EBA欧洲银行-Final-draft-RTS-on-procedures-for-excluding-3rd-country-NFCs-28EBA-RTS-2017-0129_25页_383kb

EBA Final Draft Regulatory Technical Standards on Excluding Transactions with Non-Financial Counterparties from CVA Risk Own Funds Requirements

Core Content

The European Banking Authority (EBA) has published a final draft of Regulatory Technical Standards (RTS) aimed at clarifying the procedures for excluding transactions with non-financial counterparties (NFCs) established in a third country from the own funds requirement for credit valuation adjustment (CVA) risk under Article 382(5) of Regulation (EU) No 575/2013 (CRR). These standards are developed in cooperation with the European Securities and Markets Authority (ESMA) and are intended to ensure consistency and a level playing field across the EU in the application of the CVA risk exemption.

Main Points

• Exemption Scope: Article 382(4)(a) of the CRR currently excludes transactions with NFCs from the CVA risk charge if they do not exceed the EMIR clearing threshold. This applies to NFCs regardless of their establishment location (EU or third country).

• Clarification of Exemption: The EBA clarifies that for an NFC established in a third country to qualify for the exemption, it must meet the same criteria as an NFC established in the EU. That is, the NFC must not exceed the clearing threshold set out in EMIR.

• Responsibility of Institutions: Institutions are responsible for identifying NFCs that qualify for the exemption and calculating their own funds requirements accordingly. This includes verifying the status of NFCs at trade inception or periodically, depending on the level of activity.

• Verification Frequency:

  • Verification can be carried out at trade inception.
  • Alternatively, it can be performed periodically, with an annual frequency as the default.
  • For NFCs whose OTC derivative transactions are close to the EMIR threshold (greater than 75% of the clearing threshold), verification should be carried out at least quarterly.

• Operational Challenges: The CVA Report highlights that banks face operational difficulties in identifying non-EU NFCs that qualify for the exemption, with some banks removing them automatically and others manually. The EBA recommends applying a similar approach to that used for EU NFCs to ensure consistency.

• Alignment with EMIR: The EBA emphasizes that the intention of the EU legislator was to align the CVA exemption with EMIR's definition of NFCs, ensuring that the exemption applies to NFCs regardless of their location, provided they meet the clearing threshold.

• Cost-Benefit Consideration: The EBA acknowledges that while verifying the status at trade inception is proportionate, it may impose a significant burden on institutions with frequent transactions. Therefore, a periodic verification approach is also proposed to balance compliance with operational efficiency.

• Preferred Approach: The EBA proposes a combination of both verification methods, allowing institutions to choose between verifying at trade inception or periodically. This approach is considered more proportionate and less burdensome than the options previously considered.

Key Information

• Exemption Conditions: An NFC established in a third country is exempt from the CVA risk charge if it would qualify as an NFC- under EMIR (i.e., if it were established in the EU) and its notional value of OTC derivative transactions does not exceed the clearing threshold.

• Verification Procedures:

  • Institutions must verify the status of NFCs at trade inception or periodically.
  • The frequency of verification depends on the notional value of the NFC's OTC derivative transactions relative to the EMIR threshold.
  • Verification should be based on internal or publicly available information, and any other information submitted by the counterparty.

• Impact on Capital Requirements: The exemption significantly impacts the capital requirements of institutions, particularly in terms of the Common Equity Tier 1 ratio. The EBA concludes that there are no strong technical reasons to treat NFCs established in third countries differently from those in the EU.

• Public Consultation: The EBA conducted a public consultation, receiving seven responses, four of which were published. The feedback influenced the final version of the RTS, including the verification frequency and the use of publicly available information.

Regulatory Framework

• Legal Basis: The RTS are based on the CRR mandate and are intended to supplement Regulation (EU) No 575/2013.
• Entry into Force: The Regulation shall enter into force on the twentieth day following its publication in the Official Journal of the European Union.
• Direct Applicability: The RTS are binding and directly applicable in all EU Member States.

Conclusion

The EBA final draft RTS aim to ensure that the CVA risk exemption applies consistently to NFCs established in third countries, aligning them with the treatment of EU-based NFCs. The proposed procedures provide flexibility in verification frequency, balancing the need for compliance with operational efficiency, and contribute to the stability and consistency of the EU banking system.