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CRR ToolDelegated Regulation 2024/1085
Article 7

Article 7 - Assessment of whether trading desks comply with Article 104b of Regulation (EU) No 575/2013

Article 7

Assessment of whether trading desks comply with Article 104b of Regulation (EU) No 575/2013

When assessing whether trading desks comply with Article 104b of Regulation (EU) No 575/2013, competent authorities shall:

(a)

review the business strategy referred to in Article 104b of that Regulation as documented in the internal policies of the institution under Article 325bi(1), point (e), of that Regulation, and verify whether:

(i)

internal policies clearly describe the economic rationale of the business strategy, including its primary activities, trading, and hedging strategies;

(ii)

internal policies describe the features of the financial instruments and commodities traded by the trading desk, and contains a regularly updated and comprehensive list of those financial instruments and commodities;

(iii)

the institution highlights in its internal policies the instruments that are most frequently traded and that contribute the most to the acceptable level of risk for the trading desk;

(iv)

internal policies describe risk factor’s types inherent in the financial instruments and commodities referred to in point (ii);

(v)

internal policies clearly describe how the instruments and commodities referred to in point (ii) are hedged, what are the expected slippages and mismatches of hedges, and what is the expected holding period for the positions in the trading desk;

(vi)

the business strategies of the trading desks are distinctive, as required by Article 104b(2), point (a), of Regulation (EU) No 575/2013, by:

(1)

identifying the main characteristics of the trading desks in terms of business strategy, including primary activities, trading and hedging strategies;

(2)

verifying that the main characteristics referred to in point (1) meaningfully differ from one trading desk to another;

(b)

verify whether transactions between trading desks are consistent with the business strategies of those trading desks and that those transactions are not performed to:

(i)

reduce the own funds requirements for market risk;

(ii)

meet the profit and loss attribution requirements;

(iii)

meet the back-testing requirements;

(c)

review the organisational structure referred to in Article 104b(2), point (b), of Regulation (EU) No 575/2013 and the annual business plan referred to in Article 104b(2), point (e), of that Regulation, as documented in the internal policies of the institution under Article 325bi(1), point (e), of that Regulation;

(d)

verify whether for each trading desk, the institution has identified one or two head dealers, and that where two head dealers have been appointed, they either have roles, responsibilities, and authorities that are clearly separated, or one has ultimate oversight over the other;

(e)

review the reports referred to in Article 104b(2), points (d) and (f), of Regulation (EU) No 575/2013, and verify whether all aspects referred to in those points are complied with;

(f)

verify whether the institution duly documents and justifies cases where a dealer is assigned to more than one trading desk as referred to in Article 104b(3) of Regulation (EU) No 575/2013, and, for that purpose:

(i)

review the responsibility of that dealer in the context of the trading desks to which he or she has been assigned;

(ii)

verify whether the tasks performed by the dealer in one trading desk as per the business strategy of that desk do not contradict, nor create any conflict with, the tasks that the dealer performs for the other trading desks;

(g)

verify whether the rationale for the inclusion of the trading desks in the scope of the alternative internal model approach meets all of the following conditions:

(i)

the rationale is documented in the internal policies as required by Article 325bi(1), point (e), of Regulation (EU) No 575/2013;

(ii)

the rationale ensures consistency in the approach used for calculating the own funds requirements for market risk among trading desks managing similar positions;

(iii)

the rationale is coherent with the business strategy of the trading desks as referred to in Article 104b(2), point (a), of Regulation (EU) No 575/2013;

(h)

verify whether the business strategy entails that at least 10 % of the own funds requirements for market risk are calculated in accordance with the internal model approach.

For the purposes of point (a)(i), competent authorities shall verify whether the business strategy specifies how much of the trading activities are customer driven, and whether the business strategy entails trade origination and structuring, or execution of services, or both.

For the purposes of point (b), competent authorities may, where appropriate, require the institution to provide a sample of transactions between trading desks, including between trading desks for which the institution computes the own funds requirements with the internal model approach and trading desks for which the institution uses the standardised approach.