Circular CSSF 22/809 is a CSSF circular, published 2 May 2022. Subject: Adoption of the Guidelines of the European Banking Authority on criteria for the use of data inputs in the risk-measurement model referred to in Article 325bc of Regulation (EU) No 575/2013 (Capital Requirements Regulation).
\nRelevant for: Credit institutions, Investment firms.
\nCircular CSSF 22/809 Adoption of the Guidelines of the European Banking Authority on criteria for the use of data inputs in the risk-measurement model referred to in Article 325bc of Regulation (EU) No 575/2013 (Capital Requirements Regulation)
\nCircular CSSF 22/809 Re: Adoption of the Guidelines of the European Banking Authority on criteria for the use of data inputs in the risk-measurement model referred to in Article 325bc of Regulation (EU) No 575/2013 (Capital Requirements Regulation)
\nLadies and Gentlemen,
\nLuxembourg, 2 May 2022
\nall
\ncredit
\ninstitutions
\ndesignated as Less Significant Institutions under the Single Supervisory Mechanism, to all CRR investment firms, and
\nall
\nLuxembourg
\nbranches of credit institutions and of CRR investment firms having their registered office
\nThe purpose of this circular is to inform you that the CSSF, in its capacity as competent authority, applies the Guidelines EBA/GL/2021/07 of the European Banking Authority (the “EBA”) on criteria for the use of data inputs in the riskmeasurement model referred to in Article 325bc of Regulation (EU) No 575/2013 (Capital Requirements Regulation) (the “Guidelines”), published on 13 July 2021. Consequently, the CSSF has integrated the Guidelines into its administrative practice and regulatory approach with a view to promoting supervisory convergence in this field at the European level. All In-Scope entities (as defined below) shall duly comply with the Guidelines.
\nin a third country
\nThe Guidelines The Guidelines are issued by the EBA in accordance with the mandate given under Article 325bc, paragraph 3 of Regulation (EU) No 575/2013 as amended by Regulation (EU) No 2019/876 (the “CRR”) 1, which introduces, inter alia, the revised framework for minimum capital requirements for market risk (i.e. Fundamental Review of the Trading Book – FRTB). As part of the changes, the CRR introduces the alternative internal model approach, which aims at taking into consideration tail risks, risk of market illiquidity as well as default risk through the sum of three components: i.
\nthe expected shortfall risk measure, which determines capital requirements for those risk factors for which a sufficient amount of observable data is available (modellable risk factors);
\nii.
\nthe stress scenario risk measure for risk factors with limited observable data (non-modellable risk factors);
\niii.
\nthe own funds requirement for default risk associated with credit and equity positions.
\nThe Guidelines specify the criteria for the use of data inputs to determine the scenarios of future shocks applied to the modellable risk factors. They clarify the requirements that these data inputs should meet to be used for determining the scenario of future shocks in the institutions’ expected shortfall risk measure. The Guidelines are available on the EBA’s website.
\nRegulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.
\nScope of application The present circular shall apply to all Less Significant Institutions 2, to all CRR investment firms incorporated under Luxembourg law and to all Luxembourg branches of credit institutions and of CRR investment firms having their registered office in a third country (the “In-Scope entities”).
\nSupervisory expectations In-Scope entities are required to assess the modellability of the risk factors of positions assigned to the trading desks included in the scope of the alternative internal model approach. For a risk factor to be modellable, it should be verified by the In-Scope entity that it meets the criteria to be specified in the relevant regulatory technical standards on criteria for assessing the modellability of risk factors under the Internal Model Approach (IMA) pursuant to Article 325be(3) CRR 3.
\nThe text above is the opening of the document; the PDF carries the whole.
\nDocument page, PDF. Source: Commission de Surveillance du Secteur Financier (CSSF), reproduced with the CSSF's consent. The French text prevails.
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