EBA launches a consultation on draft RTS on the treatment of non-trading book positions subject to foreign-exchange risk or commodity risk under the FRTB framework

13 January 2020

The European Banking Authority (EBA) launched today a consultation on draft Regulatory Technical Standards (RTS) on how institutions should calculate the own funds requirements for market risk for their non-trading book positions that are subject to foreign-exchange risk or commodity risk under the FRTB standardised and internal model approaches. The consultation runs until 10 June 2020.

The draft standards specify the value of non-trading book positions that institutions should use when computing the own funds requirements for market risk for those positions. In this respect, the standards require that institutions should use either the last available accounting value or the last available fair value for positions attracting foreign-exchange risk. In addition, institutions are not requested to perform a daily re-valuation of non-trading book positions attracting foreign-exchange risk. However, they are required to reflect on a daily basis the changes in the foreign-exchange component. For positions attracting commodity risk, a daily fair-valuation should be performed.

In addition, the draft standards lay down a prudential treatment for the calculation of the own funds requirements for market risk of non-monetary items held at historical cost that may be impaired due to changes in the foreign-exchange rate. In this respect, the standards identify a specific methodology that institutions should use when capitalising the foreign-exchange risk stemming from those items under the standardised approach. Furthermore, it requires institutions to model directly the risk of impairment due to changes in the relevant exchange rate in the case of an internal model approach being used.

Finally, the standards specify an ad-hoc treatment with respect to the calculation of the actual and hypothetical changes associated to non-trading book positions for the purpose of the backtesting and the profit and loss attribution requirements. This is to address the issue of jumps in the value of the portfolio that may lead to over-shootings in the backtesting that are not due to changes in the foreign-exchange risk component of the price.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that that due to the current Covid-19 situation the deadline for the submission of comments has been extended to 10 June 2020.

A public hearing will then take place at the EBA premises in Paris on 11 February 2020 from 15:00 to 16:00 Paris time. All contributions received will be published following the close of the consultation, unless requested otherwise.

Legal basis

These draft RTS have been developed according to Article 325(9) of REGULATION (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013.

Article 325(9) mandates the EBA to develop draft regulatory technical standards to specify how institutions are to calculate the own funds requirements for market risk for non-trading book positions that are subject to foreign-exchange risk or commodity risk in accordance with the approaches set out in points (a) and (b) of paragraph 3.

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EBA report identifies key challenges in the roll out of Big Data and Advanced Analytics

13 January 2020

  • The growing use of Big Data and Advance Analytics (BD&AA), including Machine Learning, across the industry will rapidly evolve in the next few years.
  • The EBA Report identifies recent trends and suggests key safeguards in an effort to support ongoing technological neutrality across regulatory and supervisory approaches.
  • The EBA has identified four key pillars - data management, technological infrastructure, organisation and governance and analytics methodology – necessary to support the rollout of Advanced Analytics, along with a set of ‘elements of trust’.

The European Banking Authority (EBA) published today a Report on the recent trends of BD&AA in the banking sector and on the key considerations in the development, implementation and adoption of BD&AA. The aim of this assessment is to share knowledge among the stakeholders and, in particular, to ensure regulators and supervisors are well informed on the developments, in an effort to support technological neutrality across the regulatory and supervisory approaches. The need for necessary competence is becoming increasingly important, raising an important challenge for institutions, supervisors and regulators. Training and development, as well as closer engagement between the relevant stakeholders, could be an appropriate starting point for addressing this challenge.

A ‘data-driven’ approach is emerging across the financial sector, affecting institutions’ business strategies, risks and operations with respective changes in the mindset and culture still in progress. The EBA Report focuses on BD&AA techniques, such as machine learning (a subset of Artificial Intelligence - AI), that goes beyond the traditional business intelligence, to discover deeper insights, make predictions, or generate recommendations through different types and sources of data.

