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). EBA proposes a list of advanced economies corresponding to the list provided in the Fundamental Review of the Trading Book (FRTB). In this context, EBA seeks feedback on whether the list is comprehensive, particularly whether there are additional EU countries in which the equity risk can be considered similar to the countries already included in the FRTB list of advanced economies. Furthermore, EBA seeks stakeholders’ views on sources of data and criteria that could be designed to identify advanced economies and emerging markets for the purpose of FRTB-SA equity risk own funds requirements. The consultation runs until July 02, 2021.
These technical standards are part of the phase 3 deliverables of EBA roadmap for the new market and counterparty credit risk approaches. The Capital Requirements Regulation (CRR), as amended by CRR2, implements in EU legislation, the revised framework to compute own funds requirements for market risk. One component of these requirements is the sensitivities-based method under the FRTB-SA. For institutions to be able to calculate own funds requirements under the sensitivities-based method, Article 325ap(3) of the CRR requests EBA to specify the economies that should attract lower risk-weights for equity risk under the FRTB-SA (advanced economies); all other economies would be subject to higher risk-weights.
FRTB provides a list of countries that are considered to be “advanced” for the purpose of FRTB-SA. As specified in the consultation paper, the advanced economies are Canada, the United States, Mexico, the euro area, the non-euro area western European countries (the United Kingdom, Norway, Sweden, Denmark, and Switzerland), Japan, Oceania (Australia and New Zealand), Singapore, and Hong Kong SAR. The FRTB list was published without the underlying criteria used to get such list being provided. In addition, this list has not been reviewed since the first version of the list published on January 14, 2016. EBA considers that the list would benefit from a review before the FRTB comes into effect. EBA would expect additional EU or European Economic Area countries to qualify as advanced economies for the purpose of the computation of equity risk own funds requirements under the FRTB-SA.
Institutions using the alternative standardized approach to determine own funds requirements for market risk are required to compute the equity risk stemming from their trading book positions in accordance with a prescribed set of risk factors and the corresponding risk-weights. To determine the appropriate risk-weight, institutions are expected to identify whether a risk factor refers to an advanced economy or an emerging market. Risk factors mapped to the advanced economy bucket benefit from a lower risk-weight compared to those mapped to the emerging market bucket.
Related Links
Comment Due Date: July 02, 2021
Keywords: Europe, EU, Banking, CRR, CRR2, Basel, Market Risk, FRTB, FRTB SA, Regulatory Technical Standards, Standardized Approach, Regulatory Capital, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
BCBS Publishes Basel III Monitoring Updates in April 2021Next Article
ECB Amends Guideline on Euro Short-Term RateRelated Articles
NGFS Seeks Public Feedback on Climate Risk Assessment Scenarios
The Network for Greening the Financial System (NGFS) launched its first user feedback survey on climate scenarios, with the feedback period ending on February 27, 2023.
EBA Launches Stress Tests for Banks, Issues Other Updates
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
