The European Banking Authority has published final draft Regulatory Technical Standards governing the standardized approach to counterparty credit risk in derivatives transactions. The final draft SA-CCR RTS will supplement the requirements set out in the EU's Capital Requirements Regulation, as amended by CRR 2. The SA-CCR requirements aim to address the shortcomings of existing calculation methods to ensure parties are adequately protected in the event of default by a counterparty to a derivatives transaction and these final draft RTS aim to ensure a more harmonized calculation of own funds requirements for counterparty credit risk than has been the case under CRR.
The final draft RTS set out the methods that firms must use to: (i) identify derivatives transactions with only one material risk driver; and (ii) identify derivatives transactions with more than one material risk driver and to identify the most material of those risk drivers. The RTS also provide the formula that firms must use to calculate the supervisory delta of call and put options mapped to the interest rate risk category and detail the method for determining the long or short position of a derivatives transaction.
The final draft RTS must be adopted by the European Commission before they can come into force. Once the final RTS are published in the Official Journal of the European Union they will apply directly across the EU.