Through its ongoing interaction with the relevant stakeholders and by utilising its innovation monitoring tools, the EBA observed a fast growing interest in the use of BD&AA solutions with two out of three EU credit institutions already having such solutions in production. All functions across institutions might benefit from BD&AA applications as they could improve existing services from an efficiency, productivity and cost saving perspective or create new business opportunities. In general, most institutions are currently using simpler algorithms, leveraging on their core banking data. However, the current landscape can evolve in a rapid pace in the next few years.

Data management, technological infrastructure, analytics methodology, organisation and governance are the key pillars identified by the EBA to support the rollout of Advanced Analytics, along with the following “elements of trust” that need to be properly and sufficiently addressed:

  • Ethics
  • Explainability and interpretability
  • Fairness and avoidance of bias
  • Traceability and auditability
  • Data protection
  • Data quality
  • Security
  • Consumer protection

The EBA is of the view that additional efforts are needed to ensure that BD&AA solutions respect and integrate these “elements of trust”. Towards meeting this objective, a risk-based approach could apply on certain “elements of trust” depending on the impact of each BD&AA application. For example, stricter requirements may apply on the “explainability” element when there is a potential impact on business continuity or potential harm to the customer.

In the area of ethics, the Report refers directly to the “Ethics guidelines for trustworthy AI” developed by the EU High-Level Expert Group on AI set by the European Commission.

The EBA will continue monitoring the developments in line with the pace of employment of new technologies in financial services and, where appropriate, will perform additional work to enhance supervisory consistency and facilitate supervisory coordination.

Legal basis and background

The Report has been drafted pursuant to Article 9(2) of the EBA's Founding Regulation which mandates the Authority to monitor new and existing financial activities. This obligation extends to all areas of the EBA's competence, including in the field of activities of credit institutions, financial conglomerates, investment firms, payment institutions, and electronic money institutions. 

The Report delivers also on the EBA's FinTech Roadmap, published in March 2018, which identified the monitoring of emerging trends and analyses of the prudential risks and opportunities arising from the use of FinTech, as its priorities for 2018/2019.

EU banks’ face a further contraction of profitability

08 January 2020

The European Banking Authority (EBA) published today its Risk Dashboard and the results of the Risk Assessment Questionnaire (RAQ). While the capital position of EU banks remained strong and asset quality improved further, profitability contracted in Q3 2019, with a negative outlook from both banks and analysts.

EU banks’ capital ratios have remained stable for the third quarter in a row. The Common Equity Tier 1 (CET1) ratio remained at 14.4% on a fully loaded basis, with the increase in capital compensated by a parallel expansion of risk exposure amounts (REA). The latter came together with an increase in total assets and loans.

Asset quality kept on improving, even though at a slower pace. The ratio of non-performing loans (NPLs) declined from 3.0% to 2.9%. Similarly, the share of Stage 2 and Stage 3 loans contracted, both by 10bps quarter-on-quarter (QoQ) to 6.9% and 3.3%, respectively. The coverage ratio further declined, and stood at 44.6%, down from 44.9% in the quarter before. Looking forward, the percentage of banks expecting a deterioration in asset quality further increased, particularly for lending to small and medium enterprises (SME) and commercial real estate (CRE) financing. Notwithstanding this outlook, banks still plan to increase their SME financing as well as consumer lending.

Return on equity (RoE) declined in Q3 to 6.6%, down by 40bps from the quarter before. In line with the previous quarter trend, banks' cost to income ratio contracted and stood at 63.2% in September 2019, 90bps down from Q2. An increasing volume of interest bearing assets and unchanged net interest margin (1.43%) support the trend. The share of net interest income in total net operating income rose to 58.5%, 60bps higher than in the last quarter. The RAQ results show that banks and analysts are rather pessimistic in respect of profitability trends. Only 20% of banks and 10% of analysts expect an overall increase in profitability in the next near future, compared to 25% and 20% in the previous RAQ.

On the liability side, banks mainly intend to attain more bail in-able instruments (senior non-preferred and Holding Company bonds) as well as retail deposits. Analysts also expect more issuances of bail in-able debt. However, contrary to banks, the percentage of analysts expecting more preferred senior unsecured funding strongly increased. Positive expectations about the placement of MREL instruments come in parallel to decreasing concerns about MREL-eligible issuances. The percentage of banks pointing to pricing and uncertainty on required MREL amount as constraints for MREL-eligible issuance fell to 50% and 30% respectively (60% and 40% in the previous RAQ).

