Market Risk Module

3D1 Lists Of Regional Governments And Local Authorities

1.

A firm must treat exposures to the Scottish Government, the Welsh Government and the Northern Ireland Executive as exposures to the central government of the UK for the calculation of the market risk module of the standard formula.

31/12/2024

3D2 Qualifying Infrastructure Investments

1.

The requirements that must be met for an investment in an infrastructure entity to constitute a qualifying infrastructure investment are as follows:

(1) the cash-flows generated by the infrastructure assets allow for all financial obligations to be met under sustained stresses that are relevant for the risks of the project;
(2) the cash-flows that the infrastructure entity generates for debt providers and equity investors are predictable;
(3) the infrastructure assets and infrastructure entity are governed by a regulatory or contractual framework that provides debt providers and equity investors with a high degree of protection including the following:
1. (a) the contractual framework must include provisions that effectively protect debt providers and equity investors against losses resulting from the termination of the project by the party which agrees to purchase the goods or services provided by the infrastructure project, unless one of the following requirements is met:
  1. (i) the revenues of the infrastructure entity are funded by payments from a large number of users; or
  2. (ii) the revenues are subject to a rate-of-return regulation; and
2. (b) the infrastructure entity has sufficient reserve funds or other financial arrangements to cover the contingency funding and working capital requirements of the project.
(4) where investments are in bonds or loans, this contractual framework must also include the following:
1. (a) debt providers have security or the benefit of security to the extent permitted by applicable law in all assets and contracts that are critical to the operation of the project;
2. (b) the use of net operating cash-flows after mandatory payments from the project for purposes other than servicing debt obligations is restricted; and
3. (c) restrictions on activities that may be detrimental to debt providers, including that new debt cannot be issued without the consent of existing debt providers in the form agreed with them, unless such new debt issuance is permitted under the documentation for the existing debt;
(5) notwithstanding (4)(a), for investments in bonds or loans, where a firm can demonstrate that security in all assets and contracts is not essential for debt providers to effectively protect or recover the vast majority of their investment, other security mechanisms may be used, provided they comprise at least one of the following:
1. (a) pledge of shares;
2. (b) step-in rights;
3. (c) lien over bank accounts;
4. (d) control over cash-flows; or
5. (e) provisions for assignment of contracts;
(6) where investments are in bonds or loans, the firm is able to hold the investment to maturity and, subject to 3D2.3, has notified the PRA of this in writing before it treats an investment as a qualifying infrastructure investment;
(7) where investments are in bonds or loans for which a credit assessment by a nominated external credit assessment institution is not available, the investment instrument and other pari passu instruments are senior to all other claims other than statutory claims and claims from liquidity facility providers, trustees and derivatives counterparties; and
(8) where investments are in equities, or bonds or loans for which a credit assessment by a nominated external credit assessment institution is not available, the following criteria are met:
1. (a) the infrastructure assets and infrastructure entity are located in the OECD;
2. (b) where the infrastructure project is in the construction phase the following criteria must be fulfilled by the equity investor, or where there is more than one equity investor, the following criteria must be fulfilled by a group of equity investors as a whole:
  1. (i) the equity investors have a history of successfully overseeing infrastructure projects and the relevant expertise;
  2. (ii) the equity investors have a low risk of default, or there is a low risk of material losses for the infrastructure entity as a result of their default; and
  3. (iii) the equity investors are incentivised to protect the interests of investors;
3. (c) where there are construction risks, safeguards exist to ensure completion of the project according to the agreed specification, budget or completion date;
4. (d) where operating risks are material, they are properly managed;
5. (e) the infrastructure entity uses tested technology and design;
6. (f) the capital structure of the infrastructure entity allows it to service its debt;
7. (g) the refinancing risk for the infrastructure entity is low; and
8. (h) the infrastructure entity uses derivatives only for risk-mitigation purposes.

31/12/2024

2.

For the purposes of 3D2.1(2), a firm must not treat the cash-flows generated for debt providers and equity investors as predictable unless all except an immaterial part of the revenues satisfy the following requirements:

(1) one of the following criteria is met:
1. (a) the revenues are availability-based;
2. (b) the revenues are subject to a rate-of-return regulation;
3. (c) the revenues are subject to a take-or-pay contract; or
4. (d) the level of output or the usage and the price must independently meet one of the following criteria:
  1. (i) it is regulated;
  2. (ii) it is contractually fixed; or
  3. (iii) it is sufficiently predictable as a result of low demand risk; and
(2) where the revenues of the infrastructure entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure project entity must be one of the following:
1. (a) an entity listed in 3D24.2;
2. (b) a body listed in 3D1;
3. (c) an entity with an external credit assessment institution rating with a credit quality step of at least 3; or
4. (d) an entity that is replaceable without a significant change in the level and timing of revenues.

31/12/2024

3.

Where a firm treated an investment as a qualifying infrastructure investment in accordance with Article 164a of Commission Delegated Regulation (EU) 2015/35 immediately before 31 December 2024 and from 31 December 2024 treats that investment as a qualifying infrastructure investment, the firm must notify in writing the PRA by 31 January 2025.

31/12/2024

3D3 Qualifying Infrastructure Corporate Investments

1.

The requirements that must be met for an investment in an infrastructure entity to constitute a qualifying infrastructure corporate investment are as follows:

(1) the substantial majority of the infrastructure entity’s revenues is derived from owning, financing, developing or operating infrastructure assets located in the OECD;
(2) the revenues generated by the infrastructure assets satisfy one of the criteria set out in 3D2.2(1);
(3) where the revenues of the infrastructure entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure entity must be one of the entities listed in 3D2.2(2);
(4) the revenues must be diversified in terms of activities, location, or payers, unless the revenues are subject to a rate-of-return regulation in accordance with 3D2.1(3)(a)(ii) or a take-or-pay contract or the revenues are availability based;
(5) where investments are in bonds or loans, the firm is able to hold the investment to maturity and, subject to 3D3.2, has notified the PRA of this in writing before it treats an investment as a qualifying infrastructure corporate investment;
(6) where no credit assessment from a nominated external credit assessment institution is available for the infrastructure entity:
1. (a) the capital structure of the infrastructure entity must allow it to service all its debt under conservative assumptions based on an analysis of the relevant financial ratios; and
2. (b) the infrastructure entity must have been active for at least three years or, in the case of an acquired business, it must have been in operation for at least three years; and
(7) where a credit assessment from a nominated external credit assessment institution is available for the infrastructure entity, such credit assessment has a credit quality step between 0 and 3.

31/12/2024

2.

Where a firm treated an investment as a qualifying infrastructure corporate investment in accordance with Article 164b of Commission Delegated Regulation (EU) 2015/35 immediately before 31 December 2024 and from 31 December 2024 treats that investment as a qualifying infrastructure corporate investment, the firm must notify the PRA in writing by 31 January 2025.

31/12/2024

3D4 General Provisions

1.

A firm must calculate the capital requirement for interest-rate risk as equal to the higher of the following:

(1) the sum, over all currencies, of the capital requirements for the risk of an increase in the term structure of interest rates as set out in 3D5; and
(2) the sum, over all currencies, of the capital requirements for the risk of a decrease in the term structure of interest rates as set out in 3D6.

31/12/2024

2.

Where the higher of the capital requirements referred to in 3D4.1(1) and (2) and the higher of the corresponding capital requirements calculated in accordance with 6.3(2) are not based on the same scenario, the capital requirement for interest-rate risk must be the capital requirement referred to in 3D4.1(1) and (2) for which the underlying scenario results in the highest corresponding capital requirement calculated in accordance with 6.3(2).

31/12/2024

3D5 Increase In The Term Structure Of Interest Rates

1.

A firm must calculate the capital requirement for the risk of an increase in the term structure of interest rates for a given currency as equal to the loss in its basic own funds that would result from an instantaneous increase in basic risk-free interest rates for that currency at different maturities in accordance with the following table:

Maturity (in years)	Increase
1	70%
2	70%
3	64%
4	59%
5	55%
6	52%
7	49%
8	47%
9	44%
10	42%
11	39%
12	37%
13	35%
14	34%
15	33%
16	31%
17	30%
18	29%
19	27%
20	26%
90	20%

31/12/2024

2.

For maturities not specified in the table above, the value of the increase must be linearly interpolated, provided that:

(1) for maturities shorter than 1 year, the increase must be 70%; and
(2) for maturities longer than 90 years, the increase must be 20%.

31/12/2024

3.

In any case, the increase of basic risk-free interest rates at any maturity must be at least one percentage point.

31/12/2024

4.

The impact of the increase in the basic relevant risk-free rate term structure on the value of participations in financial institutions and credit institutions as referred to in Own Funds 3K.6 must only be taken into account on the value of the participations that are not deducted from own funds pursuant to Own Funds 3K and the part deducted from own funds must only be taken into account to the extent that such impact increases the basic own funds.

31/12/2024

3D6 Decrease In The Term Structure Of Interest Rates

1.

A firm must calculate the capital requirement for the risk of a decrease in the term structure of interest rates for a given currency as equal to the loss in its basic own funds that would result from an instantaneous decrease in basic risk-free interest rates for that currency at different maturities in accordance with the following table:

Maturity (in years)	Decrease
1	75%
2	65%
3	56%
4	50%
5	46%
6	42%
7	39%
8	36%
9	33%
10	31%
11	30%
12	29%
13	28%
14	28%
15	27%
16	28%
17	28%
18	28%
19	29%
20	29%
90	20%

31/12/2024

2.

For maturities not specified in the table above, the value of the decrease must be linearly interpolated, provided that:

(1) for maturities shorter than 1 year, the decrease must be 75%; and
(2) for maturities longer than 90 years, the decrease must be 20%.

31/12/2024

3.

Notwithstanding 3D6.1 and 3D6.2, for negative basic risk-free interest rates the decrease must be nil.

31/12/2024

4.

