Definition of unregulated financial sector entities

The term 'unregulated financial sector entity' in Article 153(2) of Regulation (EU) No 575/2013 (CRR) is not limited to entities that are "completely unregulated". It also applies to financial sector entities that are subject to prudential supervisory and regulatory requirements which are not deemed to be at least equivalent to those applied in the Union. This follows from the following considerations: The definition of a 'large financial sector entity' in Article 142(1)(4) of the CRR only applies to financial sector entities as defined in Article 4(1)(27), provided that both the 'prudential regulation condition' in Article 142(1)(4)(b) and the 'size condition' in Article 142(1)(4)(a) are met. In other words, this definition is only applicable to large 'prudentially regulated' financial sector entities and those which are not directly 'prudentially regulated' but with at least one 'prudentially regulated' subsidiary. By contrast, the definition of an 'unregulated financial sector entity' in Article 142(1)(5) of the CRR is applicable to any entities which are neither directly 'prudentially regulated' nor have at least one 'prudentially regulated' subsidiary, provided that they perform, as their main business, one or more of the activities listed in Annex I to Directive 2013/36/EU or in Annex I to Directive 2004/39/EC. Consequently, the requirement in Article 153(2) of the CRR to multiply the coefficient of correlation by 1.25 applies only to exposures to 'prudentially regulated' financial sector entities which meet the 'size condition' in Article 142(1)(4)(a) of the CRR, and to all entities which meet both of the following conditions: a)            they perform, as their main business, one or more of the activities listed in Annex I to Directive 2013/36/EU, or in Annex I to Directive 2004/39/EC; and b)            they do not meet the 'prudential regulation condition' of Article 142(1)(4)(b) of the CRR. It is worth noting that the 'prudential regulation condition' in Article 142(1)(4)(b) of the CRR is not limited to the CRR and the national transposition of Directive 2013/36/EU.  As an illustration, this condition can also be met where, in a Member State, financial institutions (to which the CRR is not applicable) are subject to prudential and supervisory requirements equivalent to those applied to institutions. See further Q&A 211 .