- within Law Department Performance and Insolvency/Bankruptcy/Re-Structuring topic(s)
- with readers working within the Retail & Leisure industries
On November 4, 2016, the EBA published a Report on the impact of the adoption into EU legislation of the new international frameworks for counterparty credit risk and market risk. The EBA Report responds to Calls for Advice from the European Commission received in April 2016, as part of the Commission's review of the CRR.
As part of its review, the Commission is considering the impact of implementing the Basel Committee on Banking Supervision's framework for market risk, known as the fundamental review of the trading book (FRTB), published in January 2016 and the new standardized approach for the calculation of the exposure value of derivatives, known as SA-CCR, published in March 2014. The Commission asked the EBA to provide technical advice assessing the impact for EU banks resulting from the adoption of the Basel Committee's framework on market risk and whether any adjustments to that framework would be appropriate.
The EBA was also asked for advice on the impact of implementing the SA-CCR, including the proportionate application of SA-CCR to smaller firms. The EBA's Report assesses the implications of implementing both of the FRTB and SA-CCR frameworks in the EU for both large and small banks, highlights interpretative and operational issues that might need to be addressed before the rules are fully implemented, considers how greater proportionality can be introduced within the frameworks and makes several recommendations. In particular, the EBA is recommending: (i) increasing the threshold value for small trading book business below which firms would be able to use the non-trading book approach to calculate capital requirements (proposed as EUR50 million); (ii) introducing a proposed EUR20 million threshold for small derivative businesses below which firms would be allowed to use simple approaches currently used to calculate CCR capital requirements, subject to recalibration; (iii) proportionality approaches for smaller banks; (iv) implementing technical requirements through delegated acts or Technical
Standards so that the EBA can assess key changes in the regulation timeously; and (v) requiring more granular reporting so that regulators can obtain a better overview of firms' CCR exposures and monitor the appropriateness of the different proportionality thresholds.
The Report is available at:
http://www.eba.europa.eu/documents/10180/1648752/Report+on+SA+CCR+and+FRTB+implementation+%28EBA-Op-2016-19%29.pdf , the CfA on FRTB is available at: http://www.eba.europa.eu/documents/10180/1466081/%28EBA-2016-E-662%29%20Ares%282016%291819771+-+CfA+CRR+Own+Fund+Requirement.pdf/053ffda4-a295-4fb0-ad76-a05264ef4fe1, and the CfA on SA-CCR is available at: http://www.eba.europa.eu/documents/10180/1466081/%28EBA-2016-E-668%29%20CfA+Com+implementation+counterparty+credit+risk%2C%20Ares%282016%291900009.pdf/2c59c7ee-06bc-41fe-ad02-4dccca04cfef.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
