Supervisory benchmarking of approaches for calculating own funds requirements
On this provision: 2 technical standards · 24 EBA Q&As
Amendment details· last amended 30 Dec 2024
Last amended 30 Dec 2024 by Regulation (EU) 2023/1114 of 31 May 2023.
Competent authorities shall ensure all of the following:
that institutions permitted to use internal approaches for the calculation of risk-weighted exposure amounts or own funds requirements report the results of their calculations for their exposures or positions that are included in the benchmark portfolios;
that institutions using the alternative standardised approach set out in Part Three, Title IV, Chapter 1a, of Regulation (EU) No 575/2013 report the results of their calculations for their exposures or positions that are included in the benchmark portfolios, provided that the size of the institutions’ on- and off-balance-sheet business that is subject to market risk is equal to or greater than EUR 500 million in accordance with Article 325a(1), point (b), of that Regulation;
that institutions permitted to use internal approaches under Part Three, Title II, Chapter 3, of Regulation (EU) No 575/2013, as well as relevant institutions that apply the standardised approach under Part Three, Title II, Chapter 2, of that Regulation, report the results of the calculations of the approaches used for the purpose of determining the amount of expected credit losses for their exposures or positions that are included in the benchmark portfolios, where any of the following conditions is met:
institutions prepare their accounts in conformity with international accounting standards as applied in accordance with Regulation (EC) No 1606/2002 (opens EUR-Lex in a new tab);
institutions undertake the valuation of assets and off-balance-sheet items and the determination of their own funds in conformity with international accounting standards pursuant to Article 24(2) of Regulation (EU) No 575/2013;
institutions undertake the valuation of assets and off-balance-sheet items in conformity with accounting standards under Council Directive 86/635/EEC (opens EUR-Lex in a new tab) ((31)) and use an expected credit loss model that is the same as the one used in international accounting standards as applied in accordance with Regulation (EC) No 1606/2002 (opens EUR-Lex in a new tab).
Institutions shall submit the results of the calculations referred to in the first subparagraph together with an explanation of the methodologies used to produce them and any qualitative information, as requested by EBA, that can explain the impact of those calculations on own funds requirements. Those results shall be submitted at least annually to the competent authorities. EBA may conduct a supervisory benchmarking exercise every two years for each approach referred to in the first subparagraph after that exercise has run five times for each single approach.
Competent authorities shall ensure that institutions submit the results of the calculations referred to in paragraph 1 in accordance with the template developed by EBA in accordance with paragraph 8 to the competent authorities and to EBA. Where competent authorities choose to develop specific portfolios, they shall do so in consultation with EBA and ensure that institutions report the results of the calculations separately from the results of the calculations for EBA portfolios.
Competent authorities shall, on the basis of the information submitted by institutions in accordance with paragraph 1, monitor the range of risk-weighted exposure amounts or own funds requirements, as applicable, for the exposures or transactions in the benchmark portfolio resulting from the approaches of those institutions. Competent authorities shall make an assessment of the quality of those approaches with at least the same frequency as the EBA exercise referred to in paragraph 1, second subparagraph, paying particular attention to:
those approaches that exhibit significant differences in own fund requirements for the same exposure;
approaches where there is particularly high or low variability, and also where there is a significant and systematic under-estimation of own funds requirements.
EBA shall produce a report to assist the competent authorities in the assessment of the quality of the approaches based on the information referred to in paragraph 2.
Where particular institutions diverge significantly from the majority of their peers or where there is little commonality in approach leading to a wide variance of results, competent authorities shall investigate the reasons therefor and, if it can be clearly identified that an institution’s approach leads to an underestimation of own funds requirements which is not attributable to differences in the underlying risks of the exposures or positions, shall take corrective action.
The competent authorities shall ensure that their decisions on the appropriateness of corrective actions, as referred to in paragraph 4, comply with the principle that such actions must maintain the objectives of the approaches within the scope of this Article and therefore do not:
EBA may issue guidelines and recommendations in accordance with Article 16 of Regulation (EU) No 1093/2010 where it considers them necessary on the basis of the information and assessments referred to in paragraphs 2 and 3 of this Article in order to improve supervisory practices or practices of institutions with regard to the approaches within the scope of the supervisory benchmarking.
EBA shall develop draft regulatory technical standards to specify:
the procedures for sharing assessments made in accordance with paragraph 3 between the competent authorities and with EBA;
the standards for the assessment made by competent authorities referred to in paragraph 3.
EBA shall submit those draft regulatory technical standards to the Commission by 1 January 2014.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
EBA shall develop draft implementing technical standards to specify:
the template, the definitions and the IT-solutions to be applied in the Union for the reporting referred to in paragraph 2;
the benchmark portfolio or portfolios referred to in paragraph 1;
the list of relevant institutions referred to in paragraph 1, point (c).
EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.
The Commission shall, by 1 April 2015 and after consulting EBA, submit a report to the European Parliament and to the Council on the functioning of the benchmarking of internal models including the scope of the model. Where appropriate, the report shall be followed by a legislative proposal.