1.   Competent authorities shall, taking into account the size, scope and complexity of the investment firm’s activities, closely assess the specific liquidity requirement referred to in Article 42 of Directive (EU) 2019/2034 by determining the adequate amount of liquid assets that an investment firm is to hold to cover liquidity needs resulting from its activities. Competent authorities shall determine that amount by considering all risk factors that may influence the liquidity position of an investment firm and generate liquidity gaps, including the following factors:

(a)	whether there is liquidity risk stemming from the provision of investment services, and activities and specific ancillary services referred to in Article 2 of this Regulation;

(b)	whether there is liquidity risk stemming from the unavailability of funding resources as referred to in Article 3 of this Regulation;

(c)	whether there are external events affecting liquidity as referred to in Article 4 of this Regulation;

(d)	whether there is operational risk affecting liquidity as referred to in Article 5 of this Regulation;

(e)	whether there is reputational risk affecting liquidity as referred to in Article 6 of this Regulation;

(f)	whether there is an inadequate management and control of liquidity risk as referred to in Article 7 of this Regulation;

(g)	where the investment firm is part of a group, the structure of the group and its impact on the liquidity of the investment firm as referred to in Article 8 of this Regulation.

2.   For 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, competent authorities shall assess the factors and liquidity risk elements referred to in paragraph 1, points (a), (b) and (g). The assessment of the liquidity risk stemming from the provision of investment services, and from the activities and specific ancillary services referred to in paragraph 1, point (a), may however focus on liquidity risk stemming from loss in income from portfolio management, liquidity risk from operating a multilateral trading facility or an organised trading facility as defined in Article 4(1), points (22) and (23), of Directive 2014/65/EU, and from granting credits or loans to investors.

3.   When assessing the liquidity needs in accordance with paragraph 1 and 2, competent authorities shall do all of the following:

(a)	take into account all the elements that may have a material adverse effect on an investment firm’s liquidity needs under normal and stressed circumstances;

(b)

take into account the available historical data, for a period of time it deems as sufficient, on all of the following: (i) mismatches between liquid assets or other liquidity resources and liquidity needs; (ii) the historical trends in liquidity capacity; (iii) the observed material variations of liquid assets and liquidity needs;

(c)

take into account the existence of contractual netting agreements subject to the conditions laid down in Article 31 of Regulation (EU) 2019/2033, or other risk mitigation mechanisms that would effectively reduce the potential net liquidity outflow that an investment firm has towards central counterparties, clearing members, credit institutions or other investment firms;

(d)	determine whether the investment firm has sound processes, mechanisms and strategies to measure, monitor and manage its liquidity risk as set out in Articles 24 and 26 of Directive (EU) 2019/2034;

(e)	take into account potential interconnections among the factors referred to in paragraph 1;

(f)	base the assessment on reliable, accurate and up to date information.

For the purposes of point (a), stressed circumstances shall mean market stress and stress inherent to an investment firm where funding may not be accessible on a timely or cost-effective basis.

4.   Where Article 7(3) of Regulation (EU) 2019/2033 applies, competent authorities shall apply Articles 2 to 7 of this Regulation in assessing the Union parent investment firm, Union parent investment holding company, or Union parent mixed financial holding company’s liquidity risks and elements of liquidity risk on the basis of their consolidated situations.