EC adopts Delegated Regulation on RTS on extraordinary circumstances under CRR

The European Commission (EC) has adopted a Delegated Regulation supplementing the Capital Requirements Regulation (No 575/2013) (CRR), containing regulatory technical standards (RTS) of the conditions and indicators that the European Banking Authority (EBA) is to use when determining extraordinary circumstances under Articles 325az(5) and 325bf(6) of the CRR have occurred. In accordance with Articles 325bf(6) and 325az(5) of the CRR, as amended by CRR 3 (Regulation EU) 2024/1623), competent authorities may permit institutions to derogate from certain requirements of the regulatory framework for the use of internal models, or apply a softer version of those requirements, where, in the opinion of the EBA, a situation of extraordinary circumstances has occurred. In accordance with Article 325az(9) of the CRR, the occurrence of extraordinary circumstances shall be determined by the EBA, which must issue an opinion to that effect. The Delegated Regulation contains RTS which set out a framework for the EBA to follow when identifying a situation of extraordinary circumstances. The RTS specify that such circumstances could be recognised where there is a situation of significant cross-border financial market stress, or a major regime shift associated with a similar level of stress (e.g., a liquidity crisis), that can render the outcome of the back-testing and profit and loss attribution requirements inappropriate. The RTS also contain a non-exhaustive list of indicators that the EBA is to use to assess whether a situation of extraordinary circumstances has occurred. The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation. The Delegated Regulation will enter into force on the twentieth day following its publication in the Official Journal of the European Union.

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