On January 23, 2015, the European Banking Authority (“EBA”) published draft amended final Regulatory Technical Standards (“RTS”) on prudent valuation of fair-valued positions under the Capital Requirements Regulation (“CRR”). The draft RTS, initially published in March 2014, specified the conditions under which prudent valuation requirements should be applied and introduced a methodology to calculate additional valuation adjustments in the form of two approaches: the simplified approach and the core approach. The revised draft RTS contain small amendments replacing all occurrences in Articles 9 and 10 of the word “volatility” to the word “variance.” This affects institutions using the core approach only, and relaxes the calibration of the volatility test, giving more flexibility in the implementation of the prudent valuation framework. The EBA suggests that the calibration of the volatility test should be revised within the first two years of implementation.
The revised RTS are available at: http://www.eba.europa.eu/documents/10180/642449/EBA-RTS-2014- 06+RTS+on+Prudent+Valuation.pdf.