A&O Shearman | FinReg | European Banking Authority Final Draft Regulatory Technical Standards for Assessing the Materiality of Extensions and Changes to New Market Risk Internal Models
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  • European Banking Authority Final Draft Regulatory Technical Standards for Assessing the Materiality of Extensions and Changes to New Market Risk Internal Models

    June 20, 2024

    The European Banking Authority has finalized its draft regulatory technical standards on the conditions for assessing the materiality of model extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the EU Capital Requirements Regulation. The final draft RTS differentiate between material extensions and changes under the internal models approach (IMA), to be approved by competent authorities, and non-material extensions and changes, to be notified to CAs four weeks in advance. This last category is further divided into two subcategories: extensions and changes notified with additional information, and extensions and changes with basic information. For the categorization of extensions and changes to the relevant categories and subcategories, the final draft RTS set out a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the IMA own funds requirements and on the relevant components of the Fundamental Review of the Trading Book IMA, before and after the planned extension or change. The final draft RTS also include guiding principles that institutions should follow in the categorization process, provisions on the implementation of extensions and changes, and documentation requirements. With the submission of these final draft RTS to the Commission for endorsement, the EBA completes its roadmap on market and counterparty credit risk approaches published on June 27, 2019.

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