8.1 This section sets out the PRA’s expectations with regards to the methodologies used in the standardised approach to CVA risk as described in Chapter 5 of the Credit Valuation Adjustment Risk Part of the PRA Rulebook.

Regulatory CVA

8.2 For the purposes of calculating regulatory CVA, the PRA expects:

(a) that a firm should have a documented process to address instances where such inputs for particular contracts cannot be calculated or obtained on a given day.

(b) that firms with exposures to counterparties subject to a margin agreement should appropriately consider model risk or scenarios where risk mitigation may not perform as expected.

(c) that firms have a documented policy for determining the appropriate margin period of risk. This policy should consider where the minimum margin period of risk defined in the rules would not be sufficient to mitigate the risk.

Qualitative requirements - CVA desk independent from line of business

8.3 For the purposes of Rule 5.13(14)(a) of the Credit Valuation Adjustment Risk Part of the PRA Rulebook, the PRA expects firms to consider the CVA desk to be independent from a firm’s line of business. Firms may therefore use current and historical market data acquired from the CVA desk in its exposure models.

Delta and vega sensitivities - use of alternative methodologies