Consultation on draft RTS on a central database on AML/CFT in the EU

Consultation on draft RTS on a central database on AML/CFT in the EU (EBA/CP/2021/19)

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The European Banking Authority (EBA) launched today a public consultation on draft Regulatory Technical Standards (RTS) on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in the EU. This database will be a key tool for the EBA’s recently enhanced mandate to lead, coordinate and monitor AML/CFT efforts in the European Union. The consultation runs until 17 June 2021. 

The revised EBA Regulation that came into effect in January 2020 requires the EBA to establish and keep up to date a central database with information on AML/CFT weaknesses that competent authorities (CAs) across the EU have identified in respect of individual financial institutions. The database will also contain information on the measures competent authorities have taken to rectify those material AML/CFT weaknesses. Information from this database will be used by individual competent authorities and the EBA to make the fight against ML/TF in the EU more targeted and effective in the future.

The draft RTS proposed in this Consultation Paper specify the definition and the materiality of weaknesses identified by competent authorities, the type of information collected, and how such information will be communicated to the EBA. It also sets out how the EBA will analyse and disseminate the information contained in the AML/CFT central database.

Moreover, the draft RTS set out the rules to ensure the effectiveness of the database, the confidentiality of the data contained in the database, as well as how the database will interact with other notifications that competent authorities are required to provide to the EBA and the provisions to ensure the protection of personal data.

The AML/CFT central database will be a key tool in coordinating efforts to prevent and counter ML/TF in the Union. It will serve as an early warning tool to enable the competent authorities to act before the ML/TF risks crystalise and help them plan their on-site inspections and perform off-site monitoring.

Consultation process 

The Consultation Paper is composed of the draft RTS as well as an Annex that sets out, firstly, the technical specifications with the data points that will be contained in the database and, secondly, the list of authorities that will be indirectly submitting to the AML/CFT database in accordance with article 13(7) of the draft RTS. As those technical specifications are not part of the draft RTS, the EBA is not required to consult on them but has decided to offer the respondents the possibility to provide comments also on those.

Comments to the draft Consultation Paper can be sent by clicking on the "send your comments" button on the EBA's consultation page. The deadline for the submission of comments is 17 June 2021. 

All contributions received will be published following the close of the consultation, unless requested otherwise. 

In parallel, the EBA is seeking the view of the European Data Protection Supervisor (EDPS) on these draft RTS, in accordance with Article 42(1) of the Regulation (EU) 2018/1725 (EUDPR). The response of the EDPS will be taken into consideration when the final report on this draft RTS will be developed.

Legal basis and background 

The proposed RTSs have been developed in fulfillment of the mandates conferred on the EBA in Articles 9a(1) and (3) of the EBA Regulation. As part of the mandate to lead, coordinate and monitor AML/CFT in Europe, said Articles require the EBA to develop two RTSs to establish and keep up to date an AML/CFT central database. The mandate foresees for the AML/CFT central database to contain information on AML/CFT weaknesses that have been identified by competent authorities and on the measures taken by them in response to those material weaknesses. Given the complementary character of those RTS, the EBA has drafted them as a single instrument.

The EBA has performed a Data Protection Impact Assessment (DPIA) in accordance with Article 35 of Regulation (EU) 2018/1725 (EUDPR). The DPIA analyses the risks arising from the processing of personal data and establishes the controls that will be put in place by the EBA to mitigate the risks identified. A summary of this draft DPIA is published on the EBA’s website for full transparency alongside the Consultation Paper.

Consultation on draft Guidelines on the delineation and reporting of available financial means of DGS

Consultation on draft Guidelines on the delineation and reporting of available financial means of DGS (EBA/CP/2021/16)

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  • The proposed Guidelines aim to improve consumer confidence in financial stability throughout the EU by establishing a more harmonised approach to funding DGSs and increase transparency and comparability of the financial position of DGSs.
  • The EBA proposes to delineate clearly that only funds contributed by credit institution to the ex-ante funds of DGSs will count towards reaching the target level of said funds.
  • The EBA proposes to expand the current reporting requirements from DGSs to the EBA and to publish more information about DGS funding on the EBA website.

