EU Secondary Legislation Published on the Exclusion of Transactions With Non-EU Non-Financial Counterparties From Credit Valuation Adjustment Risk Charges

A Commission Delegated Regulation has been published in the Official Journal of the European Union, setting out Regulatory Technical Standards on procedures for excluding from the own funds requirement for credit valuation adjustment risk transactions with non-financial counterparties that are established in a third country and that do not hold positions over the clearing threshold under the European Market Infrastructure Regulation (so called NFC-s). The RTS supplement the requirements of the Capital Requirements Regulation.

Under the CRR, transactions between an institution and a NFC- are excluded from the own funds requirements for CVA risk, irrespective of whether that NFC- is established in the EU or in a third country. As NFC-s established in third countries are not subject directly to EU regulation, the RTS clarify that EU firms are responsible for: (i) taking the necessary steps to identify all NFC-s under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFC-s if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds.

The final draft RTS were submitted to the Commission in February 2017 and the Commission adopted this Delegated Regulation in January 2018. The Commission Delegated Regulation will take effect on June 7, 2018.

View the Commission Delegated Regulation (EU) 2018/728.