Updated 23/11/2024
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CRR ToolDelegated Regulation 2024/1085
Article 33

Article 33 - Assessment of the risk factors’ liquidity horizon

Article 33

Assessment of the risk factors’ liquidity horizon

1.   When assessing an institution’s compliance with Article 325bi(1), point (e), of Regulation (EU) No 575/2013 in relation to requirements on the risk factors’ liquidity horizon, competent authorities shall verify whether the internal policies referred to in that point require the production of an up-to-date inventory specifying, for each risk factor, the following:

(a)

a description of the risk factor;

(b)

whether the risk factor is modellable following the assessment of the modellability referred to in Article 325be of Regulation (EU) No 575/2013 and, where the risk factor is modellable, whether that risk factor is included in the subset of modellable risk factors referred to in Article 325bc(2), point (a), of that Regulation;

(c)

a simple description of the data inputs used to mark the risk factor;

(d)

the liquidity horizon assigned to the risk factor as required by Article 325bd(2) of Regulation (EU) No 575/2013;

(e)

whether the nature of the risk factor does not correspond to any broad category of risk factors as required by Article 1(2) of Delegated Regulation (EU) 2022/2058;

(f)

whether the nature of the risk captured by the risk factor and the data inputs used for that risk factor correspond to risk factors that could fall under more than one broad category of risk factors or broad sub-category of risk factors as required by Article 1(3) of Delegated Regulation (EU) 2022/2058;

(g)

where used to model a homogenous index, whether the methodology referred to in Article 1 of Delegated Regulation (EU) 2022/2058 or the methodology referred to in Article 2 of that Regulation has been used to map the risk factor to the appropriate broad category and sub-category of risk factors of Table 2 of Article 325bd of Regulation (EU) No 575/2013.

2.   When assessing whether the institution’s internal model is implemented with integrity in accordance with Article 325bi(1) of Regulation (EU) No 575/2013 as regards requirements on the risk factors’ liquidity horizon, competent authorities shall verify whether:

(a)

by using the elements referred to in paragraph 1 of this Article:

(i)

there is consistency between the nature of the risk factors, the data inputs used for the risk factors, and the broad category and sub-category of risk factors of Table 2 of Article 325bd, of Regulation (EU) No 575/2013;

(ii)

equity and credit risk factors that reflect a systematic component have been subject to the treatment referred to in Article 1(3) of Delegated Regulation (EU) 2022/2058, when those risk factors are calibrated using data inputs related to different broad categories or sub-categories of risk factors;

(iii)

basis risk factors representing the difference between two risk factors that if modelled directly by the institution, instead of the basis, would be assigned to two different sub-categories, are subject to the treatment referred to in Article 1(3) of Delegated Regulation (EU) 2022/2058;

(iv)

where a risk factor is not among risk factors referred to in Articles 3 and 4 of Delegated Regulation (EU) 2022/2058 and that risk factor does not unambiguously relate to one of the broad sub-categories of risks of Table 2 of Article 325bd of Regulation (EU) No 575/2013, that risk factor is mapped to the sub-category ‘other’ of the appropriate category;

(v)

equity risk factors recognised as equity with large market capitalisation meet one of the conditions referred to in Article 7(1) of Delegated Regulation (EU) 2022/2058;

(b)

the institution has in place objective criteria for identifying when a credit spread risk factor refers to an investment grade or a high yield position;

(c)

where the institution applies the derogation set out in Article 325bd(3) of Regulation (EU) No 575/2013 regarding the use of longer liquidity horizons in calculating the expected shortfall risk measure referred to in Article 325bb of that Regulation and the stress scenario risk measure referred to in Article 325bk of that Regulation, the institution distinguishes between positions belonging to trading desks for which the derogation is used from those trading desks for which the derogation is not used;

(d)

as part of the monthly verification referred to in Article 325bd(6) of Regulation (EU) No 575/2013, the institution verifies whether:

(i)

due to a change in the equity capitalisation or in the components of indices referred to in Article 7(1), point (b), of Delegated Regulation (EU) 2022/2058, there has been a change in the appropriate sub-category for an equity risk factor;

(ii)

due to migration or other credit quality events, there has been a change in the appropriate sub-category for a credit spread risk factor;

(e)

only one currency is considered domestic for the purpose of mapping a risk factor to the broad category ‘Interest rate’ and sub-category ‘Most liquid currencies and domestic currency’ of Article 325bd, Table 2, of Regulation (EU) No 575/2013.

For the purposes of point (c), competent authorities shall focus on risk factors belonging to the sub-category subject to the derogation and that are present both in trading desks for which the derogation is used and in trading desks for which the derogation is not used.

3.   For the purposes of paragraph 2, point (a), competent authorities may require the institution to identify the risk factors in a sample of financial instruments or commodities, and make their assessment taking into account the nature of the financial instruments bearing the risk factors. When requiring that sample, competent authorities shall focus on financial instruments or commodities encompassing a sufficiently wide range of risk factor types to ensure a comprehensive assessment.

4.   For the purposes of paragraph 2, point (d), of this Article competent authorities may require the institution to provide risk factors that were subject to a change in the sub-category, and verify that, following the monthly verification, the expected shortfall risk measure referred to in Article 325bb of Regulation (EU) No 575/2013 and the stress scenario risk measure referred to in Article 325bk of that Regulation reflected the changes in the liquidity horizon.