EC Consults on Alternative Standardized Approach for Market Risk
EC is consulting on a delegated regulation amending the Capital Requirements Regulation (CRR) with regard to the alternative standardized approach for market risk. The delegated act complements certain elements of the sensitivities-based method to make the corresponding reporting requirement, contained in the CRR, operational; it clarifies how institutions need to carry out the calculations, the results of which need to be reported. The objective of the consultation is to obtain views on certain technical aspects of the proposed delegated act by November 11, 2019. The adoption of this proposal by EC is envisaged for June 2020.
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 introduction of an own funds requirement for market risk based on the new market risk framework requires the EC proposal to amend the CRR. The draft delegated regulation presents the intentions of the "Directorate-General for Financial stability, financial services and capital markets union" regarding incorporation of the revisions in CRR, particularly:
- Consistent shocks to similar risk factors and revisions to the aggregation formula for the calculation of curvature risk
- Possibility to subject instruments without optionality to curvature risk
- Three approaches for the calculation of own funds requirements for positions in collective investment undertakings and conditions for their use
- Possibility to treat positions in a collective investment undertaking that tracks an index as a direct position in that index
- An additional method to determine the own funds requirement for delta and curvature risks for foreign exchange risk factors, the so-called base currency approach
Earlier, as part of the banking package in May 2019, CRR had introduced a new reporting requirement based on the new market risk framework. As the changes to the standardized approach for market risk agreed in the second Basel review could not be incorporated in the banking package before its adoption, the co-legislators empowered EC to introduce them by means of a delegated act. The delegated act will contain the necessary elements to make the reporting requirement operational. The adoption by EC of this delegated act will represent a part of the implementation of the new market risk framework.
Related Links
Comment Due Date: November 11, 2019
Keywords: Europe, EU, Banking, CRR, Market Risk, Standardized Approach, Commission Delegated Regulation, FRTB, Basel III, Banking Package, EC
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
CBE Publishes Circular on IRRBB in EgyptRelated Articles
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.
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.
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.
Global Agencies Focus on ESG Data, Climate Litigation and Nature Risks
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
ISSB Standards Shine Spotlight on Comparability of ESG Disclosures
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
EBA Issues Several Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
BCBS Proposes to Revise Core Principles for Banking Supervision
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
US Proposes Final Basel Rules, Transition Period to Start in July 2025
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
FSB Report Outlines Next Steps for Climate Risk Roadmap
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
EBA Plans on Ad-hoc ESG Data Collection and Climate Scenario Exercise
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.
