# IFR Risk-to-Client Formulas: K-AUM, K-CMH, K-ASA & K-COH > Master EU IFR Articles 16-20 Risk-to-Client (RtC) K-factor math: K-AUM (0.02%), K-CMH (0.4%/0.5%), K-ASA (0.04%), K-COH (0.1%/0.01%), and RTS 2022/25 rules. Canonical: https://eurofirmledger.com/bulletins/ifr-rtc-k-aum-k-cmh-k-asa-k-coh-client-risk-coefficients Last updated: 2026-11-14T20:57:44.458Z **Publication:** Euro Firm Ledger **Category:** EU Ifr Ifd Class2 Kfactor Prudential **Published:** 2026-11-14T07:30:25.915Z **Author:** Lukas Lindqvist, CEFA (Certified European Financial Analyst (EFFAS/CEFA, Frankfurt & Zurich)) **Reviewer:** Not recorded ## Answer-first summary IFR Articles 16-20 and RTS (EU) 2022/25 quantify operational harm to clients via four lagged rolling-average K-factors: K-AUM, K-CMH, K-ASA, and K-COH. ## Key takeaways - All four RtC K-factors (K-AUM, K-CMH, K-ASA, K-COH) exclude the 3 most recent calendar months, giving CFOs a deterministic 90-day capital planning horizon. - IFR Article 17(2) excludes inbound portfolio-management mandates delegated from regulated UCITS/AIFM management companies from K-AUM to eliminate regulatory double counting. - K-ASA (0.04%) applies in full even when safekeeping is outsourced to an omnibus Tier-1 bank or CSD, frequently making K-ASA the single largest K-factor for European retail neo-brokers. - Orders generated inside discretionary K-AUM portfolios or executed in the firm’s own name (K-DTF) are excluded from K-COH so a single trade never triggers two volume K-factors. ## 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. - **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. - **Luxembourg CSSF Alternative Fund Framework** (CSSF-FUNDS) — license: World-leading fund supervisory regime administered by the Commission de Surveillance du Secteur Financier (CSSF) regulating investment undertakings and AIFMs. ## Analysis 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](/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), 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: | RtC K-Factor | IFR Art. | Statutory Scalar(s) | Rolling Observation Window | Critical RTS (EU) 2022/25 Scope Rule | | :--- | :--- | :--- | :--- | :--- | | **K-AUM** (Assets Under Management) | Art. 17 | **0.02%** (2 bps) | Month-end values over prior **15 months**, **excluding 3 most recent** (avg of 12 mos) | Includes discretionary PM + ongoing advice; **excludes** mandates formally delegated *in* from another financial entity (e.g., UCITS ManCo) | | **K-CMH** (Client Money Held) | Art. 18 | **0.40%** (segregated)
**0.50%** (non-segregated) | **Daily** end-of-day balances over prior **9 months**, **excluding 3 most recent** (avg of 6 mos) | "Segregated" requires strict IFR Art. 4(1)(49) bankruptcy-remote national legal protection | | **K-ASA** (Assets Safeguarded & Administered) | Art. 19 | **0.04%** (4 bps) | **Daily** end-of-day fair values over prior **9 months**, **excluding 3 most recent** (avg of 6 mos) | Applies **regardless** of whether safekeeping is performed in-house or delegated to a third-party sub-custodian! | | **K-COH** (Client Orders Handled) | Art. 20 | **0.10%** (cash trades)
**0.01%** (derivatives) | **Daily** gross order values over prior **6 months**, **excluding 3 most recent** (avg of 3 mos) | Strictly agency RTO/execution; **excludes** orders generated under K-AUM portfolio management OR executed in firm's own name ([K-DTF](/bulletins/ifr-k-dtf-daily-trading-flow-principal-execution-stress-scalar)) | ![EU IFR Risk-to-Client (RtC) anti-double-counting and 3-month lag pipeline across K-AUM, K-CMH, K-ASA, and K-COH](/api/figure?type=flow&title=RtC%20K-Factor%20Routing%20%26%20Anti-Double-Counting%20Gate&subtitle=How%20IFR%20Arts.