17 December 2020
The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) on the capitalisation of non-modellable risk factors (NMRFs) for institutions using the FRTB Internal Model Approach (IMA) implemented in EU as a reporting requirement. These draft RTS are a key deliverables in the EBA’s work on implementing the FRTB in EU and part of its roadmap for the new market and counterparty credit risk approaches published on 27 June 2019.
These draft RTS lay down a specific methodology that institutions are to use for determining the own funds requirements related to non – modellable risk factors in the new market risk regime. The methodology is applicable to all kinds of risk factors and adjusts to different levels of NMRF data availability. Data collected in the data collection exercise launched in June 2019 served as a basis for its calibration.
The methodology set out in these draft RTS ensures a level playing field among credit institutions in the Union on a key component for determining own funds requirements for market risk. They also provide legal certainty on how the level of own funds requirements for NMRFs should be determined. With this publication, a significant milestone is reached towards the implementation of the FRTB standards in the EU.
These draft RTS have been developed according to Article 325bk(3) of REGULATION (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013.
Article 325bk(3) of that Regulation requires the EBA to develop draft RTS to specify (a) how institutions are to develop extreme scenarios of future shock applicable to non-modellable risk factors; (b) a regulatory extreme scenario which institutions may use when they are unable to develop an extreme scenario of future shock in accordance with point (a) or which competent authorities may require that institution apply; (c) the circumstances under which institutions may calculate a stress scenario risk measure for more than one non-modellable risk factor; (d) how institutions are to aggregate the stress scenario risk measures of all non-modellable risk factors.