Notes to editors

The figures included in the Risk Dashboard are based on a sample of 147 banks, covering more than 80% of the EU banking sector (by total assets), at the highest level of consolidation, while country aggregates also include large subsidiaries (the list of banks can be found here).

EBA consults to revise standards to identify staff with a material impact on the institution’s risk profile

19 December 2019

The European Banking Authority (EBA) launched today a public consultation on its draft Regulatory Technical Standards (RTS) on the criteria to identify all categories of staff whose professional activities have a material impact on the institutions’ risk profile (“risk takers”). The aim of these standards is to define and harmonise the criteria for the identification of such staff and to ensure a consistent approach across the EU. The suggested identification process is based on a combination of qualitative and quantitative criteria. The consultation runs until 19 February 2020.

“Risk takers” will be identified based on the criteria laid down in the revised Capital Requirements Directive (CRD) and those specified within the draft RTS. Members of staff are identified as having a material impact on the institution’s risk profile as soon as they meet at least one of the criteria, be it the criteria foreseen under the CRD, the qualitative or quantitative criteria in the draft RTS or, where necessary because of the specificities of their business model, additional internal criteria, to ensure that all risk takers are identified.

The qualitative criteria which were set out in 2014 in the RTS on identified staff have been largely retained in the updated draft RTS. The revised qualitative criteria identify staff with managerial responsibilities and with decision-making powers that have a material impact on the institutions risk profile. In terms of quantitative criteria, the revised CRD set out a threshold of total remuneration of EUR 500 000 combined with the average of the remuneration of members of the management body and senior management.

The draft RTS retain the additional quantitative criteria that identify the staff high levels of remuneration above EUR 750 000 and the 0.3% of staff with the highest remuneration, based on the rebuttable presumption that the professional activities of those staff would have a material impact on the institutions risk profile.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 19 February 2020.

A public hearing will take place at the EBA premises on 28 January 2020 from 15:00 to 17:00 CET. All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and next steps

These draft standards have been revised in light of Article 94 (2) of CRD as amended by Directive (EU) 2019/878 (CRD5) that mandates the EBA to develop draft RTS to set out criteria to define (a) managerial responsibility and control functions, (b) material business unit and significant impact on the relevant business unit’s risk profile and (c) other categories of staff not expressly referred to in Article 92(3) CRD whose professional activities have an impact on the institution’s risk profile comparably as material as that of those categories of staff referred to therein.

The revised RTS takes also into account the supervisory experience gained since the entry into force in 2014 of the Regulation (EU) No 604/2014 (RTS on identified staff) and of the results of the EBA’s peer review on identified staff.

After the finalisation of the draft RTS, it is planned to submit it in June 2020 to the European Commission.

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EBA updates list of CET1 instruments

19 December 2019

  • The EBA has classified a new type of capital instrument as CET1;
  • The EBA maintains and updates the CET1 list on a regular basis;
  • The EBA shall be consulted ex-ante before including new capital instruments in the CET1 list;

The European Banking Authority (EBA) published today an updated list of capital instruments that Competent Authorities (CAs) across the European Union (EU) have classified as Common Equity Tier 1 (CET1). Since the publication of the previous update in July 2019, a new CET1 instrument has been assessed and evaluated as compliant with the Capital Requirements Regulation (CRR). The list will be maintained and updated on a regular basis.

Since the publication of the last updated list of CET1 capital instruments on 22 July 2019, the EBA has continued monitoring and assessing the capital instruments issued by EU institutions and their eligibility towards the criteria set in the CRR. In this new update, one new type of CET1 instrument has been assessed and evaluated as compliant with the CRR. No further changes have been applied in the list. For ease of reference, a new row has been added and highlighted to flag this new instrument.

