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    EC Rule Lists Advanced Economies for Market Risk Capital Calculations

    September 21, 2022

    The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity and equity repo rate risk factors in accordance with Article 325ap of the Capital Requirements Regulation or CRR (575/2013). The delegated regulation has been published in the Official Journal of the European Union, with the date of effect being October 11, 2022.

    This regulation is relevant for the calculation of own funds requirements in line with the sensitivities-based method under the alternative standardized approach for market risk (FRTB-SA). Article 325ap(3) of the CRR requests EBA to specify the economies that should attract a lower risk-weight for equity risk under the FRTB-SA (called "advanced economies"). Other economies are subject to a higher risk-weight. In this context, EBA adopted the Regulation 2022/1622 that lays out regulatory standards specifying the countries that constitute advanced economies. The Regulation specifies that, for the purposes of specifying risk-weights for the sensitivities to equity and equity repo rate risk, the following countries shall constitute advanced economies:

    • Member states of the European Union
    • The overseas countries and territories that have special relations with Denmark, France, or the Netherlands, including Faeroe Islands and those listed in Annex II to the Treaty on the Functioning of the European Union
    • The specified third countries—namely, Australia, Canada, Hong Kong, Japan, Mexico, New Zealand, Singapore, Switzerland, the United Kingdom, the United States—along with the third countries that are parties to the Agreement on the European Economic Area

    The Regulation stipulates that, for specifying risk-weights for the sensitivities to equity and equity repo rate risk factors under CRR Article 325ap, countries not listed in paragraph 1 of this Article shall constitute emerging markets.

     

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    Keywords: Europe, EU, Banking, CRR, Regulatory Technical Standards, Basel, Regulatory Capital, BCBS, Advanced Economies, Emerging Markets, Market Risk, FRTB, Sensitivities Based Method, EC

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