(1)

Some of the K-factors within the meaning of Article 4(1), point (26), of Regulation (EU) 2019/2033 do not require further specifications as that Regulation elaborates in detail the methods for measuring them. This is the case with the ‘net position risk’ K-factor (K-NPR), which is derived from Regulation (EU) No 575/2013 of the European Parliament and of the Council (2), as well as with the ‘concentration risk’ K-factor (K-CON) and ‘trading counterparty default’ K-factor (K-TCD), which use a simplified application of the corresponding requirements under that Regulation. However, in other cases such as ‘assets under management’ (AUM), ‘client money held’ (CMH), ‘client orders handled’ (COH), ‘assets safeguarded and administered’ (ASA) and ‘daily trading flow’ (DTF), the methods for measuring those factors would benefit from further clarifications.

(2)

All activity carried out by an investment firm should be captured by K-factors in order to adequately reflect the risks. Taking into account that a tied agent is a natural or legal person who acts only on behalf of a certain investment firm and under the full and unconditional responsibility of that investment firm, there is a need to ensure that any activity of a tied agent is included in AUM, ASA, CMH and COH K-factors of an investment firm.

(3)

The investment service of the ‘investment advice’ referred to in Annex I, Section A, point 5, to Directive 2014/65/EU of the European Parliament and of the Council (3) is distinct from the ancillary service of the ‘advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings’ referred to Annex I, Section B, point 3, to that Directive. Against this background and also on the basis of the definition of the ‘investment advice of an ongoing nature’ in of Article 4(1), point 21, of Regulation (EU) 2019/2033, where the aforementioned ancillary service is not included, it is necessary to specify that any assets under management relating to that ancillary service should be excluded for the purposes of the calculation of the K-AUM.

(4)

In order to ensure a consistent measurement of AUM and ASA when calculating K-AUM and K-ASA, financial instruments should be valued at their fair value in accordance with applicable accounting standards, so as to allow the reflection of the market value of the financial instruments, where available.

(5)

Since the calibration of the CMH coefficient in Table 1 of Article 15 of Regulation (EU) 2019/2033 already takes into account the risk to clients associated with the management of the cash, the amounts included in the measuring of the CMH should not be included in the measuring of the AUM. Further, in order to avoid any double counting in the calculation of the capital requirements, the amounts already considered for the measuring of the CMH should not be included in the measuring of the ASA.

(6)

The definition of CMH in Article 4(1), point 28, of Regulation (EU) 2019/2033 together with recital (24) of that Regulation clarify the amounts to be considered for the measuring of CMH. Therefore, it is sufficient to further specify the remaining operational aspects of the method for measuring the CMH with a view to ensuring the robustness of the CMH figures, in particular by avoiding overreliance on external reporting and focusing on the investment firm’s internal accounting records and figures used for [the] internal reconciliation.

(7)

The methods for measuring the amounts to be included as reception and transmission of orders and execution of orders in COH should include specific rules for the case where market prices are not readily available because they are not contained in the orders. It is necessary to reflect the differences between the case of execution of orders and the case of reception and transmission, as prices and timing at which the orders should be recorded for the measuring of COH may differ in each case. Further, in the case of reception and transmission of orders, in particular, the transmitted orders are a better reference for this purpose than the received orders, as the latter may fail to be transmitted.

(8)

As the investment service of ‘reception and transmission of orders in relation to one or more financial instruments’ referred to in Annex I, Section A, point 1, to Directive 2014/65/EU is distinct from the investment activities of ‘Operation of Multilateral or Organised Trading Facilities – MTFs, OTFs’ referred to in points 8 and 9 thereof, it is necessary to clarify that buying and selling interests brought together in MTFs and OTFs operated by the investment firm are not to be included for the calculation of the K-COH cash trades or the K-COH derivatives.

(9)

Since the capital requirements for investment firms under Regulation (EU) 2019/2033 are based on the K-factors which cover all the services and activities included in Annex I to Directive 2014/65/EU, it is necessary to lay down rules for the adaptation of those methods in those cases where otherwise there could occur double counting. This is the case, in particular, of certain ancillary services which can be performed only in conjunction with services and activities listed in Annex I, Section A, to that Directive. Therefore, orders related to the ancillary service referred to in Annex I, Section B, point 3, to Directive 2014/65/EU (advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings), which relate to advice on transactions between investors, in case of corporate finance or private equity transactions, should not be included in the measuring of the AUM, nor in that of the COH, as those K-factors already account for them.

(10)

Regulation (EU) 2019/2033 provides for two different coefficients for the measuring of COH in Table 1 of its Article 15, one for cash trades and a separate one for derivatives. Further clarifications should be provided on how to allocate trades between the two classes of instruments and on the valuation method to be used in each case. In particular, derivatives should be included in the measuring of K-factors based on the notional value and the cash trades at market value because the coefficients of the K-factors are calibrated on that basis.

(11)

It is necessary to specify the calculation of the notional amount of a derivative because Regulation (EU) 2019/2033 does not contain rules on how to calculate it. Given that Article 29(3) of Regulation (EU) 2019/2033 lays down rules on how to calculate the notional amount of derivatives for the purposes of the calculation of the TCD, and in order to ensure consistency in the measuring of the TCD and the DTF, those rules for measuring the notional amount of a derivative should apply also for the measuring of the DTF.

(12)

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

(13)

The EBA 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 (4). The EBA has also consulted the European Securities and Markets Authority before submitting the draft technical standards on which this Regulation is based,