On 21 October 2019, the European Commission issued a consultation document on the alternative standardised approach for market risk.
The Basel Committee on Banking Supervision’s fundamental review of the trading book resulted in the publication of a new framework for market risk in January 2016. In December 2017, the Group of Central Bank Governors and Heads of Supervision asked the Basel Committee to carry out a second review to adjust the calibrations of these approaches. This second review was finalised in January 2019.
As the changes to the standardised approach for market risk agreed in the second Basel Committee review could not be incorporated in the EU banking package before its adoption, the co-legislators empowered the European Commission to introduce them by means of a delegated act.
This consultation document contains a link to a draft Commission delegated act that amends the Capital Requirements Regulation with regard to the alternative standardised approach for market risk. The draft delegated act presents in particular the intentions of Directorate General for Financial stability, financial services and capital markets union as regards:
- consistent shocks to similar risk factors and revisions to the aggregation formula for the calculation of curvature risk;
- the possibility to subject instruments without optionality to curvature risk;
- three approaches for the calculation of own funds requirements for positions in collective investment undertakings (CIU) and conditions for their use;
- the possibility to treat positions in a CIU that tracks an index as a direct position in that index; and
- an additional method to determine the own funds requirement for delta and curvature risks for foreign exchange risk factors, the so-called base currency approach.
The deadline for comments on the consultation document is 11 November 2019.