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

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Technical Package on Reporting Framework 3.0

    EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.

    January 14, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets

    APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for Third Quarter of 2020

    EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro

    ECB concluded the public consultation on the introduction of a digital euro in EU.

    January 13, 2021 WebPage Regulatory News
    News

    ECB Finalizes Guide on Supervisory Approach to Bank Consolidation

    ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.

    January 12, 2021 WebPage Regulatory News
    News

    SRB Chair Outlines Work Priorities for 2021

    The SRB Chair Elke König published an article setting out work priorities for 2021.

    January 11, 2021 WebPage Regulatory News
    News

    FDIC Selects Companies to Compete in Final Phase of Tech Sprint

    FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.

    January 11, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6417