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    EC Finalizes Rule on Alternative Standardized Approach for Market Risk

    March 11, 2021

    EC finalized the delegated regulation 2021/424 that amends the Capital Requirements Regulation (CRR) with regard to the alternative standardized approach for market risk. This regulation amends provisions in CRR to reflect the revised version of the Basel Committee standard on minimum capital requirements for market risk, which was published in January 2019. Regulation 2021/424 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from September 30, 2021.

    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 CRR revisions under this approach relate to the Articles regarding:

    • Calculation of own funds requirements for curvature risk
    • Treatment of index instruments and other multi-underlying instruments
    • Treatment of positions in collective investment undertakings or CIUs
    • Correlations across buckets for equity risk
    • Risk-weights for commodity risk

     

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    Effective Date: March 31, 2021

    Keywords: Europe, EU, Banking, CRR, Market Risk, Standardized Approach, Regulation 2021/424, FRTB, Basel, Regulatory Capital, EC

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