The EACB welcomes the EBA initiative to further clarify the approval process of model changes and extensions of the internal models. In this context, we would like to put forward some areas that would need refinements in the final version of the RTS to ensure a practical implementation process, and avoid ambiguity and unnecessary burden on institutions.
Regarding the scope of the RTS, it might be beneficial to clarify the understanding of “changes to development and calibration processes (including the respective reference datasets) to align with the approved methods, processes, controls, data collection and IT systems” to avoid a significantly higher number of ex-ante notifications due to a potential misinterpretation of the RTS scope. For example, the definition should not include the mere extension of the quantification and calibration samples with additional years of data during the review of estimates, as this is not a change that is done to align with the approved methods, processes, controls, data collection and IT systems. This is done to ensure that the most recent data is considered.
Regarding the changes related to the definition of default, we strongly oppose that the classification of such changes should be always material. The classification should be dependent on the significance of the quantitative impact and on the assessment of the newly introduced qualitative backstop measure. The EBA should consider cases when local regulators introduce mandatory changes in the default (de-)recognition criteria which the institution is obliged to implement. It would be beneficial to analyse such changes based on the quantitative criteria and the qualitative backstop. This is of special importance for institutions/groups where the same DoD/internal model is used on both local and consolidated level.
Finally, we seek clarification on whether acquired portfolios require IRB approval or if representativeness allows for ex-ante notification. Existing provisions already prevent institutions from fragmenting material changes into smaller ones to bypass regulatory scrutiny. On quantitative thresholds, we advocate for assessing materiality at the level of individual rating systems rather than aggregating impacts across multiple systems. We also question the suitability of using a 15% increase in risk-weighted assets as the sole threshold for determining materiality and instead proposes a combination of quantitative and qualitative criteria. Additionally, we raise concerns about documentation requirements for notifications. Mandatory validation reports for all ex-ante notifications appear overly burdensome and potentially operationally inefficient. To address this, we recommend aligning validation requirements with regular validation cycles and we suggest exemptions for smaller portfolios.