Response to consultation on Regulatory Technical Standards on assessment methodology for IRB approach

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Question 2: Do you agree with the required independence of the validation function in Article 4(3) and Article 10? How would these requirements influence your validation function and your governance in general?

Unicredit agrees that the validation function should be independent from the credit risk control unit and internal audit, as well as from credit granting functions. We suggest to clarify whether the different organization frameworks described in point b), c) and d) of Article 10 are considered as equal alternatives or, on the other hand, an increasing demand for separation is required consistently with complexity/size of the Institution or according to the proportionality principle described in Article 1).

Question 3: Are the provisions introduced in Article 49(3) on the calculation of the long-run average of one-year default rates sufficiently clear? Are there aspects which need to be elaborated further?

The RTS requires the time series length considered to calculate the long-run average of one year default rates to be representative of an entire economic cycle. More specific instructions should be provided in terms of definition of economic cycle and length of the underlying time series. This would grant consistency across Banks and supervisory practices.

Question 4: Do you agree with the required number of default weighted average LGD calculation method introduced in Article 51(1)(b) and supportive arguments? How will this requirement influence your current LGD calculation method? More generally, what are your views as to balance of arguments for identifying the most appropriate method?

We agree on the on prescriptions related to Article 51. No impacts are expected.

Question 5: Are the provisions introduced in Article 52 on the treatment of multiple defaults sufficiently clear? Are there aspects which need to be elaborated further?

We agree on the on prescriptions related to Article 52.

Question 6: Are the provisions introduced in Article 60 on the treatment of eligible guarantors for the purpose of own-LGD estimates sufficiently clear? Are there aspects which need to be elaborated further?

Article 60 is not completely clear with particular reference to the text box. The meaning of “funded guarantee” should be elaborated as according to our views the guarantees are unfunded by definition.

Question 7: Do you support the view that costs for institutions arising from the implementation of these draft RTS are expected to be negligible or small? If not, could you please indicate the main sources of costs?

An accurate evaluation of costs will be possible only after some clarifications and release of the final RTS. In this respect the expected implementation timeline is essential.

Question 8: What are the main benefits for institutions that you expect by the adoption of these draft RTS?

The RTS can support the harmonisation of supervisory practice. However this can be reached only if rooms for interpretation are minimized.

Question 9: Do you expect that these draft RTS will trigger material changes to the rating systems (subject of the RTS on materiality of model changes)? If yes, could you please indicate the main sources of the changes (please list the relevant Articles of these draft RTS)?

We do not expect that these draft RTS will trigger material changes to the rating systems. However firm conclusions can be driven only after some clarifications and release of the final RTS.

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Name of organisation

UniCredit Group