Featured Product

    EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR

    November 24, 2021

    The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR). The final regulatory standards will contribute to the calculation of own funds requirements for the exposures in the form of units or shares in collective investment undertakings under the standardized approach for credit risk. These standards provide clarification on the regulatory treatment for missing inputs when the underlying risk of derivatives is unknown as well as on the computation of the exposure value for counterparty credit risk.

    The report on the draft regulatory standards first clarifies steps to be taken for computing the exposure value of collective investment undertakings’ derivatives exposures where the underlying is unknown. Then, it provides for cases where the calculation of exposure amount to counterparty credit risk of a netting set of collective investment undertakings’ derivative exposures is needed. The draft regulatory standards explain what is considered as insufficient information versus missing inputs and clarify whether market measures provide sufficient information for application of the mandate-based approach for exposures to collective investment undertakings. The draft provisions closely follow both the Basel framework for equity exposures into funds as well as the CRR2 framework for counterparty credit risk. The final report explains the policy choices of regulatory requirements for the draft regulatory standards and outlines their legislative basis. EBA believes that the proposed regulatory requirements ensure a proportionate and technically consistent treatment of exposures to funds.

    CRR2 contains a mandate for EBA to develop draft regulatory technical standards to specify how institutions shall calculate the risk-weighted exposure amount. EBA believes that this mandate for the technical standards in CRR2 is intended to clarify the way forward when the information for applying the mandate-based approach is considered insufficient due to cases of missing inputs for the calculation of exposure values under the mandate-based approach. Moreover, in the case of funds where the total leverage of the fund is limited through market risk measures, which do not limit the actual exposure amounts by specifying limits for the notional amount of derivatives and for the counterparty credit risk exposure incurred by the collective investment undertaking, the mandate-based approach cannot apply and, thus, the approach to be used is the fallback approach. Consequently, the mandate can only be understood as referring to missing inputs for the exposure value calculation, despite having both pieces of information (that is, the maximum extent permitted for investing into exposures and the maximum allowed extent of leverage, if applicable).


    Related Links

    Keywords: Europe, EU, Banking, CRR, Basel, Collective Investment Undertaking, Credit Risk, Standardized Approach, Derivatives, Regulatory Technical Standards, Regulatory Capital, Mandate-Based Approach, Counterparty Credit Risk, EBA

    Featured Experts
    Related Articles

    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

    EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules

    The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.

    October 31, 2023 WebPage Regulatory News

    BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks

    As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.

    October 19, 2023 WebPage Regulatory News

    BCBS and EBA Publish Results of Basel III Monitoring Exercise

    The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.

    October 18, 2023 WebPage Regulatory News

    PRA Updates Timeline for Final Basel III Rules, Issues Other Updates

    The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.

    October 18, 2023 WebPage Regulatory News

    US Treasury Sets Out Principles for Net-Zero Financing

    The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.

    October 17, 2023 WebPage Regulatory News

    EC Launches Survey on G7 Principles on Generative AI

    The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.

    October 14, 2023 WebPage Regulatory News

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8938