On 26 November 2020, the PRA published Policy Statement 23/20: ‘Market risk: Calculation of risks not in value at risk, and stressed value at risk’ (PS23/20).
In PS23/20 the PRA provides feedback to responses to Consultation Paper 15/20: ‘Market risk: Calculation of risks not in value at risk, and stressed value at risk’ (CP15/20). It also contains the PRA’s final policy, in the form of an updated version of Supervisory Statement 13/13 ‘Market Risk’ (SS13/13).
In CP15/20 the PRA consulted on updating SS13/13 with expectations relating to measurement of risks not in value at risk (RNIV), and to the meaning of ‘period of significant financial stress relevant to the institution’s portfolio’ for stressed value at risk (sVaR) calculation.
Following consideration of the responses to CP15/20 the PRA reports in PS23/20 that it has changed the draft policy to expect that RNIV own funds requirements should be calculated as the average across the preceding three month period, of an RNIV measure calculated at least monthly (rather than weekly, as proposed in CP15/20). The PRA has set an additional expectation that firms should still consider whether more frequent calculation than monthly may be appropriate for more material, or more variable, RNIV positions. The PRA has also set an expectation that the relevant RNIV measure for at least 90% of RNIV own funds requirements should be calculated at least monthly. This means that the RNIV measure for up to 10% of RNIV own funds requirements may be calculated less frequently than monthly.
The updated version of SS13/13 is effective from the date of publication of PS23/20. The PRA appreciates that, particularly for the measurement of RNIV, firms may not be in a position to immediately comply with the PRA’s new expectations. Firms should contact their supervisor to agree their plans, and a reasonable timeline for complying with these new expectations.