealed
280. 1An internal hedge is a position that materially or completely offsets the component risk element of a non-trading book position or a set of positions. Positions arising from internal hedges are eligible for trading book capital treatment, provided that they are held with trading intent and that the general criteria on trading intent and prudent valuation specified in Parts A and B are met. In particular: Repealed
281. 2Division 2 Repealed
282. 3Division 3 Repealed
283. Part D: Inclusion In The Trading Book Repealed
284. 1Division 1 Repealed
285. 2Institutions shall have clearly defined policies and procedures for overall management of the trading book. At a minimum these policies and procedures shall address: Repealed
286. 3Division 3 Repealed
287. 4Division 4 Repealed
288. Annex VIII: REPEALED DIRECTIVES Repealed
289. Part A Repealed
290. Repealed directives together with their successive(referred to in Article 52) Repealed
291. Part B Repealed
292. Deadlines for transposition(referred to in Article 52) Repealed
293. Annex IXCORRELATION TABLE Repealed