On 22 November 2023, the European Banking Authority (EBA) published a final report on the draft regulatory technical standards (RTS) on the assessment methodology under which Member State competent authorities verify an institution’s compliance with the internal model approach as per Article 325az(8) of the Capital Requirements Regulation (CRR).

The draft RTS have been developed according to Article 325az(8)(b) of the CRR, which mandates the EBA to specify the assessment methodology under which Member State competent authorities verify an institution’s compliance with the requirements applicable to internal models. The assessment constitutes the basis for a decision taken by the Member State competent authority granting (or not) the approval for using the model for the computation of the own funds requirements for market risk.

The draft RTS have three main chapters. The first chapter deals with governance requirements, the second chapter relates to the internal risk-measurement model covering the expected shortfall and the stress scenario risk measure, and the third chapter relates to the internal default risk model.  As regards the chapters relating to the internal-risk measurement model and the internal default risk model, the draft RTS are generally addressed to Member State competent authorities, rather than institutions.

The EBA undertook a public consultation on the draft RTS. The consultation period lasted for 3 months and ended on 26 June 2023. Two responses were received. Section 4 of the final report presents a summary of the key points and other comments arising from the consultation.