The impact on the value of participations as referred to in Own Funds 3K.6 in financial institutions and credit institutions of the decrease in the basic relevant risk-free interest rate term structure must only be taken into account on the value of the participations that are not deducted from own funds pursuant to Own Funds 3K and the part deducted from own funds must only be taken into account to the extent that such impact increases the basic own funds.

31/12/2024

3D7 General Provisions

1.

The equity risk sub-module must include a risk sub-module for type 1 equities, a risk sub-module for type 2 equities, a risk sub-module for qualifying infrastructure equities and a risk sub-module for qualifying infrastructure corporate equities.

31/12/2024

2.

A firm must treat as type 1 equities:

(1) those listed in 3D7.8; and
(2) equities listed in regulated markets in countries which are members of the OECD, or traded on multilateral trading facilities, as defined in Article 3 of the RAO, whose registered office or head office is in an EU Member State.

31/12/2024

3.

A firm must treat as type 2 equities:

(1) equities other than those referred to in 3D7.2, commodities and other alternative investments; and
(2) all assets other than those covered in the interest-rate risk sub-module, the property risk sub-module or the spread risk sub-module, including the assets and indirect exposures referred to in 2.3(1) and (2) where a look-through approach is not possible and the firm does not make use of the provisions in 2.3(3) and (4).

31/12/2024

4.

A firm must treat as qualifying infrastructure equities equity investments in infrastructure entities that meet the requirements set out in 3D2.

31/12/2024

5.

A firm must treat as qualifying infrastructure corporate equities equity investments in infrastructure entities that meet the requirements set out in 3D3.

31/12/2024

6.

A firm must calculate the capital requirement for equity risk in accordance with the following formula:

${S C R}_{e q u i t y} = \sqrt{{S C R}_{e q u 1}^{2} + 2 \cdot 0.75 \cdot {S C R}_{e q u 1} \cdot ({S C R}_{e q u 2} + {S C R}_{q u i n f} + {S C R}_{q u i n f c}) + {({S C R}_{e q u 2} + {S C R}_{q u i n f} + {S C R}_{q u i n f c})}^{2}}$

where:

(a) SCR_equ1 denotes the capital requirement for type 1 equities;
(b) SCR_equ2 denotes the capital requirement for type 2 equities;
(c) SCR_quinf denotes the capital requirement for qualifying infrastructure equities; and
(d) SCR_quinfc denotes the capital requirement for qualifying infrastructure corporate equities.

31/12/2024

7.

The impact of the instantaneous decreases set out in 3D9 and 3D10 on the value of participations as referred to in Own Funds 3K.6 in financial institutions and credit institutions must only be taken into account on the value of the participations that are not deducted from own funds pursuant to Own Funds 3K.

31/12/2024

8.

A firm must treat the following equities as type 1:

(1) equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within collective investment undertakings which are qualifying social entrepreneurship funds as referred to in Article 3(b) of Regulation (EU) No 346/2013 of the European Parliament and of the Council where the look-through approach is possible for all exposures within the collective investment undertakings, or units or shares of those funds where the look-through approach is not possible for all exposures within the collective investment undertakings;
(2) equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within collective investment undertakings which are qualifying venture capital funds as referred to in Article 3(b) of Regulation (EU) No 345/2013 of the European Parliament and of the Council where the look-through approach is possible for all exposures within the collective investment undertakings, or units or shares of those funds where the look-through approach is not possible for all exposures within the collective investment undertakings;
(3) as regards closed-ended alternative investment funds which are established in the UK or, if they are not established in the UK, which are marketed in the UK in accordance with regulations 49, 50 and 54 of the Alternative Investment Fund Managers Regulations 2013/1773 in the form such regulations will take when regulation 3 and Schedule 1 of the Alternative Investment Fund Managers (Amendment) Regulations 2013/1797 come into force and which, in either case, have no leverage in accordance with the commitment method set out in Article 8 of Commission Delegated Regulation (EU) No 231/2013:
1. (a) equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within such funds where the look-through approach is possible for all exposures within the alternative investment funds; and
2. (b) units or shares of such funds where the look-through approach is not possible for all exposures within the alternative investment funds; and
(4) qualifying unlisted equity portfolios as defined in 3D8.

31/12/2024

3D8 Qualifying Unlisted Equity Portfolios

1.

For the purposes of 3D7.8(4), a qualifying unlisted equity portfolio is a set of equity investments that meets all of the following requirements:

(1) the set of investments consists solely of investments in the ordinary shares of companies;
(2) the ordinary shares of each of the companies concerned are not listed in any regulated market;
(3) each company has its head office in the UK;
(4) more than 50% of the annual revenue of each company is denominated in currencies of countries which are members of the OECD;
(5) more than 50% of the staff employed by each company have their principal place of work in the UK;
(6) each company fulfils at least one of the following requirements for each of the last three financial years ending prior to the date on which the SCR is being calculated:
1. (a) the annual turnover of the company exceeds GBP 8,800,000;
2. (b) the balance sheet total of the company exceeds GBP 8,800,000; or
3. (c) the number of staff employed by the company exceeds 50;
(7) the value of the investment in each company represents no more than 10% of the total value of the set of investments;
(8) none of the companies is a UK Solvency II undertaking, a credit institution, an investment firm, a financial institution, an alternative investment fund manager, a UCITS management company, an institution for occupational retirement provision or a non-regulated undertaking carrying out financial activities; and
(9) the beta of the set of investments does not exceed 0.796.

31/12/2024

2.

For the purposes of 3D8.1(9), the beta of a set of investments is the average of the betas for each of the investments in that set of investments, weighted by the book values of those investments and a firm must determine the beta of an investment in a company in accordance with the following formula:

$β = 0.9478 - 0.0034 \cdot G M + 0.0139 \cdot \frac{D e b t}{C F O} - 0.0015 \cdot R O C E$

where:

(a) β is the beta of the equity investment in the company;
(b) GM is the average gross margin for the company over the last five financial years ending prior to the date on which the SCR is being calculated;
(c) Debt is the total debt of the company at the end of the most recent financial year for which figures are available;
(d) CFO is the average net cash-flow for the company from operations over the last five financial years ending prior to the date on which the SCR is being calculated; and
(e) ROCE is the average return on common equity for the company over the last five financial years ending prior to the date on which the SCR is being calculated. Common equity for these purposes shall mean capital and reserves as referred to in Schedule 1 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008/410 as amended from time to time excluding preference shares and the related share premium account.

31/12/2024

3D9 Standard Equity Risk Sub-Module

1.

A firm must calculate the capital requirement for type 1 equities referred to in 3D7 as equal to the loss in its basic own funds that would result from the following instantaneous decreases:

(1) an instantaneous decrease equal to 22% in the value of type 1 equity investments in related undertakings where these investments are of a strategic nature, in accordance with 3D10;
(2) an instantaneous decrease equal to 22% in the value of type 1 equity investments that are treated as long-term equity investments in accordance with 3D11; and
(3) an instantaneous decrease equal to the sum of 39% and the symmetric adjustment, in the value of type 1 equities other than those referred to in (1) and (2).

31/12/2024

2.

A firm must calculate the capital requirement for type 2 equities referred to in 3D7 as equal to the loss in its basic own funds that would result from the following instantaneous decreases:

(1) an instantaneous decrease equal to 22% in the value of type 2 equity investments in related undertakings where these investments are of a strategic nature, in accordance with 3D10;
(2) an instantaneous decrease equal to 22% in the value of type 2 equity investments that are treated as long-term equity investments in accordance with 3D11; and
(3) an instantaneous decrease equal to the sum of 49% and the symmetric adjustment, in the value of type 2 equities other than those referred to in (1) and (2).

31/12/2024

3.

A firm must calculate the capital requirement for qualifying infrastructure equities referred to in 3D7 as equal to the loss in its basic own funds that would result from the following instantaneous decreases:

(1) an instantaneous decrease equal to 22% in the value of qualifying infrastructure equity investments in related undertakings, where those investments are of a strategic nature, in accordance with 3D10;
(2) an instantaneous decrease equal to 22% in the value of qualifying infrastructure equity investments that are treated as long-term equity investments in accordance with 3D11; and
(3) an instantaneous decrease equal to the sum of 30% and 77% of the symmetric adjustment in the value of qualifying infrastructure equity investments, other than those referred to in (1) and (2).

31/12/2024

4.

A firm must calculate the capital requirement for qualifying infrastructure corporate equities referred to in 3D7 as equal to the loss in its basic own funds that would result from the following instantaneous decreases:

(1) an instantaneous decrease equal to 22% in the value of qualifying infrastructure corporate equity investments in related undertakings where those investments are of a strategic nature, in accordance with 3D10;
(2) an instantaneous decrease equal to 22% in the value of qualifying infrastructure corporate equity investments that are treated as long-term equity investments in accordance with 3D11; and
(3) an instantaneous decrease equal to the sum of 36% and 92% of the symmetric adjustment in the value of qualifying infrastructure corporate equities, other than those referred to in (1) and (2).

31/12/2024

3D10 Strategic Equity Investments

1.

For the purposes of 3D9.1(1), 3D9.2(1), 3D9.3(1) and 3D9.4(1), equity investments of a strategic nature means equity investments for which the firm holding a participation demonstrates the following:

(1) that the value of the equity investment is likely to be materially less volatile for the following 12 months than the value of other equities over the same period as a result of both the nature of the investment and the influence exercised by the firm holding a participation in the related undertaking; and
(2) that the nature of the investment is strategic, taking into account all relevant factors, including:
1. (a) the existence of a clear decisive strategy to continue holding the participation for a long period;
2. (b) the consistency of the strategy referred to in (a) with the main policies guiding or limiting the actions of the undertaking;
3. (c) the firm’s ability to continue holding the participation in the related undertaking;
4. (d) the existence of a durable link; and
5. (e) where the firm holding a participation is part of a group, the consistency of such strategy with the main policies guiding or limiting the actions of the group.

