Featured Product

    SARB Issues Directive on Prudential Valuation Adjustment Framework

    September 02, 2020

    SARB published the directive D5/2020 that addresses issues related to the prudential valuation adjustment framework in South Africa. Directive 1 of 2019 of the Prudential Authority, or PA, requires banks to annually disclose in Template PV1 the prudential valuation adjustments for unearned credit spreads, closeout costs, operational risks, early termination, investing and funding costs, future administrative costs, and model risk. The new directive D5/2020 is intended to ensure banks’ continued compliance with the requirements set out in Directive 1 of 2019 and to provide clarity on the provisions of Directive 4 of 2015 and the implementation of the “Pillar 3 disclosure requirements—consolidated and enhanced framework” standard in so far as it relates to Template PV1.

    The directive D5/2020 specifies that banks must consider all prudential valuation adjustments individually—that is, regardless of the ability to associate them with a single prudential valuation adjustment group or category. Nevertheless, banks may estimate prudential valuation adjustments in line with the internal governance models. The directive specifies, at a minimum, what banks must consider for the prudential valuation adjustments with respect to investing and funding costs, close-out uncertainty (mid-market value, close-out cost, and concentration), unearned credit spreads, early termination, model risk, operational risk, and future administrative costs. Banks must also consider other prudential valuation adjustments that are required to take into account factors that will influence the exit price, but which do not fall in any of the categories mentioned above. These have to be described by banks in the narrative commentary that supports the disclosure. Debit Valuation Adjustments, however, are excluded from the individual prudential valuation adjustments that the banks are required to consider.

    Banks must calculate the individual prudential valuation adjustments in accordance with the methods specified in Annexure A to the directive D5/2020. With respect to reporting and disclosure, the directive D5/2020 states that the aggregate prudential valuation adjustment must be reported in line item 203 of the form BA 700. Banks must estimate their prudential valuation adjustments at least on a quarterly basis. The prudential valuation adjustment must be disclosed annually, in accordance with Directive 1 of 2019. Rows that are not applicable to the reporting bank must be completed as zero (“0”) and the reason why they are not applicable must be explained in the accompanying narrative. The prudential valuation adjustments must be estimated for bank solo, bank consolidated, controlling company consolidated, and branches as well as subsidiaries of local banks. The rationale behind estimating at consolidated level is to minimize any arbitrage of the framework through the use of complex organization structures, which could be cross-jurisdictional. The directive D5/2020 is applicable to all banks, branches of foreign institutions, controlling companies, eligible institutions, and auditors of banks or controlling companies.

     

    Related Link: D5/2020

     

    Keywords: Middle East and Africa, South Africa, Banking, Prudential Valuation Adjustment, Market Risk, Reporting, Regulatory Capital, Disclosures, SARB

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821