The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) to specify the conditions and the criteria to assess whether the credit valuation adjustment (CVA) risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment.
The concept of materiality set out in the draft RTS will determine whether fair-valued securities financing transactions can be exempted from own funds requirements for CVA risk.
The draft RTS set out a quantitative threshold approach that bases the materiality assessment on a ratio that quantifies the relative increase in own funds requirements for CVA risk resulting from the inclusion of fair-valued securities financing transactions in the scope of those requirements. Furthermore, the draft RTS set out a quarterly materiality assessment to ensure consistency with the regular calculation and reporting cycle of own funds requirements by institutions
These draft RTS are part of the Phase 2 deliverables of the EBA roadmap on the implementation of the EU banking package in the area of market risk .
Legal basis and background
Article 382(6) of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR), mandates the EBA to develop draft RTS to specify the conditions and the criteria that institutions are to use to assess whether the CVA risk exposures arising from fair-valued securities financing transactions are material, as well as the frequency of that assessment.
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