On October 26, 2015, the European Commission published the text C(2015) 7245 final of a Delegated Regulation it has adopted on regulatory technical standards (RTS) for prudent valuation under Article 105(14) of the Capital Requirements Regulation (Regulation 575/2013).
The Delegated Regulation specifies how additional valuation adjustments ("AVAs") should be applied to fair-value positions to determine a prudent value that achieves an appropriate degree of certainty having regard to:
- the dynamic nature of trading book positions;
- the demands of prudential soundness; and
- the mode of operation and purpose of capital requirements in respect of trading book positions.
The Delegated Regulation specifies two approaches for calculating AVAs for the purposes of determining the prudent value of fair-valued positions: a simplified approach and a core approach.
A separate Annex to the Delegated Regulation sets out the formulae to be used for the purpose of aggregating AVAs.
The next step will be for the Council of the EU and the European Parliament to consider the Delegated Regulation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.