Shearman & Sterling LLP | FinReg | European Banking Authority Launches Consultation on Technical Standards Governing Own-Funds Requirements for Non-Trading Book Positions
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  • European Banking Authority Launches Consultation on Technical Standards Governing Own-Funds Requirements for Non-Trading Book Positions
    01/13/2020
    The European Banking Authority has launched a consultation on its draft regulatory technical standards specifying how institutions should calculate their own funds requirements for market risk in respect of non-trading book positions that are subject to foreign-exchange risk or commodity risk. The draft RTS have been published for consultation in accordance with the revised Capital Requirements Regulation, which came into force on June 7, 2019 and (subject to certain exceptions) will apply directly across the EU from June 28, 2021. Responses to the consultation should be submitted by April 10, 2020. The EBA is expected to consult in 2020 on other technical standards to supplement CRR II and has published a roadmap providing the due dates for its deliverables.

    CRR II builds on the existing prudential requirements for large financial institutions set out under the Capital Requirements Regulation. Amongst other provisions, the CRR implements the Basel Committee on Banking Supervision's Fundamental Review of the Trading Book, which was finalized in January 2016 and sets out a series of regulatory capital rules to combat market risk faced by financial institutions. CRR II requires relevant firms to compute their own funds requirements for market risk in relation to both (i) positions held in the trading book and (ii) positions held in the banking book that bear foreign exchange or commodity risk. The latter category constitute the "non-trading book" positions for which the EBA has been mandated to produce the draft RTS. In particular, the draft RTS specify:
    • the valuations that institutions may use to determine their non-trading book positions when computing their own funds requirements (which differ depending on whether the relevant positions attract foreign-exchange or commodity risk);
    • the treatment for non-monetary items that are held at historical cost and that may be impaired by changes in a relevant exchange rate; and
    • a specific treatment for the calculation of the actual and hypothetical changes for the purposes of the backtesting and profit and loss attribution requirements to address the issue of jumps in the value of the portfolio.

    View the EBA's consultation paper.

    View details of CRR II.

    View details of the EBA's roadmap.

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