EBA consults on standards for assessing the materiality of extensions and changes to the new market risk internal models under the Fundamental Review of the Trading Book

EBA has published draft RTS aimed at establishing criteria for evaluating the materiality of extensions and changes to the use of internal models. This also encompasses changes to the subset of modellable risk factors under the FRTB rules. These RTS are part of the Phase 4 deliverables outlined in the EBA roadmap for the development of new market and counterparty credit risk approaches.
The key focus of the RTS is to differentiate between material and non-material changes, building on the framework established by CRR. Notably, material changes require approval from competent authorities, while non-material changes need to be notified to these authorities. The RTS further divides non-material changes into two sub-categories: notified extensions and changes requiring additional information, and other extensions and changes.
In terms of categorizing model extensions and changes, the EBA proposes a combination of qualitative and quantitative conditions. The quantitative conditions specifically assess the impact of the extension or change on the IMA own funds requirements and the components of the FRTB IMA (Expected Shortfall, Stress Scenario Risk Measure, and Default Risk Charge). Additionally, changes to the institution’s choice of the subset of modellable risk factors are evaluated based on their effect on the partial expected shortfall ratio.
Interested parties can participate in the consultation by submitting comments to the EBA until 29 February 2024. The development of these standards aligns with the broader regulatory landscape and aims to ensure a robust framework for assessing the materiality of extensions and changes to internal models in the banking sector.