EBA final draft Regulatory Technical Standards on the treatment of equity exposures under the IRB Approach according to Article 495(3) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR)

Article 495(3) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR) allows competent authorities temporarily to exempt from the internal ratings-based (IRB) treatment certain equity exposures held by institutions as at 31 December 2007. This provision was already included in Article 154(6) of Directive 2006/48/EC (Capital Requirements Directive – CRD) to allow institutions to avoid part of the increase in the capital requirement of the equity exposure class under the IRB approach. The provision is temporary, its application ending in 31 December 2017.The only difference between the two regimes is the degree of discretion granted to the competent authorities. Whereas under CRD competent authorities were free to grant the exemption and also decide what particular equity exposures would be exempted, the CRR imposes specific conditions on competent authorities that must be met for the exemption to be granted. These final draft RTS lay down these conditions.These final draft Regulatory Technical Standards (RTS) establish only one condition for the purpose of granting the exemption of IRB treatment for equity exposures. In essence, the final draft RTS allow competent authorities to grant the exemption if it was being applied on the last day of application of CRD. This straightforward approach is justified as follows:1. the impact of any proposed change on the capital requirement of equity exposures held as at December 2007 would be immaterial in most institutions; 2. it provides continuity with the former legislative framework and there is no interference with the capital planning made by institutions under the former regulatory regime.