%2017-20%20prevent%20double-charging%20discretionary%20orders%20and%20sub-advised%20UCITS%20pools&steps=1.%20K-AUM%20Carve-Out%3A%3ADeduct%20UCITS%2FAIFM%20sub-delegated%20mandates%3B%20exclude%20PM%20orders%20from%20K-COH%7C2.%20K-CMH%20Legal%20Test%3A%3AVerify%20Art.%204%281%29%2849%29%20statutory%20insolvency%20ring-fence%20for%200.40%25%20tier%7C3.%20K-ASA%20Sub-Custody%3A%3AInclude%20100%25%20of%20omnibus%20CSD%2Fsub-custodian%20client%20holdings%20%280.04%25%29%7C4.%203-Month%20Lag%20Lock%3A%3ADrop%20t%2C%20t-1%2C%20t-2%20months%20to%20lock%20deterministic%20Pillar%201%20capital&metrics=K-AUM%20SCALAR%3A%3A0.02%25%20%282%20bps%29%3A%3A12-mo%20avg%20%28months%20t-14%20to%20t-3%29%7CK-CMH%20SEG%20%2F%20NON-SEG%3A%3A0.40%25%20%2F%200.50%25%3A%3A6-mo%20daily%20avg%20%28t-8%20to%20t-3%29%7CK-ASA%20SCALAR%3A%3A0.04%25%20%284%20bps%29%3A%3AIncludes%20omnibus%20sub-custodians%7CK-COH%20CASH%20%2F%20DERIV%3A%3A0.10%25%20%2F%200.01%25%3A%3A3-mo%20daily%20avg%20%28t-5%20to%20t-3%29) ## 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](/competent-authorities/cssf) delegates portfolio management of a EUR 2 billion equity fund to a Paris MiFID firm supervised by [AMF](/competent-authorities/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](/firms/algemene-bank-nederland) or [UniCredit Bank Austria](/firms/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](/firms/change) or [CAPEX.com](/firms/capex) 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 ```formula Total_Risk_To_Client_Capital (RtC_EUR) = (0.0002 * AUM_12M_lag3) + (0.0040 * CMH_seg_6M_lag3 + 0.0050 * CMH_nonseg_6M_lag3) + (0.0004 * ASA_6M_lag3) + (0.0010 * COH_cash_3M_lag3 + 0.0001 * COH_deriv_3M_lag3) Where: AUM_12M_lag3 = Arithmetic mean of month-end AUM for months [t-14 .. t-3] CMH_seg_6M_lag3 = Arithmetic mean of daily EOD bankruptcy-remote client cash for months [t-8 .. t-3] ASA_6M_lag3 = Arithmetic mean of daily EOD fair value of safeguarded securities for months [t-8 .. t-3] COH_cash_3M_lag3 = Mean daily gross value of agency cash orders (Total 3-mo value / business days in [t-5 .. t-3]) COH_deriv_3M_lag3 = Mean daily notional of agency derivative orders across business days in [t-5 .. t-3] Worked Retail Multi-Asset Neo-Broker RtC Calculation: AUM (robo-advisory portfolios, 12M lagged mean) = EUR 1,600,000,000 -> K_AUM = EUR 320,000 CMH_seg (EU credit-institution escrow) = EUR 95,000,000; CMH_nonseg (non-EEA EMI float) = EUR 12,000,000 -> K_CMH = (0.0040 * 95M) + (0.0050 * 12M) = 380,000 + 60,000 = EUR 440,000 ASA (omnibus ETFs & equities at Clearstream) = EUR 3,100,000,000 -> K_ASA = 0.0004 * 3.1B = EUR 1,240,000 COH_cash (daily avg excl. robo-PM orders) = EUR 42,000,000/day; COH_deriv = EUR 180,000,000/day -> K_COH = (0.0010 * 42M) + (0.0001 * 180M) = 42,000 + 18,000 = EUR 60,000 Total RtC_EUR = 320,000 + 440,000 + 1,240,000 + 60,000 = EUR 2,060,000 ``` ![Component breakdown of EUR 2.06 million Risk-to-Client (RtC) capital across K-ASA, K-CMH, K-AUM, and K-COH for a European