European Banking Authority Final Draft Regulatory Technical Standards to Assess Materiality of Extensions and Changes to New Internal Market Risk Models

The European Banking Authority has finalised draft regulatory technical standards on the conditions for assessing the materiality of model extensions and changes in the use of alternative internal models and changes in the subset of modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the EU Capital Requirements Regulation. The final draft RTS distinguishes between material extensions and changes to the Internal Model Approach (IMA), to be approved by the competent authorities, and non-material extensions and changes, to be notified to the CA with a four-week notice. The latter category is further divided into two subcategories: extensions and changes notified with additional information and extensions and changes with basic information. In order to categorise extensions and changes into the relevant categories and subcategories, the final draft RTS specifies a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim to assess the impact of the extension or change on the IMA own funds requirements and on the relevant components of the Fundamental Review of the Trading Book of the IMA, before and after the planned extension or change. The final draft RTS also includes guiding principles that institutions should follow in the categorization process, provisions for implementing extensions and changes, and documentation requirements. With the submission of the final draft RTS to the Commission for approval, EBA is finalizing its roadmap on approaches to market risk and counterparty credit risk published on 27 June 2019.

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