On 17 July 2024, the European Banking Authority (EBA) issued a statement on the operational application of the Capital Requirements Regulation III (CRR III) in the area of credit risk modelling.

In the statement the EBA encourages institutions and Member State competent authorities (NCAs) to engage in active dialogue and for institutions to communicate the targeted model landscape that will be used from 1 January 2025 onwards. This includes a discussion on whether the Internal Ratings Based (IRB) Approach is to be used for each of the exposure classes as defined in Article 147(2) of CRR III.

The EBA makes certain other points in the statement including that institutions should:

• Communicate to their NCAs the targeted model landscape, in particular following the migration of exposures to the foundation approach (F-IRB) and standard approach. A key aspect is to ensure that rating systems perform adequately on their scope of application.
• Assess and categorise changes coming from the implementation of the CRR III that impact the performance of a rating system according to Commission Delegated Regulation No 529/2014 on materiality of changes to the IRB Approach. However, the EBA considers that mandatory changes coming from the implementation of the CRR III and that do not impact the performance of a rating system should not be considered under the scope of the Commission Delegated Regulation.
• Inform their NCA about their implementation plan in relation to the foreseen rating system updates that are linked to future EBA supervisory products. In this context, modelling updates in relation to credit conversion factor (CCF) parameters (e.g., 12 months fixed horizon reference date) may not need to be prioritised until the date of application of the EBA Guidelines on IRB-CCF.