neo-broker](/api/figure?type=bars&title=Worked%20Neo-Broker%20RtC%20Capital%20Attribution%20%28EUR%202.06M%29&subtitle=Why%20K-ASA%20%280.04%25%20on%20EUR%203.1B%20custody%29%20and%20K-CMH%20%280.4%25%2F0.5%25%29%20dominate%20retail%20brokerage%20RtC&steps=K-ASA%20%28EUR%201.24M%29%3A%3A60.2%25%20of%20RtC%20on%20EUR%203.1B%20Clearstream%20custody%7CK-CMH%20%28EUR%20440k%29%3A%3A21.4%25%20of%20RtC%20across%20segregated%20%26%20non-seg%20cash%7CK-AUM%20%28EUR%20320k%29%3A%3A15.5%25%20of%20RtC%20on%20EUR%201.6B%20robo-portfolios%7CK-COH%20%28EUR%2060k%29%3A%3A2.9%25%20of%20RtC%20on%20daily%20agency%20order%20flow&metrics=TOTAL%20WORKED%20RTC%3A%3AEUR%202.06M%3A%3AAdditive%20sum%20of%204%20RtC%20K-factors%7CDAILY%20COH%20DIVISOR%3A%3ABusiness%20Days%3A%3ADivide%203-mo%20sum%20by%20working%20days%7CIRF%20COUPON%20RULE%3A%3ADuration%20Adj.%3A%3AIFR%20Art.%2020%282%29%20interest-rate%20derivs%7CTIED%20AGENT%20FLOW%3A%3A100%25%20Included%3A%3ARTS%202022%2F25%20Art.%202%20principal%20duty) ## 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](/bulletins/mifid-ii-article-29-tied-agent-cross-border-passport-oversight) must be aggregated 100% into the principal firm's K-AUM and K-COH. ## Frequently asked questions ### How do newly licensed investment firms with fewer than 15 or 9 months of history calculate K-AUM and K-CMH? Under IFR Articles 17(1), 18(1), 19(1), and 20(1) final subparagraphs, firms operating for shorter than the statutory observation window use historical data for all completed months from Day 1 plus business-plan projections, switching to the lagged rolling average as soon as the window fills. ### Are negative-valued liability derivatives subtracted from client portfolio market value when computing K-AUM? Under RTS (EU) 2022/25 Article 5, AUM is measured at fair value of total financial instruments including cash; where a portfolio contains leveraged or negative derivative positions, negative values offset positive asset values within that specific client portfolio, floored at zero per client. ### Does placing client cash into a Qualifying Money Market Fund (QMMF) fell under K-CMH or K-ASA? Under EBA Q&A and MiFID II Delegated Directive 2017/593 Article 4, once client funds are legitimately invested in QMMF units held under custody safeguarding rules rather than held as cash on bank accounts, the QMMF units are financial instruments captured under K-ASA (0.04%) rather than K-CMH (0.40%). ### Does K-COH count unexecuted limit orders that expire or get cancelled at the close of trading? For execution of orders on behalf of clients (A2), RTS (EU) 2022/25 measures executed trades; for reception and transmission of orders (A1), it measures orders actually transmitted to an executing broker or venue, excluding unrouted client drafts cancelled prior to transmission. ## 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:32022R0025 - https://www.eba.europa.eu/regulation-and-policy/investment-firms/rts-methods-measuring-k-factors ## Citation - APA: Lukas Lindqvist, CEFA. (2026). IFR Risk-to-Client (RtC) Formulas: K-AUM, K-CMH, K-ASA & K-COH Coefficients. Euro Firm Ledger. https://eurofirmledger.com/bulletins/ifr-rtc-k-aum-k-cmh-k-asa-k-coh-client-risk-coefficients - Canonical article: [IFR Risk-to-Client (RtC) Formulas: K-AUM, K-CMH, K-ASA & K-COH Coefficients](https://eurofirmledger.com/bulletins/ifr-rtc-k-aum-k-cmh-k-asa-k-coh-client-risk-coefficients) - Site research index: [Euro Firm Ledger](https://eurofirmledger.com/llms-full.txt)