In particular, the following information is provided in the list:

  • Country of the issuance;
  • Name of the instrument, in English and in the national language;
  • Governing law of the instrument;
  • Whether the instrument can be issued in addition to other CET1 instruments;
  • Whether the instrument is with voting or non-voting rights;
  • Whether the instrument is fully eligible or grandfathered as a non-state aid instrument;
  • Whether the instrument is subscribed by public authorities in emergency situations.

The EBA recommends taking into account the caveats described in the intro section of the list to correctly understand it.

Legal basis and background

The CET1 list has been compiled in accordance with Article 26(3) subparagraph 4 of the CRR, which mandates the EBA to maintain and publish a list of all forms of capital instruments in each Member State that qualify as CET1 instruments, based on the information collected from CAs.

The CRR has been amended with regard to own funds and, in particular, to the EBA powers in relation to the CET1 list.  In particular, the revised CRR reinforced the EBA’s role in terms of CET1 instruments and established that the EBA shall be consulted on an ex ante basis before new forms of instruments are included in the CET1 list.

The information provided in the EBA CET1 list is consistent with the information to be disclosed in accordance with Commission Implementing Regulation (EU) No 1423/2013 of 20 December 2013, which incorporates the Implementing Technical Standards (ITS) on disclosure for own funds.

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EBA publishes final draft standards on key aspects related to the implementation of the standardised approach for counterparty credit risk

18 December 2019

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) on the Standardised Approach for Counterparty Credit Risk (SA-CCR). These draft RTS specify key aspects of the SA-CCR and represent an important contribution to its smooth harmonised implementation in the EU. The RTS are part of the mandates assigned to the EBA within its important role in implementing the SA-CCR and Fundamental Review of the Trading Book (FRTB) frameworks in the EU.

The final draft RTS set out the method for identifying the material risk drivers of derivative transactions on the basis of which the mapping to one or more of the risk categories is to be done. In addition, these RTS set out the formula that institutions are to use to calculate the supervisory delta of options, when mapped to the interest rate risk category, which is compatible with negative interest rates. Finally, the final draft RTS introduce a method suitable for determining the direction of the position in a material risk driver.

On the mapping of derivatives into risk categories, the final draft RTS follow a three-pronged methodology for the identification of the material risk driver(s) of derivative transactions. The first approach, relies on purely qualitative information and is suitable for simple and standard derivative transactions (e.g. interest rate and cross currency swaps). The second approach is more detailed and hinges on a quantitative assessment of the sensitivities in order to classify possible risk drivers based on materiality considerations. The third approach is a conservative and simple backstop, which identifies all possible risk drivers of a transaction as material. This last approach will always be available as a fall back option and will allow a proportionate implementation of the framework when the second approach is too burdensome.

The formula for the supervisory delta of interest rate options, specified in the RTS, is an application of the Black-Scholes (BS) model, on which SA-CCR relies. Such an application is made feasible by shifting the interest rate curve to move interest rates back into positive territory. In addition, the RTS specify the parameters that are to be used in the supervisory delta formula.

Finally,  for determining the direction of the position in a particular risk driver (long or short), the methodology introduced in these RTS leverages on the same elements (i.e. cash flows and sensitivities) used for the identification of the material risk driver(s) of derivative transactions, which are specifically envisaged for reducing the burden on institutions.

Legal basis


The final draft RTS have been developed according to Article 277(5) and Article 279a(3) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2019/876. Article 277(5) mandates the EBA to develop draft regulatory technical standards to specify: (a) the method for identifying transactions with only one material risk driver, and (b) the method for identifying transactions with more than one material risk driver and for identifying the most material of those risk drivers for the purposes of Article 277(3). Article 279a(3) mandates the EBA to develop draft regulatory technical standards to specify: (a) in accordance with international regulatory developments, the formula that institutions shall use to calculate the supervisory delta of call and put options mapped to the interest rate risk category compatible with market conditions in which interest rates may be negative as well as the supervisory volatility that is suitable for that formula, and (b) the method for determining whether a transaction is a long or short position in the primary risk driver or in the most material risk driver in the given risk category for transactions referred to in Article 277(3).

