Commission Delegated Regulation (EU) 2023/1668 of 25 May 2023 supplementing Directive (EU) 2019/2034 of the European Parliament and of the Council with regard to regulatory technical standards specifying the measurement of risks or elements of risks not covered or not sufficiently covered by the own funds requirements set out in Parts Three and Four of Regulation (EU) 2019/2033 of the European Parliament and of the Council and the indicative qualitative metrics for the amounts of additional own funds (Text with EEA relevance)

New Commission Delegated Regulation (EU) 2023/1668 concerning regulatory technical standards specifying how competent authorities should go about measuring risks or elements of risks that investment firms face or pose to others that are not (sufficiently) covered by the own funds requirements set out in part three and four of the Investment Firms Regulation (EU) 2019/2033 (IFR) was published in the Official Journal (OJ) of the EU.
Specifically, the delegated regulation sets out the methodology to assess additional own funds requirements of class 2 and class 3 investment firms in the EU in an effort to adequately address various risks faced by these firms, including Risk-to-Client, Risk-to-Firm, and Risk-to-Market as well as other material risks and to apply a harmonized approach in this context. The ultimate objective is to come up with additional own funds requirements of investment firms to reduce the likelihood of investment firm failure and mitigate the risk of disorderly wind-down, which could harm clients, other firms, and the broader market.
#### In detail, the delegated regulation
1. requires national competent authorities (NCA’s) assess the risk of a disorderly wind-down, thereby taking into account factors such as the time frame for a wind-down, operational and legal tasks involved in the wind-down process, the fixed and variable costs of a firm, or other material risks that could arise during the wind-down process;
2. requires national competent authorities assess any potential risks that may not adequately be addressed by the K-factor requirements capturing the risks that investment firms can pose to customers, to market access, or to the firm itself;
3. obliges NCAs to assess additional risks that may not be adequately addressed by the own funds requirements in noted part three and four of the IFR, including „interest rate risk and credit risk arising from non-trading book activities“ and risk relating to the IT-systems of firms;
4. obliges NCAs to determine the TOTAL material risks of an investment firm’s ongoing activities for purposes of determining own funds requirements and apply specified methodology to derive additional fund requirements;
5. requires NCAs to use the outcomes of the internal capital adequacy assessment process and the internal risk assessment process, the assessment of the risk profile of a firm (Article 36 of the Investment Firm Directive) and various other factors in their assessment of additional own fund requirements; and
6. obliges NCAs to apply the outlined „indicative qualitative metrics“ when assessing own funds requirements of affected investment firms. The metrics sets out a comprehensive list of factors to be used in the assessment of above noted risks (e.g. number of cyberattacks and related losses during the past five years under point (3) or asset concentration and sum of illiquid assets under point (2)).