General considerations
When assessing the market risk management framework, competent authorities should evaluate inter alia the compliance of the institution with the legal acts published separately on the EBA website as referred to in paragraph 12.
In these guidelines, references to ‘market risk’ will encompass all the following risks, which should be assessed by competent authorities:
the market risk arising from all on- and off-balance-sheet positions which are subject to losses arising from movements in market prices, i.e. risks in trading book positions as well as the foreign-exchange and commodity risk in the non-trading book;
the risk of losses arising from changing CVA amounts in response to changes in counterparty credit spreads and/or market prices, impacting the fair value of derivative transactions and, if applicable, of security financing transactions (SFTs);
the risk linked to the valuation of fair-valued instruments in the sense of Article 105 of Regulation (EU) 575/2013.
Competent authorities may perform a less granular analysis for institutions which meet the conditions of the small trading book as set out in Article 94 of Regulation (EU) 575/2013. For institutions with immaterial exposures, the assessment should focus on the adequacy of the risk management and governance structure and the quality and effectiveness of systems and controls.
Competent authorities should take into account the impact of ESG risks on the inherent market risk as well as the adequacy of the market risk management framework and controls related to ESG risks, giving priority to environmental risks.