ITS package for 2021 benchmarking exercise

Adopted and published on the Official Journal

The amended Commission’s Implementing Regulation on benchmarking of internal models aims to adjust the benchmarking portfolios and reporting requirements in view of the benchmarking exercise it will carry out in 2021. On the credit risk side, the amended standards will allow to complement the analysis of credit risk models through the introduction of IFRS 9 templates and the collection of risk weighted exposure value (RWA) calculated under the Standardised Approach (SA) and hypothetical RWA calculated with empirical default rates. On the market risk side, the framework remains stable, with the consultation restricted to clarifications on the setting of reference dates and instruments/portfolios definitions.

Documents

Draft benchmarking package for 2021 exercise (end 2020 data).zip

Links

Implementing Technical Standards published in the OJ

Press Release

EBA updated ITS package for 2021 benchmarking exercise includes IFRS9 template

04 May 2020

The European Banking Authority (EBA) published today an update to its Implementing Technical Standards (ITS) on benchmarking of internal approaches. The updated ITS include all benchmarking portfolios that will be used for the 2021 exercise. The main novelty is the inclusion of the IFRS9 template. The benchmarking exercise is an essential supervisory tool to enhance the quality of internal models, which is particularly important in a stressed economic situation.

In order to analyse potential sources of variability stemming from the implementation of the new accounting standard (IFRS 9), two annexes have been introduced. The collection of quantitative data on the IFRS 9 parameters will contribute to gather a better understanding of the different methodologies, models, inputs and scenarios, which could lead to material inconsistencies in expected credit loss (ECL) outcomes, and affect own funds and regulatory ratios. The initial focus of the analysis is on the probability of default (PD) parameter, and, in particular, on the following three aspects:

The analysis of the variability of the PD parameter estimated over a default horizon of 12 months;
Variability of the macroeconomic forecasts and the interaction between the lifetime PD curve and the macro economic scenarios used for determining the ECL;
Variability of practices in the assessment of significant increases in credit risk (SICR).

On the credit risk side, neither new portfolios nor new data points have been added compared to the 2020 exercise. However, some marginal changes have been applied in annex I. First, the annex now includes counterparties treated under the standardised approach, which are reported in the IFRS 9 template. Second, institutions should report the hypothetical RWA calculated under the standardised approach for low default portfolios (LDP) and the hypothetical RWA based on empirical default rates at the rating split level.

For the market risk benchmarking, some instruments have been updated and clarified but the overall composition of the portfolio has not changed with respect to the 2020 exercise.

In addition, the update includes changes and clarifications that the EBA introduced based on the Consultation Paper that was published on 17 December 2019.

Finally, the EBA believes that under the current circumstances, the usefulness of this exercise has increased. From a supervisory perspective, it will help maintain the high quality of internal models. From the regulatory point of view, it will continue to be used to monitor the models’ behaviours and sensitivity to a stressed economic situation, as well as the implementation of the forthcoming regulatory products along the IRB road map.

EBA consults to amend standards on benchmarking of internal models

13 December 2019

The introduction of IFRS9 templates is the main change to the standards;
The objective of the exercise is to collect data on the IFRS9 expected credit losses;
In the first phase of the exercise, the EBA will collect data on low default portfolios and focus on the probability of default.

The European Banking Authority (EBA) launched today a consultation to amend the Commission's Implementing Regulation on benchmarking of internal models to adjust the benchmarking portfolios and reporting requirements in view of the benchmarking exercise it will carry out in 2021. On the credit risk side, the amended standards will allow to complement the analysis of credit risk models through the introduction of IFRS 9 templates and the collection of risk weighted exposure value (RWA) calculated under the Standardised Approach (SA) and hypothetical RWA calculated with empirical default rates. On the market risk side, the framework remains stable, with the consultation restricted to clarifications on the setting of reference dates and instruments/portfolios definitions. The consultation runs until 13 February 2020.

The main update of the 2021 ITS relates to the introduction of the IFRS 9 benchmarking templates. In line with the staggered approach communicated by the EBA in the IFRS 9 roadmap, in this first phase of the exercise, the IFRS 9 templates solely collect data on low default portfolios (LDP) with a focus on the probability of default (PD).

The objective of the exercise is to collect quantitative data on the IFRS 9 Expected Credit Loss (ECL) parameters and other relevant information that, combined with a qualitative questionnaire to be filled by the institutions separately, will be used to gain a deeper understanding of the different methodologies, models, and scenarios that could lead to material inconsistencies in ECL outcomes, affecting own funds and regulatory ratios.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page.

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 13 February 2020.

A public hearing on this consultation will take place at the EBA premises on 3 February 2020 from 15:00 to 17:00 CET. Deadline for registration is 21 January 2020 at 16:00 CET.

Legal basis

These draft ITS have been developed in accordance with article 78 of the Capital Requirements Directive (CRD), which requires the EBA to specify the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercises. These are used by competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements.

In addition, IFRS9, the new international accounting standard recently adopted, introduced new rules for the measurement of credit losses. As a result, it directly impacts on the amount of own funds and regulatory ratios reported and it is, therefore, necessary to reflect such impact also on the reporting requirements under Regulation (EU) No 2016/2070 as regards benchmarking portfolios, reporting templates and reporting instructions.

Consultation Papers

Consultation Paper on draft ITS amending the benchmarking Regulation (EBA/CP/2019/15)

Summary 13/12/2019

The introduction of IFRS9 templates is the main change to the standards;
The objective of the exercise is to collect data on the IFRS9 expected credit losses;
In the first phase of the exercise, the EBA will collect data on low default portfolios and focus on the probability of default.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page.

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 13 February 2020.

A public hearing on this consultation will take place at the EBA premises on 3 February 2020 from 15:00 to 17:00 CET. Deadline for registration is 21 January 2020 at 16:00 CET.

Legal basis

Responses

Public Hearing

Note: A Public Hearing is related to this consultation but is not visible to public users since the date is past