The EBA consults on draft technical standards that specify material changes and extensions to the Internal Ratings Based approach

The European Banking Authority (EBA) today launched a public consultation on its draft Regulatory Technical Standards (RTS) clarifying and enhancing the conditions for assessing material model changes (MMC) and extensions following a review of the related Delegated Regulation. This review aimed to align the existing RTS with the amendments brought in by the Capital Requirements Regulation (CRR 3), and to introduce amendments to enhance the supervisory effectiveness of the approval process for model changes. The consultation runs until 10 March 2025. 

Under the CRR, institutions shall apply for approval from their competent authorities prior to implementing material extensions and changes to their internal approaches. As such, the CRR differentiates between material extensions or material changes, which are subject to approval, and other extensions or changes, which are only subject to notification. The Delegated Regulation on MMC specifies the conditions for assessing material model changes and extensions.

The EBA has performed a review of the Delegated Regulation on MMC leveraging on 10 years of supervisory experience and is proposing several enhancements in these RTS. These updates will align the standards with the CRR3, for example by removing references to the IRB approach for equity exposures. In addition, they will enhance the supervisory effectiveness of the approval process of model changes and also clarify several aspects related to the scope of the RTS. The proposed amendments focus mainly on the qualitative criteria for the material changes related to the definition of default, the validation framework, and the modelling approaches used for slotting exposures and purchased receivables. The qualitative criteria for material extensions are also amended. Finally, the updated RTS introduce clarifications on the calculation of the quantitative backstop criteria.

Consultation process

Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 10 March 2025.

A public hearing will take place via conference call on 15 January 2025 from 15:00 to 16:00 CET. The deadline for registration is the 10 January 25, 16:00 CET.

All contributions received will be published after the consultation closes, unless requested otherwise.

Legal basis and next steps

These draft RTS have been developed according to Article 143(5) of Regulation (EU) 2024/1623 (CRR3), which mandates the EBA to specify the conditions for assessing the materiality of the use of an existing rating system for other additional exposures not already covered by that rating system and changes to rating systems under the internal ratings-based approach (IRB) Approach.

The mandate in Article 143(5) of Regulation (EU) 2024/1623 is very similar to the mandate in Article 143(5) of Regulation (EU) No 575/2013, which constitutes the legal basis for the existing Delegated Regulation.

As part of the next steps, the EBA is conducting a review to identify any potential unnecessary regulatory constraints on competent authorities and institutions leading to delays in the implementation of model changes by institutions. This may include the interaction of the RTS on MMC with the RTS on the assessment methodology for competent authorities used to approve material model changes in accordance with Articles 144(2), 173(3) and 180(3) of Regulation (EU) 2024/1623.