Article 473a(1) of the CRR introduces an option for institutions to apply the transitional arrangements. According to the first subparagraph of Article 473a(9) of the CRR, the institution shall have informed the competent authority (CA) of its initial decision regarding the application of transitional arrangements by 1 February 2018. The institution, however, may reverse the initial decision to apply or not apply the transitional arrangements once during the transitional period, subject to prior permission of the CA.

Further, the second subparagraph of Article 473a(9) sets out an option for institutions that decided to apply the transitional arrangements not to apply Article 473a(4) of CRR (i.e. the dynamic component). In that case, the CA shall should have also been informed by the institution by 1 February 2018. Similar to the decision on whether to apply or not the transitional arrangements, the decision on whether to apply or not to apply the dynamic component may be reversed once during the transitional period, subject to prior permission of the CA.

With Regulation (EU) 2020/873 amending Regulations (EU) No 575/2013 and (EU) 2019/876, a third subparagraph was included in Article 473a(9) setting out an option for institutions that decided to apply the transitional arrangements not to apply Article 473a(2) of CRR (i.e. the static component). In that case, the CA should be informed. Similarly to the decision on whether to apply or not the transitional arrangements, the decision on whether to apply or not to apply the static component may be reversed during the transitional period, subject to prior permission of the CA.

As regards the application of the dynamic component, as reflected in the background of the question, only the full dynamic approach that can be applied or not by the institutions. This is particularly evident in Article 473a (9) under which “An institution that has decided to apply the transitional arrangements set out in this Article may decide not to apply paragraph 4 in which case it shall inform the competent authority of its decision by 1 February 2018. In such a case, the institution shall set A4,SA, A4,IRB, Aold, SA, Aold IRB, t2 and t3 referred to in paragraph 1 as equal to zero.” As such, it is clear from the legal text that the application of a dynamic component should not refer separately to the “new dynamic” component (A4,SA, and A4,IRB) but also to the “old dynamic” component (Aold, SA and Aold, IRB), being the two components treated consistently under the transitional arrangements rules.

In line with Recital 6 of Regulation (EU) 2017/2395, the reversal of the initial decision is allowed subject to the prior permission of the relevant CA, which should ensure that such decision is not motivated by considerations of regulatory arbitrage. 

The legal text is neutral between use or non-use of the transitional arrangements. For that reason a ‘subsequent’ (meaning reversal of an initial) decision taken after 1 February 2018 not to use them would as much require the permission of the CA as a  subsequent decision taken after 1 February 2018 to apply them.