31/12/2024

3D11 Long-Term Equity Investments

1.

A firm may treat a sub-set of equity investments as long-term equity investments if all of the following requirements are met and, subject to 3D11.4, the firm has notified the PRA in writing that it meets these requirements:

(1) the sub-set of equity investments as well as the holding period of each equity investment within the sub-set are clearly identified;
(2) the sub-set of equity investments is included within a portfolio of assets which is assigned to cover the best estimate of a portfolio of insurance or reinsurance obligations corresponding to one or several clearly identified businesses, and the firm maintains that assignment over the lifetime of the obligations;
(3) the portfolio of insurance or reinsurance obligations, and the assigned portfolio of assets referred to in (2) are identified, managed and organised separately from the other activities of the firm, and the assigned portfolio of assets cannot be used to cover losses arising from other activities of the firm;
(4) the technical provisions within the portfolio of insurance or reinsurance obligations referred to in (2) only represent a part of the total technical provisions of the firm;
(5) the average holding period of equity investments in the sub-set exceeds five years, or where the average holding period of the sub-set is lower than five years, the firm does not sell any equity investments within the sub-set until the average holding period exceeds five years;
(6) the sub-set of equity investments consists only of equities that are listed in the UK or of unlisted equities of companies that have their head offices in UK;
(7) the solvency and liquidity position of the firm, as well as its strategies, processes and reporting procedures with respect to asset-liability management, are such as to ensure, on an ongoing basis and under stressed conditions, that it is able to avoid forced sales of each equity investments within the sub-set for at least 10 years; and
(8) the risk management, asset-liability management and investment policies of the firm reflects the firm’s intention to hold the sub-set of equity investments for a period that is compatible with the requirement of (5) and its ability to meet the requirement of (7).

31/12/2024

2.

Where equities are held within collective investment undertakings or within alternative investment funds that meet the requirements of 3D7.8(1) to (3), the requirements set out in 3D11.1 may be assessed at the level of the funds and not of the underlying assets held within those funds.

31/12/2024

3.

A firm that treats a sub-set of equity investments as long-term equity investments in accordance with 3D11.1 must not revert back to an approach that does not include long-term equity investments, and if the firm is no longer able to comply with the requirements set out in 3D11.1, it must immediately inform the PRA in writing and cease to apply 3D9.1(2), 3D9.2(2), 3D9.3(2) and 3D9.4(2) to any of its equity investments for a period of 36 months.

31/12/2024

4.

Where a firm treated a sub-set of equity investments as long-term equity investments in accordance with Article 171a of Commission Delegated Regulation (EU) 2015/35 immediately before 31 December 2024 and from 31 December 2024 treats that sub-set of equity investments as long-term equity investments, the firm must notify the PRA in writing by 31 January 2025.

31/12/2024

3D12 Symmetric Adjustment Of The Equity Capital Charge

1.

The equity index upon which the symmetric adjustment to the standard equity capital charge is to be based must comply with all of the following requirements:

(1) the equity index measures the market price of a diversified portfolio of equities which is representative of the nature of equities typically held by UK Solvency II undertakings;
(2) the level of the equity index is publicly available; and
(3) the frequency of published levels of the equity index is sufficient to enable the current level of the index and its average value over the last 36 months to be determined.

31/12/2024

2.

Subject to 3D12.4, a firm must calculate the symmetric adjustment in accordance with the following formula:

$S A = \frac{1}{2} \cdot (\frac{C I - A I}{A I} - 8 %)$

where:

(a) CI denotes the current level of the equity index; and
(b) AI denotes the weighted average of the daily levels of the equity index over the last 36 months.

31/12/2024

3.

For the purposes of calculating the weighted average of the daily levels of the equity index, the weights for all daily levels must be equal and the days during the last 36 months in respect of which the index was not determined must not be included in the average.

31/12/2024

4.

The symmetric adjustment must not be lower than -10% or higher than 10%.

31/12/2024

3D13 Calculation Of The Equity Index

1.

For the purpose of this Chapter, the following definitions apply:

(1) ‘last level’ means the last value of the equity index for the day of reference published by the provider of the equity index; and
(2) ‘working day’ means every day other than Saturdays and Sundays.

31/12/2024

2.

The level of the equity index referred to in 3D12 must be determined for each working day.

31/12/2024

3.

The level of the equity index for a particular working day must be the sum of the contributions of all equity indices included in 3D14 on that working day.

31/12/2024

4.

For each of the equity indices set out in 3D14, its contribution for a particular working day must be the product of its normalised level for the working day and the respective weight for the equity index as set out in 3D14.

31/12/2024

5.

For each of the equity indices set out in 3D14, its normalised level for a particular working day must be its last level on that working day divided by its last level on the first day of the 36 month period ending on the working day for which the level of the equity index as defined in 3D12.1 is being calculated, provided that where the last level of an equity index is not available for a specific day, the most recent last level before that day must be used.

31/12/2024

3D14 Calculation Of The Equity Index

1.

The equity indices referred to in 3D13 are as follows:

Equity indices (Price indices)	Weights
FTSE All-Share Index	0.48
Nikkei 225	0.07
S&P 500	0.30
FTSE Developed Europe ex UK (local currency)	0.15

31/12/2024

3D15 Property Risk Sub-Module

1.

A firm must calculate the capital requirement for property risk as equal to the loss in its basic own funds that would result from an instantaneous decrease of 25% in the value of immovable property.

31/12/2024

3D16 Scope Of The Spread Risk Sub-Module

1.

A firm must calculate the capital requirement for spread risk in accordance with the following formula:

${S C R}_{s p r e a d} = {S C R}_{b o n d s} + {S C R}_{s e c u r i t i s a t i o n} + {S C R}_{c d}$

where:

(a) SCR_bonds denotes the capital requirement for spread risk on bonds and loans;
(b) SCR_{securitisation} denotes the capital requirement for spread risk on securitisation positions; and
(c) SCR_cd denotes the capital requirement for spread risk on credit derivatives.

31/12/2024

3D17 Spread Risk On Bonds And Loans

1.

A firm must calculate the capital requirement for spread risk on bonds and loans SCR_bonds as equal to the loss in its basic own funds that would result from an instantaneous relative decrease of stress_i in the value of each bond or loan i other than mortgage loans that meet the requirements in 3E3, including bank deposits other than cash at bank referred to in 3.14(2).

31/12/2024

2.

A firm must calculate the risk factor stress_i by reference to the modified duration of the bond or loan i denominated in years (dur_i) provided that dur_i must never be lower than 1. For variable interest rate bonds or loans, dur_i must be equivalent to the modified duration of a fixed interest rate bond or loan of the same maturity and with coupon payments equal to the forward interest rate.

31/12/2024

3.

A firm must assign bonds or loans for which a credit assessment by a nominated external credit assessment institution is available a risk factor stress_i depending on the credit quality step and the modified duration dur_i of the bond or loan i according to the following table:

*Credit quality step*		0		1		2		3		4		5 and 6
Duration (dur_i)	stress_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i
up to 5	$b_{i} \cdot {d u r}_{i}$	—	0.9%	—	1.1%	—	1.4%	—	2.5%	—	4.5%	—	7.5%
More than 5 and up to 10	$a_{i} + b_{i} \cdot ({d u r}_{i} - 5)$	4.5%	0.5%	5.5%	0.6%	7.0%	0.7%	12.5%	1.5%	22.5%	2.5%	37.5%	4.2%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	7.0%	0.5%	8.5%	0.5%	10.5%	0.5%	20.0%	1.0%	35.0%	1.8%	58.5%	0.5%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	9.5%	0.5%	11.0%	0.5%	13.0%	0.5%	25.0%	1.0%	44.0%	0.5%	61.0%	0.5%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	12.0%	0.5%	13.5%	0.5%	15.5%	0.5%	30.0%	0.5%	46.6%	0.5%	63.5%	0.5%

31/12/2024

4.

A firm must assign bonds and loans for which a credit assessment by a nominated external credit assessment institution is not available and for which debtors have not posted collateral by way of a collateral arrangement that meets the criteria set out in 3G8 a risk factor stress_i depending on the duration dur_i of the bond or loan i according to the following table:

*Duration (dur_i)*	*stress_i*
up to 5	$3 % \cdot {d u r}_{i}$
More than 5 and up to 10	$15 + 1.7 % \cdot {(d u r}_{i} - 5)$
More than 10 and up to 20	$23.5 % + 1.2 % \cdot ({d u r}_{i} - 10)$
More than 20	$min (35.5 % + 0.5 % \cdot ({d u r}_{i} - 20); 1)$

31/12/2024

5.

Notwithstanding 3D17.4, bonds and loans that are assigned to a credit quality step in accordance with 3D18.1 or 3D18.2 or 3D20.1 must be assigned a risk factor stress_i depending on the credit quality step and the modified duration dur_I of the bond or loan i assigned in accordance with the table set out in 3D17.3.

31/12/2024

6.

A firm must assign bonds and loans for which a credit assessment by a nominated external credit assessment institution is not available and for which debtors have posted collateral by way of a collateral arrangement, where the collateral of those bonds and loans meet the criteria set out in 3G8, a risk factor stress_i according to the following:

(1) where the risk-adjusted value of collateral is higher than or equal to the value of the bond or loan i, stress_i must be equal to half of the risk factor that would be determined in accordance with 3D17.4;
(2) where the risk-adjusted value of collateral is lower than the value of the bond or loan i, and where the risk factor determined in accordance with 3D17.4 would result in a value of the bond or loan i that is lower than the risk-adjusted value of the collateral, stress_i must be equal to the average of the following:
1. (a) the risk factor determined in accordance with 3D17.4; and
2. (b) the difference between the value of the bond or loan i and the risk-adjusted value of the collateral, divided by the value of the bond or loan i; and
(3) where the risk-adjusted value of collateral is lower than the value of the bond or loan i, and where the risk factor determined in accordance with 3D17.4 would result in a value of the bond or loan i that is higher than or equal to the risk-adjusted value of the collateral, stress_i must be determined in accordance with 3D17.4.

