EBA · 2016_2949 Final Q&A

Review and validation of criteria for the use of a reduced number of parameters

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
105, para. 14
Topic
Market risk
Submitted by
Competent authority
Submitted
2016-10-18
Answered
2017-01-20
Answer provided by
ESAs (EBA, ESMA, EIOPA)
Browse ECB SSM Register → More Q&As on this regulation →

Question

For purposes of internal independent review and annual validation of the netting methodology, can the testing be based on historical data from the most recent 100 trading days for the same or similar valuation inputs?

Background

The ratio of variance test is required where AVAs are calculated at the individual parameter level to allow for interrelationship via netting between the parameters. The ratio test does not directly assess the interrelationship in market price uncertainty between parameters, but looks at historical price or spread movements as an appropriate proxy. Assessing based on a similar valuation input would also be a representative proxy, ensuring that interrelationship is still taken into consideration while being considerably less resource intensive.

Answer

Articles 9(4)(b)(c) and 10(5)(b)(c) of Regulation (EU) 2016/101 allow for institutions to perform the independent control function review and internal validation of the netting methodology using historical data from the most recent 100 trading days for the same or similar valuation inputs.

Original source: European Banking Authority, Q&A ID 2016_2949

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

Similar Q&As

Application of volatility haircuts adjusted under Article 285(3) (extended margin period of risk)

Answered 2015-06-19

Inconsistency in validation rules v0532_m.

Answered 2014-04-04

Validation rules v4764_m, v4765_m, v4766_m, v4767_m and v4768_m in template C 08.01

Answered 2017-11-17

Review of models, Stress-testing and back-testing (old CCP question 5 dated 20/03/2013)

Answered 2013-03-20

Capability to perform an impact analysis for 15 consecutive business days for extensions and changes of internal approaches for market risk

Answered 2017-01-27

More Q&As on this topic

Application of Article 207(2) of the CRR to financial collateral under the counterparty credit risk framework

Answered 2026-05-29

SPV repack transactions

Answered 2026-05-29

Exclusion of back-to-back positions from RRAO

Answered 2025-10-31

Sources for external classification that is commonly used in the market for grouping issuers by sector, for the purpose of CRR Article 325ah.

Answered 2025-10-17

Multilateral development banks classification for the purpose of article 325ah

Answered 2025-06-27

📋 Track EU financial regulation continuously

Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.

Start free trial → Learn more

14-day free trial. No credit card required.