Schedule 4: Amendments of the Capital Requirements Regulation
Schedule 4 makes limited amendments to the CRR relating to requirements contained in the Basel III standards. This is for amendments where HM Treasury considers revoking the whole article for the PRA to update in their rules is disproportionate because the amendment is minor. Paragraph 2 allows for references to the PRA rulebook as amended from time to time, rather than as it had effect at the end of the Transition Period.
	Paragraph 3 amends the rules regarding how capital requirements are calculated.
	Paragraph 4 removes third-country clearing houses from the list of entities that may be treated as institutions. This reflects the fact that CRR II now applies the revised Basel treatment of exposures to CCPs.
	Paragraph 5 updates a cross-reference to the reporting requirements from Article 99 to Article 430.
	Paragraph 6 specifies that only those central counterparties that qualify under new requirements can be used by institutions as eligible providers of unfunded credit protection.
	Paragraph 7 requires firms to use one of the revised approaches for CCR to calculate exposure value for derivatives when using the Financial Collateral Comprehensive Method (a method for taking account of price volatility in the valuation of financial collateral).
	Paragraph 8 clarifies that a combination of non-modelled approaches may be used for OTC derivative transactions and long settlement transactions for which an institution has not received permission to use the Internal Model Method.
	Paragraph 9 removes provisions relating to the recognition of netting practices from the section of the CRR on Credit Risk Mitigation (CRM). Instead, netting recognition requirements will be contained within relevant sections on counterparty credit risk. Netting is a method for reducing risk by aggregating multiple obligations to achieve a net obligation.
	Paragraph 10 deletes the current treatment of two types of trading book derivatives (total return swap credit derivatives and credit default swap credit derivatives). This reflects the fact that individual sections on counterparty credit risk will define how potential future exposure is calculated for these items.
	Paragraph 11 replaces the definition of total exposure at default (EAD) used in the standard method for CVA risk. This is updated to reflect the new references to counterparty credit risk approaches.
	Paragraph 12 removes the time limit on the availability of the derogation under Article 500d of the CRR. Article 500d brings forward an alternative calculation of the exposure value of regular-way purchases and sales awaiting settlement. This was implemented by the EU in view of the COVID-19 pandemic but is set to expire on 27 June 2021 when the EU’s CRR II comes into force. Paragraph 12 provides for the derogation to continue after that date in the UK.
	Paragraph 13 removes the word "purchased" from interest rate and currency options, and updates cross-references to MiFID II.