The European Banking Authority has launched a consultation on its proposed draft Implementing Technical Standards on specific supervisory reporting requirements for market risk. “Market risk” relates to the risk of losses that banks face to their on- and off-balance sheet positions from adverse movements in market prices. The EBA was mandated to produce the ITS under the Capital Requirements Regulation II, published in June 2019, which made extensive changes to the EU’s capital requirements regime, including through the implementation of the Basel Committee on Banking Supervision’s international standards on market risk. The EBA’s consultation paper sets out the rationale for the framework established in the draft ITS and confirms that the EBA plans to submit the final draft ITS to the European Commission in the second quarter of 2020. The anticipated first reference date for reporting in accordance with the draft technical standards will not be until March 31, 2021. Responses to the consultation should be submitted by January 7, 2020.
In January 2019, the Basel Committee published amendments to its market risk framework as part of its Fundamental Review of the Trading Book, which were intended to ensure that banks held enough regulatory capital to protect against losses arising from movements in market prices of the instruments held in their trading book. CRR II introduced the first elements of the Basel Committee’s market risk changes into the EU regulatory regime, requiring institutions to report on the size of their trading books and volume of their business that is subject to market risk. Further elements of the Basel Committee’s framework will be introduced into CRR II at a future date, but the EBA is implementing the Basel Committee’s FRTB standards gradually to ensure the impact of increased reporting obligations on firms is proportionate.
Under the amendments that have already been made under CRR II, certain institutions will be required to report on the calculation of their own funds requirements for market risk using the Alternative Standardized Approach no later than one year after secondary legislation setting out the details of such requirements has been published by the Commission. The EBA is required to produce ITS specifying uniform reporting templates, instructions and a methodology on how to use the templates, as well as the frequency and dates of reporting and definitions and IT solutions in order to comply with such market risk reporting requirements.
The proposed ITS include:
- Proposed reference dates for submitting the required information to national regulators;
- A template for firms to report information regarding the size of their trading book and their on- and off-balance sheet positions subject to market risk on an individual and consolidated basis; this “threshold” template will be used to determine which institutions will be required to apply the alternative standardized approach for calculating their own funds market risk requirements;
- A template for firms to report information on the results of their alternative standardized approach calculations on an individual and consolidated basis; and
- Specifications for the data exchange formats in which information should be reported.