On 25 November 2021, the European Banking Authority (EBA) published a final report setting out draft regulatory technical standards (RTS) that specify the methodology to apply to calculate the risk-weighted exposure amounts of collective investment undertakings (CIUs), in the context of the mandate-based approach when there are some missing inputs.

The draft RTS have been prepared in accordance with Article 132a of the Capital Requirements Regulation (CRR). This mandates the EBA to specify how institutions are to calculate the risk-weighted exposure amount in the context of the mandate-based approach where one or more of the inputs required for that calculation are not available.

The draft RTS are intended to clarify the steps to be taken for computing the exposure value of CIUs derivatives exposures when the underlying is unknown, then provide for cases where the calculation of the exposure amount to counterparty credit risk of a netting set of CIUs’ derivative exposures is needed. The proposed provisions follow closely both the Basel framework for equity exposures into funds as well as the CRR framework for counterparty credit risk.

The final draft RTS set out a number of things:

  • The calculation of own funds requirements for the exposures in the form of units or shares in CIUs under the Standardised Approach for credit risk.
  • Provide clarity on the regulatory treatment for missing inputs when the underlying risk of derivatives is unknown.
  • Account for situations where the notional amount of a netting set needs to be computed or for when the identification of netting sets is not feasible.
  • Provide an explanation of what is considered as insufficient information versus missing inputs
  • Clarify whether market measures provide sufficient information for the application of the mandate based approach for exposures to CIUs.

Section 3 of the final report, sets out the final draft RTS.