Question ID
2016_2949
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
105
Paragraph
14
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2016/101 - RTS for prudent valuation under Article 105(14) CRR
Article/Paragraph
9(4)(c), 10(5)(c)
Type of submitter
Competent authority
Subject matter
Review and validation of criteria for the use of a reduced number of parameters
Question

For purposes of internal independent review and annual validation of the netting methodology, can the testing be based on historical data from the most recent 100 trading days for the same or similar valuation inputs?

Background on the question

The ratio of variance test is required where AVAs are calculated at the individual parameter level to allow for interrelationship via netting between the parameters. The ratio test does not directly assess the interrelationship in market price uncertainty between parameters, but looks at historical price or spread movements as an appropriate proxy. Assessing based on a similar valuation input would also be a representative proxy, ensuring that interrelationship is still taken into consideration while being considerably less resource intensive.

Submission date
Final publishing date
Final answer

Articles 9(4)(b)(c) and 10(5)(b)(c) of Regulation (EU) 2016/101 allow for institutions to perform the independent control function review and internal validation of the netting methodology using historical data from the most recent 100 trading days for the same or similar valuation inputs.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.