The EBA calls on banks to consider long-term horizons in their strategies and business activities

18 December 2019

  • The EBA highlights need to promote long-term approaches.
  • A robust regulatory prudential framework is a pre-condition for long-term investments.
  • Disclosure of long-term risks and opportunities should be enhanced.

The European Banking Authority (EBA) published today its Report on undue short-term pressures from the financial sector on corporations, which presents its analysis on the extent to which short-termism is present in the banking sector. This assessment responds to a call for advice from the European Commission as part of its Action Plan “Financing Sustainable Growth” and will inform on policy actions that could be taken to ensure that long-term perspectives are adequately considered in the financial sector.

The EBA assessed the potential presence and drivers of short-termism, by looking at (i) potential short-term pressures exerted by banks on corporate clients, and (ii) potential short-term pressures banks may be under on their own, by shareholders and capital markets. Furthermore, the Report assesses whether banking regulations may play a role in exacerbating or in mitigating short-termism.

Overall, based on an analysis of available qualitative and quantitative sources, the EBA identifies some limited concrete evidence of short-termism, without necessarily being in a position to label it systematically as undue, and highlights the need to promote long-term approaches.

On this basis, the EBA provides policy recommendations advocating that policy action should aim at providing relevant information and incentives for the banks to incorporate long-term time horizons in their strategies, governance, business activities and risk management.

The EBA especially recommends to the European Commission and the EU legislators:

  • to maintain a robust regulatory prudential framework as a pre-condition for long-term investments, while continuing monitoring potential unintended consequences of financial regulations on the supply of sustainable investment financing ;
  • to foster the adoption of longer-term perspectives by institutions through more explicit legal provisions on sustainability in the Capital Requirements Directive (CRD);
  • to continue enhancing disclosures of long-term risks and opportunities, by both corporations and banks, by setting principles and requirements that can ensure comparability and reliability of disclosure e.g. through amendments to the Non-Financial Reporting Directive;
  • to improve information flows, data access and support the role of the banking sector in raising awareness on sustainability challenges and environmental, social and governance (ESG) risks, for example through the development of platforms or by setting-up a centralised database on environmental data for financial sector.

Legal basis and next steps

This Report responds to a European Commission’s request included in its Action Plan: Financing Sustainable Growth, which aims notably to foster transparency and long-termism in financial and economic activity The European Supervisory Market Authority (ESMA) and European Insurances and Occupational Pensions Authority (EIOPA) are also publishing today a report for the entities and activities in their remit.

The three ESAs have been asked to investigate potential evidence and sources of undue short-term pressures on corporations from the financial sector and provide advice on areas which regulators should address.

Recommendations for policy actions have been submitted to the European Commission.

The EBA is actively working on sustainable finance and has outlined its approach and timelines for delivering mandates related to Environmental, Social and Governance (ESG) factors and risks in its action plan on sustainable finance.

EBA publishes 2020 EU-wide stress test templates after testing them with banks

16 December 2019

The European Banking Authority (EBA) published today the templates for the 2020 EU-wide stress test, after the feedback received by banks during the testing phase. The stress test exercise will be formally launched in January 2020.

After the agreement of the EBA Board of Supervisors (BoS) on the publication of the 2020 EU-wide stress test package, the templates were submitted to banks for a testing phase. During this period, the EBA collected the industry feedback and implemented further adjustments to the version published in November. The current version can still be subject to minor technical adjustments before its final publication in January 2020. 

The official version of the templates has been circulated to banks participating in the 2020 EU-wide stress test. The version published today is for information only and banks shall refrain from using it for the purposes of the exercise.

ESAs transform the way competent authorities cooperate with each other on AML/CFT matters

16 December 2019

  • Colleges of AML/CFT supervisors established for the first time in the EU;
  • These colleges provide a platform for sharing information between AML/CFT and prudential supervisors; 
  • Recent cases have demonstrated that an absence of formal cooperation frameworks may expose the EU Single Market to financial crime.

The three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published today Joint guidelines on cooperation and information exchange, establishing colleges of anti-money laundering and countering the financing of terrorism (AML/CFT) supervisors for the first time in the EU to ensure effective cooperation and information exchange between competent authorities. These measures are needed to strengthen the EU’s AML/CFT efforts.

