EBA publishes final standards on assessment methodology to validate market risk models

November 22, 2016

The EBA has published its final draft Regulatory Technical Standards (RTS) that specify the conditions under which the Competent Authorities assess the significance of positions included in the scope of market risk internal models. It also specifies the methodology they shall apply when assessing an institution’s compliance with the requirements to use an Internal Model Approach (IMA) for market risk.

These draft RTS are a key component of the EBA’s work to ensure consistency in models’ outputs and comparability of risk-weighted exposures. These will also contribute to harmonise the supervisory assessment methodology across all EU Member States and, ultimately, to restore confidence in the use of such models for regulatory purposes.

When finalising the RTS, the EBA has been mindful of developments at international level in market risk capital standards. In particular it considered the Fundamental Review of the Trading Book (FRTB) that the Basel Committee on Banking Supervision (BCBS) published in January 2016. These RTS introduce some elements that go in the direction of the Basel review but, at the same time, can be implemented within the CRR current legal setting.

Please see full press release for further details.