BCBS Consults on Revised Disclosures for Market Risk Framework

The consultation on market risk disclosures includes a number of technical adjustments to reflect the January 2019 revisions, in particular the introduction of a "traffic light" approach for capital requirements as a consequence of the outcome of the profit and loss attribution test for banks using the internal models approach. As part of the consultation process, BCBS seeks views on the usefulness of flow statements of risk-weighted assets (RWA) for trading desks under the internal models approach and how it can be further enhanced. BCBS also proposes to enhance the disclosure of trading desk structure of banks that use the internal models approach by introducing a materiality threshold for disclosure of information pertaining to individual trading desks. Banks will have to disclose information on individual trading desks with the highest standalone capital requirements which, summed together, exceed 50% of total aggregate standalone capital requirements calculated under the standardized approach.

BCBS proposes the following changes to the templates to reflect the changes to the framework:

• Template MR1 on market risk under the standardized approach. Clarification of the scope of application to explicitly include the standardized approach capital requirements for internal models approach trading desks that have failed model eligibility tests (that is, profit and loss attribution test or backtesting).
• Table MRB on qualitative disclosures for banks using the internal models approach. Update of definitions in the table and its instructions to better reflect the January 2019 market risk standard.
• Table MRC on the structure of desks for banks using the internal models approach. Adjustments to specify a materiality threshold for the disclosure of information pertaining to individual trading desks, where this threshold is set at 50% of a bank’s sum of the standalone market risk capital requirement as calculated per the standardized approach.
• Template MR2 on market risk internal models approach. This template has been overhauled to provide comprehensive disclosure of the capital requirements for banks that use the internal models approach for all or part of their trading book portfolios. Template MR2 has been revised to provide the total capital requirements for banks that use the internal models approach, including granular sub-components of the calculation.
• Template MR3 on RWA flow statements of market risk for trading desks under the internal models approach. Three columns have been included to reflect some of the new elements of the capital requirements under the internal models approach, namely the RWA surcharge for amber trading desk, the internal models approach RWA for green and amber desks, and the total standardized approach RWA for trading desks ineligible to use internal models approach.
• Template MR4 on market risk under the simplified standardized approach. This is a new template to reflect the introduction of the simplified standardized approach. Banks using the simplified standardized approach are expected to disclose the corresponding components of the market risk capital requirements. Its frequency is semiannual.

After reviewing the responses received and concluding its own further analyses, the Committee intends to publish the revisions of the market risk disclosure requirements in time for implementation of these revisions by member jurisdictions by no later than January 01, 2022.

Related Links

• Press Release
• Consultation on Market Risk Disclosures (PDF)
• Market Risk Requirements, January 2019
• Pillar 3 Framework, March 2017

Comment Due Date: February 14, 2020

Keywords: International, Banking, Market Risk, Basel III, Disclosures, Regulatory Capital, Standardized Approach, Internal Model Approach, Simplified Standardized Approach, Pillar 3, BCBS