# IFR Part Four K-CON: 25% Limit & 200%-900% Multipliers

> Master EU IFR Articles 36-42 Concentration Risk (K-CON): 25% own-funds / EUR 150M bank limits, 10-day breach rule, and Table 6 200%-900% capital multipliers.

Canonical: https://eurofirmledger.com/bulletins/ifr-part-four-k-con-concentration-risk-25pct-own-funds-excess
Last updated: 2026-11-14T19:40:52.318Z

**Publication:** Euro Firm Ledger
**Category:** EU Ifr Ifd Class2 Kfactor Prudential
**Published:** 2026-11-14T05:50:25.915Z
**Author:** Lukas Lindqvist, CEFA (Certified European Financial Analyst (EFFAS/CEFA, Frankfurt & Zurich))
**Reviewer:** Not recorded

## Answer-first summary

IFR Part Four (Articles 36-42) caps trading-book exposure to any single counterparty group at 25% of regulatory own funds, imposing steep 200% to 900% K-CON multipliers on permitted short-term excesses.

## Key takeaways

- IFR Article 37 caps trading-book concentration at 25% of regulatory own funds for general/offshore counterparties, while lifting the ceiling up to 100% of own funds (max EUR 150M) for EU banks and investment firms.
- Any trading-book excess above the Article 37 limit triggers an immediate mandatory notification to the home NCA under IFR Article 38(1), even if cured within 24 hours.
- IFR Article 39 Table 6 levies progressive 200% to 900% K-CON capital multipliers on excesses, stepping up sharply once an excess remains open past 10 business days.
- Combining an offshore LP’s 8% K-TCD Risk Factor with 25% K-CON triggers makes offshore intragroup back-to-back hedging up to 16.8x more capital-intensive than routing to two regulated EU prime brokers.

## Related financial entities

- **Cyprus Investment Services and Activities Law (CySEC)** (CYSEC-CIF) — license: Statutory framework administered by CySEC transposing MiFID II, governing the authorization and operational requirements of Cypriot Investment Firms.
- **French Monetary and Financial Code (AMF / ACPR)** (AMF-ACPR) — license: Dual regulatory system where the ACPR oversees prudential authorization and solvency while the AMF approves business plans and monitors market conduct.
- **German Investment Institutions Act (WpIG / BaFin)** (BAFIN-WPIG) — license: Specialized German regulatory statute transposing the EU Investment Firms Directive (IFD), administered by BaFin and the Deutsche Bundesbank.

## Analysis

Single-counterparty concentration—most notoriously routing 100% of an STP broker's trading-book liquidity hedges to a single offshore parent or holding massive single-issuer inventory—has triggered more sudden European brokerage insolvencies than market volatility itself. **Part Four of Regulation (EU) 2019/2033 (IFR Articles 36 through 42)** polices trading-book concentration via a two-tier mechanism: a hard **25% of regulatory own funds limit** per client or group of connected clients (up to EUR 150M / 100% of own funds for regulated banks and investment firms), paired with punitive **200% to 900% K-CON capital multipliers** (IFR Article 39 Table 6) whenever a trading-book exposure exceeds that soft ceiling!

Within our [EU IFR/IFD prudential capital guide](/bulletins/eu-ifr-ifd-class-1-2-3-prudential-capital-k-factor-guide-2026) and the [IFR/IFD prudential hub](/topics/eu-ifr-ifd-class2-kfactor-prudential), K-CON frequently shocks newly licensed Class 2 brokers at [CySEC](/competent-authorities/cysec) and [BaFin](/competent-authorities/bafin) whose EUR 1.5 million own-funds base yields a **EUR 375,000 standard 25% limit**—meaning a single un-regulated liquidity provider netting set with EUR 900,000 of [K-TCD Exposure Value](/bulletins/ifr-rtf-k-tcd-trading-counterparty-default-alpha-cva-formula) immediately breaches the statutory concentration cap!

