Changes from report parliamentary committee draft to plenary report

Added(164) in Part Three, Title IV, Chapter 5 is deleted;

Added(165) in Article 381 , the following paragraph is added:

Added‘For the purposes of this Title, ‘CVA risk’ means the risk of losses arising from changes in the value of CVA, calculated for the portfolio of transactions with a counterparty as set out in the first paragraph, due to movements in a counterparty’s credit spreads risk factors and in other risk factors embedded in the portfolio of transactions.’;

Added(166) Article 382 is amended as follows:

Added(a) paragraph 2 is replaced by the following:

Added‘2. An institution shall include in the calculation of own funds required by paragraph 1 securities financing transactions that are fair-valued under the accounting framework applicable to the institution where the institution's CVA risk exposures arising from those transactions are material.’;

Added(b) the following paragraphs 4a and 4b are inserted:

Added‘4a. By way of derogation from paragraph 4, an institution may choose to calculate an own funds requirements for CVA risk, using any of the applicable approaches referred to in Article 382a, for those transactions that are excluded in accordance with paragraph 4, where the institution uses eligible hedges determined in accordance with Article 386 to mitigate the CVA risk of those transactions. Institutions shall establish policies to specify where they choose to satisfy their own funds requirements for CVA risk for such transactions.

Added4b. Institutions shall report to their competent authorities the results of the calculations of the own funds requirements for CVA risk for all the transactions referred to in paragraph 4. For the purposes of that reporting requirement, institutions shall calculate the own funds requirements for CVA risk using the relevant approaches set out in Article 382a(1), that they would have used to satisfy an own funds requirement for CVA risk if those transactions were not excluded from the scope in accordance with paragraph 4.’

Added(c) the following paragraph 6 is added:

Added‘6. EBA shall develop draft regulatory technical standards to specify the conditions and the criteria that the institutions shall 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.

AddedEBA shall submit those draft regulatory technical standards to the Commission by [OP please insert the date = 2 years after the entry into force of this Regulation].

AddedPower is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/ 2010.’;

Added(167) the following Article 382a is inserted:

Added‘Article 382a Approaches for calculating the own funds requirements for CVA risk

Added1. An institution shall calculate the own funds requirements for CVA risk for all the transactions referred to in Article 382 in accordance with the following approaches:

Added(a) the standardised approach set out in Article 383, where the institution has been granted permission to use that approach by the competent authorities;

Added(b) the basic approach set out in Article 384;

Added(c) the simplified approach set out in Article 385, provided that the institution meets the conditions set out in paragraph 1 of that Article.

Added2. An institution shall not use the approach referred to in paragraph 1, point (c), in combination with the approaches referred to in paragraph 1, points (a) or (b).

Added3. An institution may use a combination of the approaches referred to in paragraph 1, points (a) and (b), to calculate the own funds requirements for CVA risk on a permanent basis in the following situations:

Added(a) for different counterparties;

Added(b) for different eligible netting sets with the same counterparty;

Added(c) for different transactions of the same eligible netting set, provided that the following conditions are met:

Added(i) the institution shall split the netting set into two hypothetical netting sets, and allocate all the transactions subject to the approach referred to in paragraph 1, point (a), to the same hypothetical netting set and all the transactions subject to the approach referred to in paragraph 1, point (b) to the other hypothetical netting set to calculate to the own funds requirements for CVA risk;

Added(ii) the split referred to in point (a) shall be consistent with the manner in which the institution determines the legal netting of the CVA calculated for accounting purposes;

Added(iii) the permission granted by competent authorities to use the approach referred to in paragraph 1, point (a), shall be limited to the hypothetical netting set for which the institution uses the approach referred to in paragraph 1, point (a), to calculate to the own funds requirements for CVA risk.

