174. For institutions under paragraph 1733, point (a), where the profits and losses, re-allocated …

For institutions under paragraph 1733, point (a), where the profits and losses, re-allocated as a result of transfer pricing arrangements based on transaction profit methods, are material (e.g. account for more than 5% of the P&L generated by the institution) and this risk is not covered or fully covered by P1R, competent authorities should:

• a. consider this risk for the determination of P2R;
• b. consider the results of the components listed in paragraph 1722, such as the materiality of the transfer pricing arrangements, in relation to the market risk capital requirements of the portfolio whose profits and losses are used to determine the amount to be transferred to the institution as well as potential weaknesses in the related governance arrangements;
• c. determine P2R that sufficiently cover the market risks not captured under P1R which are generated under the transfer pricing arrangement. To that end, competent authorities may use the calculation method as laid down in Annex V or an alternative methodology that provides accurate measurement of the risk not covered in P1R and identifies the consequent P2R, considering as a reference the methodology in Annex V.

Profitability analysis and stress testing

1. Overzicht

1.1 Referenties

1.2 Geïdentificeerde eisen

1.3 Gerelateerde standaarden

2. Geïdentificeerde eisen

3. Gerelateerde standaarden

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