- Question ID
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2022_6473
- Legal act
- Regulation (EU) No 2019/2033 (IFR)
- Topic
- Concentration risk
- Article
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39
- Paragraph
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2
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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n.a.
- Type of submitter
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Competent authority
- Subject matter
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K-CON own fund requirements
- Question
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How should the K-CON requirement be calculated under Article 39 of Regulation (EU) 2019/2033?
- Background on the question
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As per Article 39(1)(b) of IFR: The K‐CON own funds requirement shall be the aggregate amount of the own funds requirement calculated for each client or group of connected clients as the own funds requirement of the appropriate line in Column 1 in Table 6 that accounts for a part of the total individual excess, multiplied by:
(b) the corresponding factor in Column 2 of Table 6, after the period of 10 days calculated from the date on which the excess has occurred, by allocating each proportion of the excess to the appropriate line in Column 1 of Table 6.
As per Article 39(2) of IFR: The own funds requirement of the excess referred to in paragraph 1 shall be calculated in accordance with the following formula: OFRE = OFR/EV * EVE
- Submission date
- Final publishing date
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- Final answer
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Article 39 of Regulation (EU) 2019/2033 (IFR) sets out the methodology to calculate K-CON own funds requirement. The K-CON are calculated on the exposure value excess referred to in Article 39(1) of the IFR. The exposure value excess is based on the calculation set out in Article 37(2) of the IFR.
The following example provides the methods for the calculation of K-CON according to Article 39(1)(b) of the IFR.
Assuming an excess exposure to a trading book instrument subject to K-NPR that has persisted for more than 10 business days, the following data are provided:
Total own funds of the investment firm (Total OF) = 1,000
Exposure Limit “L” (25% of own funds) according to Article 37(1) of the IFR = 250
Exposure value (EV) according to Article 36 of the IFR = 750
Exposure value excess (EVE) according to Article 37(2) of the IFR = (750 – 250) = 500 ; [EV – L]
Exposure value excess as a percentage of own funds (EVE %) according to Table 6 of Article 39 of the IFR = 500 / 1,000 = 50% ; [EVE / Total OF ]
OFR (own funds requirement on the trading book exposure assuming a risk weight of 8% according to Article 336 of Regulation (EU) 575/2013) = (750 x 8%) = 60
Own funds requirement for the excess (OFRE) according to Article 39(2) of the IFR = (60/750) x 500 = 40 ; (OFR/EV) x EVE
Apportionment of OFRE according to the table in Article 39(2) of the IFR: since the value of EVE % is 50%, the apportionment of OFRE should be performed up to the factor tranche “from 40% to 60%”.
Factor tranche per table 6 of Article 39 of the IFR
OFRE allocation
K-CON own funds requirement
Up to 40%
1.000 ×min(50%,40%)-(1.000 ×0%)500×40=32
In general terms:
Total OF ×min(EVE%, 40%)-(Total OF × 0%)EVE×OFRE
32 x 200% = 64
From 40% to 60%
1.000 ×min(50%,60%)-(1.000 ×40%)500×40=8
In general terms:
Total OF ×min(EVE%, 60%)-(Total OF ×40%)EVE×OFRE
8 x 300% = 24
Total K-CON own funds requirement
64 + 24 = 88
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the EBA.
Disclaimer
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