05 August 2015
The European Banking Authority (EBA) launched today a consultation on 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. The consultation runs until 5 November 2015.
The proposed RTS align the treatment of NFCs established in a third country with the treatment of EU NFCs as recommended in the EBA CVA Report
, published on 25 February 2015. However, as NFCs established in a third country are not directly subject to EU regulation, these RTS specify that it is for the institution to check that a counterparty established in a third country would qualify as a NFC, if it were established in the EU and, if that is the case, that this NFC calculates and does not exceed the clearing threshold in accordance with EMIR provisions in this respect.
As in some instances, it could be disproportionate to require NFCs 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 first one requires institutions to meet the requirements of these RTS at trade inception, while the second option introduces a quarterly frequency for institutions' due diligence requirements.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 5 November 2015. All contributions received will be published following the end of the consultation, unless requested otherwise.
A public hearing will take place at the EBA premises on 12 October 2015 from 14.00 to 16.00 UK time.
Legal basis and background
These draft RTS have been developed on the basis of Article 382(5) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), which mandates the EBA to specify the procedures for excluding transactions with non-financial counterparties established in a third country from the own funds requirement for CVA risk.
Article 382(4)(a) of the Capital Requirements Regulation (CRR) excludes from the own funds requirements for CVA risk an institution's transactions with non-financial counterparties (NFCs), regardless of whether these NFCs are established in the EU or in a third country, where those transactions do not exceed the EMIR clearing threshold. However, as NFCs established in a third country are not covered by the EMIR Regulation, it is necessary to define procedures for excluding transactions with NFCs established in a third country from the CVA risk charge.