Follow-up Peer Review Report on the exclusion from the CVA risk of transactions with non-financial counterparties established in a third country

General Information

This follow-up report, published in November 2025 by the European Banking Authority (EBA), follows the 2023 peer review report on the exclusion of transactions with non-financial counterparties established in a third country from the Credit Valuation Adjustment (CVA) risk. It covers the supervisory practices of competent authorities (CAs) from several European countries (Denmark, Hungary, Sweden, and the ECB’s Single Supervisory Mechanism) regarding the application of regulatory technical standards (Exclusion RTS) related to the exclusion of these transactions from the calculation of capital requirements for CVA risk. The scope includes institutions supervised by these authorities, focusing on the period after the initial 2023 report, up to 2025 (p. 1-2, 4-7).

Executive Summary

This follow-up report assesses the progress made by competent authorities (CAs) since the initial 2023 report on the exclusion of transactions with non-financial counterparties established in a third country from CVA risk. This topic is crucial as it concerns the adequate management and capitalization of CVA risk, a credit risk related to derivatives, which impacts the financial stability of institutions. The report finds that CAs generally continue to assess CVA risk sufficiently, with approaches adapted to regulatory requirements and the guidelines of the Supervisory Review and Evaluation Process (SREP GLs). All CAs have progressed in strengthening their CVA risk assessments. However, only the Hungarian CA (HU) has taken specific actions to verify compliance with the Exclusion RTS, resulting in an improvement of its rating from "largely applied" to "fully applied." Other CAs maintain a "largely applied" rating for this criterion. The report recommends that CAs continue and intensify their efforts to supervise CVA risk and compliance with the Exclusion RTS, to ensure appropriate management and capitalization by institutions under their supervision (p. 4, 13-14).

Context and Objectives

The report responds to the regulatory obligation to conduct a follow-up two years after an initial peer review, in accordance with the EBA decision of April 2020. The objective is to assess the progress of competent authorities in addressing the gaps identified in 2023 regarding the supervision of the exclusion of transactions with non-financial counterparties established in a third country from the calculation of capital requirements for CVA risk, according to the Exclusion RTS. The report also aims to more broadly examine supervisory practices of CVA risk, notably the monitoring of transactions excluded from capital calculation and the supervision of smaller or specialized institutions. The methodology includes a standardized questionnaire sent to CAs, followed by bilateral interviews to clarify certain points (p. 5-7).

Summary of Key Points by Theme

Supervision of CVA risk in small and specialized institutions:

- CAs have implemented risk-based approaches, with particular attention to large institutions, but also increased monitoring of smaller or specialized ones to detect temporary increases in CVA risk. For example, Denmark has established quarterly monitoring of market and CVA risks for these institutions, Hungary performs quarterly monitoring of CVA and CCR exposures with rating, and Sweden conducts thematic reviews and targeted inspections (p. 7-9).

Monitoring risks related to transactions excluded from CVA capital calculation:

- Since 2023, the regulatory framework has evolved with the entry into force of CRR3 in January 2025, notably modifying the consideration of Securities Financing Transactions (SFTs) in CVA risk. CAs have strengthened their monitoring of risks related to CVA exemptions, notably through analyses of exposures to SFTs. Denmark introduced a threshold of 2% of total exposures to trigger specific monitoring. Hungary requires banks to provide a detailed analysis of exemptions within their annual ICAAP. Sweden collects detailed data on these exemptions and SFTs as part of its quarterly reviews (p. 9-12).

Compliance with Exclusion RTS requirements:

- The 2023 report had identified a lack of systematic verification of compliance with the Exclusion RTS. In follow-up, only Hungary has conducted specific and regular reviews, integrating this verification into its ICAAP-ILAAP-BMA process, with annual reviews for large banks and at least every three years for others. Denmark, Sweden, and the ECB have not conducted specific reviews since 2023, citing different priorities or limited resources. Sweden is however working to improve this point (p. 11-13).

Main Findings and Lessons Learned

Findings:

- CAs continue to fully apply the requirements of section 6.3 of the SREP GLs for CVA risk.

- All CAs assess CVA risk in a generally satisfactory manner, with approaches adapted to their national contexts.

- Hungary has improved its supervision by explicitly verifying compliance with the Exclusion RTS.

- Other CAs have not conducted specific reviews on this compliance since 2023.

- CAs have strengthened monitoring of risks related to CVA exemptions and SFTs, notably through analyses and monitoring thresholds.

Assumptions and interpretations:

- The absence of specific reviews in some countries may be linked to different priorities or limited resources.

- The low weight of CVA risk in some jurisdictions (e.g., Hungary) justifies proportionate supervision.

Uncertainties:

- The medium-term impact of CVA exemptions and SFTs on financial stability remains to be monitored.

- The effectiveness of supervisory measures in small institutions, notably in Sweden, remains to be confirmed with the implementation of new approaches (p. 13-14).

Conclusions and Recommendations

The Peer Review Committee (PRC) finds that competent authorities generally continue adequate supervision of CVA risk, with progress since 2023. However, it highlights that compliance with the Exclusion RTS has been specifically verified only by Hungary, which justifies improving practices in other jurisdictions. The PRC recommends that CAs maintain and strengthen their efforts to:

- ensure regular and formal supervision of CVA risk, including in small and specialized institutions, with a frequency of at least every three years in accordance with the SREP GLs;

- actively monitor risks related to transactions exempted from CVA capital calculation, notably by exploiting new supervisory reporting data;

- systematically verify institutions’ compliance with the Exclusion RTS requirements, with periodic and documented reviews.

These measures aim to ensure appropriate management and capitalization of CVA risk by supervised institutions, thereby contributing to the stability of the European financial system (p. 4, 13-14).