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On 20 December 2013, the European Banking Authority (EBA) published the Regulatory Technical Standards (RTS) on credit valuation adjustment (CVA) risk to determine a proxy spread and specify a limited number of smaller portfolios the Capital Requirements Regulation (CRR).
In the CVA report published on 25 February 2015, the EBA re-assessed the relevance of the RTS provisions, in particular based on a CVA data collection exercise involving 32 banks from 11 jurisdictions. The CVA report showed persistent difficulties in determining appropriate proxy spreads and LGDMKT for a large number of counterparties. Against this backdrop, policy recommendations 7 and 8 of the CVA report concluded that the RTS should be amended to address the difficulties associated with the determination of proxy spreads for large numbers of counterparties, for which spreads may never be observed on markets, as well as issues linked with LGDMKT.
Therefore, the present amending RTS propose limited amendments to Delegated Regulation (EU) No 526/2014 that aim at further specifying cases where alternative approaches can be used for the purposes of identifying an appropriate proxy spread and LGDMKT. The proposed amendments are expected to lead to a more adequate calculation of own funds requirements for CVA risk, including in some cases a reduction of own funds requirements for CVA risk, thus partially remedying the over-estimation of current own funds requirements for counterparties in the scope of the CVA risk charge in the EU.
Responses to this consultation can be sent to the EBA by 06 July 2016. A public hearing will take place at the EBA premises on 23 May 2016 from 16.00 to 18.00 UK time.