Regulatory Alerts2020-09-02
D5/2020: Prudential Valuation Adjustment Framework
The South African Prudential Authority issued Directive D5/2020 to mandate that all banks and foreign branches calculate prudent valuation adjustments (PVAs) on fair-valued trading and banking book positions. Institutions must apply either a simplified or core calculation approach based on a 1% CET1 capital materiality threshold, accounting for funding costs, close-out uncertainty, credit spreads, early termination, model risk, and operational risks. Banks are required to estimate these adjustments quarterly, report the aggregate PVA in form BA 700, and disclose them annually via Template PV1 while maintaining robust internal governance frameworks.
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