The European Banking Authority (EBA) launched today a public consultation on its draft Guidelines on the delineation and reporting of available financial means (AFM) of Deposit Guarantee Schemes (DGSs). The purpose of the Guidelines is to ensure that only funds that credit institutions contributed, or that stem indirectly from such contributions such as recoveries or investment income, will count towards reaching the target level of the DGS fund. Conversely, funds that stem directly or indirectly from borrowed resources should not count towards the target level. This clarification aims at preventing the situation where a DGS could meet the target level by taking out a loan.

By developing these Guidelines, the EBA follows up on its recommendations made in the EBA Opinion on deposit guarantee scheme funding and uses of deposit guarantee scheme funds (“the Opinion”) published on 23 January 2020. In the Opinion, the EBA identified differences across Member States in relation to the interpretation of the concept of AFM. The Opinion recommended clarifying Directive 2014/49/EU (DGSD) that borrowed funds or funds stemming from borrowed funds should not count towards reaching the minimum target level for DGS funds.

Given that a review of the DGSD is still several years away from being proposed, negotiated and finalised, the proposed Guidelines provide such a clarification ahead of any such changes, using the existing DGSD as a legal basis. More precisely, the draft Guidelines clarify that AFM are comprised of two subsets:

  • Qualified AFM (QAFM) – funds stemming directly or indirectly from contributions of DGS member institutions, which qualify towards reaching the target level of the DGS fund;
  • Other AFM – funds, which are not QAFM, including borrowed funds that stem from liabilities such as loans, and hence do not count towards reaching the target level of the DGS fund.

In terms of reporting, the proposed Guidelines will extend the reporting requirements from DGSs to the EBA in order to reflect the clarified concept of AFM, QAFM and other AFM proposed earlier in the Guidelines. They also require the reporting on outstanding liabilities of DGSs, unclaimed repayments, and high-level information on alternative funding arrangements that are in place. That information would be published on the EBA website annually and should provide more transparency and comparability of the financial position of DGSs across the EU.

Consultation process

Comments to this consultation 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 28 July 2021. All received contributions will be published at the end of the consultation, unless requested otherwise.

A public hearing will take place via conference call on Wednesday 28 June 2021 from 10:00 to 12:00 CEST.

Legal basis 

These draft own-initiative Guidelines have been developed according to Articles 16(1) and 26(2) of Regulation (EU) No 1093/2010 (EBA Regulation). The Guidelines aim at harmonizing the funding of DGSs according to Article 10(1) of Directive 2014/49/EU (DGSD) and thereby strive to strengthen the European system of national DGSs in accordance with Article 26(1) of the EBA Regulation.

Consultation on draft RTS on emerging markets and advanced economies

Consultation on draft RTS on emerging markets and advanced economies (EBA/CP/2021/14)

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The European Banking Authority (EBA) launched today a public consultation on its draft Regulatory Technical Standards (RTS) on the list of countries with an advanced economy for calculating the equity risk under the alternative standardised approach (FRTB-SA). These RTS are part of the phase 3 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches. The consultation runs until 2 July 2021.

Institutions using the alternative standardised approach to determine own funds requirements for market risk are required to compute the equity risk stemming from their trading book positions in accordance with a prescribed set of risk factors and corresponding risk weights. To determine the appropriate risk-weight, institutions are to identify whether a risk factor refers to an advanced economy or an emerging market. Risk factors mapped to the advanced economy bucket benefit from a lower risk weight compared to those mapped to the emerging market bucket.

