Version in force , Modified +1,384 −294§
Amended by Regulation (EU) 2019/2033 32019R2033 on EUR-Lex (external, EUR-Lex) · Regulation (EU) 2019/876 32019R0876 on EUR-Lex (external, EUR-Lex) · Regulation (EU) 2021/558 32021R0558 on EUR-Lex (external, EUR-Lex) · Regulation (EU) 2020/873 32020R0873 on EUR-Lex (external, EUR-Lex)
Explanation, written by a model and checked against the cited text
Paragraph 1's introductory wording changes from permitting an institution to use the substitution treatment to requiring it, and points (a) and (b) are reworded from describing exposure as 'having been incurred to' the guarantor or third party to describing it as 'exposure to' them, with cross-references to Chapter 2 of Title II of Part Three rephrased.
Paragraph 2's introduction is reworded to attribute the listed actions to 'the institution' performing them, and points (a) through (c) are changed from passive descriptions of what may or shall be calculated, treated or recognised to active statements that the institution shall or may do so, with the currency mismatch cross-reference in point (a) shortened to Part Three generally and points (b) and (c) specifying Chapter 4 of Title II of Part Three.
Paragraph 3 is entirely new text setting out conditions under which an institution may replace an amount referred to in point (a) with one in point (b), including a list of items and conditions relating to tri-party repurchase agreements, tri-party agent limits, verification by the institution, competent authority concerns, and a ceiling tied to Article 395(1), where the prior version's paragraph 3 is not shown in the earlier text.
Cited: Art. 403, v1 (external, EUR-Lex) · Art. 403, v2 (external, EUR-Lex)
v1 is the previous version, v2 this one.
Text from EUR-Lex, before and after
Previous version, in force 28 December 2020 02013R0575-20201228 → this version, in force 28 June 2021 02013R0575-20210629
Article 403
Substitution approach
1. Where an exposure to a client is guaranteed by a third party, party or is secured by collateral issued by a third party, an institution may: shall:
(a) treat the portion of the exposure which is guaranteed as having been incurred exposure to the guarantor rather than to the client client, provided that the unsecured exposure to the guarantor would be assigned an a risk weight that is equal to or lower risk weight than a the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three, Title II, Chapter 2; Three;
(b) treat the portion of the exposure collateralised by the market value of recognised collateral as having been incurred exposure to the third party rather than to the client, if provided that the exposure is secured by collateral and provided that the collateralised portion of the exposure would be assigned an a risk weight that is equal to or lower risk weight than a the risk weight of the unsecured exposure to the client under Chapter 2 of Title II of Part Three, Title II, Chapter 2. Three.
The approach referred to in point (b) of the first subparagraph shall not be used by an institution where there is a mismatch between the maturity of the exposure and the maturity of the protection.
For the purpose purposes of this Part, an institution may use both the Financial Collateral Comprehensive Method and the treatment set out in point (b) of the first subparagraph of this paragraph only where it is permitted to use both the Financial Collateral Comprehensive Method and the Financial Collateral Simple Method for the purposes of Article 92.
2. Where an institution applies point (a) of paragraph 1: 1, the institution:
(a) where the guarantee is denominated in a currency different from that in which the exposure is denominated denominated, shall calculate the amount of the exposure that is deemed to be covered shall be calculated in accordance with the provisions on the treatment of currency mismatch for unfunded credit protection set out in Part Three, Title II, Chapter 4; Three;
(b) a shall treat any mismatch between the maturity of the exposure and the maturity of the protection shall be treated in accordance with the provisions on the treatment of maturity mismatch set out in Chapter 4 of Title II of Part Three, Title II, Chapter 4; Three;
(c) may recognise partial coverage may be recognised in accordance with the treatment set out in Chapter 4 of Title II of Part Three, Title II, Chapter 4. Three.
3. For the purposes of point (b) of paragraph 1, an institution may replace the amount in point (a) of this paragraph with the amount in point (b) of this paragraph, provided that the conditions set out in points (c), (d) and (e) of this paragraph are met:
(a) the total amount of the institution's exposure to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent;
(b) the full amount of the limits that the institution has instructed the tri-party agent referred to in point (a) to apply to the securities issued by the collateral issuer referred to in that point;
(c) the institution has verified that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits referred to in point (b);
(d) the competent authority has not expressed to the institution any material concerns;
(e) the sum of the amount of the limit referred to in point (b) of this paragraph and any other exposures of the institution to the collateral issuer does not exceed the limit set out in Article 395(1).
4. EBA shall issue guidelines, in accordance with Article 16 of Regulation (EU) No 1093/2010, specifying the conditions for the application of the treatment referred to in paragraph 3 of this Article, including the conditions and frequency for determining, monitoring and revising the limits referred to in point (b) of that paragraph.
EBA shall publish those guidelines by 31 December 2019.