Single Rulebook Q&A

Question ID: 2015_2466
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Market risk
Article: 363
Paragraph: 3
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 529/2014 - RTS on materiality of extensions and changes in the advanced approaches (IRB and AMA)
Article/Paragraph : 7a
Name of institution / submitter: BaFin
Country of incorporation / residence: Germany
Type of submitter: Competent authority
Subject matter : Application level of materiality threshold for assessing the materiality of extensions and changes to the IMA
Question:

What is the reference base for the materiality thresholds specified in the technical standards for assessing the materiality of extensions and changes of internal models be applied, if an EU parent institution uses an Internal Models Approach (IMA) on solo and/or (sub)consolidated level?

Background on the question:

Competent authorities’ permissions to use internal models for the determination of own funds requirements for market risk may apply to solo and/or (sub)consolidated levels. The RTS on model change (Regulation (EU) No 529/2014) substantiates the assessment of materiality using qualitative and quantitative criteria.

The quantitative condition of Article 7a (1) lit. c (i) of the RTS restricts indeed the scope of application of the 5% criterion to be computed at the level of the EU parent institution or, in the case of an institution which is neither a parent institution nor a subsidiary, at the level of that institution.
The quantitative condition of Article 7a (1) lit. c (ii) (10%-criterion) does not have this restriction. Article 7a (1) lit. c (ii) is relevant to the scope of application of the relevant IMA model to which the risk number refers to.

Within an EU banking group various IMA permissions may be granted. For example, a group-wide model (approved by a joint decision of the college of supervisors) may be used on different consolidation levels (solo and/or (sub)consolidated). Although the same model is used for the whole group, the different portfolio composition of the sublevel entities may cause the materiality according to Article 7a (1) lit. c (ii) of the RTS to differ for all the subsidiary levels where the group has a permission to use the model. Thus it may occur that a proposed model change classifies as material on subsidiary level but not on parent institution level.

Date of submission: 12/11/2015
Published as Final Q&A: 20/01/2017
EBA answer:

Competent authorities’ permissions to use internal models for the determination of own funds requirements for market risk may apply to solo and/or (sub)consolidated levels. The RTS on model change (Regulation (EU) No 529/2014) substantiates the assessment of materiality using qualitative and quantitative criteria.

The quantitative condition of Article 7a (1) lit. c (i) of the RTS restricts indeed the scope of application of the 5% criterion to be computed at the level of the EU parent institution or, in the case of an institution which is neither a parent institution nor a subsidiary, at the level of that institution.
The quantitative condition of Article 7a (1) lit. c (ii) (10%-criterion) does not have this restriction. Article 7a (1) lit. c (ii) is relevant to the scope of application of the relevant IMA model to which the risk number refers to.

Within an EU banking group various IMA permissions may be granted. For example, a group-wide model (approved by a joint decision of the college of supervisors) may be used on different consolidation levels (solo and/or (sub)consolidated). Although the same model is used for the whole group, the different portfolio composition of the sublevel entities may cause the materiality according to Article 7a (1) lit. c (ii) of the RTS to differ for all the subsidiary levels where the group has a permission to use the model. Thus it may occur that a proposed model change classifies as material on subsidiary level but not on parent institution level.

Status: Final Q&A
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