On 6 May 2020, the European Banking Authority (EBA) published final guidelines on credit risk mitigation (CRM) in the context of the advanced internal ratings-based (A-IRB) approach. The guidelines clarify the application of the CRM provisions currently laid down in the Capital Requirements Regulation (CRR) applicable to institutions using the A-IRB approach. In particular, they clarify the eligibility requirements for different CRM techniques, namely funded and unfunded credit protection (e.g. collateral and guarantees), available to institutions.
The guidelines will apply as of 1 January 2022, at the latest, but earlier implementation is encouraged. Institutions should engage with their competent authorities at an early stage in order to determine an adequate implementation plan, including the timeline for the supervisory assessment and approval of material model changes, where necessary.
The guidelines are complementary to the EBA guidelines on the PD estimation, LGD estimation and the treatment of defaulted exposures, which clarify how to adjust LGD estimates to recognise the effects of collateral (i.e. funded credit protection other than netting).