A firm must calculate the risk-adjusted value of the collateral in accordance with 7.34, 3E10 and 3E11.

31/12/2024

7.

A firm must take into account the impact of the instantaneous decrease in the value of participations in financial institutions and credit institutions, as referred to in Own Funds 3K.6, only on the value of the participations that are not deducted from own funds pursuant to Own Funds 3K.

31/12/2024

3D18 Internal Assessment Of Credit Quality Steps Of Bonds And Loans

1.

A firm may assign a bond or loan for which a credit assessment by a nominated external credit assessment institution is not available and for which debtors have not posted collateral by way of a collateral arrangement that meets the criteria set out in 3G8 to credit quality step 2 if all of the criteria set out in 3D18.3 and 3D18.4 are met with respect to the bond or loan.

31/12/2024

2.

A firm may assign a bond or loan for which a credit assessment by a nominated external credit assessment institution is not available and for which debtors have not posted collateral by way of a collateral arrangement that meets the criteria set out in 3G8, other than a bond or loan assigned to credit quality step 2 under 3D18.1, to credit quality step 3 if all of the criteria set out in 3D18.3 and 3D18.5 are met with respect to the bond or loan.

31/12/2024

3.

The criteria in this rule are as follows:

(1) the firm’s own internal credit assessment of the bond or loan meets the requirements listed in 3D19;
(2) the bond or loan is issued by a company which does not belong to the same corporate group as the firm;
(3) the bond or loan is not issued by a company which is a UK Solvency II undertaking, an infrastructure entity, a credit institution, an investment firm, a financial institution, an alternative investment fund manager, a UCITS management company, an institution for occupational retirement provision or a non-regulated undertaking carrying out financial activities;
(4) no claims on the issuing company of the bond or loan rank senior to the bond or loan, except for the following claims:
1. (a) statutory claims and claims from liquidity facility providers provided that those statutory claims and claims from liquidity facility providers are in aggregate not material relative to the overall senior debt of the issuing company;
2. (b) claims from trustees; and
3. (c) claims from derivatives counterparties;
(5) the bond or loan provides a fixed redemption payment on or before the date of maturity, in addition to regular fixed or floating rate interest payments;
(6) the contractual terms and conditions of the bond or loan provide for the following:
1. (a) the borrower is obliged to provide audited financial data to the lender at least annually;
2. (b) the borrower is obliged to notify the lender of any events that could materially affect the credit risk of the bond or loan;
3. (c) the borrower is not entitled to change the terms and conditions of the bond or loan unilaterally, nor to make other changes to its business that would materially affect the credit risk of the bond or loan;
4. (d) the issuer is prohibited from issuing new debt without the prior agreement of the firm;
5. (e) what constitutes a default event is defined in a way that is specific to the issue and the issuer; and
6. (f) what is to happen on a change of control; and
(7) the bond or loan is issued by a company that meets all of the following criteria:
1. (a) the company is a limited liability company;
2. (b) the company has its head office in the UK;
3. (c) more than 50% of the annual revenue of the company is denominated in currencies of countries which are members of the OECD;
4. (d) the company has operated without any credit event over at least the last 10 years;
5. (e) at least one of the following requirements is fulfilled with respect to each of the last three financial years ending prior to the date on which the SCR is being calculated:
  1. (i) the annual turnover of the company exceeds GBP 8,800,000;
  2. (ii) the balance sheet total of the company exceeds GBP 8,800,000; or
  3. (iii) the number of staff employed by the company exceeds 50;
6. (f) the sum of the company’s annual earnings before interest, tax, depreciation and amortisation (‘EBITDA’) over the last five financial years is greater than 0;
7. (g) the total debt of the company at the end of the most recent financial year for which figures are available is no higher than 6.5 times the average of the company’s annual free cash-flows over the last five financial years;
8. (h) the average of the company’s EBITDA over the last five financial years is no lower than 6.5 times the company’s interest expense for the most recent financial year for which figures are available; and
9. (i) the net debt of the company at the end of the most recent financial year for which figures are available is no higher than 1.5 times the company’s total equity at the end of that financial year.

31/12/2024

4.

The yield on the bond or loan, and the yield on any bonds and loans with similar contractual terms and conditions issued by the same company in the previous three financial years, is no higher than the higher of the following values:

(1) the average of the yields on the two indices determined in accordance with 3D18.6; and
(2) the sum of 0.5% and the yield on the index that meets the requirement in 3D18.6(4).

31/12/2024

5.

The yield on the bond or loan, and the yield on bonds and loans with similar contractual terms and conditions issued by the same company in the previous three financial years, is no higher than the higher of the following values:

(1) the average of the yields on the two indices determined in accordance with 3D18.7; and
(2) the sum of 0.5% and the yield on the index that meets the requirement in 3D18.7(2).

31/12/2024

6.

For the purposes of 3D18.4, a firm must use, for the bond or loan referred to in 3D18.1, the yield, as at the time of issuance of that bond or loan, on two indices that meet all of the following requirements:

(1) both indices are broad indexes of traded bonds for which an external credit assessment is available;
(2) the constituent traded bonds in the two indices are denominated in the same currency as the bond or loan;
(3) the constituent traded bonds in the two indices have a similar maturity date as the bond or loan;
(4) one of the two indices consists of traded bonds of credit quality step 2; and
(5) one of the two indices consists of traded bonds of credit quality step 4.

31/12/2024

7.

For the purposes of 3D18.5, a firm must use, for the bond or loan referred to in 3D18.2, the yield, as at the time of issuance of that bond or loan, on two indices that meet all of the following requirements:

(1) both indices meet the requirements set out in 3D18.6(1), (2) and (3);
(2) one of the two indices consists of traded bonds of credit quality step 3; and
(3) one of the two indices consists of traded bonds of credit quality step 4.

31/12/2024

8.

For the purposes of 3D18.4, where the bond or loan referred to in 3D18.1 has features, other than those related to credit risk or illiquidity, which materially differ from the features of the constituent traded bonds in the two indices determined in accordance with 3D18.6, a firm must adjust the yield on the bond or loan to reflect those differences.

31/12/2024

9.

For the purposes of 3D18.5, where the bond or loan referred to in 3D18.2 has features, other than those related to credit risk or illiquidity, which materially differ from the features of the constituent traded bonds in the two indices determined in accordance with 3D18.7, a firm must adjust the yield on the bond or loan to reflect those differences.

31/12/2024

3D19 Requirements For A Firm’s Own Internal Credit Assessment Of Bonds And Loans

1.

For the purposes of 3D18.3(1), a firm must comply with the following requirements in respect of its own internal credit assessment of a bond or loan:

(1) the bond or loan is allocated a credit quality step on the basis of the firm’s own internal credit assessment;
(2) the firm’s own internal credit assessment, and the allocation of a credit quality step to the bond or loan on the basis of that assessment, are reliable and properly reflect the spread risk of the bond or loan spread risk sub-module, and, subject to 3D19.2, the firm has notified the PRA of this in writing before it assigns a bond or loan to a credit quality step in accordance with 3D18.1 or 3D18.2;
(3) the firm’s own internal credit assessment takes into account all factors which could have a material effect on the credit risk associated with the bond or loan, including the following factors:
1. (a) the competitive position of the issuer;
2. (b) the quality of the issuer’s management;
3. (c) the financial policies of the issuer;
4. (d) country risk;
5. (e) the effect of any covenants that are in place;
6. (f) the issuer’s financial performance history, including the number of years that it has been operating;
7. (g) the issuer’s size and the level of diversity in its activities;
8. (h) the quantitative impact on the issuer’s risk profile and financial ratios of its having issued the bond or loan;
9. (i) the issuer’s ownership structure; and
10. (j) the complexity of the issuer’s business model;
(4) the firm’s own internal credit assessment uses all relevant quantitative and qualitative information;
(5) the firm’s own internal credit assessment, the allocation of a credit quality step on the basis of that assessment and the information used to support the own internal credit assessment are documented;
(6) the firm’s own internal credit assessment takes into account the characteristics of comparable assets for which a credit assessment by a nominated external credit assessment institution is available;
(7) the firm’s own internal credit assessment takes into account trends in the issuer’s financial performance;
(8) the firm’s own internal credit assessment is procedurally independent from the decision to underwrite; and
(9) the firm regularly reviews its own internal credit assessment.

31/12/2024

2.

Where a firm assigned a bond or loan to a credit quality step in accordance with Article 176a(1) or (2) of Commission Delegated Regulation (EU) 2015/35 immediately before 31 December 2024 and from 31 December 2024 assigns the bond or loan to a credit quality step in accordance with 3D18.1 or 3D18.2, the firm must notify the PRA in writing by 31 January 2025.

31/12/2024

3D20 Assessment Of Credit Quality Steps Of Bonds And Loans Based On An Approved Internal Model

1.

This Chapter applies in the following circumstances:

(1) a firm has concluded an agreement (‘co-investment agreement’) to invest in bonds and loans jointly with another entity;
(2) that other entity (‘the co-investor’) is one or other of the following:
1. (a) an institution which uses the Internal Ratings Based Approach referred to in Article 143(1) of the CRR; or
2. (b) a UK Solvency II undertaking which uses an internal model to calculate its SCR;
(3) pursuant to the co-investment agreement, the firm and the co-investor invest jointly in bonds and loans for which a credit assessment by a nominated external credit assessment institution is not available and for which debtors have not posted collateral by way of a collateral arrangement that meets the criteria set out in 3G8; and
(4) the co-investment agreement provides that the co-investor shares with the firm the probabilities of default produced by its Internal Ratings Based Approach or, as applicable, the credit quality steps produced by its internal model for the bonds or loans referred to in (3) for the purpose of using that information for the calculation of the SCR of the firm.

31/12/2024

2.

