EBA publishes revised version of its final draft technical standards on prudent valuation

The European Banking Authority (EBA) has decided to make a specific and limited amendment to its final draft Regulatory Technical Standards (RTS) on Prudent Valuation published on 31 March 2014. As a consequence of this decision, all occurrences of ‘volatility' in Article 9 and Article 10 of the final draft RTS published on 31 March 2014 should be replaced by ‘variance' for the purposes of computing market price uncertainty and close-out costs additional valuation adjustments (AVAs).

This amendment, which affects only institutions using the Core approach, will result in a slight relaxation of the calibration of the volatility test performed under these two articles, thus avoiding unwanted side-effects in the already challenging first year implementation of the Core approach. However, while allowing for this flexibility in the context of the first implementation of the Prudent Valuation framework, the EBA also suggested reassessing the calibration of the volatility test within the first two years of implementation of the RTS.