To ensure compliance with the international standards, the consultation paper proposes a list of advanced economies corresponding to the list provided in the Fundamental Review of the Trading Book (FRTB). In this context, the EBA seeks feedback on whether the list is comprehensive, in particular, whether there are additional EU countries where the equity risk can be considered similar to the countries’ already included in the FRTB list of advanced economies. Furthermore, the EBA seeks stakeholders’ views on sources of data and criteria that could be designed to identify advanced economies and emerging markets for the purpose of FRTB-SA equity risk own funds requirements.

Consultation process

Comments to this consultation 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 2 July 2021. All contributions received will be published following the end of the consultation, unless requested otherwise.

The public hearing on these draft RTS will take place on 29 April 2021 from 15.30 to 18.00 CEST and will be held jointly with the public hearing on draft RTS on jump to default amounts and residual risk add-on.

Legal basis 

These draft RTS have been developed according to Article 325ap(3) of Regulation (EU) No 575/2013 (CRR), which mandates the EBA to specify what constitutes an emerging market and to specify what constitutes an advanced economy.

Consultation on draft RTS on disclosure of investment policy by investment firms

Consultation on draft RTS on disclosure of investment policy by investment firms (EBA/CP/2021/15)

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  • The draft technical standards specify the information that investment firms have to make public to show their influence over the companies in which they have voting rights.
  • The standards put forward comparable disclosures and detailed instructions on investment firms’ voting rights, voting guidelines and voting behaviour.

The European Banking Authority (EBA) published today a consultation paper on draft regulatory technical standards (RTS) on disclosure of investment policy by investment firms. The draft RTS put forward comparable disclosures that should help stakeholders understand investment firms’ influence over the companies in which they have voting rights and the impact of investment firms’ policies on aspects such as the governance or management of those companies.

The draft RTS put forward templates and tables for the disclosure of information on the investment firm’s voting behaviour, explanation of the votes, and the ratio of approved proposal, with the objective to show if the investment firm is an active shareholder that generally uses its voting rights, and how it uses them. They also include information on the use of proxy advisory firms that should help address uncertainties about potential conflicts of interest. Finally, they include information on investment firms’ voting guidelines, including, when relevant, a breakdown by geographical zone, economic sector or topic of the resolution being voted.

These disclosure requirements apply to class 2 investment firms with total assets above EUR 100 million. These firms will have to disclose this information in relation to those companies whose shares are admitted to trading on a regulated market and in which the proportion of voting rights exceeds 5 % of all voting rights issued by the company.

Consultation process

Comments to this consultation 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 1 July 2021. All contributions received will be published following the end of the consultation, unless requested otherwise.

A public hearing will be organised in the form of a webinar on 6 May from 11:00 to 13:00 CEST. The EBA invites interested stakeholders to register using this link.

The dial-in details will be communicated in due course

Legal basis and background

The Investment Firms Regulation (IFR) sets out in Article 52 the requirement for investment firms to disclose information on investment policy, including the following information: (1) proportion of voting rights attached to shares held, (2) voting behaviour, (3) use of proxy advisor firms and (4) voting guidelines. The same Article mandates the EBA to develop in consultation with the European Securities and Markets Authority (ESMA) draft regulatory technical standards (RTS) to specify templates for investment policy disclosure of investment firms. This information will be published on a yearly basis, along with the financial statements.

Consultation on draft revised Guidelines on recovery plans indicators

Consultation on draft revised Guidelines on recovery plans indicators (EBA/CP/2021/13)

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  • The revised Guidelines provide a common EU standard for the recovery plan indicators to ensure they can promptly signal a stressed situation and enable the institution to consider timely and effective recovery actions.
  • The key objective of the revised Guidelines is to strengthen the quality of the recovery indicators framework in order to ensure institutions’ effective crisis preparedness.
  • The amendments of the revised Guidelines introduce few changes to the minimum list of recovery indicators and focus on practical aspects such as calibration of the thresholds of recovery plan indicators and their monitoring.

The European Banking Authority (EBA) published today a consultation paper on its revised Guidelines on recovery plan indicators. While maintaining overall stability to the current recovery plan indicators framework, the revised Guidelines provide additional guidance on indicators’ calibration, monitoring and breaches notifications. The amendments aim at strengthening the quality of recovery indicators framework and contributing to effective crisis preparedness of institutions. 

The main objective of recovery plan indicators is to help institutions monitor and respond to the emergence and evolution of stress. The EBA issued the existing Guidelines on recovery plan indicators in 2015 but decided to amend them based on practical experience acquired in recovery planning. 

The revised Guidelines provide additional guidance on the calibration of thresholds of recovery indicators to ensure that recovery options are implemented early enough to be effective. The amendments also emphasise the importance of constant monitoring of recovery indicators and timely notification of their breaches to supervisors. Lastly, three new recovery indicators (MREL/TLAC, asset encumbrance and liquidity position) have been added to the minimum list of recovery indicators and one (cost of wholesale funding) has been removed.

Consultation process

Comments to this consultation 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 18 June 2021. All contributions received will be published following the end of the consultation, unless requested otherwise.

A public hearing will be organised in the form of a webinar on 15 April from 14:00 to 16:00 CET. The EBA invites interested stakeholders to register using this link.

The dial-in details will be communicated in due course.

Legal basis, background and next steps

In accordance with Article 9(1) of the Bank Recovery and Resolution Directive (BRRD), a recovery plan should include a framework of indicators established by each institution with the aim of identifying the points at which the escalation process should be activated and to assess what appropriate actions referred to in the recovery plan may be taken.

Under the mandate of Article 9(2) of BRRD, in 2015 the EBA issued Guidelines to specify the minimum list of quantitative and qualitative indicators for the purposes of recovery planning (EBA-GL-2015-02). Since the development of the Guidelines in 2015, significant practical experience in developing and assessing recovery plans has been acquired. Against this background, the EBA has concluded that, while limited amendments to its existing Guidelines are needed, it is necessary to introduce additional guidance on certain parts of the indicator framework.

The revised Guidelines are published for a three-month public consultation where the EBA is consulting only on changes to the existing Guidelines on the minimum list of qualitative and quantitative recovery plan indicators. There is no consultation on the text of the original Guidelines, which remains unchanged.

The EBA will finalise these Guidelines once the consultation responses have been assessed. Upon publication of the final Guidelines, the original ones on the minimum list of qualitative and quantitative recovery plan indicators will be repealed.

Consultation for institutions and resolution authorities on improving resolvability

Consultation for institutions and resolution authorities on improving resolvability (EBA/CP/2021/12)

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The European Banking Authority (EBA) published today a consultation on Guidelines for institutions and resolution authorities on improving resolvability. These Guidelines represent a significant step in complementing the EU legal framework in the field of resolution. They aggregate existing international standards, leverage on existing EU best practices and implement them into an EU-wide legal document. The consultation runs until 17 June 2021.

These Guidelines take stock of the best practices developed so far by EU resolution authorities on resolvability topics. In particular, these Guidelines set-out requirements to improve resolvability in the areas of operational continuity in resolution, access to Financial Market Infrastructure, funding and liquidity in resolution, bail-in execution, business reorganisation and communication.

While not covering all topics relevant to resolvability either because (i) those are covered elsewhere (e.g. the calibration and eligibility of loss absorbing capacity is extensively covered in BRRD) or (ii) because those topics will be further specified in future EBA regulatory products (e.g. transferability), these Guidelines aim to be the policy point of reference for both authorities and institutions on resolvability related topics in the EU. The aim is to ensure consistent progress on resolvability for all institutions and facilitate resolvability work for cross-border groups and its monitoring in resolution colleges.

These Guidelines will be updated on a regular basis as progress is achieved on relevant policy topics, both at international and EU level.

Consultation process 

Comments to the draft Guidelines can be sent by clicking on the "send your comments" button on the EBA's consultation page. The deadline for the submission of comments is 17 June 2021. 

All contributions received will be published following the close of the consultation, unless requested otherwise. 

The EBA will hold a virtual public hearing on the draft Guidelines on 20 April 2021 from 10:00 to 13:00 Paris time. The dial-in details will be communicated to those who have registered for the meeting. 

Legal basis

These own initiative guidelines are based on Article 16 of Regulation (EU) 1093/2010, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the European System of Financial Supervision, and to ensuring the common, uniform and consistent application of Union law.

Consultation on revised Guidelines on risk-based AML/CFT supervision

Consultation on revised Guidelines on risk-based AML/CFT supervision (EBA/CP/2021/11)

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The European Banking Authority (EBA) launched today a public consultation on changes to its Guidelines on Risk-Based Supervision of credit and financial institutions’ compliance with anti-money laundering and countering the financing of terrorism (AML/CFT) obligations. The proposed changes address the key obstacles to effective AML/CFT supervision that the EBA has identified during its review of the existing Guidelines, including the effective use of different supervisory tools to meet the supervisory objectives. The Guidelines are central to the EBA’s mandate to lead, coordinate and monitor the EU financial sector’s fight against money laundering and terrorist financing. The consultation runs until 17 June 2021. 

The Guidelines on risk-based AML/CFT supervision were originally published by the European Supervisory Authorities (ESAs) in 2016 and set out steps that competent authorities should take to ensure compliance by credit and financial institutions with their AML/CFT obligations. Since their publication, the EBA has observed that supervisors across the EU were finding the implementation of the risk-based approach to AML/CFT supervision difficult, which meant that AML/CFT supervision was not always as effective as the legal framework set out in Directive (EU) 2015/849 (AMLD) and the ESAs’ Guidelines had envisaged.

The changes the EBA is proposing include practical step-by-step approaches to addressing those aspects of AML/CFT supervision that competent authorities have found particularly challenging. The revised Guidelines focus on helping the supervisors identify and manage ML/TF risks more effectively, including the risks that may arise from de-risking practices in some sectors or Member States by providing greater detail on ML/TF risk assessments and by requiring to develop a robust supervisory strategy and plan that are based on those risk assessments.

The Guidelines also set out how supervisors can choose the most effective supervisory tools to support different supervisory needs and objectives, and stress the importance of cooperation between different supervisory authorities, and between supervisors and other stakeholders, such as Financial Intelligence Units and financial institutions. In addition, the Guidelines emphasise the importance for supervisors to develop a good understanding of ML/TF risks associated with tax crimes, which may involve a cooperation with tax authorities in their Member State. 

Once implemented, the proposed changes will foster greater convergence of supervisory practices in areas where supervisory effectiveness has been hampered, so far, by divergent approaches in the implementation of the same European legal requirements. This means that they will significantly strengthen Europe’s AML/CFT defences.

Consultation process 

Comments to the draft Guidelines can be sent by clicking on the "send your comments" button on the EBA's consultation page. The deadline for the submission of comments is 17 June 2021. 

All contributions received will be published following the close of the consultation, unless requested otherwise. 

The EBA will hold a virtual public hearing on the draft Guidelines on 22 April 2021 from 14:00 to 16:00 Paris time. The dial-in details will be communicated to those who have registered for the meeting.  

The scope of the EBA’s consultation is limited to the amendments and additions to the original risk-based supervision Guidelines, which will be repealed and replaced with the revised Guidelines. 

Legal basis and background 

Directive (EU) 2015/849 (AMLD) puts the risk-based approach at the centre of the EU’s AML/CFT regime. It recognises that the risk of money laundering and terrorist financing may vary between countries, sectors and financial institutions and that Member States, competent authorities and credit and financial institutions should identify and assess these risks in order to decide how to best manage them. 

