(1)

The size of the business constitutes a proxy for the degree of sophistication that institutions should have in their capital calculations. To determine whether institutions are allowed to use simplified methods for the calculation of own funds requirements for market and counterparty credit risks, they are required to calculate the size of the on- and off-balance-sheet business in accordance with Article 94(1), Article 273a(1) and (2), and Article 325a(1) of Regulation (EU) No 575/2013. The identification of the main risk driver of a position and, on that basis, the determination of whether a transaction represents a long or a short position, are fundamental for the correct calculation of the size of the business. Given the importance of those calculations for small and non-complex institutions, the method for identifying the main risk driver of a position and for determining whether a transaction represents a long or a short position should be proportionate to the degree of complexity of the institution.

(2)

The method for determining whether a transaction represents a long or a short position should be consistent with the method for determining whether a transaction is a long or short position for transactions referred to in Article 277(3) of Regulation (EU) No 575/2013 and set out in Commission Delegated Regulation (EU) 2021/931 (2).

(3)

To produce accurate results, the method for identifying the main risk driver of a non-derivative position should be based on the calculation of the risk-weighted delta sensitivities to risk factors, as set out in Part Three, Title IV, Chapter 1a, Sections 2, 3 and 6 of Regulation (EU) No 575/2013. In addition, to ensure the consistency of the approach, the method for identifying the main risk driver of a position should be consistent with the method for identifying the primary risk driver and the most material risk driver in derivative transactions set out in Delegated Regulation (EU) 2021/931.

(4)

The method for determining whether a transaction represents a long or a short position should be based on the calculation of the risk-weighted delta sensitivity to the main risk driver. Where institutions are not able to calculate the risk-weighted delta sensitivity, they should determinate that sensitivity by assessing the trading or hedging purpose of the transaction.

(5)

It is necessary to lay down a simplified approach for small and non-complex institutions that may not be able to calculate the risk-weighted delta sensitivities, or may not be able to use the methods for identifying the primary risk driver and the most material risk driver in derivative transactions set out in Delegated Regulation (EU) 2021/931. That simplified approach should be suitable for the instruments that small and non-complex institutions normally trade. Larger institutions should also have the possibility to use that simplified approach where they trade simple instruments that are included in the scope of that simplified approach.

(6)

The simplified approach should lead to results that are consistent with the risk-weighted delta sensitivities approach. Nevertheless, simplifying assumptions should be introduced to reduce the computational and operational burden for institutions, in particular with regard to instruments denominated in a currency that is different from the institution’s reporting currency. For that reason, institutions should be allowed to disregard in the determination of the main risk driver the spot exchange rate between the currency in which the instrument is denominated and the institution’s reporting currency for stocks, bonds and derivative transactions the underlying of which would normally be allocated to the interest rate, credit, equity or commodity risk categories.

(7)

Cash positions in the reporting currency should not be taken into account when determining the size of the business, since they do not change their market value under the influence of changes to risk drivers.

(8)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority.

(9)

The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (3),