## Standard 25% Limit vs Regulated Bank / Investment-Firm EUR 150M Carve-Out

**IFR Article 37(1)** sets two dramatically different Concentration Risk Limits (L) depending on whether the counterparty group consists of regulated financial institutions:
1. **General Corporate / Retail / Unregulated Offshore Counterparties**: Limit + 'L = 25% of the firm's regulatory own funds' + . Crucially, an unregulated St. Vincent, Mauritius, or Seychelles group parent **does NOT qualify** for the institutional uplift and is capped strictly at 25%!
2. **Credit Institutions or EU/Equivalent Investment Firms**: Limit L = max(25% of own funds, min(EUR 150,000,000, 100% of own funds))—meaning for any Class 2 broker with under EUR 150 million of own funds, hedging with regulated European banks ([Algemene Bank Nederland](/firms/algemene-bank-nederland), [UniCredit Bank Austria](/firms/bank-austria)) or EU Class 2 prime brokers ([B2Prime](/firms/b2prime)) lifts the concentration limit **fourfold from 25% to 100% of own funds** (provided non-institution connected entities inside that group stay <= 25%)!

![IFR Articles 37-41 concentration limit check, immediate NCA breach notification, 10-day clock, and Table 6 progressive K-CON multiplier waterfall](/api/figure?type=flow&title=IFR%20Part%20Four%20K-CON%20Soft-Limit%20%26%20Hard-Cap%20Engine&subtitle=How%20IFR%20Arts.%2037-39%20price%20trading-book%20excesses%20across%20progressive%20Table%206%20tranches&steps=1.%20Exposure%20Value%20%28EV%29%3A%3ASum%20net%20long%20ISIN%20position%20%2B%20K-TCD%20EV%20across%20connected%20group%7C2.%20Limit%20Check%20%28Art.%2037%29%3A%3A25%25%20Own%20Funds%20standard%20vs%20100%25%20Own%20Funds%20%28%3C%3DEUR%20150M%29%20EU%20bank%7C3.%20Immediate%20NCA%20Notice%3A%3AArt.%2038%281%29%3A%20Notify%20BaFin%2FCySEC%20without%20delay%20on%20any%20excess%20EVe%7C4.%20Table%206%20Multiplier%3A%3A200%25-900%25%20progressive%20charge%20%28%3C10d%29%20or%20higher%20%3E10d%20Column%20B!&metrics=STANDARD%20LIMIT%3A%3A25.0%25%20OF%3A%3ACorporates%2C%20retail%20%26%20offshore%20LPs%7CBANK%20%2F%20MIFID%20LIMIT%3A%3AUp%20to%20100%25%20OF%3A%3ACapped%20at%20EUR%20150M%20%28Art.%2037%281%29%29%7CHARD%20EXCESS%20CAP%3A%3A500%25%20OF%3A%3AArt.%2037%282%29%28a%29%20%3E10-day%20ceiling%7CAGGREGATE%20%3E10D%20CAP%3A%3A600%25%20OF%3A%3AArt.%2037%282%29%28b%29%20sum%20of%20all%20%3E10d%20EVe)

## IFR Article 39 Table 6 Progressive Multiplier Schedule (<=10 Days vs >10 Days)

Whenever trading-book Exposure Value (EV) exceeds the counterparty limit (L), the firm calculates the **Own Funds Requirement of the Excess (OFRE = (OFR_position_and_TCD / EV) * EVe)** and multiplies slices of OFRE by **IFR Article 39(2) Table 6** factors—which jump sharply the instant an excess persists past **10 business days**!

