30 November 2023

EBA consults on standards for assessing the materiality of extensions and changes to the new market risk internal models under the FRTB

These RTS follow the Capital Requirements Regulation (CRR) differentiation between material extensions and changes, to be approved by competent authorities, and non-material extensions and changes, to be notified to competent authorities.

The European Banking Authority (EBA) today launched a public consultation on its draft Regulatory Technical Standards (RTS) on the conditions for assessing the materiality of extensions and changes to the use of internal models as well as to the subset of the modellable risk factors applicable under the Fundamental Review of the Trading Book (FRTB) rules. These RTS are part of the Phase 4 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches. The consultation runs until 29 February 2023.

These RTS follow the Capital Requirements Regulation (CRR) differentiation between material extensions and changes, to be approved by competent authorities, and non-material extensions and changes, to be notified to competent authorities. The RTS further divide the latter category into two sub-categories: notified extensions and changes requiring additional information and other extensions and changes.

For the categorisation of model extensions and changes to the relevant categories/sub-categories, the EBA is proposing a combination of qualitative and quantitative conditions. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the IMA own funds requirements and on each component of the FRTB IMA (Expected Shortfall, Stress Scenario Risk Measure and Default Risk Charge), before and after the planned extension or change. In addition, for changes to the institution’s choice of the subset of modellable risk factors, the effect of the change on the ratio PEStRC/ PEStFC is also assessed.

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