EBA issues recommendations on the implementation of new counterparty and market risk frameworks

The European Banking Authority (EBA) published today a Report in response to two calls for advice to assist the European Commission in the adoption into European legislation of two new international frameworks proposed by the Basel Committee on Banking Supervision (BCBS): (i) a new standardised framework for counterparty risk (CCR), i.e. the so-called SA-CCR, and (ii) a new market risk (MKR) framework – the so-called fundamental review of the trading book (FRTB). In the Report, the EBA focuses on the envisaged impact of these two frameworks, for both large and small firms, and issues recommendations on their implementation.

The Report assesses the impact that the implementation of the two frameworks is likely to have on institutions, both from a qualitative and quantitative perspectives, as well as on certain business lines and/or markets, and highlights a number of interpretative and operational issues that might need to be addressed before the rules are fully implemented. In addition, given the technical complexity that the new requirements might entail, the Report assesses the convenience of introducing greater proportionality into both frameworks.

Based on its assessment, the EBA is including in the Report some recommendations, which are addressed to the European Commission:

  • Increasing the threshold value for small trading book business below which institutions are able to use the non-trading book approach for the computation of capital requirements.
  • Introducing a threshold for small derivative businesses below which institutions are allowed to use simple approaches currently used for the computation of CCR capital requirements, subject to recalibration.
  • Considering additional proportionality solutions for banks outside the traditional scope of the Basel standards that could include, for both CCR and MKR purposes, the use of approaches that are simpler and more conservative than the ones developed in Basel.
  • Implementing large technical parts of these international standards using delegated acts or mandates for Regulatory Technical Standards (RTS), so as to allow the EBA to reflect key changes in the regulation in a timely fashion.
  • Including more granularity in COREP reporting to provide a better overview of institutions’ CCR exposures and the information needed to monitor the computation of the different proportionality thresholds included in legislation.

The EBA statement and related information can be found here.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

Posted in UncategorizedTagged ,

Leave a Reply

Your email address will not be published. Required fields are marked *