On July 2, 2021, ISDA and the Association for Financial Markets in Europe (AFME) submitted a response to the European Banking Authority (EBA) on its consultation on the draft regulatory technical standards on emerging market and advanced economies as part of the Fundamental Review of the Trading Book framework.
In order for institutions to be able to calculate their own funds requirements under the sensitivities-based method, Article 325ap(3) of the Capital Requirements Regulation requests the EBA to specify the economies that should attract lower risk weights for equity risk under the FRTB standardized approach (so-called advanced economies) with other economies subject to higher risk weights.
The industry supports an approach that takes into account economic evolution as well as development of markets instead of relying on the static Basel Committee on Banking Supervision list. The industry believes there are no simple econometric methodologies that can be applied in order to achieve a precise definition of an advanced market. We believe economic integration in Europe, both within the European Union and the European Economic Area, including advanced common investor protections and disclosure requirements, cross-border access and access to a wide range of financial services providers, have effectively resulted in a system that can be defined as an advanced economy.