AddedInstitutions shall establish policies to explain how they use a combination of the approaches referred to in paragraph 1, points (a) and (b), and as set out in this paragraph, to calculate the own funds requirements for CVA risk on a permanent basis.’;

Added(168) Article 383 is replaced by the following:

Added‘Article 383 Standardised approach

Added1. Competent authorities shall grant an institution permission to calculate its own funds requirements for CVA risk for a portfolio of transactions with one or more counterparties by using the standardised approach in accordance with paragraph 3, after having assessed whether the institution complies with the following requirements:

Added(a) the institution has established a distinct unit which is responsible for the institution’s overall risk management and hedging of CVA risk;

Added(b) for each counterparty concerned, the institution has developed a regulatory CVA model to calculate the CVA of that counterparty in accordance with Article 383a;

Added(c) for each counterparty concerned, the institution is able to calculate, at least on a monthly basis, the sensitivities of its CVA to the risk factors concerned as determined in accordance with Article 383b;

Added(d) for all positions in eligible hedges recognised in accordance with Article 386 for the purposes of calculating the institution’s own funds requirements for CVA risk using the standardised approach, the institution is able to calculate, and at least on a monthly basis, thee sensitivities of those positions to the relevant risk factors determined in accordance with Article 383b.

AddedFor the purposes of point (c), the sensitivity of a counterparty’s CVA to a risk factor means the relative change in the value of that CVA, as a result of a change in the value of one of the relevant risk factors of that CVA, calculated using the institution's regulatory CVA model in accordance with Articles 383i to 383j.

AddedFor the purposes of point (d), the sensitivity of a positions in an eligible hedge to a risk factor means the relative change in the value of that position, as a result of a change in the value of one of the relevant risk factors of that position, calculated using the institution's pricing model in accordance with Articles 383i to 383j.

Added2. For the purposes of calculating the own funds requirements for CVA risk, the following definitions shall apply:

Added(a) ‘risk class’ means any of the following categories:

Added(i) interest rate risk;

Added(ii) counterparty credit spread risk;

Added(iii) reference credit spread risk;

Added(iv) equity risk;

Added(v) commodity risk;

Added(vi) foreign exchange risk;

Added(b) ‘CVA portfolio’ means the portfolio composed of the aggregate CVA and all the eligible hedges referred to in paragraph 1, point (d);

Added(c) ‘aggregate CVA’ means the sum of the CVAs calculated using the regulatory CVA model for all counterparties referred to in paragraph 1, first subparagraph.

Added3. Institutions shall determine the own funds requirements for CVA risk using the standardised approach as the sum of the following two own funds requirements calculated in accordance with Article 383b:

Added(a) the own funds requirements for delta risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant non-volatility related risk factors;

Added(b) the own funds requirements for vega risk which capture the risk of changes in the institution’s CVA portfolio due to movements in the relevant volatility related risk factors.’;

Added(169) the following Articles 383a to 383w are inserted:

Added‘Article 383a Regulatory CVA model

Added1. A regulatory CVA model used for the calculation of the own funds requirements for CVA risk in accordance with Article 383 shall be conceptually sound, shall be implemented with integrity, and shall comply with all of the following requirements:

Added(a) the regulatory CVA model shall be capable of modelling the CVA of a given counterparty, recognising netting and margin agreement at netting set level, where relevant, in accordance with this Article;

Added(b) the institution estimates the counterparty’s probabilities of default referred to in point (a) from the counterparty’s credit spreads and market-consensus expected loss-given-default for that counterparty.

Added(c) the expected loss-given-default referred to in point (a) shall be the same as the market-consensus expected loss-given-default referred to in point (b), unless the institution can justify that the seniority of the portfolio of transactions with that counterparty differs from the seniority of senior unsecured bonds issued by that counterparty;

Added(d) at each future time point, the simulated discounted future exposure of the portfolio of transactions with a counterparty is calculated with an exposure model by repricing all the transactions in that portfolio, based on the simulated joint changes of the market risk factors that are material to those transactions using an appropriate number of scenarios, and discounting the prices to the date of calculation using risk-free interest rates;

Added(e) the regulatory CVA model is capable of modelling significant dependency between the simulated discounted future exposure of the portfolio of transactions with the counterparty's credit spreads;

Added(f) where the transactions of the portfolio are included in a netting set subject to a margin agreement and daily mark-to-market valuation, the collateral posted and received as part of that agreement is recognised as a risk mitigant in the simulated discounted future exposure, where all of the following conditions are met:

Added(i) the institution determines the ▌margin period of risk relevant for that netting set in accordance with the requirements set out in Article 285, paragraphs 2 and 5, and reflects that margin period in the calculation of the simulated discounted future exposure;