EC Regulation Sets Out Methods for Measuring K-Factors Under IFR
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR. Regulation 2022/25 sets out provisions for methods to measure the risk-to-client K-factors and risk-to-firm K-factors. Regulation 2022/25 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
Some of the K-factors, such as the net position risk K-factor (K-NPR), the concentration risk K-factor (K-CON), and the trading counterparty default K-factor (K-TCD), do not require further specifications as IFR details the methods for measuring them. 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. For the purposes of measuring its risk-to-client K-factors in accordance with Article 16 of IFR, Regulation 2022/25 sets out that an investment firm shall include within each of the AUM, CMH, ASA, and COH factors, respectively, any amounts that relate to the investment services and activities of the investment firm, carried out by any tied agents registered to act on its behalf. Regulation 2022/25 also sets out provisions for the methods for measuring
- the assets under management in case of non-discretionary advisory arrangements of an ongoing nature and discretionary portfolio management
- client money held and assets safeguarded and administered
- the execution of orders in client orders handled
- the reception and transmission of orders in client orders handled
- cash trades for the purposes of client orders handled and daily trading flow
- derivatives for the purpose of client orders handled and daily trading flow
Related Links
Effective Date: January 31, 2022
Keywords: Europe, EU, Banking, Securities, IFR, Regulatory Technical Standards, K-Factor Regime, Investment Firms, Regulatory Capital, EC
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.