If all of the criteria set out in 3D20.3 to 3D20.6 are met, a firm must assign the bonds and loans referred to in 3D20.1(3) to credit quality steps determined as follows:

(1) in a case where the co-investor falls within 3D20.1(2)(a), credit quality steps must be determined on the basis of the most recent probabilities of default that the Internal Ratings Based Approach has produced; and
(2) in a case where the co-investor falls within 3D20.1(2)(b), credit quality steps must be the credit quality steps produced by the internal model.

31/12/2024

3.

The criteria in this rule are as follows:

(1) the issuer of each bond or loan does not belong to the same corporate group as the firm;
(2) the issuer is not a UK Solvency II undertaking, an infrastructure entity, a credit institution, an investment firm, a financial institution, an alternative investment fund manager, a UCITS management company, an institution for occupational retirement provision or a non-regulated undertaking carrying out financial activities;
(3) the issuer has its head office in the UK;
(4) more than 50% of the issuer’s annual revenue is denominated in currencies of countries which are members of the OECD; and
(5) at least one of the following requirements is met for each of the last three financial years ending prior to the date on which the SCR is being calculated:
1. (a) the annual turnover of the issuer exceeds GBP 8,800,000;
2. (b) the balance sheet total of the issuer exceeds GBP 8,800,000; or
3. (c) the number of staff employed by the issuer exceeds 50.

31/12/2024

4.

The criteria in this rule are as follows:

(1) the co-investment agreement defines the types of bonds and loans to be underwritten, and the applicable assessment criteria;
(2) the co-investor provides the firm with sufficient details of the underwriting process, including the criteria used, the organisational structure of the co-investor and the controls conducted by the co-investor;
(3) the co-investor provides the firm with data on all applications for bonds and loans to be underwritten;
(4) the co-investor provides the firm with details of all decisions to approve or reject applications for bonds and loans to be underwritten;
(5) the co-investor retains an exposure of at least 20% of the nominal value of each bond and loan;
(6) the underwriting process is the same as the underwriting process followed by the co-investor for its other investments in comparable bonds and loans;
(7) the firm invests in all bonds and loans of the types referred to in (1) for which the co-investor decides to approve the bond or loan application; and
(8) the co-investor provides the firm with information that allows the firm to understand the Internal Ratings Based Approach or, as applicable, internal model and its limitations, as well as its adequacy and appropriateness, in particular:
1. (a) a description of the Internal Ratings Based Approach or, as applicable, internal model, including the inputs and risk factors, the quantification of risk parameters and the underlying methods, and the general methodology applied;
2. (b) a description of the scope of the use of the Internal Ratings Based Approach or, as applicable, internal model; and
3. (c) a description of the model validation process and of other processes which allow the model’s performance to be monitored, the appropriateness of its specification to be reviewed over time, and the results of the Internal Ratings Based Approach or, as applicable, internal model to be tested against experience.

31/12/2024

5.

In a case where the co-investor falls within 3D20.1(2)(a):

(1) the firm clearly documents to which credit quality step the probability of default produced by the institution’s Internal Ratings Based Approach corresponds;
(2) the mapping of probabilities of default to credit quality step carried out by the firm ensures that, for the bond or loan in question, the resulting level of capital requirement for the spread risk sub-module is appropriate;
(3) the mapping is based on Table 1 in Annex I to Commission Implementing Regulation (EU) 2016/1799;
(4) adjustments are made in a prudent manner to the probabilities of default before the mapping is carried out, taking into account the qualitative factors set out in Article 7 of Commission Implementing Regulation (EU) 2016/1799; and
(5) an adjustment to the probabilities of default is made in either of the following situations:
1. (a) the time horizon covered by the Internal Ratings Based Approach deviates significantly from the 3-year time horizon set out in Article 4(2) of Commission Implementing Regulation (EU) 2016/1799; and
2. (b) the definition of default used in the Internal Ratings Based Approach deviates significantly from the one set out in Article 4(4) of that Commission Implementing Regulation.

31/12/2024

6.

In a case where the co-investor falls within 3D20.1(2)(b), its internal model ensures that, for the bond or loan in question, the resulting level of capital requirement for the spread risk sub-module is appropriate.

31/12/2024

3D21 Spread Risk On Securitisation Positions: Calculation Of The Capital Requirement

1.

A firm must calculate the capital requirement SCR_{securitisation} for spread risk on securitisation positions as equal to the loss in its basic own funds that would result from an instantaneous relative decrease of stress_I in the value of each securitisation position i.

31/12/2024

2.

The risk factor stress_I must be calculated by reference to the modified duration denominated in years (dur_I), and dur_I must not be lower than 1 year.

31/12/2024

3.

In respect of senior securitisation positions in STS securitisations which fulfil the requirements set out in Article 243 of the CRR and for which a credit assessment by a nominated external credit assessment institution is available, a firm must assign a risk factor stress_i depending on the credit quality step and the modified duration of the securitisation position I, as set out in the following table:

Credit quality step		0		1		2		3		4		5 and 6
Duration (dur_i)	stress_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i
up to 5	$b_{i} \cdot {d u r}_{i}$	—	1.0%	—	1.2%	—	1.6%	—	2.8%	—	5.6%	—	9.4%
More than 5 and up to 10	$a_{i} + b_{i} \cdot ({d u r}_{i} - 5)$	5.0%	0.6%	6.0%	0.7%	8.0%	0.8%	14.0%	1.7%	28.0%	3.1%	47.0%	5.3%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	8.0%	0.6%	9.5%	0.5%	12.0%	0.6%	22.5%	1.1%	43.5%	2.2%	73.5%	0.6%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	11.0%	0.6%	12.0%	0.5%	15.0%	0.6%	28.0%	1.1%	54.5%	0.6%	76.5%	0.6%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	14.0%	0.6%	14.5%	0.5%	18.0%	0.6%	33.5%	0.6%	57.5%	0.6%	79.5%	0.6%

31/12/2024

4.

In respect of securitisation positions in STS securitisations that are not senior securitisation positions, which fulfil the requirements set out in Article 243 of the CRR and for which a credit assessment by a nominated external credit assessment institution is available, a firm must assign a risk factor stress_i depending on the credit quality step and the modified duration of the securitisation position i, as set out in the following table:

Credit quality step		0		1		2		3		4		5 and 6
Duration (dur_i)	stress_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i
up to 5	$min [b_{i} \cdot {d u r}_{i}; 1]$	—	2.8%	—	3.4%	—	4.6%	—	7.9%	—	15.8%	—	26.7%
More than 5 and up to 10	$min [a_{i} + b_{i} \cdot ({d u r}_{i} - 5); 1]$	14.0%	1.6%	17.0%	1.9%	23.0%	2.3%	39.5%	4.7%	79.0%	8.8%	100.0%	0.0%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	22.0%	1.6%	26.5%	1.5%	34.5%	1.6%	63.0%	3.2%	100.0%	0.0%	100.0%	0.0%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	30.0%	1.6%	34.0%	1.5%	42.5%	1.6%	79.0%	3.2%	100.0%	0.0%	100.0%	0.0%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	38.0%	1.6%	41.5%	1.5%	50.5%	1.6%	95.0%	1.6%	100.0%	0.0%	100.0%	0.0%

31/12/2024

5.

In respect of senior securitisation positions in STS securitisations which fulfil the criteria set out in Article 243 of the CRR and for which no credit assessment by a nominated external credit assessment institution is available, a firm must assign a risk factor stress_i depending on the modified duration of the securitisation position i, as set out in the following table:

Duration (dur_i)	stress_i	a_i	b_i
up to 5	$b_{i} \cdot {d u r}_{i}$	—	4.6%
More than 5 and up to 10	$a_{i} + b_{i} \cdot ({d u r}_{i} - 5)$	23%	2.5%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	35.5%	1.8%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	44.5%	0.5%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	47.0%	0.5%

31/12/2024

6.

In respect of securitisation positions in STS securitisations that are not senior securitisation positions, which fulfil the criteria set out in Article 243 of the CRR and for which no credit assessment by a nominated external credit assessment institution is available, a firm must assign a risk factor stress_I equivalent to credit quality step 5 and depending on the modified duration of the exposure, as set out in the table in 3D21.3.

31/12/2024

7.

In respect of resecuritisation positions for which a credit assessment by a nominated external credit assessment institution is available, a firm must assign a risk factor stress_I in accordance with the following formula:

stress_i = min (b_i · dur_i ;1)

where the value of b_I depends on the credit quality step of resecuritisation position i, as set out in the following table:

Credit quality step	0	1	2	3	4	5	6
$b_{i}$	33%	40%	51%	91%	100%	100%	100%

31/12/2024

8.

In respect of securitisation positions not covered by 3D21.3 to 3D21.7, for which a credit assessment by a nominated external credit assessment institution is available, a firm must assign a risk factor stress_i in accordance with the following formula:

stress_i = min (b_i · dur_i ;1)

where the value of b_i depends on the credit quality step of securitisation position i, as set out in the following table:

Credit quality step	0	1	2	3	4	5	6
$b_{i}$	12.5 %	13.4 %	16.6 %	19.7 %	82%	100%	100%

31/12/2024

9.

In respect of securitisation positions not covered by 3D21.3 to 3D21.8, a firm must assign a risk factor stress_i of 100%.

31/12/2024

3D22 Spread Risk On Securitisation Positions: Transitional Provisions

1.

Notwithstanding 3D21.3, in respect of securitisations issued before 1 January 2019 that qualify as type 1 securitisations in accordance with Article 177(2) of Commission Delegated Regulation (EU) 2015/35 in the version that was in force on 31 December 2018, a firm must (subject to 3D22.2) assign a risk factor stress_i in accordance with 3D21.3 even where those securitisations are not STS securitisations which fulfil the requirements set out in Article 243 of the CRR.

31/12/2024

2.

3D22.1 applies only in circumstances where no new underlying exposures were added or substituted after 31 December 2018.

31/12/2024

3.

