The European Banking Authority (EBA) has issued a consultation paper on the Regulatory Technical Standards (RTS) on the procedures for excluding transactions with non-financial counterparties (NFCs) established in a third country from the own funds requirement for credit valuation adjustment (CVA) risk. The proposed RTS align the treatment of NFCs established in a third country with the treatment of EU NFCs.

  • In particular, the proposed RTS specify that:the institution should ensure that those of its counterparties established in a third country that are subject to the exemption under article 382(4)(a) of the Capital Requirements Regulation (CRR) would qualify as a NFC if they were established in the EU; and
  • the institution should ensure that those counterparties calculate the clearing threshold in accordance with article 10(3) and (4) of the European Markets Infrastructure Regulation (EMIR) and do not exceed that threshold.

The consultation paper also notes that the last subparagraph of article 382(4) of the CRR clarifies that, in case of the clearing threshold being exceeded at some particular point in time, outstanding contracts at that time remain exempt until the date of their maturity. This, therefore, makes it sufficient for an institution to meet the requirement of the draft RTS at trade inception only. However, as it could in some instances be disproportionate to require a NFC established in a third country to compute the EMIR clearing threshold at the inception of each trade, the EBA is consulting on two options, the second of which introduces a minimum quarterly frequency of calculation of the EMIR clearing threshold.

The deadline for comments on the consultation paper is 5 November 2015.

View EBA consults on technical standards on exemption of non-financial counterparties (NFCs) from CVA risk charge, 5 August 2015