On 20 October 2021, the European Commission adopted a Delegated Regulation containing regulatory technical standards (RTS) for the specification of the assessment methodology competent authorities are to follow when assessing the compliance of credit institutions with the requirements to use the Internal Ratings Based (IRB) Approach.

Under the Capital Requirements Regulation (CRR), credit institutions are permitted to use the IRB approach for the purposes of calculating their own funds requirements for credit risk, subject to the approval of competent authorities. Under Articles 144(2), 173(3) and 180(3)(b) of the CRR, the Commission has the power to adopt RTS specifying the process that competent authorities should follow when assessing credit institutions’ compliance with aspects of the IRB requirements.

The RTS provide a methodology for competent authorities when a credit institution:

  • initially applies to use the IRB approach;
  • applies to use the IRB approach for certain types of exposures in accordance with the sequential implementation plan;
  • applies for implementation of material changes to the IRB approach; and
  • applies to return to the use of less sophisticated approaches.

The Council of the EU and the European Parliament will now scrutinise the Delegated Regulation. If neither object, it will enter into force 20 days after its publication in the Official Journal of the European Union.