Notwithstanding 3D21.3, in respect of securitisations issued before 18 January 2015 that qualify as type 1 securitisations in accordance with Article 177(4) in the version of Commission Delegated Regulation (EU) 2015/35 that was in force on 31 December 2018, a firm must assign a risk factor stress_i in accordance with Articles 177 and 178 in the version in force on 31 December 2018.

31/12/2024

4.

Notwithstanding 3D21.3, in respect of securitisations issued before 1 January 2019 that qualify as type 1 securitisations in accordance with Article 177(5) in the version of Commission Delegated Regulation (EU) 2015/35 that was in force on 31 December 2018, a firm must, until 31 December 2025, assign a risk factor stress_i in accordance with Articles 177 and 178 in the version in force on 31 December 2018.

31/12/2024

5.

For the purposes of 3D22.3 and 3D22.4, Article 177 (in the version of Commission Delegated Regulation (EU) 2015/35 which was in force on 31 December 2018) continues to have effect notwithstanding its deletion by Article 1(3) of Commission Delegated Regulation (EU) 2018/1221, and has effect for those purposes with the following modifications:

(1) paragraph 2 is to be read as if:
1. (a) a reference to Regulation (EU) No 575/2013 were a reference to the version of that Regulation which was in force on 31 December 2018;
2. (b) in point (b) ‘the EEA or’ were omitted;
3. (c) in point (h)(i):
  1. (i) for ‘national law of the Member State where the loans were originated’ there were substituted ‘loans were originated in the UK and the law of the UK’;
  2. (ii) ‘, and that Member State has notified this law to the Commission and EIOPA’ were omitted;
4. (d) point (h)(ii) were omitted;
5. (e) in point (h)(iv) for the words from ‘agricultural’ to ‘tracked’ there were substituted ‘tractors as defined in point (8) of Article 3 of Regulation (EU) No 167/2013 of the European Parliament and of the Council (as it had effect immediately before IP completion day), powered two-wheelers or powered tricycles as defined in points (68) and (69) of Article 3 of Regulation (EU) No 168/2013 of the European Parliament and of the Council (as it had effect immediately before IP completion day) or tracked’;
6. (f) in points (r) and (s) for the words ‘countries that are not members of the Union’, both times it occurs, substitute ‘a country other than the UK’; and
7. (g) in point (t):
  1. (i) the words from ‘and discloses information’ to ‘stress tests’ were omitted;
  2. (ii) for ‘Union’, in both places it occurs, there were substituted ‘UK’;
(2) paragraph 4 is to be read as if for ‘the entry into force of this Regulation’ there were substituted ‘18 January 2015’; and
(3) paragraph 5 is to be read as if, in points (a) and (c), for ‘the date of entry into force of this Regulation’ there were substituted ‘18 January 2015’.

31/12/2024

3D23 Spread Risk On Credit Derivatives

1.

A firm must calculate the capital requirement SCR_cd for spread risk on credit derivatives other than those referred to in 3D23.4 as equal to the higher of the following capital requirements:

(1) the loss in its basic own funds that would result from an instantaneous increase in absolute terms of the credit spread of the instruments underlying the credit derivatives; and
(2) the loss in its basic own funds that would result from an instantaneous relative decrease of the credit spread of the instruments underlying the credit derivatives by 75%.

31/12/2024

2.

For the purposes of 3D23.1(1), a firm must calculate the instantaneous increase of the credit spread of the instruments underlying the credit derivatives for which a credit assessment by a nominated external credit assessment institution is available according to the following table:

Credit quality step	0	1	2	3	4	5	6
Instantaneous increase in spread (in percentage points)	1.3	1.5	2.6	4.5	8.4	16.2	16.2

31/12/2024

3.

For the purposes of 3D23.1(1), a firm must calculate the instantaneous increase of the credit spread of the instruments underlying the credit derivatives for which a credit assessment by a nominated external credit assessment institution is not available as 5 percentage points.

31/12/2024

4.

A firm must not subject credit derivatives which are part of the firm’s risk mitigation policy to a capital requirement for spread risk, provided that the firm holds either the instruments underlying the credit derivative or another exposure with respect to which the basis risk between that exposure and the instruments underlying the credit derivative is not material in any circumstances.

31/12/2024

5.

Where the higher of the capital requirements referred to in 3D23.1(1) and (2) and the higher of the corresponding capital requirements calculated in accordance with 6.3(2) are not based on the same scenario, the capital requirement for spread risk on credit derivatives must be the capital requirement referred to in 3D23.1 for which the underlying scenario results in the highest corresponding capital requirement calculated in accordance with 6.3(2).

31/12/2024

3D24 Specific Exposures

1.

In respect of exposures in the form of covered bonds which have been assigned to credit quality step 0 or 1, a firm must assign a risk factor stress_i according to the following table:

*Credit quality step Duration (dur_i)*	0	1
up to 5	0.7% ∙ dur_i	0.9% ∙ dur_i
More than 5 years	$min (3.5 % + 0.5 % \cdot ({d u r}_{i} - 5); 1)$	$min (4.5 % + 0.5 % \cdot ({d u r}_{i} - 5); 1)$

31/12/2024

2.

A firm must assign to exposures in the form of bonds and loans to the following a risk factor stress_i of 0%:

(1) UK central government and Bank of England denominated and funded in pounds sterling;
(2) multilateral development banks referred to in paragraph 2 of Article 117 of the CRR; and
(3) international organisations referred to in Article 118 of the CRR;

31/12/2024

3.

A firm must assign a risk factor stress_i of 0% to exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in 3D24.2(1) to (3), where the guarantee meets the requirements set out in 3G9.

31/12/2024

4.

For the purposes of 3D24.2(1), a firm must treat exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by bodies listed in 3D1, where the guarantee meets the requirements set out in 3G9, as exposures to the central government.

31/12/2024

5.

In respect of exposures in the form of bonds and loans to central governments and central banks other than those referred to in 3D24.2(1), denominated and funded in the domestic currency of that central government and central bank, and for which a credit assessment by a nominated external credit assessment institution is available, a firm must be assign a risk factor stress_i depending on the credit quality step and the duration of the exposure according to the following table:

Credit quality step		0 and 1		2		3		4		5 and 6
Duration (dur_i)	stress_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i
up to 5	$b_{i} \cdot {d u r}_{i}$	—	0.0%	—	1.1%	—	1.4%	—	2.5%	—	4.5%
More than 5 and up to 10	$a_{i} + b_{i} \cdot ({d u r}_{i} - 5)$	0.0%	0.0%	5.5%	0.6%	7.0%	0.7%	12.5%	1.5%	22.5%	2.5%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	0.0%	0.0%	8.4%	0.5%	10.5%	0.5%	20.0%	1.0%	35.0%	1.8%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	0.0%	0.0%	10.9%	0.5%	13.0%	0.5%	25.0%	1.0%	44.0%	0.5%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	0.0%	0.0%	13.4%	0.5%	15.5%	0.5%	30.0%	0.5%	46.5%	0.5%

31/12/2024

6.

In respect of exposures in the form of bonds and loans to the UK’s regional governments and local authorities not listed in 3D1, a firm must assign a risk factor stress_I from the table in 3D24.5 corresponding to credit quality step 2.

31/12/2024

7.

In respect of exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by the UK’s regional government or local authority that are not listed in 3D1, where the guarantee meets the requirements set out in 3G9, must be assigned a risk factor stress_i from the table in 3D24.5 corresponding to credit quality step 2.

31/12/2024

8.

In respect of exposures in the form of bonds and loans to a UK Solvency II undertaking for which a credit assessment by a nominated external credit assessment institution is not available and where this UK Solvency II undertaking meets its MCR, a firm must assign a risk factor stress_I from the table in 3D17.3 depending on the UK Solvency II undertaking’s solvency ratio, using the following mapping between solvency ratios and credit quality steps:

Solvency ratio	196%	175%	122%	95%	75%	75%
Credit quality step	1	2	3	4	5	6

31/12/2024

9.

Where the solvency ratio falls in between the solvency ratios set out in the table above, the value of stress_i must be linearly interpolated from the closest values of stress_i corresponding to the closest solvency ratios set out in the table above, provided that:

(1) where the solvency ratio is lower than 75%, stress_i must be equal to the factor corresponding to the credit quality steps 5 and 6; and
(2) where the solvency ratio is higher than 196%, stress_i must be the same as the factor corresponding to the credit quality step 1.

31/12/2024

10.

For the purposes of 3D24.8 and 3D24.9, ‘solvency ratio’ denotes the ratio of the eligible own funds to cover the SCR and the SCR, using the latest available values.

31/12/2024

11.

A firm must assign to exposures in the form of bonds and loans to a UK Solvency II undertaking which does not meet its MCR a risk factor stress_i according to the following table:

*Duration (dur_i)*	risk factor stress_i
up to 5	7.5%∙dur_i
More than 5 and up to 10	37.50% + 4.20%∙(dur_i −5)
More than 10 and up to 15	58.50% + 0.50%∙(dur_i −10)
More than 15 and up to 20	61% + 0.50%∙(dur_i −15)
More than 20	$min (63.5 % + 0.5 % \cdot ({d u r}_{i} - 20); 1)$

31/12/2024

12.

3D24.8 to 3D24.11 only applies as of the first date of public disclosure, by the UK Solvency II undertaking corresponding to the exposure, of the SFCR, and before that date:

(1) if a credit assessment by a nominated external credit assessment institution is available for the exposures, 3D17 applies;
(2) in all other cases, a firm must assign to the exposures the same risk factor as the ones that would result from the application of 3D24.8 to 3D24.10 to exposures to a UK Solvency II undertaking whose solvency ratio is 100%.

31/12/2024

13.

In respect of exposures in the form of bonds and loans to a third country insurance undertaking or a third country reinsurance undertaking for which a credit assessment by a nominated external credit assessment institution is not available, situated in a third country which is an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation, and which complies with the solvency requirements of that third country, a firm must assign the same risk factor as the ones that would result from the application of 3D24.8 to 3D24.10 to exposures to a UK Solvency II undertaking whose solvency ratio is 100%.

