Featured Product

    EBA to Delay First Reporting of FRTB-SA Data to September 2021

    April 22, 2020

    To mitigate the impact of COVID-19 outbreak, EBA is providing further clarity on the additional flexibility that will guide its supervisory approach in relation to market risk, Supervisory Review and Evaluation Process (SREP), recovery planning, digital operational resilience, technology risk, and securitization. To this end, EBA published draft regulatory technical standards on prudent valuation under the Capital Requirements Regulation (CRR). Additional EBA statements address the application of prudential framework on targeted aspects of market risk and outline further supervisory measures. The statement on application of prudential framework covers four areas—prudent valuation, market risk standardized approach (FRTB-SA) reporting requirements, implementation of phase V and VI of the ESAs standards on non-cleared over-the-counter (OTC) derivatives, and back-testing breaches on internal models approach.

    Application of Prudential Framework on Targeted Aspects Under Market Risk

    • Mitigate the increase in aggregated amounts of additional valuation adjustments (AVAs) under the prudent valuation framework. Under Article 105 of CRR, institutions are required to prudently value their fair-valued financial instruments. Regulation 101/2016 specifies how AVAs should be calculated for this purpose. To mitigate the impact of exceptional volatility triggered by the COVID-19 pandemic on the prudential requirements for market risk, EBA is proposing to adjust the capital impact by amending its standards on prudent valuation. In particular, EBA is proposing to introduce the use of a 66% aggregation factor to be applied until the December 31, 2020 under the core approach. 
    • Postponement of FRTB-SA reporting requirement under CRR2. Acknowledging the increased operational challenges faced by banks in the area of reporting, EBA also intends to delay reporting for the first FRTB-SA figures to September 2021. 
    • Postponement of final two implementation phases of the margin requirements for non-centrally cleared derivatives. BCBS-IOSCO announced its intention to allow a deferral of the final two implementation phases of the margin requirements for non-centrally cleared derivatives. In EU, the framework is implemented through the joint ESAs technical standards on risk mitigation techniques for OTC derivatives not cleared by a central counterparty. These standards will consequently need to be changed to implement the delay in EU law. These changes will postpone by one year the requirement to implement initial margins for counterparties above EUR 50 billion (phase V, which is due to start in September 2020) and for counterparties above EUR 8 billion (phase VI, which is due to start in September 2021).
    • Increase in Value-at-Risk (VaR) risk metrics and multiplication factors under Internal Models Approach for market risk. EBA highlights (to competent authorities) the flexibility available in the prudential framework for banks using the internal VaR models. EBA believes that, in light of the current circumstances, the review of the stressed VaR observation period could be postponed to the end of 2020 and should not constitute a supervisory priority at the moment.

    Additional Supervisory Measures Amid COVID-19 Pandemic

    • EBA recognizes the need for a pragmatic approach to SREP assessments in 2020, focusing on the most material risks and vulnerabilities driven by the crisis.
    • On recovery planning activities for institutions, EBA believes that the focus should be placed on understanding which recovery options are necessary and available under the current stressed conditions.
    • EBA emphasizes the importance of digital operational resilience. In this respect, EBA calls on institutions to ensure business continuity, adequate Information and Communications Technology (ICT) capacity and security risk management. The ICT and security risk management guidelines of EBA will help financial institutions and supervisors to focus on priority areas.
    • EBA provides further clarity on the prudential application of the definition of default and forbearance as well as on how EBA guidelines on legislative and non-legislative moratoria on loan repayments apply to securitizations.


    Related Links

    Keywords: Europe, EU, Banking, COVID-19, SREP, COVID-19, Market Risk, Securitization, Recovery Planning, CRR2 FRTB, Reporting, OTC Derivatives, Internal Model Approach, Operational Risk, Standardized Approach, EBA

    Featured Experts
    Related Articles

    BIS Bulletin Examines Cognitive Limits of Large Language Models

    The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.

    January 25, 2024 WebPage Regulatory News

    ECB is Conducting First Cyber Risk Stress Test for Banks

    As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.

    January 24, 2024 WebPage Regulatory News

    EBA Continues Momentum Toward Strengthening Prudential Rules for Banks

    A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.

    January 24, 2024 WebPage Regulatory News

    EU and UK Agencies Issue Updates on Final Basel III Rules

    The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards

    December 19, 2023 WebPage Regulatory News

    Industry Agency Expects Considerable Uptake for Swiss Climate Scores

    The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.

    December 18, 2023 WebPage Regulatory News

    BCBS Consults on Disclosure of Climate Risks, Issues Other Updates

    The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.

    December 18, 2023 WebPage Regulatory News

    US Government Moves to Regulate Development and Use of AI Models

    The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).

    December 18, 2023 WebPage Regulatory News

    MAS Launches Gprnt Digital Platform for ESG Reporting for SMEs

    The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”

    November 29, 2023 WebPage Regulatory News

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News

    NGFS Publishes Phase IV Long-term Climate Scenarios for Banks

    The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.

    November 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8947