Following up on its strategic communications of 12th, 25th, 31st March and 2nd April, the European Banking Authority (EBA) provides today further clarity on how additional flexibility will guide supervisory approaches in relation to market risk, the Supervisory Review and Evaluation Process (SREP), recovery planning, digital operational resilience and ICT risk and securitisation. At the same time, the EBA notes the need for stringent attention by supervisors and financial institutions in relation to key risks in these areas.
To mitigate the impact of exceptional volatility triggered by the COVID-19 pandemic on the prudential requirements for market risk, the EBA is proposing to adjust the capital impact by amending its standards on prudent valuation. In particular, the EBA is proposing to introduce the use of a 66% aggregation factor to be applied until the 31 December 2020 under the so-called core approach. Furthermore, acknowledging the increased operational challenges faced by banks in the area of reporting, the EBA also intends to delay reporting for the first FRTB-SA figures to September 2021. Finally, the EBA highlights the flexibility in the prudential requirements available to competent authorities for banks using internal VaR models.
The EBA also recognises the need for a pragmatic approach to SREP assessments in 2020, focusing on the most material risks and vulnerabilities driven by the crisis.
On recovery planning activities for institutions, the EBA believes the focus should be placed on understanding which recovery options are necessary and available under the current stressed conditions.
The EBA emphasises the importance of digital operational resilience. In this respect, the EBA calls on institutions to ensure business continuity, adequate ICT capacity and security risk management. The new EBA ICT and security risk management Guidelines will guide financial institutions and supervisors to focus on priority areas.
Finally, the EBA provides further clarity on the prudential application of the definition of default and forbearance as well as how the EBA Guidelines on legislative and non-legislative moratoria on loan repayments apply to securitisations.
Link to Full Press Release and Statements - Click here.