Article 40
Additional own funds requirement
1.
Competent authorities shall impose the additional own funds requirement referred to in point (a) of Article 39(2) only where, on the basis of the reviews carried out in accordance with Articles 36 and 37, they ascertain any of the following situations for an investment firm:
(a)
the investment firm is exposed to risks or elements of risks, or poses risks to others that are material and are not covered or not sufficiently covered by the own funds requirement, and especially K‐factor requirements, set out in Part Three or Four of Regulation (EU) 2019/2033;
(b)
the investment firm does not meet the requirements set out in Articles 24 and 26 and other supervisory measures are unlikely to sufficiently improve the arrangements, processes, mechanisms and strategies within an appropriate timeframe;
(c)
the adjustments in relation to the prudent valuation of the trading book are insufficient to enable the investment firm to sell or hedge out its positions within a short period without incurring material losses under normal market conditions;
(d)
the review carried out in accordance with Article 37 shows that non‐compliance with the requirements for the application of the permitted internal models will likely lead to inadequate levels of capital;
(e)
the investment firm repeatedly fails to establish or maintain an adequate level of additional own funds as set out in Article 41.
2.
For the purposes of point (a) of paragraph 1 of this Article, risks or elements of risks shall be considered not to be covered or to be insufficiently covered by the own funds requirements set out in Parts Three and Four of Regulation (EU) 2019/2033 only where the amounts, types and distribution of capital considered adequate by the competent authority following the supervisory review of the assessment carried out by investment firms in accordance with Article 24(1) of this Directive are higher than the investment firm’s own funds requirement set out in Part Three or Four of Regulation (EU) 2019/2033.
For the purposes of the first subparagraph, the capital considered to be adequate may include risks or elements of risks that are explicitly excluded from the own funds requirement set out in Part Three or Four of Regulation (EU) 2019/2033.
3.
Competent authorities shall determine the level of the additional own funds required pursuant to point (a) of Article 39(2) as the difference between the capital considered adequate pursuant to paragraph 2 of this Article and the own funds requirement set out in Part Three or Four of Regulation (EU) 2019/2033.
4.
Competent authorities shall require investment firms to meet the additional own funds requirement referred to in point (a) of Article 39(2) with own funds subject to the following conditions:
(a)
at least three quarters of the additional own funds requirement is met with Tier 1 capital;
(b)
at least three quarters of the Tier 1 capital is composed of Common Equity Tier 1 capital;
(c)
those own funds are not used to meet any of the own funds requirements set out in points (a), (b) and (c) of Article 11(1) of Regulation (EU) 2019/2033.
5.
Competent authorities shall substantiate in writing their decision to impose an additional own funds requirement as referred to in point (a) of Article 39(2) by giving a clear account of the full assessment of the elements referred to in paragraphs 1 to 4 of this Article. That includes, in the case set out in point (d) of paragraph 1 of this Article, a specific statement of why the level of capital established in accordance with Article 41(1) is no longer considered sufficient.
6.
EBA, in consultation with ESMA, shall develop draft regulatory technical standards to specify how the risks and elements of risks referred to in paragraph 2 are to be measured, including risks or elements of risks that are explicitly excluded from the own funds requirements set out in Part Three or Four of Regulation (EU) 2019/2033.
EBA shall ensure that the draft regulatory technical standards include indicative qualitative metrics for the amounts of additional own funds referred to in point (a) of Article 39(2), taking into account the range of different business models and legal forms that investment firms may take, and are proportionate in light of:
(a)
the implementation burden on investment firms and competent authorities;
(b)
the possibility that the higher level of own funds requirements that apply where investment firms do not use internal models justifies the imposition of lower own funds requirements when assessing risks and elements of risks in accordance with paragraph 2.
EBA shall submit those draft regulatory technical standards to the Commission by 26 June 2021.
Power is delegated to the Commission to supplement this Directive 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.
7.
Competent authorities may impose an additional own funds requirement in accordance with paragraphs 1 to 6 on investment firms that meet the conditions for qualifying as small and non‐interconnected investment firms set out in Article 12(1) of Regulation (EU) 2019/2033 on the basis of a case‐by‐case assessment and where the competent authority deems it to be justified.