Featured Product

    EBA Publishes Standards on Key Aspects of Implementation of SA-CCR

    December 18, 2019

    EBA published the final draft regulatory technical standards on certain key aspects related to the implementation of the standardized approach for counterparty credit risk (SA-CCR). The standards set out the method for identifying the material risk drivers of derivative transactions, on the basis of which mapping to one or more of the risk categories is to be done. These technical standards also set out the formula that institutions are to use to calculate the supervisory delta of options, when mapped to the interest rate risk category, which is compatible with negative interest rates. Additionally, the draft regulatory standards introduce a method suitable for determining the direction of the position in a material risk driver. The regulation related to the regulatory technical standards shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    On the mapping of derivatives into risk categories, the final draft technical standards follow a three-pronged methodology for the identification of material risk driver(s) of derivative transactions:

    • The first approach relies on purely qualitative information and is suitable for simple and standard derivative transactions (for example, interest rate and cross currency swaps).
    • The second approach is more detailed and hinges on a quantitative assessment of the sensitivities to classify possible risk drivers based on materiality considerations.
    • The third approach is a conservative and simple backstop, which identifies all possible risk drivers of a transaction as material. This last approach will always be available as a fallback option and will allow a proportionate implementation of the framework when the second approach is too burdensome.

    The formula for the supervisory delta of interest rate options, specified in the technical standards, is an application of the Black-Scholes (BS) model, on which SA-CCR relies. Such an application is made feasible by shifting the interest rate curve to move interest rates back into positive territory. In addition, the technical standards specify the parameters that are to be used in the supervisory delta formula. Finally, for determining the direction of the position in a particular risk driver (long or short), the methodology introduced in these technical standards leverages on the same elements (that is, cash flows and sensitivities) used for the identification of the material risk driver(s) of derivative transactions, which are specifically envisaged for reducing the burden on institutions.

    The draft technical standards specify key aspects of the SA-CCR and represent an important contribution to its smooth harmonized implementation in the EU. The technical standards are part of the mandates assigned to EBA within its important role in implementing the SA-CCR and the Fundamental Review of the Trading Book (FRTB) frameworks in EU. EBA has developed these draft technical standards based on the proposed legislative text of Capital Requirements Regulation (CRR) 2. Where relevant, EBA adapted the draft technical standards to the final CRR 2 text. EBA also introduced other changes into the draft technical standards to appropriately reflect the comments received in response to (the May 2019) consultation paper on draft technical standards.

     

    Related Links

    Effective Date: OJ+20 Days

    Keywords: Europe, EU, Banking, Basel III, SA-CCR, Credit Risk, Counterparty Credit Risk, Regulatory Technical Standards, OTC Derivatives, Market Risk, CRR2, FRTB, EBA

    Featured Experts
    Related Articles
    News

    PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK

    PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.

    April 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Standards on Methods of Prudential Consolidation

    EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).

    April 15, 2021 WebPage Regulatory News
    News

    EBA Updates List of Other Systemically Important Institutions in EU

    EBA updated the list of other systemically important institutions (O-SIIs) in EU.

    April 15, 2021 WebPage Regulatory News
    News

    BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks

    BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.

    April 14, 2021 WebPage Regulatory News
    News

    UK Authorities Welcome FSB Review of their Remuneration Regime

    UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.

    April 14, 2021 WebPage Regulatory News
    News

    PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators

    PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.

    April 14, 2021 WebPage Regulatory News
    News

    MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5

    MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.

    April 14, 2021 WebPage Regulatory News
    News

    EC Delegated Regulation on Specialized Lending Exposures Under CRR

    EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.

    April 14, 2021 WebPage Regulatory News
    News

    OSFI Proposes to Enhance Assurance Expectations for Basel Returns

    OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.

    April 13, 2021 WebPage Regulatory News
    News

    ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks

    ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.

    April 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6858