EBA欧洲银行-PH-on-DP-on-Implementation-in-the-EU-of-the-revised-MR-and-CCR-frame-20180502_24页_2mb

Summary of the Discussion Paper on the Implementation in the European Union of the Revised Market Risk and Counterparty Credit Risk Frameworks

Context & Objectives

The European Banking Authority (EBA) published a Discussion Paper (DP) in December 2017 to address the implementation of the revised market risk and counterparty credit risk (SA-CCR) frameworks in the EU. The paper aims to identify and discuss key technical and operational challenges related to the implementation of the Fundamental Review of the Trading Book (FRTB) and the Standardised Approach for Counterparty Credit Risk (SA-CCR). It also proposes a roadmap and prioritization for developing regulatory deliverables and seeks early feedback from stakeholders.

The DP is part of the broader effort to revise the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD IV), which were initially proposed by the European Commission in November 2016. The EBA has been tasked with specifying details of the SA-CCR and FRTB frameworks where Basel standards lack clarity or are under review, including the development of Regulatory Technical Standards (RTS) and Guidelines (GL).

Key Dates

• 31 March 2014: Basel Committee publishes SA-CCR standards.
• 14 January 2016: Basel Committee publishes FRTB standards.
• 3 November 2016: EBA publishes its report on the European Commission’s Call for Advice (CfA).
• 11 November 2016: European Commission publishes a legislative proposal to revise CRR/CRD IV.
• 18 December 2017: EBA publishes the DP on the implementation of the revised frameworks.
• 15 March 2018: Consultation period ends.

Mandates for EBA on SA-CCR & FRTB

The EBA is responsible for developing:

• SA-CCR: 3 RTS mandates

  • Mapping of derivative transactions to risk categories
  • Corrections to supervisory delta
  • Specification of 'large and concentrated commodity derivative portfolio'

• FRTB: 2 GL, 12 RTS mandates, and 2 Reports

  • GL on 'exceptional circumstances'
  • RTS on treatment of non-TB positions subject to FX or commodity risk
  • RTS on risk weights for positions in CIUs
  • RTS on residual risk add-on (RRAO)
  • RTS on gross jump to default amounts
  • RTS on assessment methodology
  • RTS on extraordinary circumstances
  • RTS on liquidity horizons for IMA
  • RTS on P&L calculations for backtesting and attribution tests
  • RTS on NMRF stress scenario risk measure
  • Report on appropriateness of own funds requirements for market risks
  • Report on certain aspects of own funds requirements for market risks

Implementation Roadmap and Prioritization

The EBA outlines a four-phase approach for the development of regulatory deliverables:

SA-CCR – Mapping of Derivative Transactions to Risk Categories

• Issue: Mapping derivative transactions to one or more of the five risk categories (interest rate, FX, credit, equity, commodity) is a critical step in computing counterparty credit risk own funds requirements.
• Proposal: A three-step approach:
  1. Qualitative mapping: Transactions with a clear primary risk driver are mapped directly.
  2. Qualitative and quantitative mapping: Institutions identify all risk drivers and assess materiality using sensitivity analysis (threshold-based or cumulative ratio-based methods).
  3. Fallback approach: If materiality cannot be determined, the transaction is allocated to all risk categories, with a cap on the number of categories (up to three or four).

SA-CCR – Corrections to Supervisory Delta

• Issue: Negative interest rates create incompatibility with the SA-CCR supervisory delta formula.
• Proposal: Introduce a λ shift in the Black-Scholes formula to ensure positive interest rates. The λ parameter should be:
  • Jurisdiction-specific, reflecting the lowest possible extent of negative rates.
  • Set as low as possible, with potential flexibility for banks under supervisory review.
• Formula adjustments for call and put options are proposed to incorporate the λ parameter.

FRTB – Trading Book Boundary

• Issue: Clarifying the boundary between the trading book (TB) and banking book (BB) is essential to ensure consistency in capital requirements.
• Proposal: A notification process for Competent Authorities (CAs) to be informed of reclassification decisions. Exceptional circumstances for reclassification should be clearly defined.

FRTB – Treatment of Non-TB Positions Subject to FX or Commodity Risk

• Issue: Non-trading book positions with FX or commodity risk should be treated as if they were in the TB, but the implementation is not straightforward.
• Proposal: Develop a framework for:
  • Identifying and valuing such positions.
  • Defining the structure and composition of notional trading desks.
  • Applying IMA requirements to notional trading desks.

FRTB – Residual Risk Add-on (RRAO)

• Issue: RRAO aims to capture risks from exotic underlyings or other residual risks not covered by the Standardised Approach.
• Proposal: Instruments referencing exotic underlyings or bearing other residual risks should be included in RRAO. Examples include:
  • Path-dependent, forward start, compound, and binary options
  • Options with behavioral risk factors
• The EBA proposes:
  • A non-exhaustive list of instruments
  • A set of criteria for inclusion
  • A combination of both

FRTB – IMA Liquidity Horizons

• Issue: Harmonised determination of liquidity horizons is needed for consistent application of IMA.
• Proposal:
  • Use BIS triennial survey data for categorisation of liquid currencies and currency pairs.
  • Consider triangulation of liquid currency pairs (e.g., USD/BRL via USD/EUR and EUR/BRL).
  • For equities, an absolute threshold (e.g., USD 2 billion) is proposed, with the possibility of using national indices for classification.

FRTB – Backtesting and P&L Attribution Requirements

• Issue: Clarifying the definitions of actual P&L, hypothetical P&L, and risk-theoretical P&L is crucial for implementing the new IMA.
• Proposal:

  • Hypothetical P&L should be defined consistently for both backtesting and P&L attribution (PLA) tests.

  • Actual P&L includes intraday trading and excludes fees and commissions.

  • Risk-theoretical P&L should be computed using the risk model’s factors and valuation engines.

  • Valuation adjustments (VAs) are excluded from P&L unless specified otherwise.

  • Three options are considered for handling time effects and Net Interest Income (NII):

    • Option 1: Time effect included in actual P&L, excluded from hypothetical.
    • Option 2: Time effect consistently included or excluded across all P&L types.
    • Option 3/3bis: Exclude NII from all P&L, include time effect in actual P&L and make hypothetical P&L consistent with risk-theoretical.

Stakeholders' Views

The DP seeks stakeholder feedback on the proposed approaches for each of the eight key issues, particularly:

• The three-step mapping approach for SA-CCR
• The use of λ to correct for negative rates
• The definition of exceptional circumstances for reclassification
• The implementation of notional trading desks
• The scope of RRAO
• The categorisation of liquidity horizons
• The definition of large/small capitalisation for equities
• The handling of P&L types in backtesting and PLA tests

This consultation aims to ensure a consistent, proportionate, and practical implementation of the revised frameworks across the EU.