EBA consults on targeted amendments to the prudent valuation framework

The European Banking Authority (EBA) today published a consultation paper on targeted amendments to the Regulatory Technical Standards (RTS) on prudent valuation, aiming to promote a more harmonised application of the RTS and to reduce the observed variability of additional value adjustments (AVAs) under the core approach, as well as to set the rules for the application of the prudent valuation framework in extraordinary circumstances. The consultation runs until 16 April 2024.

The RTS on prudent valuation set out the requirements that institutions operating in the EU should apply for the valuation of their fair-valued assets and liabilities for prudential purposes. Building on a review of the implementation of those requirements since 2016, the consultation paper proposes targeted amendments to the RTS to promote best practices and ensure a more harmonised application of the RTS. 

In addition, the consultation paper contains a proposal for a framework for ‘extraordinary circumstances’ for prudent valuation, including conditions for determining the presence of extraordinary circumstances, and rules for the calculation of AVAs under those circumstances. 

In parallel to the public consultation, a quantitative impact study (QIS) will take place to assess the impact of the proposed amendments, as well as to inform the calibration of certain aspects of the revised framework. The feedback received and the QIS results will be taken into account in the finalisation of the draft RTS.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the “send your comments” button on the consultation page. Please note that the deadline for the submission of comments is 16 April 2024. All contributions received will be published following the close of the consultation, unless requested otherwise.

A public hearing will take place in the form of a webinar on 4 March 2024, 14:00 – 16:00 CET. The EBA invites interested stakeholders to register using this link by 29 February 2024, 16:00 CET. The dial-in details will be communicated to the registered participants after the registration deadline.

Legal basis and background

These draft RTS were developed in accordance with Article 105(14) of Regulation (EU) No 575/2013 (Capital Requirements Regulation, CRR), which mandates the EBA to develop draft RTS to specify the conditions according to which the requirements of Article 105 shall be applied for the purposes of paragraph 1 of that Article. In addition the draft RTS were developed in accordance with the mandate expected to be included in Article 34 CRR by the CRR3, which asks the EBA, in consultation with the European Securities and Markets Authority (ESMA), to develop draft regulatory technical standards to specify the indicators and conditions that EBA will use to determine the extraordinary circumstances referred to in the second paragraph and to specify the reduction of the total aggregated additional value adjustments referred to in that paragraph.