EC is consulting on a delegated regulation amending the Capital Requirements Regulation (CRR) with regard to the alternative standardized approach for market risk. The delegated act complements certain elements of the sensitivities-based method to make the corresponding reporting requirement, contained in the CRR, operational; it clarifies how institutions need to carry out the calculations, the results of which need to be reported. The objective of the consultation is to obtain views on certain technical aspects of the proposed delegated act by November 11, 2019. The adoption of this proposal by EC is envisaged for June 2020.
The alternative standardized approach has three components: the sensitivities-based method, the default risk charge, and the residual risk add-on. Each of these three components covers specific types of risks, with the overall own funds requirement for market risk under the alternative standardized approach being the sum of the individual risk charges for all three elements. The introduction of an own funds requirement for market risk based on the new market risk framework requires the EC proposal to amend the CRR. The draft delegated regulation presents the intentions of the "Directorate-General for Financial stability, financial services and capital markets union" regarding incorporation of the revisions in CRR, particularly:
- Consistent shocks to similar risk factors and revisions to the aggregation formula for the calculation of curvature risk
- Possibility to subject instruments without optionality to curvature risk
- Three approaches for the calculation of own funds requirements for positions in collective investment undertakings and conditions for their use
- Possibility to treat positions in a collective investment undertaking that tracks an index as a direct position in that index
- An additional method to determine the own funds requirement for delta and curvature risks for foreign exchange risk factors, the so-called base currency approach
Earlier, as part of the banking package in May 2019, CRR had introduced a new reporting requirement based on the new market risk framework. As the changes to the standardized approach for market risk agreed in the second Basel review could not be incorporated in the banking package before its adoption, the co-legislators empowered EC to introduce them by means of a delegated act. The delegated act will contain the necessary elements to make the reporting requirement operational. The adoption by EC of this delegated act will represent a part of the implementation of the new market risk framework.
Comment Due Date: November 11, 2019
Keywords: Europe, EU, Banking, CRR, Market Risk, Standardized Approach, Commission Delegated Regulation, FRTB, Basel III, Banking Package, EC
Previous ArticleOCC Amends Rule on Other Real Estate Owned Activities for Banks
BCBS is consulting on two technical amendments to the rules on minimum haircut floors for securities financing transactions, or SFTs.
BIS launched a EUR-denominated, open-ended fund for green bond investments by central banks and official institutions, following the launch of the first BIS green bond fund denominated in USD in September 2019.
EBA announced that it will launch the 2021 EU-wide stress test exercise, with the publication of the macroeconomic scenarios on January 29, 2021.
BoE announced that the reporting entities are no longer required to report Form CX after the fourth quarter of 2020 reference period, with the last collection on January 29, 2021.
ECB published a letter in which the President Christine Lagarde answered questions, from a Member of the European Parliament, on the application of the EU taxonomy on sustainable finance.
PRA published a direction for modification by consent of 5.1 to 5.3 and 5.5 of the Capital Buffers Part of the PRA Rulebook.
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.