| Excess Tranche (% of Own Funds) | Column A: Excess <= 10 Days | Column B: Excess > 10 Days | Hard Statutory Ceiling (IFR Art. 37(2)) |
| :--- | :--- | :--- | :--- |
| **Up to 40% of Own Funds** | **200%** (2.0x base charge) | **300%** (3.0x base charge) | Immediate NCA breach notification required under Art. 38(1) |
| **From 40% to 60% of Own Funds** | **300%** (3.0x base charge) | **400%** (4.0x base charge) | Must diversify across multiple prime LPs or inject CET1 |
| **From 60% to 80% of Own Funds** | **400%** (4.0x base charge) | **500%** (5.0x base charge) | Sovereign AAA Eurozone debt exempt under IFR Art. 40(1) |
| **From 80% to 100% of Own Funds** | **500%** (5.0x base charge) | **600%** (6.0x base charge) | QCCP cleared exposures exempt under IFR Art. 40(1)(d) |
| **From 100% to 250% of Own Funds** | **600%** (6.0x base charge) | **800%** (8.0x base charge) | Single >10-day excess strictly barred above **500% of Own Funds** |
| **Over 250% of Own Funds** | **900%** (9.0x base charge) | **900%** (9.0x base charge) | Aggregate of all >10-day excesses barred above **600% of Own Funds** |

## Non-Trading-Book Concentration Monitoring (IFR Art. 36(2) & ICARA)

Notice a vital distinction: **Pillar 1 K-CON applies strictly to trading-book exposures** (issuer equity/bond positions + trading-book K-TCD). What about an investment firm parking 80% of its *own corporate bank cash* at a single commercial bank on the non-trading book? While non-trading cash deposits do not generate Pillar 1 K-CON multipliers, **IFR Article 36(1)** requires firms to monitor and report non-trading concentration quarterly in COREP IF (C 25.00 / IF 08) and hold Pillar 2 concentration capital inside [IFD Article 24 ICARA](/bulletins/ifd-article-24-icara-internal-capital-wind-down-stress-testing).

## Worked K-CON Penalty Math on an Over-Concentrated Offshore LP

Watch how fast Table 6 destroys capital ratios when a broker with **EUR 2,000,000 of regulatory own funds** holds **EUR 1,700,000 of trading-book K-TCD Exposure Value** with an unregulated offshore sister LP for more than 10 days:

```formula
K_CON_Tranche_Summation_Formula (IFR_Art_39):
 EVe = max(0, EV_counterparty - Limit_Art37)
 Unit_OFR_Rate = Base_Position_And_TCD_OFR / EV_counterparty
 K_CON_EUR = Sum_{tranche k in Table 6} [ Unit_OFR_Rate * EVe_slice_k * Multiplier_Table6(k, Duration_Days) ]

Worked Offshore LP Excess Scenario (> 10 Business Days):
 Regulatory Own Funds (OF) = EUR 2,000,000
 Offshore Unregulated LP Limit (25% of OF) = EUR 500,000
 Actual K-TCD Exposure Value (EV) = EUR 1,700,000 -> Excess (EVe) = 1,700,000 - 500,000 = EUR 1,200,000 (60% of OF!)
 Base K-TCD Unit Rate (Offshore LP: 1.2 * 8% * 1.5) = 14.40% of EV
 Tranche 1 (0% to 40% of OF = first EUR 800,000 of EVe, >10d Col B = 300%):
 K_CON_1 = 0.1440 * 800,000 * 3.00 = EUR 345,600
 Tranche 2 (40% to 60% of OF = next EUR 400,000 of EVe, >10d Col B = 400%):
 K_CON_2 = 0.1440 * 400,000 * 4.00 = EUR 230,400
 Total K_CON Penalty = 345,600 + 230,400 = EUR 576,000 (ON TOP of EUR 244,800 base K-TCD = EUR 820,800 total!)
 Contrast With EU Regulated Bank LP: Limit = 100% of OF (EUR 2,000,000) -> EVe = EUR 0 -> K_CON = EUR 0!
```

