Published on 26 November 2020
Market risk: Calculation of risks not in value at risk, and stressed value at risk – PS23/20
Overview
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 15/20 ‘Market risk: Calculation of risks not in value at risk, and stressed value at risk’ (page 2 of 2). It also contains final policy, in the form of the updated Supervisory Statement (SS) 13/13 ‘Market Risk’ (Appendix).
This PS is relevant to all firms to which Capital Requirements Directive IV applies.
Summary of responses
The PRA received six responses to CP15/20. On measurement of RNIV, respondents generally agreed with the benefits of expecting RNIV own funds to be calculated as an average RNIV measure across the preceding twelve week period; however all respondents argued for a monthly rather than weekly calculation of the RNIV measure, at least for certain RNIVs. On the meaning of ‘period of significant financial stress relevant to the institution’s portfolio’ for sVaR calculation, the majority of respondents that expressed a view agreed with the PRA’s proposed expectations. The PRA’s feedback to these responses, and its final policy decisions, are set out in Chapter 2.
Implementation
The changes to SS13/13 will be effective on publication of this PS, on Thursday 26 November 2020. The PRA appreciates that, particularly for the measurement of RNIV, firms may not be in a position to immediately comply with the PRA's new expectations. Firms should contact their supervisor to agree their plans, and a reasonable timeline for complying with these new expectations.
Policy Statement 23/20 Opens in a new window
Appendix
Market risk: Calculation of risks not in value at risk, and stressed value at risk - CP15/20
Overview
This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposals to update its expectations regarding (i) the measurement of risks not in value at risk (RNIV); and (ii) the meaning of ‘period of significant financial stress relevant to the institution’s portfolio’ for stressed value at risk (sVaR) calculation. The proposals would make amendments to Supervisory Statement (SS) 13/13 ‘Market risk’ (Appendix).
The CP is relevant to all firms to which Capital Requirements Directive IV applies.
Implementation
The PRA proposes that the draft changes to SS13/13 would take effect from the publication of the final policy.
Responses and next steps
This consultation closes on Friday 6 November 2020. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP15_20@bankofengland.co.uk.