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

November 4, 2016

The European Banking Authority (EBA) has published a Report in response to two calls for advice to assist the European Commission (EC) 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.

Based on its assessment, the EBA is including some recommendations in the report, addressed to the EC:

  • 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.

Further details can be found in the full press release here.

Related links:

  • Outline of AxiomSL’s SA-CCR solution
  • Outline of AxiomSL’s COREP solution