In August 2006 the European Commission issued a Call for Advice (No. 6) in which the Committee of European Banking Supervisors (CEBS) was asked to assess the prudential risks arising from the conduct of commodities business. The Call for Advice is part of a larger review of the current provisions concerning commodities business and the prudential treatment of firms carrying out commodities business set out in MiFID and the Capital Requirements Directive.

CEBS has now published a Consultation Paper on the risks arising from commodities business and from firms carrying out commodities business. In the Consultation Paper CEBS concludes that at the market level the risks arising from commodities business and the risks in other financial markets are generally the same and that these exist across all types of products (underlyings). The Consultation Paper also notes that in most markets the majority of transactions are carried out OTC. Therefore, in the absence of the use of risk mitigation significant counterparty credit risk arises. Other relevant risks identified are market risk, operational risk, legal risk and liquidity risk.

Comments on the Consultation Paper are due by 27 July 2007.

View CEBS consults on an assessment of the risks from commodities business and from firms carrying out commodities business