IFR Risk-to-Client (RtC) Formulas: K-AUM, K-CMH, K-ASA & K-COH Coefficients

Within Pillar 1 of Regulation (EU) 2019/2033, Risk-to-Client (RtC)—governed by IFR Articles 16 through 20 and Commission Delegated Regulation (EU) 2022/25—is the core capital driver for European asset managers, neo-brokers, retail CFD custodians, and agency execution desks. Rather than penalizing a firm's own balance sheet, RtC prices the potential restitution cost to clients if software bugs, mis-execution, faulty portfolio rebalancing, or sub-custodian reconciliation errors corrupt client portfolios or cash balances across four additive components: K-AUM + K-CMH + K-ASA + K-COH.

Within our EU IFR/IFD prudential capital guide and the IFR/IFD prudential hub, engineering accurate daily/monthly SQL data pipelines for RtC requires mastering three non-obvious mechanics in RTS (EU) 2022/25: 3-month exclusion lags, segregated vs non-segregated K-CMH definitions, and mutual exclusivity between K-AUM, K-COH, and K-DTF on the same trade.

Exact Coefficients, Observation Windows & Exclusion Lags (IFR Arts. 15–20)#

Every RtC K-factor discards the most recent 3 calendar months so CFOs know next month's exact RtC capital requirement 90 days in advance without pro-cyclical market-crash shocks:

Three High-Impact Technical Rules in Delegated Regulation (EU) 2022/25#

1. UCITS / AIFM Inbound Delegation Exemption vs Outbound Inclusion (IFR Art. 17(2)): When a Luxembourg UCITS Management Company supervised by CSSF delegates portfolio management of a EUR 2 billion equity fund to a Paris MiFID firm supervised by AMF, the UCITS ManCo already holds capital on that fund under the UCITS Directive; therefore, IFR Article 17(2) exempts the MiFID delegate from K-AUM on that EUR 2B pool! Conversely, if the MiFID firm contracts directly with a pension client and delegates sub-management out to a US adviser, the MiFID firm must keep 100% of that portfolio inside K-AUM.
2. When "Segregated" Client Cash Fails the 0.40% Test (IFR Art. 4(1)(49)): Holding client money in a separate bank account at Algemene Bank Nederland or UniCredit Bank Austria labeled "Client Account" is not enough for the 0.40% segregated K-CMH rate if the bank sits in a third country whose insolvency law does not guarantee statutory ring-fencing in bankruptcy—forcing the 0.50% non-segregated surcharge (+25% higher capital!).
3. K-COH vs K-DTF Execution Boundary: If neo-brokers like Change or CAPEX.com route a client stock order purely as agent in the client's name, it enters K-COH (0.10% of daily average). If the broker executes in its own name (even riskless matched-principal), IFR Article 20(2) removes it from K-COH and places it into K-DTF instead.

Worked Multi-Asset Neo-Broker RtC Aggregation Formula#

Combining all four lagged rolling windows yields deterministic quarterly Risk-to-Client own-funds demand.

Custody vs Cash Domination Across Retail Neo-Broker Books#

Duration Adjustment for Interest-Rate Derivatives & Tied-Agent Attribution#

Two final precision adjustments in RTS (EU) 2022/25 prevent over- or under-stating K-COH: first, under IFR Article 20(2), notional values of interest-rate derivatives are adjusted for time to maturity (in years) divided by 10—meaning a 2-year Euribor swap carries only 2 / 10 = 20% of its raw notional in K-COH, whereas a 30-year Bund swap carries 30 / 10 = 300%. Second, under RTS (EU) 2022/25 Articles 1–2, all AUM advised and all client orders received through MiFID II Article 29 tied agents must be aggregated 100% into the principal firm's K-AUM and K-COH.