On 13 August 2024, the European Banking Authority (EBA) published a final report containing draft regulatory technical standards (RTS) amending delegated regulations on profit and loss attribution requirements, risk factor modellability assessment, and the treatment of FX and commodity risk in the banking book.

Legal basis

The Capital Requirements Regulation 2 (CRR2) implemented the Fundamental Review of the Trading Book into the EU and required the EBA to develop a series of mandates, including the RTS on back-testing and profit and loss attribution (PLA) requirements, RTS on risk factor modellability and the RTS on the treatment of non-trading book positions subject to foreign risk or commodity risk. The EBA has delivered on these mandates, which have been subsequently adopted by the European Commission (Commission) and published on the Official Journal of the EU (OJ). However, the CRR3 amended some provisions related to these RTS, requiring the EBA to review them as these were previously developed based on the CRR2.

Article 325bg of the CRR3 requires the EBA to develop draft RTS to implement in the EU the PLA requirement. In addition, under article 325be of the CRR3, the EBA is mandated to develop draft RTS to specify the criteria for assessing the modellability of risk factors, including where market data are used. Finally, under article 325 of the CRR3, the EBA is required to develop draft RTS to specify how institutions are to calculate the own funds requirements for market risk for non-trading book positions that are subject to foreign exchange risk or commodity risk.

Earlier consultation

The draft RTS set out in the final report are based on an earlier consultation that the EBA conducted which closed on 14 March 2024.

The EBA notes that a respondent to the consultation only raised one concern on the applicability of some requirements included in the draft RTS to standardised approach, noting that trading desks requirements in the CRR only apply to institutions using an internal model. The draft RTS have been amended to reflect the point raised.

Next steps

The EBA will submit the draft RTS to the Commission for endorsement, after which they will be subject to scrutiny by the European Parliament and the Council of the EU before being published in the OJ.SimonLovegrove | Global Director of Financial Services Knowledge, Innovation and Product
Solicitor, qualified in England & Wales