Business case
As part of the implementation of the Basel IV framework in Europe, the CRR3 regulation introduced new requirements for measuring Credit Valuation Adjustment (CVA) risk and calculating Exposures at Default (EAD) on repo transactions. To address these requirements, our client developed two prototypes: one to measure CVA risk using the Basic Approach (BA-CVA), and another to calculate EAD on repo positions (EAD Repos), both aimed at supporting regulatory exercises and validating calculation chains.
To ensure CRR3 compliance, our client requested an independent review. We were mandated to conduct this review and identify any functional gaps relative to regulatory requirements.
The review enabled us to (i) validate the prototypes’ compliance with regulatory and functional requirements, (ii) identify discrepancies with CRR3 expectations and recommend corrective actions, (iii) enhance the governance and reliability of risk measurement tools and (iv) equip the risk management team with tested, regulatorily aligned methodologies.
We conducted an independent review of the prototypes, designing and executing structured unit tests, evaluating regulatory and functional compliance, and providing recommendations to address identified gaps.