Update on 7 July 2016: This statement was updated to provide clarifications to the reporting requirements for model changes. In addition, the process for informing the PRA of non-compliance has been clarified: specifically paragraphs 5.1, 5.2, 6.5, 6.7, 6.15, 6.16, 6.25, 6.27 and Appendices A and B. Additionally, amendments were made for qualifying central counterparties (QCCPs). The amendments also clarify that further information on central counterparties (CCPs) can be found on the European Securities and Markets Authority (ESMA) website, and adjusts the notification arrangements when a CCP no longer reports its hypothetical capital (Kccp). These revisions are found in Chapter 4.
The policy contained in this supervisory statement has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess what changes would be required due to intervening changes in the UK regulatory framework, including as a result of the referendum on 23 June 2016.
This supervisory statement is aimed at firms to which CRD IV applies.
Published on 19 December 2013
- use of ‘Internal CVA model’ for the calculation of the maturity factor;
- permission to set the maturity factor ‘M’ to 1 for the counterparty credit risk default charge;
- inclusion of securities financing transactions in the scope of the CVA capital charge;
- calculating own fund requirements for exposures to central counterparties: identifying qualifying central counterparties; and
- counterparty credit risk advanced model approaches: process for post approval changes.
Published on 1 April 2013
Counterparty credit risk advanced model approaches: process for post approval changes - LSS 3/13
From its commencement on 1 April 2013, the Prudential Regulation Authority (PRA) has adopted a number of legacy Financial Services Authority (FSA) policy publications relevant to the advancement of its objectives. This document, initially issued by the FSA as Post approval changes for CCR advanced model approaches, has been adopted by the PRA as a Supervisory Statement as part of this process. The PRA may choose to review this legacy publication at a later stage.
This paper describes the PRA’s approach to post-approval changes to Counterparty Credit Risk Internal Model Method (IMM) and Internal Models Approach for Master netting agreements (Repo VaR) models, extensions of the scope of approval and roll out of portfolios according to the rollout plan; it suggests the documentation we would seek to support the proposed change and provides an overview of our response to these advised changes.
Summary of the key issues
- The framework for post-approval model changes outlined here forms one integral element of the wider regime for calculating CCR using advanced methods but does not encompass the entirety of our regime. To run this regime effectively, we will deal with firm-driven actions (such as model changes) and also undertake other work (such as reviews and thematic work).
- We regard the post-approval regime as critical to maintaining regulatory and market confidence in the high standards we have set firms during their initial waiver applications. An effective post-approval framework, which is the objective of the proposals in this paper, will provide this assurance whilst firms’ models are adjusted over time, without imposing a disproportionate burden on firms and on the PRA.