On 6 October 2020, the PRA published Consultation Paper 15/20: Market risk – calculation of risks not in value at risk, and stressed value at risk (CP15/20). CP15/20 is relevant to all firms to which the CRD IV applies and sets out proposals to update the PRA’s expectations regarding:

  • The measurement of risks not in value at risk (RNIV).
  • The meaning of ‘period of significant financial stress relevant to the institution’s portfolio’ for stressed value at risk (sVaR) calculation.

To implement its proposals the PRA intends to make changes to ‘Supervisory Statement 13/13: Market Risk’. These changes would take effect from the publication of the final policy.

In relation to the RNIV proposals, the PRA has noticed that due to significant market volatility related to the COVID-19 pandemic, RNIV own funds requirements calculated at a single point in time can suddenly and unexpectedly increase where a sudden increase in market volatility occurs close to quarter-end. Among other things, the PRA proposes that:

  • RNIV own funds requirements should be calculated at quarter-end as the average across the preceding twelve week period of an RNIV measure calculated at least weekly.
  • For those risk factors where a firm calculates an RNIV measure less frequently than weekly, the firm should notify the PRA and be able to justify on an ongoing basis their reasons for not performing that calculation at least weekly.

The deadline for comments on CP15/20 is 6 November 2020.