The European Banking Authority (EBA) has published a consultation paper on draft regulatory technical standards (RTS) on the specification of the assessment methodology for Member State competent authorities regarding compliance of an institution with the requirements to use an internal models approach (IMA) for market risk and assessment of significant share under article 363(4)(b) and (c) of the Capital Requirements Regulation (CRR).
In particular, the draft RTS provide objective criteria to be applied in the assessment of the significance of those positions included in the scope of the internal model and propose two different methodologies for general and specific risk categories, both of them based on the standardised rules for market risk. The EBA is proposing that the assessment of significance is performed before and after Member State competent authorities validate the model, though applying a lower threshold in case the competent authority has decided, as a result of their assessment of the internal model, to exclude certain positions from the scope of the internal model. Finally, once the model has been approved, the RTS allows the use of alternative methodologies to assess whether the significance of the positions included in the model remains appropriate.
In addition, the draft RTS set out the standards for the assessment by competent authorities of an institution’s compliance with IMA requirements when the institution applies to use an internal model to determine market risk capital requirements or introduces any material changes or extensions to the IMA already in use.
The deadline for comments on the consultation paper is 25 January 2016.
View EBA consults on assessment methodology on the use of internal models for market risk, 14 December 2015