On 25 February 2019, the European Banking Authority (EBA) issued a consultation on draft guidelines on credit risk mitigation in the context of the advanced internal rating-based (A-IRB) approach.

The draft guidelines are intended to clarify the credit risk mitigation (CRM) framework in the context of the A-IRB approach. This is done by focussing on the application of the current Capital Requirements Regulation (CRR) provisions for the eligibility and methods of different credit risk mitigation techniques, namely funded and unfunded credit protection, available to institutions under the Advanced-IRB approach. Guidance is also provided on eligibility requirements and the treatment of funded and unfunded credit protection.

The draft guidelines are addressed to Member State competent authorities and financial institutions.

The draft guidelines complement the EBA’s earlier report on credit risk mitigation, which focused on the standardised approach and the foundation-IRB approach (our blog is here).

The consultation closes on 25 May 2019.

When finalised, the guidelines will apply from 1 January 2021. Financial institutions will be expected to incorporate the requirements of the guidelines in their rating systems by that time, but competent authorities may accelerate the timeline of this transition at their discretion.