EBA consults on draft Guidelines on the treatment of CVA risk under SREP

12 November 2015

The European Banking Authority (EBA) launched today a public consultation on Guidelines on the treatment of credit value adjustment (CVA) risk under the supervisory review and evaluation process (SREP), as well as a data collection exercise for the Quantitative Impact Study (QIS) to calibrate the threshold values. These Guidelines are based on a policy recommendation contained in the EBA's CVA report and aim to provide a common European approach to the assessment of CVA risk under SREP, including adequacy of capital to cover for this risk, and the determination of any potential  additional own funds requirements. The public consultation runs until 12 February 2016 and the data collection exercise should be completed on 28 January 2016.
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: (1) determine the relevance and materiality of CVA risk for an institution, (2) assess any material CVA risk under SREP, (3) assess the adequacy of own funds to cover material CVA risk, and (4) 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.
The draft Guidelines will be finalised following the completion of the public consultation and the accompanying QIS. The final Guidelines will be supplemented by the EBA recommendation issued pursuant to Article 16 of Regulation (EU) 1093/2010, which will provide the threshold values for the formulas provided in the draft Guidelines, which will apply together with the Guidelines.

Consultation process

Comments to these draft Guidelines can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 12 February 2016.
All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing will then take place at the EBA premises on 27 January 2016 from 10.00 to 13.00 UK time.

Legal basis

Article 456(2) of Regulation (EU) No 575/2013 mandates the EBA to monitor the own funds requirements for credit value adjustment risk. In the CVA Report published in February 2015, the EBA identified a number of possible improvements to the CVA framework that should be introduced at European level and should be taken into account in the revision of the Basel CVA framework. Furthermore, the EBA committed to developing guidance addressed to competent authorities and institutions on how to treat CVA risk under the supervisory review and evaluation process (SREP) in a coordinated manner, as a short-term solution until the Basel and European CVA frameworks have been revised.