Featured Product

    SARB Issues Directive on Prudential Valuation Adjustment Framework

    September 02, 2020

    SARB published the directive D5/2020 that addresses issues related to the prudential valuation adjustment framework in South Africa. Directive 1 of 2019 of the Prudential Authority, or PA, requires banks to annually disclose in Template PV1 the prudential valuation adjustments for unearned credit spreads, closeout costs, operational risks, early termination, investing and funding costs, future administrative costs, and model risk. The new directive D5/2020 is intended to ensure banks’ continued compliance with the requirements set out in Directive 1 of 2019 and to provide clarity on the provisions of Directive 4 of 2015 and the implementation of the “Pillar 3 disclosure requirements—consolidated and enhanced framework” standard in so far as it relates to Template PV1.

    The directive D5/2020 specifies that banks must consider all prudential valuation adjustments individually—that is, regardless of the ability to associate them with a single prudential valuation adjustment group or category. Nevertheless, banks may estimate prudential valuation adjustments in line with the internal governance models. The directive specifies, at a minimum, what banks must consider for the prudential valuation adjustments with respect to investing and funding costs, close-out uncertainty (mid-market value, close-out cost, and concentration), unearned credit spreads, early termination, model risk, operational risk, and future administrative costs. Banks must also consider other prudential valuation adjustments that are required to take into account factors that will influence the exit price, but which do not fall in any of the categories mentioned above. These have to be described by banks in the narrative commentary that supports the disclosure. Debit Valuation Adjustments, however, are excluded from the individual prudential valuation adjustments that the banks are required to consider.

    Banks must calculate the individual prudential valuation adjustments in accordance with the methods specified in Annexure A to the directive D5/2020. With respect to reporting and disclosure, the directive D5/2020 states that the aggregate prudential valuation adjustment must be reported in line item 203 of the form BA 700. Banks must estimate their prudential valuation adjustments at least on a quarterly basis. The prudential valuation adjustment must be disclosed annually, in accordance with Directive 1 of 2019. Rows that are not applicable to the reporting bank must be completed as zero (“0”) and the reason why they are not applicable must be explained in the accompanying narrative. The prudential valuation adjustments must be estimated for bank solo, bank consolidated, controlling company consolidated, and branches as well as subsidiaries of local banks. The rationale behind estimating at consolidated level is to minimize any arbitrage of the framework through the use of complex organization structures, which could be cross-jurisdictional. The directive D5/2020 is applicable to all banks, branches of foreign institutions, controlling companies, eligible institutions, and auditors of banks or controlling companies.


    Related Link: D5/2020


    Keywords: Middle East and Africa, South Africa, Banking, Prudential Valuation Adjustment, Market Risk, Reporting, Regulatory Capital, Disclosures, SARB

    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