Do investments in private equity referred to under Article 128(2)(c) of Regulation (EU) No. 575/2013 only relate to investments in CIU?
We are trying to validate the weights applicable to significant participations in financial sector entities when not deducted from own funds (as authorised by Article 49(2) of the CRR). We assume that these should be weighted at 100% (as per Article 133(2)), unless they qualify as high risk items in accordance with Article 128 of the CRR. Article 128(1) of the CRR states that 'Institutions shall assign a 150% risk weight to exposures, including exposures in the form of shares or units in a CIU that are associated with particularly high risks'. This sentence can be read in two ways: - 'in the form of shares (in general) or in the form of units in a CIU --> relates to equity shares or units in CIU - 'in the form of (shares or units) in a CIU --> only relates to CIU Article 128(2)(c) of the CRR then refers investments in private equity. But there is no definition available of what is considered as investments in private equity in the CRR.
The question appears to be caused by a missing comma after ", including exposures in the form of shares or units in a CIU" in Article 128(1) of Regulation (EU) 575/2013 (CRR). With a comma after ", including … in a CIU," this becomes a clause solely clarifying that the requirement to apply a 150% to exposures associated with particularly high risk includes also exposures in the form of shares in a CIU or units in a CIU (in so far as these are associated with particularly high risk).
From the definition of exposures in the form of shares in a CIU or units in a CIU in Article 4(1)(7) of the CRR, it is clear that these are not the same as "investments in private equity" according to Article 128(1) of the CRR. They are also not in general associated with particularly high risk but are treated in general as a separate exposure class according to Article 132 of the CRR.
However, exposures in the form of shares in a CIU or units in a CIU can be associated with particularly high risk. According to Article 128(2)(b) of the CRR this applies in general to investments in AIFs as defined in Article 4(1)(a) of Directive 2011/61/EU except where the mandate of the fund does not allow a leverage higher than that required under Article 51(3) of Directive 2009/65/EC; The same can also apply depending on the underlying exposures of the CIU, e.g. in the case of private equity funds because, according to Article 128(2)(c) of the CRR, the underlying exposures of such CIUs are explicitly considered as in general being associated with particularly high risk.
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Internal Market and Services) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).