31/12/2024

14.

In respect of exposures in the form of bonds and loans to credit institutions and financial institutions which comply with the solvency requirements set out in the PRA Rulebook, the CRR or technical standards as amended from time to time, for which a credit assessment by a nominated external credit assessment institution is not available, a firm must assign the same risk factor as the ones that would result from the application of 3D24.8 to 3D24.10 to exposures to a UK Solvency II undertaking whose solvency ratio is 100%.

31/12/2024

15.

A firm must calculate the capital requirement for spread risk on credit derivatives where the underlying financial instrument is a bond or a loan to any exposure listed in 3D24.2 as nil.

31/12/2024

16.

In respect of exposures in the form of bonds and loans that fulfil the criteria set out in 3D24.17, a firm must assign a risk factor stress_i depending on the credit quality step and the duration of the exposure, according to the following table:

Credit quality step		0		1		2		3
Duration (dur_i)	*stress_i*	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i
up to 5	$b_{i} \cdot {d u r}_{i}$	—	0.64%	—	0.78%	—	1.0%	—	1.67%
More than 5 and up to 10	$a_{i} + b_{i} \cdot ({d u r}_{i} - 5)$	3.2%	0.36%	3.9%	0.43%	5.0%	0.5%	8.35%	1.0%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	5.0%	0.36%	6.05%	0.36%	7.5%	0.36%	13.35%	0.67%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	6.8%	0.36%	7.85%	0.36%	9.3%	0.36%	16.7%	0.67%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	8.6%	0.36%	9.65%	0.36%	11.1%	0.36%	20.05%	0.36%

31/12/2024

17.

The criteria for exposures that are assigned a risk factor in accordance with 3D24.16 are:

(1) the exposure relates to a qualifying infrastructure investment that meets the criteria set out in 3D2;
(2) the exposure is not an asset that fulfils the following conditions:
1. (a) it is assigned to a matching adjustment portfolio; and
2. (b) it has been assigned a credit quality step between 0 and 2;
(3) a credit assessment by a nominated external credit assessment institution is available for the exposure; and
(4) the exposure has been assigned a credit quality step between 0 and 3.

31/12/2024

18.

In respect of exposures in the form of bonds and loans that meet the criteria set out in 3D24.17(1) and (2), but do not meet the criteria set out in 3D24.17(3), a firm must assign a risk factor stress_i equivalent to credit quality step 3 and the duration of the exposure in accordance with the table set out in 3D24.16.

31/12/2024

19.

In respect of exposures in the form of bonds and loans that fulfil the criteria set out in 3D24.20, a firm must assign a risk factor stress_i depending on the credit quality step and the duration of the exposure according to the following table:

Credit quality step		0		1		2		3
Duration (dur_i)	*stress_i*	a_i	b_i	a_i	b_i	a_i	b_i	a_i	b_i
up to 5	$b_{i} \cdot {d u r}_{i}$	—	0.68%	—	0.83%	—	1.05%	—	1.88%
More than 5 and up to 10	$a_{i} + b_{i} \cdot ({d u r}_{i} - 5)$	3.38%	0.38%	4.13%	0.45%	5.25%	0.53%	9.38%	1.13%
More than 10 and up to 15	$a_{i} + b_{i} \cdot ({d u r}_{i} - 10)$	5.25%	0.38%	6.38%	0.38%	7.88%	0.38%	15.0%	0.75%
More than 15 and up to 20	$a_{i} + b_{i} \cdot ({d u r}_{i} - 15)$	7.13%	0.38%	8.25%	0.38%	9.75%	0.38%	18.75%	0.75%
More than 20	$m i n [a_{i} + b_{i} \cdot ({d u r}_{i} - 20); 1]$	9.0%	0.38%	10.13%	0.38%	11.63%	0.38%	22.50%	0.38%

31/12/2024

20.

The criteria for exposures that are assigned a risk factor in accordance with 3D24.19 are:

(1) the exposure relates to a qualifying infrastructure corporate investment that meets the criteria set out in 3D3;
(2) the exposure is not an asset that fulfils the following conditions:
1. (a) it is assigned to a matching adjustment portfolio; and
2. (b) it has been assigned a credit quality step between 0 and 2;
(3) a credit assessment by a nominated external credit assessment institution is available for the infrastructure entity; and
(4) the exposure has been assigned a credit quality step between 0 and 3.

31/12/2024

21.

In respect of exposures in the form of bonds and loans that meet the criteria set out in 3D24.20(1) and (2), but do not meet the criteria set out in 3D24.20(3), a firm must assign a risk factor stress_i equivalent to credit quality step 3 and the duration of the exposure in accordance with the table set out in 3D24.19.

31/12/2024

3D25 Application of the Spread Risk Scenarios to Matching Adjustment Portfolios

1

Where a firm applies the matching adjustment, it must carry out the scenario-based calculation for spread risk as follows:

(1) the relevant portfolio of assets must be subject to the instantaneous decrease in value for spread risk set out in 3D17, 3D21 and 3D24; and
(2) the firm must recalculate the technical provisions to take into account the impact on the amount of the matching adjustment of the instantaneous decrease in value of the relevant portfolio of assets and, in particular, the firm must increase the fundamental spread calculated in respect of assigned assets by an absolute amount that is calculated as the product of the following:
1. (a) the absolute increase in spread that, multiplied by the modified duration of the relevant asset, would result in the relevant risk factor stress_i, referred to in 3D17, 3D21 and 3D24; and
2. (b) a reduction factor, depending on the credit quality as set out in the following table:

Credit quality step	0	1	2	3	4	5	6
Reduction factor	45%	50%	60%	75%	100%	100%	100%

31/12/2024

2

In respect of the assigned assets for which no credit assessment by a nominated external credit assessment institution is available, and for qualifying infrastructure assets and for qualifying infrastructure corporate assets that have been assigned credit quality step 3, a firm must apply a reduction factor of 100%.

31/12/2024

3D26 Single Name Exposure

1

A firm must calculate the capital requirement for market risk concentrations on the basis of single name exposures. For this purpose:

(1) exposures to undertakings which belong to the same corporate group must be treated as a single name exposure; and
(2) immovable properties which are located in the same building must be treated as a single immovable property.

31/12/2024

2

A firm must calculate the exposure at default to a counterparty as the sum of its exposures to this counterparty.

31/12/2024

3

A firm must calculate the exposure at default to a single name exposure as the sum of the exposures at default to all counterparties that belong to the single name exposure.

31/12/2024

4

A firm must calculate the weighted average credit quality step on a single name exposure as equal to the rounded-up average of the credit quality steps of all exposures to all counterparties that belong to the single name exposure, weighted by the value of each exposure.

31/12/2024

5

For the purposes of 3D26.4, a firm must assign to exposures for which a credit assessment by a nominated external credit assessment institution is available a credit quality step in accordance with 1A to 1C.

31/12/2024

6

For the purposes of 3D26.4, in respect of exposures to a UK Solvency II undertaking for which a credit assessment by a nominated external credit assessment institution is not available and where the UK Solvency II undertaking meets its MCR, a firm must assign a credit quality step depending on the UK Solvency II undertaking’s solvency ratio using the following mapping between solvency ratios and credit quality steps:

Solvency Ratio	196%	175%	122%	100%	95%
Credit quality step	1	2	3	3.82	5

31/12/2024

7

Where the solvency ratio falls in between the solvency ratios set out in the table above, the credit quality step must be linearly interpolated from the closest credit quality steps corresponding to the closest solvency ratios set out in the table above, provided that:

(1) where the solvency ratio is lower than 95%, the credit quality step must be 5; and
(2) where the solvency ratio is higher than 196%, the credit quality step must be 1.

31/12/2024

8

For the purposes of 3D26.6 to 3D26.7, ‘solvency ratio’ denotes the ratio of the eligible own funds to cover the SCR and the SCR, using the latest available values.

31/12/2024

9

For the purposes of 3D26.4, a firm must assign credit quality step 6 to exposures to a UK Solvency II undertaking for which a credit assessment by a nominated external credit assessment institution is not available and where the UK Solvency II undertaking does not meet its MCR.

31/12/2024

10

3D26.6 to 3D26.9 only applies as of the first date of public disclosure, by the UK Solvency II undertaking corresponding to the exposure, of the SFCR and before that date, a firm must assign the exposures to credit quality step 3.82.

31/12/2024

11

For the purposes of 3D26.4, a firm must assign exposures to a third country insurance undertaking or a third country reinsurance undertaking for which a credit assessment by a nominated external credit assessment institution is not available, situated in a third country which is an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation, and which complies with the solvency requirements of that third country, to credit quality step 3.82.

31/12/2024

12

For the purposes of 3D26.4, a firm must assign exposures to credit institutions and financial institutions, which comply with the solvency requirements set out in the PRA Rulebook, the CRR or technical standards as amended from time to time, for which a credit assessment by a nominated external credit assessment institution is not available, to credit quality step 3.82.

31/12/2024

13

For the purpose of 3D26.4, firm must assign exposures other than those to which a credit quality step is assigned under 3D26.5 to 3D26.12 to credit quality step 5.

31/12/2024

3D27 Calculation of the Capital Requirements for Market Risk Concentrations

1

A firm must calculate the capital requirement for market risk concentrations in accordance with the following formula:

${S C R}_{c o n c} = \sqrt{\sum_{i} {C o n c}_{i}^{2}}$

where:

(a) the sum covers all single name exposures i; and
(b) Conc_i denotes the capital requirement for market risk concentrations on a single name exposure i.

