European Commission adopts further RTS on K-factors under the IFR

The European Commission has adopted the following delegated regulations under the Investment Firms Regulation:

Commission Delegated Regulation (C(2021) 6731) supplementing IFR with regard to RTS specifying adjustments to the K-factor “daily trading flow" (K-DTF) coefficients (Article 15(5)(c) IFR). The draft RTS specify adjustments to the K‐factor 'daily trading flow' (K-DTF) coefficients in the event that, in stressed market condition K‐DTF requirements seem overly restrictive and detrimental to financial stability. For this purpose, two formulae for the calculation of the adjusted coefficients have been provided for the two distinct cases of dealing in cash trades or in derivatives.

Commission Delegated Regulation (C(2021) 6776) supplementing IFR with regard to RTS specifying the amount of total margin for the calculation of the K-factor “clear margin given" (K-CMG) (Article 23(3) IFR). The Delegated Act specifies the calculation of the amount of the total margin required for the calculation of K-factor 'clearing margin given' on a portfolio basis, and the conditions for the fulfilment of the provisions regarding regulatory arbitrage avoidance. Furthermore, the Delegated Act specifies a set of criteria that the competent authority has to assess when determining if the choice of the portfolios for which the K-CMG is used has been made with a view to engaging in regulatory arbitrage.

Commission Delegated Regulation (C(2021) 6807) supplementing the IFR with regard to RTS specifying the notion of segregated accounts to ensure client money's protection in the event of an investment firm's failure (Article 15(5)(b) IFR). These draft RTS specify the notion of segregated accounts setting the conditions which shall be fulfilled to ensure the protection of client money in the event of the failure of an investment firm for the purpose of calculating the capital requirement related to the K-factor 'client money held' (K-CMH).

Commission Delegated Regulation (C2021) 6739) supplementing the IFR with regard to RTS specifying the methods for measuring the K-factors referred to in Article 15 of that Regulation (Article 15(5)(a) IFR). In particular, they specify the methods for measuring Risk-to-Client and Risk-to-Firm K-factors, whereas Risk-to-Market K-factors are already detailed enough in the IFR and requires no further specification.

The Council of the EU and the European Parliament will now scrutinise the Delegated Regulations. If neither object, they will enter into force 20 days after their publication in the Official Journal of the European Union.