The European Banking Authority (EBA) this week published its final draft Regulatory Technical Standards (RTS) to establish criteria for assessing the materiality of Credit Valuation Adjustment (CVA) risk exposures stemming from fair-valued securities financing transactions (SFTs).

The final draft RTS specify the conditions and criteria institutions must use to determine whether CVA risk exposures arising from fair-valued securities financing transactions are material, along with the required frequency of this assessment.

The concept of materiality laid out in the draft RTS is crucial because it will determine whether fair-valued SFTs can be exempted from own funds requirements for CVA risk.

The standards introduce a quantitative threshold approach that bases the materiality assessment on a ratio.

This ratio is designed to quantify the relative increase in own funds requirements for CVA risk that would result from including fair-valued SFTs within the scope of those requirements.

Furthermore, the draft RTS mandates a quarterly materiality assessment to ensure consistency with the regular calculation and reporting cycle of own funds requirements by institutions.

These draft RTS form part of the Phase 2 deliverables of the EBA roadmap on the implementation of the EU banking package in the area of market risk.