PRA published an update to the temporary approach to value-at-risk (VAR) back-testing exceptions to mitigate the possibility of excessively pro-cyclical market risk capital requirements amid pandemic. In light of the amendments to the Capital Requirements Regulation (CRR) in response to the COVID-19 outbreak (the CRR Quick Fix), PRA has decided to terminate its temporary approach to VAR back-testing exceptions from September 30, 2020. From October 01, 2020 onward, firms should no longer apply any commensurate reduction in risks-not-in-VAR (RNIV) capital requirements.
On March 30, 2020, PRA had published a statement on the temporary approach on VAR back-testing exceptions. PRA had set out that the exceptional levels of market volatility during the ongoing COVID-19 event have led to an elevated level of VAR back-testing exceptions across the industry. To mitigate the possibility of excessively pro-cyclical market risk capital requirements through the automatic application of a higher VAR multiplier, PRA will allow firms—on a temporary basis—to offset increases due to new exceptions through a commensurate reduction in RNIV capital requirements. PRA had also advised that it would conduct a review of the temporary approach that allows firms to offset increases due to new back-testing exceptions through a commensurate reduction in RNIV capital requirements. Consequent to this review, PRA has decided to terminate its temporary approach to VAR back-testing exceptions from September 30, 2020. For back-testing exceptions that occur between January 01, 2020 and December 31, 2021 that do not result from deficiencies in the internal model, firms should now apply to PRA, in accordance with CRR Article 500c, to exclude those exceptions from the calculation of their back-testing addend.
Keywords: Europe, UK, Banking, COVID-19, Market Risk, Value-at-Risk, Regulatory Capital, CRR, Internal Models, Basel, PRA
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting