The European Banking Authority (EBA) published today its roadmap on the new market and counterparty credit risk approaches and launched a consultation on eleven draft Regulatory Technical Standards (RTS) on the new Internal Model Approach (IMA) under the FRTB (Fundamental Review of the Trading Book) standards along with a data collection exercise on non-modellable risk factors (NMRF). The consultations run until 4 October 2019.
The roadmap provides a comprehensive overview of EBA deliverables in the area of market and counterparty credit risk and outlines EBA intentions and roadmap with the view of ensuring a smooth implementation of the new approaches in the EU. In particular, the roadmap reflects a prioritisation of the EBA work according to four phases, which is broadly in line with the deadlines included in the CRR2, starting with the implementation of the essential parts of the framework.
The eleven draft technical standards have been included into 3 different Consultation Papers (CP): the CP on draft RTS on liquidity horizons, the CP on draft RTS on back-testing and profit and loss attribution (PLA) requirements and the CP on draft RTS on criteria for assessing the modellability of risk factors under the IMA. All these draft technical standards specify essential aspects of the IMA under the FRTB and represent an important contribution to a smooth and harmonised implementation of the FRTB in the EU.
The draft standards were developed considering the proposals included in the EBA Discussion Paper (DP) on ‘Implementation in the EU of the revised market risk and counterparty credit risk frameworks’ published on 18 December 2017 and the industry feedback received as a result of the subsequent consultation. The entry into force of these technical standards will trigger the three-year-period after which institutions, which have been granted permission to use the new IMA for reporting purposes, will be required to report IMA figures. The consultation on these RTS runs until 4 October 2019.
In parallel with the consultation, the EBA is launching a data collection exercise on NMRF, which is meant to support the EBA in fine-tuning and calibrating the methodology presented in the DP with respect to the computation under the IMA of the capital charge corresponding to risk-factors that have been identified as non-modellable. In order to help banks fill in the template, instructions, specifying also the timeline of the exercise, are available on this webpage. Participating IMA institutions are requested to provide data by 4 September 2019.
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 4 October 2019.
A public hearing will then take place at the EBA premises in Paris on 5 September 2019 from 11:00 to 13:00 Paris time. All contributions received will be published following the close of the consultation, unless requested otherwise.
These draft RTS have been developed according to Article 325bd(7), 325be(3), 325bf(9), 325bg(4) of REGULATION (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013.
Article 325bd(7), mandates the EBA to develop RTS to specify: (a) how institutions are to map the risk factors of the positions to broad categories of risk factors and broad sub-categories of risk factors; (b) which currencies constitute the most liquid currencies sub-category of the broad category of interest rate risk factor; (c) which currency pairs constitute the most liquid currency pairs sub-category of the broad category of foreign exchange risk factor; (d) the definitions of small market capitalisation and large market capitalisation for the purposes of the equity price and volatility sub-category of the broad category of equity risk factor.
Article 325be(3), mandates the EBA to develop RTS to specify the criteria to assess the modellability of risk factors and to specify the frequency of that assessment.
Article 325bf(9), mandates the EBA to develop RTS to specify the technical elements to be included in the actual and hypothetical changes to the value of the portfolio of an institution for the purposes of the back-testing.
Article 325bg(4), mandates the EBA to develop RTS to specify: (a) the criteria necessary to ensure that the theoretical changes in the value of a trading desk's portfolio is sufficiently close to the hypothetical changes in the value of a trading desk's portfolio, taking into account international regulatory developments; (b) the consequences for an institution where the theoretical changes in the value of a trading desk's portfolio are not sufficiently close to the hypothetical changes in the value of a trading desk's portfolio; (c) the frequency at which the P&L attribution is to be performed by an institution; (d) the technical elements to be included in the theoretical and hypothetical changes in the value of a trading desk's portfolio for the purposes of the P&L attribution; (e) the manner in which institutions that use the internal model are to aggregate the total own funds requirement for market risk for all their trading book positions and non-trading book positions that are subject to foreign exchange risk or commodity risk, taking into account the consequences referred to in point (b).
The European Banking Authority (EBA) launched today a consultation on four draft Regulatory Technical Standards (RTS) on the Standardised Approach for Counterparty Credit Risk (SA-CCR). These draft technical standards specify key aspects of the SA-CCR and represent an important contribution to its smooth harmonised implementation in the EU. The draft technical standards were developed based on the mandates included in the latest available version of proposed amended Capital Requirements Regulation (CRR2). The consultation runs until 2 August 2019.
The draft technical standards build on the proposals included in the Discussion Paper published on 18 December 2017 and industry feedback received as a result of the subsequent consultation. They specify methods for the mapping of derivative transactions to risk categories, a formula for the calculation of the supervisory delta of options mapped to the interest rate risk category and a method for determining whether derivative transactions are long or short in their risk drivers.
In particular, the EBA proposes a three-pronged methodology for the mapping of derivative transactions to risk categories. The first approach, purely qualitative and suitable for simple and standard derivative transactions, refers to certain criteria, which have to be satisfied. The second more detailed approach, hinges on a quantitative assessment of the sensitivities with respect to each possible risk driver, in order to identify the material ones. The third approach, intentionally simple and conservative, identifies all possible risk drivers of a transaction as material and allocates the transaction to all relevant risk-categories. This last approach is always available as a fallback to the second approach.
In addition, the EBA proposes to use, in line with Basel standards, a supervisory delta formula based on a shifted Black-Scholes model that allows dealing with situations of negative interest rates. The shift is intended to move interest rates back into positive territory in order to make the application of the Black-Scholes model feasible. The EBA proposes a methodology for determining the shift to be included in the formula and requests feedback with respect to the different options proposed, including on the possible level of application. Finally, the EBA tried to reduce the burden for institutions in the determination of the direction of the position in that particular risk driver (long or short) by leveraging on the same elements (i.e. cash flows and sensitivities) that institutions use for the mapping of derivatives to risk categories.
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 August 2019.
A public hearing will then take place at the EBA premises in Paris on 17 June 2019 from 15:00 to 17:00 Paris time. All contributions received will be published following the close of the consultation, unless requested otherwise.
These draft RTS have been developed according to Article 277(5) and Article 279a(3) of proposed amended Capital Requirements Regulation (CRR2). As all the stages of the legislative procedure for the CRR2 text have not been completed, the version that was taken into account for drafting those draft RTS is the European Parliament legislative resolution of 16 April 2019. As a result, the proposed draft RTS may be amended after the consultation to take into account potential changes in the final CRR2 text.
According to the above version, the EBA is expected to develop: a) the method for identifying transactions with only one material risk driver, b) the method for identifying transactions with more than one material risk driver and for identifying the most material of those risk drivers, c) in accordance with international regulatory developments, the formula that institutions shall use to calculate the supervisory delta of call and put options mapped to the interest rate risk category compatible with market conditions in which interest rates may be negative as well as the supervisory volatility that is suitable for that formula, and d) the method for determining whether a transaction is a long or short position in the primary risk driver or in the most material risk driver in the given risk category.
The European Banking Authority (EBA) today launched a consultation on its draft Guidelines on ICT and security risk management. These Guidelines establish requirements for credit institutions, investment firms and payment service providers (PSPs) on the mitigation and management of their information and communication technology (ICT) risks and aim to ensure a consistent and robust approach across the Single market. The consultation runs until 13 March 2019.
Due to a growing reliance on ICT for their operational functioning, financial institutions are vulnerable to increased threats from internal and external attacks, including cyber-attacks, or breaches that may arise from inadequate business continuity planning for ICT systems and processes, or poor processes relating to ICT change management. These Guidelines aim to mitigate all ICT risks - internal or external-, including security related risks, for all financial institutions.
The Guidelines outline expectations in relation to governance, risk assessment process, information security requirements, ICT operational management, security in the change and development processes and business continuity management to mitigate ICT and security risks. Specifically for PSPs the Guidelines cover the management of their relationship with payment service users (PSUs) to ensure that the measures implemented are well communicated to them.
The Guidelines are addressed to credit institutions and investment firms as defined in the Capital Requirements Directive (CRD), for all of their activities, and to PSPs subject to the revised Payment Services Directive (PSD2), for their payment services.
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 13 March 2019.
A public hearing will take place at the EBA premises on 13 February 2019 from 14:00 to 16:00 UK time. All contributions received will be published following the end of the consultation, unless requested otherwise.
These Guidelines have been developed according to Article 74 of Directive 2013/36/EU, which mandates the EBA to further harmonise institutions’ governance arrangements, processes and mechanisms across the EU, and Article 95 (3) of Directive 2015/2366, which mandates the EBA to issue guidelines with regard to the establishment, implementation and monitoring of security measures for operational and security risks, and Article 16 of Regulation (EU) No 1093/2010.
These Guidelines respond to the European Commission’s FinTech Action plan request for the EBA to develop guidelines on ICT risk management and mitigation requirements in the EU financial sector.
The Guidelines on security measures for operational and security risks (EBA GL/2017/17) have been fully integrated in the EBA Guidelines on ICT and security risk management and will be repealed when the latter enter into force.
The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) launched today a public consultation on draft Guidelines on the cooperation and information exchange between competent authorities supervising credit and financial institutions for the purposes of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) supervision. The draft Guidelines are part of the ESAs’ wider work on fostering a common approach to AML/CFT within the EU.
Cooperation and exchange of information between competent authorities responsible for overseeing AML/CFT compliance of credit and other financial institutions is an essential part of an effective AML/CFT regime. EU AML/CFT legislation establishes an obligation for competent authorities to cooperate and exchange information, but it does not set out in detail how this should be achieved.
Recent events have illustrated that in the absence of a common framework, cooperation and information exchange between prudential and AML/CFT competent authorities for the purposes of AML/CFT supervision can sometimes be difficult. To address this, the ESAs have agreed to develop these Guidelines, which clarify the practical modalities of this process both domestically and on a cross-border basis .
The Guidelines propose the creation of AML/CFT colleges of supervisors and set out the rules governing their establishment and operation. In particular, AML/CFT colleges should be set up whenever three or more competent authorities from different Member States are responsible for the AML/CFT supervision of the same credit or financial institution and its establishments, and the frequency and intensity of each AML/CFT college should be determined on a risk-sensitive basis.
As information available to AML/CFT supervisors may also be relevant for prudential supervisors and vice versa, the Guidelines propose gateways to ensure that prudential supervisors can participate as observers in AML/CFT colleges, and that information from AML/CFT college meetings is available to colleges of prudential supervisors.
Where the conditions for setting up an AML/CFT college are not met, the Guidelines propose that supervisors will continue their cooperation and information exchange on a bilateral basis and formalise this 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 08 February 2019.
All contributions received will be published following the close of the consultation, unless requested otherwise.
The ESAs will hold a public hearing on the draft Guidelines, which will take place at the EBA premises in London on 18 December 2018 from 14:00 to 16:30 UK time.
Legal Basis and background
Article 16 of Regulation (EU) No 1093/2010, Article 16 of Regulation (EU) No 1094/2010 and Article 16 of Regulation (EU) No 1095/2010, mandate the ESAs to issue guidelines in order to foster consistent, efficient and effective supervisory practices. Furthermore, Article 57(2) of the aforementioned regulations provides that the Joint Committee of the three ESAs should ensure cross-sectoral consistency, in particular regarding measures combating money laundering.
The supervisory concept of colleges is not new. In the prudential context, colleges already provide a permanent structure for cooperation and information exchange between supervisors from different Member States supervising the same credit or financial institution. The concept has been adapted to the needs of AML/CFT supervision.