The adjustment to the COREP ITS is obligatory from December 31, 2018.
EBA has published the final draft version of the adjustments on ITS for regulatory reporting on April 17, 2018. The implications on Prudent Valuation resulting from the COREP reporting obligation are thereby final. As expected, the changes will come into force on December 31, 2018.
The impact on Prudent Valuation has not changed significantly compared to the draft version of the ITS from 2016. The most important adjustments are:
- An institute qualifies independently for the Simplified Approach (15 billion threshold), but falls under the Core Approach as part of a group. In this case, the templates for Model risk and Concentrated positions do not have to be filled at an institution level.
- The need for a distinction between exotic and plain vanilla instruments when aggregating AVAs is not required. The classification into individual asset classes (interest rates, credit, equities, commodities and FX) is based on the individual organizational structure. At the same time, the distinction between the trading book and the banking book based on “of-which: trading book amount” was slightly adjusted.
- The Model Risk and Concentrated Position templates were reduced to the top 20 AVAs and contain fewer details: describing products and used models in a few keywords is omitted.
The main components with implications for a suitable architecture remain unchanged. These are the requirements for granularity as well as input data, intermediate results and final results. The introduction of Upside Uncertainty requires adjustments to the calculation engine itself.
The timeframe for implementation by the end of the year is short. Therefore, if not already done, the relevant projects should be started now. From our point of view, the next steps are:
- Gap analysis based on the final requirements
- Start of implementation: Due to the short implementation period, we recommend an agile approach for technical conception, implementation and testing
We will gladly support you in successfully implementing the requirements by the end of the year. We are at your disposal for in-depth discussions.
Details about ITS and information about a suitable IT architecture can be found here.
Since July 2015 Andreas Hock has been a manager at LPA in the Risk & Quant Consulting team. Before that, he studied mathematical finance at the Technical University of Munich and gained his first consulting experience at PwC. Here at LPA, he now deals with quantitative topics relating to the valuation of financial instruments and regulatory requirements.