EU Consultation on Proposed Capital Requirements of Non-Modellable Risks Under the Fundamental Review of the Trading Book
06/04/2020The European Banking Authority has opened a consultation on proposed Regulatory Technical Standards on capital requirements of non-modellable risks under the Fundamental Review of the Trading Book. The Regulation amending CRR, which was finalized in June 2019, implements, among other things, the Basel III revised requirements to calculate own funds requirements for market risk (FRTB). It will apply directly across the EU from June 28, 2021. The consultation closes on September 4, 2020.
The FRTB requires that firms classify risk factors included in the risk measurement model as modellable or non-modellable. A separate stress scenario risk measure must be calculated for each non-modellable risk factor or bucket. The EBA's consultation proposed draft RTS on the methodologies that firms must use to determine the extreme scenario of future shock, which will provide the stress scenario risk measure. The EBA puts forward two proposed approaches, but only one will be used in the final draft RTS.
View the EBA's consultation paper.
View details of CRR2 and CRD5.
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