Regulatory Technical Standards: Market Risk Consultation

The EBA introduces flexible draft RTS for market risk management, allowing deviations in exceptional circumstances. Transparent conditions acknowledge unique challenges in diverse sectors. Stakeholders actively participate via webinar for a balanced regulatory framework. Deadline: Nov 3, 2023.

Regulatory Technical Standards: Market Risk Consultation
EU Enhanced Regulatory Flexibility

EBA Launches Consultation on Regulatory Technical Standards: MArket Risk

Source: European Banking Authority Keywords market risk RTS

The European Banking Authority (EBA) is making strides towards enhancing regulations in the area of market risk, with a key focus on accommodating extraordinary circumstances. They have recently launched a public consultation on draft Regulatory Technical Standards (RTS) to help identify these extraordinary circumstances that might disrupt markets. This initiative will provide a framework for market players, including publishers, to waive certain requirements in the calculation of their own funds for market risk based on their internal models. This consultation process is open until 3 November 2023. Importantly, the draft RTS provide a high-level framework to identify such extraordinary circumstances, setting out the conditions and indicators that should be present. This could potentially allow institutions to continue using their internal models for a trading desk, even if it does not meet backtesting requirements or fails the profit and loss attribution test. A public hearing in the form of a webinar, open to interested stakeholders, will take place on 20 September 2023.

EBA's New Draft Regulatory Technical Standards for Market Risk Management

In a progressive step towards redefining market risk regulations, the European Banking Authority (EBA) is spearheading an initiative that promises to bring increased flexibility and resilience to financial institutions and market players, notably publishers. The EBA's recently launched public consultation on draft Regulatory Technical Standards (RTS) for identifying extraordinary circumstances is a potentially transformative development for the European financial sector, including banks that leverage internal models for market risk calculations.

The new draft RTS, anchored firmly within the framework of the Capital Requirements Directive IV (CRD IV), offers provisions for market players to deviate from regular requirements under exceptional circumstances. This anticipated regulatory shift may prove to be a lifeline for institutions like banks and publishers that can be negatively impacted by unforeseen market disruptions. It could bolster resilience within these sectors, allowing operations to continue smoothly without the hindrance of rigid regulatory constraints.

Furthermore, the draft RTS presents a clear set of conditions and indicators for recognizing these extraordinary events. This step towards increased transparency could result in a more realistic regulatory landscape, one that acknowledges the unique challenges faced by diverse sectors including publishing.

The EBA is also championing inclusivity by inviting stakeholders to actively participate in the consultation process. This offers a unique opportunity for entities to express their opinions and concerns, paving the way for a balanced regulatory framework that respects sector-specific demands.

In an acknowledgment of the digital era, the EBA has chosen to conduct a public hearing via webinar. This move enhances accessibility, enabling stakeholders from various locations to join in the discourse and contribute to a collective regulatory vision.

To adapt to these potential regulatory shifts and ensure compliance, financial institutions, publishers, and other market players must remain proactive. Participation in the consultation process, refinement of internal risk models and processes, and implementation of systems to monitor and respond to 'extraordinary circumstances' will be crucial steps in this journey.

With the consultation process open until November 3, 2023, and the public hearing set for September 20, 2023, all eyes are on the EBA's innovative approach to market risk regulation. Post-consultation, the timeline for the implementation of these new rules would typically span several months to a year, marking an essential turning point in European financial regulation.

The EBA's pioneering stride towards a more flexible and resilient market risk management paradigm is a testament to the evolving financial regulatory landscape. As these changes unfurl, understanding and adapting to them will be key for financial institutions and market players eager to thrive in the new era of European banking regulation.

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The EBA consults on technical standards to identify extraordinary circumstances to derogate from certain requirements in the area of market risk - European Banking Authority
The European Banking Authority (EBA) today launched a public consultation on draft Regulatory Technical Standards (RTS) to identify extraordinary circumstances of market disruption, permitting to waive certain requirements for the calculation of own funds requirements for market risk on the basis of…

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