On November 15, 2018, the European Central Bank published the final first chapter of its guide to internal models. The CRD requires the ECB to assess and grant permission for banks directly supervised by the ECB to use internal models for credit risk, counterparty credit risk and market risk. The ECB's guide sets out how the ECB intends to approach the assessment of whether a firm meets the necessary requirements for the permission to be granted. This chapter is on general topics, comprising overarching principles for internal models, implementation of the IRB approach, internal model governance, internal validation and audit, model use, change management and third-party involvement. The ECB recently consulted on model-specific chapters, including for credit, market and counterparty credit risks.
The ECB notes that the guide may need to be amended if the European Commission adopts a different version of the EBA's final Draft RTS on assessment methodology for the IRB approach.
The guide is available at: https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.guidegeneraltopics201811.en.pdf
and the feedback statement is available at: https://www.bankingsupervision.europa.eu/legalframework/publiccons/pdf/internal_models/ssm
.guidegeneraltopics_feedbackstatement201811.en.pdf .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.