Financial crime has no borders. Recent high profile AML/CFT cases involving EU banks suggest that in cases where firms operate in different countries, failure by AML/CFT supervisors to communicate effectively with their EU counterparts created gaps that allowed serious compliance failures to continue for long periods of time. The ESAs drafted these Guidelines to ensure that going forward, supervisors from different Member States have a formal cooperation framework that ensures adequate and effective AML/CFT supervision of firms that operate on a cross-border basis.

These Guidelines require that in situations where a firm operates in more than three Member States, supervisors establish an AML/CFT college. To this end, the Guidelines have laid down rules that govern the establishment and operation of the AML/CFT colleges. These colleges will bring together AML/CFT supervisors of the same firm, as well as other relevant parties, for example prudential supervisors and AML/CFT supervisors from third countries. This is to ensure that all supervisors have access to comprehensive information about the firm and use it to inform their risk assessment and supervisory approach. The colleges will also allow the supervisors to agree on a common approach, including coordinated actions.

The Guidelines also include provisions to structure supervisory cooperation in situations where the conditions for setting up an AML/CFT college are not met.

Legal basis and background

These joint Guidelines have been prepared in accordance with Articles 50a, 57a and 57b of Directive (EU) 2015/849 (The Fourth EU Anti-Money Laundering Directive), which provide legal basis for cooperation and information exchange between AML/CFT and prudential supervisors in the EU and with authorities in third countries.

The Guidelines are broadly based on, and consistent with, the framework of colleges of prudential supervisors of banks, but the scope of these Guidelines is much wider and encompases all financial sectors in a proportionate manner.

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EBA consults to amend standards on benchmarking of internal models

13 December 2019

  • The introduction of IFRS9 templates is the main change to the standards;
  • The objective of the exercise is to collect data on the IFRS9 expected credit losses;
  • In the first phase of the exercise, the EBA will collect data on low default portfolios and focus on the probability of default.

The European Banking Authority (EBA) launched today a consultation to amend the Commission's Implementing Regulation on benchmarking of internal models to adjust the benchmarking portfolios and reporting requirements in view of the benchmarking exercise it will carry out in 2021. On the credit risk side, the amended standards will allow to complement the analysis of credit risk models through the introduction of IFRS 9 templates and the collection of risk weighted exposure value (RWA) calculated under the Standardised Approach (SA) and hypothetical RWA calculated with empirical default rates. On the market risk side, the framework remains stable, with the consultation restricted to clarifications on the setting of reference dates and instruments/portfolios definitions. The consultation runs until 13 February 2020.

The main update of the 2021 ITS relates to the introduction of the IFRS 9 benchmarking templates. In line with the staggered approach communicated by the EBA in the IFRS 9 roadmap, in this first phase of the exercise, the IFRS 9 templates solely collect data on low default portfolios (LDP) with a focus on the probability of default (PD).

The objective of the exercise is to collect quantitative data on the IFRS 9 Expected Credit Loss (ECL) parameters and other relevant information that, combined with a qualitative questionnaire to be filled by the institutions separately, will be used to gain a deeper understanding of the different methodologies, models, and scenarios that could lead to material inconsistencies in ECL outcomes, affecting own funds and regulatory ratios.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page.

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 13 February 2020.

A public hearing on this consultation will take place at the EBA premises on 3 February 2020 from 15:00 to 17:00 CET. Deadline for registration is 21 January 2020 at 16:00 CET.

Legal basis

These draft ITS have been developed in accordance with article 78 of the Capital Requirements Directive (CRD), which requires the EBA to specify the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercises. These are used by competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements.

In addition, IFRS9, the new international accounting standard recently adopted, introduced new rules for the measurement of credit losses. As a result, it directly impacts on the amount of own funds and regulatory ratios reported and it is, therefore, necessary to reflect such impact also on the reporting requirements under Regulation (EU) No 2016/2070 as regards benchmarking portfolios, reporting templates and reporting instructions.

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