EBA consults on draft guidelines on the treatment of CVA risk under SREP
12 November 2015
These EBA's guidelines aim to provide a common European approach to the assessment of Credit Value Adjustment risk under SREP, including adequacy of capital to cover for this risk, and the determination of any potential additional own funds requirements.
In particular, these draft Guidelines implement a policy recommendation of the CVA report and provide a common European approach that would allow competent authorities to:
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determine the relevance and materiality of CVA risk for an institution,
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assess any material CVA risk under SREP,
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assess the adequacy of own funds to cover material CVA risk, and
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determine additional own funds requirements, where the risk is not adequately covered by the minimum own funds requirements, in particular due to the exemptions in the EU legislative framework.
The common approach to the assessment of CVA risk under SREP is built around the re-inclusion of certain exempted transactions in the calculation of own funds requirements, as well as on the comparison of such hypothetical own funds requirements for CVA risk with actual minimum own funds requirements for CVA risk. By introducing a common approach to the assessment of material CVA risk, the draft Guidelines complement the EBA Guidelines on common procedures and methodologies for SREP.
As clearly stated in the CVA Report, the additional own funds requirements imposed following the SREP assessment of material CVA risk should not replicate in full or in substantive part the international standards that have not been implemented into EU legislation.
In order to ensure appropriate calibration of the threshold values, the EBA is launching a data collection exercise for the related Quantitative Impact Study (QIS) in parallel with the public consultation. Relevant institutions will be contacted by their competent authorities and will be asked to provide data required in the accompanying template by 28 January 2016. In order to help banks fill in the template, instructions are also available on the website.
Comments to these draft Guidelines can be sent to the EBA by 12 February 2016. A public hearing will then take place at the EBA premises on 27 January 2016 from 10.00 to 13.00 UK time.
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