EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA). EBA proposes a list of advanced economies corresponding to the list provided in the Fundamental Review of the Trading Book (FRTB). In this context, EBA seeks feedback on whether the list is comprehensive, particularly whether there are additional EU countries in which the equity risk can be considered similar to the countries already included in the FRTB list of advanced economies. Furthermore, EBA seeks stakeholders’ views on sources of data and criteria that could be designed to identify advanced economies and emerging markets for the purpose of FRTB-SA equity risk own funds requirements. The consultation runs until July 02, 2021.
These technical standards are part of the phase 3 deliverables of EBA roadmap for the new market and counterparty credit risk approaches. The Capital Requirements Regulation (CRR), as amended by CRR2, implements in EU legislation, the revised framework to compute own funds requirements for market risk. One component of these requirements is the sensitivities-based method under the FRTB-SA. For institutions to be able to calculate own funds requirements under the sensitivities-based method, Article 325ap(3) of the CRR requests EBA to specify the economies that should attract lower risk-weights for equity risk under the FRTB-SA (advanced economies); all other economies would be subject to higher risk-weights.
FRTB provides a list of countries that are considered to be “advanced” for the purpose of FRTB-SA. As specified in the consultation paper, the advanced economies are Canada, the United States, Mexico, the euro area, the non-euro area western European countries (the United Kingdom, Norway, Sweden, Denmark, and Switzerland), Japan, Oceania (Australia and New Zealand), Singapore, and Hong Kong SAR. The FRTB list was published without the underlying criteria used to get such list being provided. In addition, this list has not been reviewed since the first version of the list published on January 14, 2016. EBA considers that the list would benefit from a review before the FRTB comes into effect. EBA would expect additional EU or European Economic Area countries to qualify as advanced economies for the purpose of the computation of equity risk own funds requirements under the FRTB-SA.
Institutions using the alternative standardized approach to determine own funds requirements for market risk are required to compute the equity risk stemming from their trading book positions in accordance with a prescribed set of risk factors and the corresponding risk-weights. To determine the appropriate risk-weight, institutions are expected to identify whether a risk factor refers to an advanced economy or an emerging market. Risk factors mapped to the advanced economy bucket benefit from a lower risk-weight compared to those mapped to the emerging market bucket.
Related Links
Comment Due Date: July 02, 2021
Keywords: Europe, EU, Banking, CRR, CRR2, Basel, Market Risk, FRTB, FRTB SA, Regulatory Technical Standards, Standardized Approach, Regulatory Capital, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
BCBS Publishes Basel III Monitoring Updates in April 2021Next Article
ECB Amends Guideline on Euro Short-Term RateRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