Article 48(10) of AMLD mandates the EBA to issue Guidelines addressed to competent authorities on the characteristics of a risk-based approach to supervision and the steps to be taken when conducting supervision on a risk-based basis. The mandate requires the EBA to take specific account of the nature and size of the business, and, where appropriate and proportionate, specific measures shall be laid down. The revised Guidelines also propose to take into consideration changes in the EU legal framework that came into force since the original guidelines were first issued, as well as new international guidance by the Financial Action Taskforce (FATF) and the Basel Committee on Banking Supervision on this topic. 

ESAs consult on Taxonomy–related product disclosures

17 March 2021

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have today issued a Consultation Paper seeking input on draft Regulatory Technical Standards (RTS) regarding disclosures of financial products investing in economic activities that contribute to an environmental investment objective. These economic activities are defined by the EU Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation).

The proposed draft RTS aim to:

  • facilitate disclosures to end investors regarding the investments of financial products in environmentally sustainable activities.; and
  • create a single rulebook for sustainability disclosures under the Regulation on sustainability-related disclosures in the financial services sector (SFDR) and the Taxonomy Regulation. This will be done by amending the draft RTS under the SFDR,  to minimise overlapping or duplicative requirements between the two regulations.

The consultation paper includes additional taxonomy-related disclosures concern information about which environmental objectives the investments of the product contribute to, and information about how, and to what extent, the activities funded by the product are Taxonomy-aligned.

The ESAs’ proposal on how and to what extent activities funded by the product are taxonomy- aligned, consist of two elements:

  • a graphical representation of the taxonomy-alignment of investments of the financial product and a key performance indicator calculation for that alignment; and
  • a statement that the activities funded by the product that qualify as environmentally sustainable, are compliant with the detailed criteria of the Taxonomy Regulation.

The ESAs also propose to standardise the presentation of the disclosures by amending the templates for the pre-contractual and periodic disclosures proposed in the draft RTS under the SFDR, by adding a new section that includes the disclosures required under the Taxonomy Regulation.

By amending the SFDR, the Taxonomy Regulation empowered the ESAs to develop draft RTS on additional pre-contractual, and periodic disclosure, obligations for financial products making sustainable investments with environmental objectives.

Next steps

The closing date for responses to the consultation is 12 May 2021. Following the consultation period, the draft RTS will be finalised and submitted to the European Commission. A consumer testing exercise on the amended templates will be conducted in April in the Netherlands and in Poland.

Consultation on draft RTS on gross jump-to-default (JTD) amounts

Consultation on draft RTS on gross jump-to-default (JTD) amounts (EBA/CP/2021/09)

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The European Banking Authority (EBA) launched today two public consultations on its draft Regulatory Technical Standards (RTS) on gross jump-to-default (JTD) amounts and its draft RTS on residual risk add-on (RRAO). These draft RTS specify i) how gross JTD amounts are to be determined for the purposes of calculating the default risk charge for non-securitisation instruments, and ii) how to identify instruments exposed to residual risks for the purposes of the residual risk add on (RRAO) - under the alternative standardised approach for market risk. These draft RTS are part of the phase 3 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches. Both consultations run until 12 June 2021.

Institutions using the alternative standardised approach (FRTB-SA) to determine own funds requirements for market risk are required to compute, on top of the own funds requirement under the sensitivities-based method, additional own funds requirements for default risk and for residual risks. The consultation papers published today provide technical specifications for the implementation of these two elements.

In particular, the draft RTS on gross JTD amounts specify the key inputs needed for computing own funds requirements for default risk under the FRTB-SA. Gross JTD amounts determined in accordance with the draft RTS are intended to be consistent with those determined in accordance with international standards, while employing the formulae and requirements set out in the Capital Requirements Regulation (CRR).