![Comparison of EUR 820.8k combined K-TCD + K-CON charge on an unregulated offshore LP versus EUR 49.0k on an EU regulated bank LP](/api/figure?type=bars&title=Total%20Capital%20Cost%20of%20Offshore%20Intragroup%20LP%20Concentration&subtitle=How%2014.4%25%20K-TCD%20%2B%20300%25%2F400%25%20K-CON%20multipliers%20turn%20EUR%201.7M%20EV%20into%20EUR%20820.8k%20CET1%20lockup&steps=EU%20Bank%20LP%20%28K-TCD%29%3A%3AEUR%2048.96k%20total%20%28EUR%200%20K-CON%20within%20EUR%202M%20cap%29%7COffshore%20Base%20K-TCD%3A%3AEUR%20244.80k%20%2814.4%25%20rate%20on%20EUR%201.7M%20EV%29%7CK-CON%20Tranche%201%20%28300%25%29%3A%3A%2BEUR%20345.60k%20on%20first%20EUR%20800k%20excess%20%28%3E10d%29%7CK-CON%20Tranche%202%20%28400%25%29%3A%3A%2BEUR%20230.40k%20on%20next%20EUR%20400k%20excess%20%28%3E10d%29&metrics=OFFSHORE%20TOTAL%3A%3AEUR%20820.8k%3A%3A16.8x%20costlier%20than%20EU%20bank%20LP!%7CEU%20BANK%20LP%20TOTAL%3A%3AEUR%2049.0k%3A%3AEUR%200%20K-CON%20under%20100%25%20OF%20cap%7CART.%2042%20ANTI-DODGE%3A%3AStrict%20Ban%3A%3ABans%20%3C10-day%20artificial%20roll-offs%7CSOVEREIGN%20EXEMPT%3A%3A0%25%20K-CON%3A%3AIFR%20Art.%2040%281%29%28a%29%200%25-RW%20govts)

## Strict Prohibition on Artificial 10-Day Window-Dressing (IFR Article 42)

Some rogue treasury desks historically tried to dodge Column B's steeper > 10 days multipliers by temporarily closing out an intragroup swap on Day 9 with a sister company and re-opening it on Day 10 to "reset the 10-day clock." **IFR Article 42(1)–(2)** explicitly outlaws temporary transfers of exposures to reset the 10-day period, requiring immediate supervisory notification and imposing the full >10-day multiplier backdated to Day 1.

## Frequently asked questions

### Are Class 3 Small and Non-Interconnected (SNI) firms subject to Part Four K-CON limits?

No, because Class 3 SNI firms under IFR Article 12 are prohibited from holding any trading-book positions (NPR = 0 and TCD = 0). However, they still monitor non-trading bank cash diversification under MiFID II safeguarding rules and ICARA.

### How are connected counterparties grouped together when testing the 25% K-CON threshold?

IFR Article 4(1)(15) imports the CRR Article 4(1)(39) "group of connected clients" definition—aggregating all legal entities linked by parent-subsidiary control (>50% voting rights or dominant influence) OR economic interconnectedness where one entity’s failure would likely cause the others to default.

### Do German Bunds or French OATs held on a bond market-making book trigger K-CON above 25% of own funds?

No. IFR Article 40(1)(a) fully exempts exposures to central governments, central banks, public-sector entities, and multilateral development banks that would receive a 0% credit risk weight under CRR Article 114—allowing primary sovereign dealers to hold large Eurozone Bund inventories.

### What is the absolute hard legal limit on an excess remaining open past 10 business days?

Under IFR Article 37(2), an exposure excess persisting for more than 10 days is strictly prohibited from exceeding 500% of the investment firm’s regulatory own funds individually, or 600% of regulatory own funds in aggregate across all >10-day excesses.


## Source URLs

- https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32019R2033
- https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013R0575
- https://www.eba.europa.eu/regulation-and-policy/large-exposures

## Citation

- APA: Lukas Lindqvist, CEFA. (2026). IFR Part Four Concentration Risk (K-CON): 25% Own-Funds Limit & 200%–900% Multipliers. Euro Firm Ledger. https://eurofirmledger.com/bulletins/ifr-part-four-k-con-concentration-risk-25pct-own-funds-excess
- Canonical article: [IFR Part Four Concentration Risk (K-CON): 25% Own-Funds Limit & 200%–900% Multipliers](https://eurofirmledger.com/bulletins/ifr-part-four-k-con-concentration-risk-25pct-own-funds-excess)
- Site research index: [Euro Firm Ledger](https://eurofirmledger.com/llms-full.txt)