PRA proposed, via CP17/19, changes to the supervisory statement (SS12/13) on counterparty credit risk. The changes are intended to clarify expectations about treatment of model limitations and assumptions under Part Three, Title II, Chapter 6 (counterparty credit risk) of the Capital Requirements Regulation (CRR). The consultation closes on October 25, 2019. PRA proposes that the draft changes to SS12/13 would take effect from the publication of the final policy.
CP17/19 is relevant to all firms to which Capital Requirements Directive (CRD) IV applies. Draft amendments to SS12/13, which add a new chapter (4A), have been set out in the Appendix. The proposed expectations of PRA are related to the following:
- Monitoring of model limitations and assumptions—PRA proposed that all model limitations and assumptions that may affect the output of the internal model method should be included in a single, central inventory, with an assessment of their potential impact on the key model outputs of exposure and capital requirements. PRA proposed that firms should estimate the potential impact of limitations and assumptions on model outputs on a periodic basis and that firms should hold capital against them where the potential impact is material.
- Setting a minimum level for certain exposures in the presence of excess collateral—PRA proposed that firms should consider the model limitations that arise as a result of transactions covered by excess collateral and that, if appropriate, they should hold more capital in respect of these transactions. Having considered various methods to address the issue of increased model risk, PRA proposed that the modeled exposure in the presence of excess collateral should not be lower than the level of a floor. For reasons of simplicity and consistency with the standardized approach, PRA proposed a floor functionally similar to the standardized approach for measuring counterparty credit risk (SA-CCR) multiplier but recalibrated for use in internal model method.
The proposals set out in CP17/19 have been designed in context of the current UK and EU regulatory framework. PRA has assessed that the proposals will not be affected in the event that UK leaves EU with no implementation period in place.
Keywords: Europe, UK, Banking, Counterparty Credit Risk, CRR, CRD IV, CP 17/19, SS 12/13, Internal Models, SA-CCR, Capital Requirements, PRA
Previous ArticleIMF Reports Assess Financial System Stability in Singapore
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.