The draft RTS on RRAO clarify the scope of the RRAO, i.e. for which instruments the own funds capital requirements for residual risks should be determined. In particular, these RTS specify a non-exhaustive list of instruments bearing residual risks, and a list of risks that, in themselves, do not constitute residual risks. These RTS also clarify that longevity risk, weather, natural disasters and future realised volatility should all be considered as exotic underlyings.

Consultation process

Comments to this consultation 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 June 2021. All contributions received will be published following the end of the consultation, unless requested otherwise.

A public hearing will take place on 29 April 2021 from 15.30 to 18.00 CET. 

Legal basis 

The draft RTS on gross JTD amounts have been developed according to Article 325w(8) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which mandates the EBA to “specify (a) how institutions are to determine the components P&Llong, P&Lshort, Adjustmentlong and Adjustmentshort when calculating the JTD amounts for different types of instruments in accordance with this Article; (b) which alternative methodologies institutions are to use for the purposes of the estimation of gross JTD amounts referred to Article 325w(7); (c) the notional amounts of instruments other than the ones referred to in points (a) and (b) of Article 325w(4)”.

The draft RTS on RRAO have been developed according to Article 325u(5) of Regulation (EU) No 575/2013 (CRR), which mandates the EBA to “specify what an exotic underlying is and which instruments are instruments bearing residual risks for the purposes of Article 325u(2)”.

Consultation on draft RTS on residual risk add-on

Consultation on draft RTS on residual risk add-on (EBA/CP/2021/10)

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The European Banking Authority (EBA) launched today two public consultations on its draft Regulatory Technical Standards (RTS) on gross jump-to-default (JTD) amounts and its draft RTS on residual risk add-on (RRAO). These draft RTS specify i) how gross JTD amounts are to be determined for the purposes of calculating the default risk charge for non-securitisation instruments, and ii) how to identify instruments exposed to residual risks for the purposes of the residual risk add on (RRAO) - under the alternative standardised approach for market risk. These draft RTS are part of the phase 3 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches. Both consultations run until 12 June 2021.

Institutions using the alternative standardised approach (FRTB-SA) to determine own funds requirements for market risk are required to compute, on top of the own funds requirement under the sensitivities-based method, additional own funds requirements for default risk and for residual risks. The consultation papers published today provide technical specifications for the implementation of these two elements.

In particular, the draft RTS on gross JTD amounts specify the key inputs needed for computing own funds requirements for default risk under the FRTB-SA. Gross JTD amounts determined in accordance with the draft RTS are intended to be consistent with those determined in accordance with international standards, while employing the formulae and requirements set out in the Capital Requirements Regulation (CRR).

The draft RTS on RRAO clarify the scope of the RRAO, i.e. for which instruments the own funds capital requirements for residual risks should be determined. In particular, these RTS specify a non-exhaustive list of instruments bearing residual risks, and a list of risks that, in themselves, do not constitute residual risks. These RTS also clarify that longevity risk, weather, natural disasters and future realised volatility should all be considered as exotic underlyings.

Consultation process

Comments to this consultation 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 June 2021. All contributions received will be published following the end of the consultation, unless requested otherwise.

A public hearing will take place on 29 April 2021 from 15.30 to 18.00 CET. 

Legal basis 

The draft RTS on gross JTD amounts have been developed according to Article 325w(8) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which mandates the EBA to “specify (a) how institutions are to determine the components P&Llong, P&Lshort, Adjustmentlong and Adjustmentshort when calculating the JTD amounts for different types of instruments in accordance with this Article; (b) which alternative methodologies institutions are to use for the purposes of the estimation of gross JTD amounts referred to Article 325w(7); (c) the notional amounts of instruments other than the ones referred to in points (a) and (b) of Article 325w(4)”.

The draft RTS on RRAO have been developed according to Article 325u(5) of Regulation (EU) No 575/2013 (CRR), which mandates the EBA to “specify what an exotic underlying is and which instruments are instruments bearing residual risks for the purposes of Article 325u(2)”.