27 August 2020: The PRA published ‘Update to the temporary approach to VAR back-testing exceptions to mitigate the possibility of excessively pro-cyclical market risk capital requirements’ to reflect the outcome of the review of the temporary approach.
We are aware that the exceptional levels of market volatility over the past few weeks has led to an elevated level of VAR back-testing breaches across the industry. In order to mitigate the possibility of procyclical market risk capital requirements through the automatic application of a higher VAR multiplier we will allow firms – on a temporary basis – to offset increases due to new exceptions through a commensurate reduction in risks-not-in-VAR (RNIV) capital requirements.
Statement