On 7 April 2021, the European Banking Authority (EBA) issued a consultation paper regarding draft regulatory technical standards (RTS) on the list of countries with an advanced economy for calculating the equity risk under the alternative standardised approach (FRTB-SA).

The Capital Requirements Regulation as amended by Regulation (EU) 2019/876 (CRR) implements in EU legislation the revised framework to compute own funds requirements for market risk (the Basel Fundamental Review of the Trading Book (FRTB)). One of the components of the requirements is the sensitivities-based method under the alternative standardised approach for market risk (FRTB-SA). So that institutions may calculate own funds requirements under the sensitivities-based method, Article 325ap(3) of the CRR asks the EBA to specify the economies that should attract lower risk weights for equity risk under the FRTB-SA (so called ‘advanced economies’). Other economies are subject to higher risk weights.

The FRTB provides a list countries that are considered to be ‘advanced’ for the purpose of the FRTB-SA. The FRTB list was published without the underlying criteria used to get such list being provided. In addition, the list has not been reviewed since the first version of the list published on 14 January 2016. The EBA considers that the list would benefit from a review before the FRTB comes into effect. In particular, the EBA would expect additional EU/EEA countries to qualify as advanced economies for the purpose of the computation of equity risk own funds requirements under the FRTB-SA.

In the consultation paper now published the EBA replicates the FRTB list, which should be able to ensure a harmonised computation of equity risk own funds requirements by institutions for the immediate purpose of the FRTB-SA reporting requirement. At the same time, the consultation paper seeks views on sources of data and criteria that could be designed to identify advanced economies and emerging markets for the purpose of FRTB-SA equity risk own funds requirements, while maintaining a consistent treatment with how those own funds requirements would be calculated under the FRTB-IMA.

The deadline for comments on the consultation paper is 2 July 2021.