31/12/2024

2

For each single name exposure i, a firm must calculate the capital requirement for market risk concentrations Conc_i as equal to the loss in its basic own funds that would result from an instantaneous decrease in the value of the assets corresponding to the single name exposure i calculated in accordance with the following formula:

$X S_{i} \cdot g_{i}$

where:

(a) XS_i is the excess exposure referred to in 3D28; and
(b) g_i is the risk factor for market risk concentrations referred to in 3D30 and 3D31;

31/12/2024

3D28 Excess Exposure

1

A firm must calculate the excess exposure on a single name exposure i in accordance with the following formula:

${X S}_{i} = M a x (0; E_{i} - {C T}_{i} \cdot A s s e t s)$

where:

(a) E_i denotes the exposure at default to single name exposure i that is included in the calculation base of the market risk concentrations sub-module;
(b) Assets denotes the calculation base of the market risk concentrations sub-module; and
(c) CT_i denotes the relative excess exposure threshold referred to in 3D29.

31/12/2024

2

The calculation base of the market risk concentrations sub-module Assets must be equal to the value of all assets held by the firm, excluding the following:

(1) assets held in respect of long-term insurance contracts where the investment risk is fully borne by the policyholders;
(2) exposures to a counterparty which belongs to the same group as the firm, provided that all of the following requirements are met:
1. (a) the counterparty is a UK Solvency II undertaking, an insurance holding company, a mixed financial holding company or an ancillary services undertaking;
2. (b) the counterparty is fully consolidated in accordance with Group Supervision 11.1A(1);
3. (c) the counterparty is subject to the same risk evaluation, measurement and control procedures as the firm;
4. (d) the counterparty is established in the UK; and
5. (e) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the firm;
(3) the value of the participations as referred to in Own Funds 3K.6 in financial institutions and credit institutions that is deducted from own funds pursuant to Own Funds 3K;
(4) exposures included in the scope of the counterparty default risk module;
(5) deferred tax assets; and
(6) intangible assets.

31/12/2024

3

A firm must reduce the exposure at default on a single name exposure i by the amount of the exposure at default to counterparties belonging to that single name exposure and for which the risk factor for market risk concentrations referred to in 3D30 and 3D31 is 0%.

31/12/2024

3D29 Relative Excess Exposure Thresholds

1

In respect of each single name exposure i, a firm must assign, in accordance with the following table, a relative excess exposure threshold depending on the weighted average credit quality step of the single name exposure i, calculated in accordance with 3D26.4.

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Relative excess exposure threshold CT _i	3%	3%	3%	1.5%	1.5%	1.5%	1.5%

31/12/2024

3D30 Risk Factor for Market Risk Concentrations

1

In respect of each single name exposure i, a firm must assign, in accordance with the following table, a risk factor g_i for market risk concentrations depending on the weighted average credit quality step of the single name exposure i, calculated in accordance with 3D26.4.

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Risk factor g_i	12%	12%	21%	27%	73%	73%	73%

31/12/2024

3D31 Specific Exposures

1

A firm must assign to exposures in the form of covered bonds a relative excess exposure threshold CT_i of 15%, provided that the corresponding exposures in the form of covered bonds have been assigned to credit quality step 0 or 1 and must treat exposures in the form of covered bonds as single name exposures, regardless of other exposures to the same counterparty as the issuer of the covered bonds, which constitute a distinct single name exposure.

31/12/2024

2

A firm must assign to exposures to a single immovable property a relative excess exposure threshold CT_i of 10% and a risk factor g_i for market risk concentrations of 12%.

31/12/2024

3

A firm must assign to the following exposures a risk factor g_i for market risk concentrations of 0%:

(1) the UK central government and Bank of England denominated and funded in pounds sterling;
(2) multilateral development banks referred to in Article 117(2) of the CRR; and
(3) international organisations referred to in Article 118 of the CRR.

31/12/2024

4

In respect of exposures that are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in 3D31.3(1) to (3), where the guarantee meets the requirements set out in 3G9, a firm must also assign a risk factor g_i for market risk concentrations of 0%.

31/12/2024

5

For the purposes of 3D31.3(1), a firm must treat exposures that are fully, unconditionally and irrevocably guaranteed by bodies listed in 3D1, where the guarantee meets the requirements set out in 3G9, as exposures to the central government.

31/12/2024

6.

In respect of exposures to central governments and central banks other than those referred to in 3D31.3(1), denominated and funded in the domestic currency of that central government and central bank, a firm must assign a risk factor g_i for market risk concentrations depending on their weighted average credit quality steps, in accordance with the following table:

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Risk factor g_i	0%	0%	12%	21%	27%	73%	73%

31/12/2024

7

In respect of exposures to the UK’s regional governments and local authorities not listed in 3D1, a firm must assign a risk factor g_i for market risk concentrations corresponding to weighted average credit quality step 2 in accordance with 3D31.6.

31/12/2024

8

In respect of exposures that are fully, unconditionally and irrevocably guaranteed by the UK’s regional government or local authority that is not listed in 3D1, where the guarantee meets the requirements set out in 3G9, a firm must assign a risk factor g _i for market risk concentration corresponding to weighted average credit quality step 2 in accordance with 3D31.6.

31/12/2024

9

A firm must assign to exposures in the form of bank deposits a risk factor g_i for market risk concentration of 0%, provided they meet all of the following requirements:

(1) the full value of the exposure is covered by a government guarantee scheme in the UK;
(2) the guarantee covers the firm without any restriction; and
(3) there is no double counting of such guarantee in the calculation of the SCR.

31/12/2024

3D32 Currency Risk Sub-Module

1

A firm must calculate the capital requirement for currency risk as equal to the sum of the capital requirements for currency risk for each foreign currency. For these purposes, a firm must treat investments as follows:

(1) type 1 equities referred to in 3D7.2 and type 2 equities referred to in 3D7.3 which are listed in stock exchanges operating with different currencies as sensitive to the currency of its main listing;
(2) type 2 equities referred to in 3D7.3 which are not listed as sensitive to the currency of the country in which the issuer has its main operations; and
(3) immovable property as sensitive to the currency of the country in which it is located.

31/12/2024

2

For the purposes of this Chapter, foreign currencies are currencies other than the currency used for the preparation of the firm’s financial statements (‘the local currency’).

31/12/2024

3

For each foreign currency, a firm must calculate the capital requirement for currency risk as equal to the higher of the following capital requirements:

(1) the capital requirement for the risk of an increase in value of the foreign currency against the local currency; and
(2) the capital requirement for the risk of a decrease in value of the foreign currency against the local currency.

31/12/2024

4

A firm must calculate the capital requirement for the risk of an increase in value of a foreign currency against the local currency as equal to the loss in its basic own funds that would result from an instantaneous increase of 25% in the value of the foreign currency against the local currency.

31/12/2024

5

A firm must calculate the capital requirement for the risk of a decrease in value of a foreign currency against the local currency as equal to the loss in its basic own funds that would result from an instantaneous decrease of 25% in the value of the foreign currency against the local currency.

31/12/2024

6

For currencies which are pegged to the euro, a firm may adjust the 25% factor referred to in 3D32.4 and 3D32.5 in accordance with 3D33 and 3D34, provided that all of the following requirements are met:

(1) the pegging arrangement must ensure that the relative changes in the exchange rate over a one-year period do not exceed the relative adjustments to the 25% factor, in the event of extreme market events, that correspond to the confidence level set out in Solvency Capital Requirement – General Provisions 3.3 and 3.4; and
(2) one of the following criteria is complied with:
1. (a) participation of the currency in the European Exchange Rate Mechanism (ERM II);
2. (b) existence of a decision from the European Council which recognises pegging arrangements between this currency and the euro; or
3. (c) establishment of the pegging arrangement by the law of country establishing the country’s currency.

31/12/2024

7

For the purposes of 3D32.6(1), the financial resources of the parties that guarantee the pegging must be taken into account.

31/12/2024

8

The impact of an increase or a decrease in the value of a foreign currency against the local currency on the value of participations in financial institutions and credit institutions as defined in Own Funds 3K.6 must only be taken into account in respect of the value of the participations that are not deducted from own funds pursuant to Own Funds 3K, and the part deducted from own funds must be taken into account only to the extent such impact increases the firm’s basic own funds.

31/12/2024

9

Where the higher of the capital requirements referred to in 3D32.3(1) and (2) and the highest of the corresponding capital requirements calculated in accordance with 6.3(2) are not based on the same scenario, a firm must apply as the capital requirement for currency risk on a given currency the capital requirement referred to in 3D32.3(1) or (2) for which the underlying scenario results in the highest corresponding capital requirement calculated in accordance with 6.3(2).

31/12/2024

3D33 Adjusted Factors for Currency Risk Where the Local or Foreign Currency is the Euro

1

Where the local or foreign currency is the euro, for the purposes of 3D32.4 and 3D32.5, a firm must replace the 25% factor with:

(1) 0.39% where the other currency is the Danish krone (DKK);
(2) 1.81% where the other currency is the lev (BGN);
(3) 2.18% where the other currency is the West African CFA franc (BCEAO) (XOF);
(4) 1.96% where the other currency is the Central African CFA franc (BEAC) (XAF); and
(5) 2.00% where the other currency is the Comorian franc (KMF).

31/12/2024

3D34 Adjusted Factors for Currency Risk Where the Local and the Foreign Currency are Pegged to the Euro

1

For the purposes of 3D32.4 and 3D32.5, a firm must replace the 25% factor with:

(1) 2.24% where the two currencies are the DKK and the BGN;
(2) 2.62% where the two currencies are the DKK and the XOF;
(3) 2.40% where the two currencies are the DKK and the XAF;
(4) 2.44% where the two currencies are the DKK and the KMF;
(5) 4.06% where the two currencies are the BGN and the XOF;
(6) 3.85% where the two currencies are the BGN and the XAF;
(7) 3.89% where the two currencies are the BGN and the KMF;
(8) 4.23% where the two currencies are the XOF and the XAF;
(9) 4.27% where the two currencies are the XOF and the KMF; and
(10) 4.04% where the two currencies are the XAF and the KMF.

31/12/2024

Solvency Capital Requirement - Standard Formula