Draft amending ITS on joint decision process for internal models authorisation under CRR Article 20(8)

General Information

This document is a final report published by the European Banking Authority (EBA) in March 2025. It presents a draft Implementing Technical Standards (ITS) amending Implementing Regulation (EU) 2016/100 related to the joint decision-making process for the approval of internal models under Article 20(8) of Regulation (EU) No 575/2013 (CRR). The scope covers applications for authorizations to use internal models regarding credit risk, counterparty risk, market risk, and others, within the framework of CRR III, now excluding the AMA approach for operational risk. The document comprises 15 pages and is addressed to banking supervisory authorities and stakeholders involved in prudential regulation within the European Union.

Executive Summary

The document addresses the revision of the Implementing Technical Standards (ITS) governing the joint decision-making (JD) process between competent authorities for the approval of internal models under CRR III. This revision is driven by regulatory developments, notably the removal of the AMA approach for operational risk and updates related to the functioning of supervisory colleges. The main finding is that the current framework, in force since 2016, is robust and appropriate, requiring only adjustments to reflect legislative changes. The proposed amendments concern updating regulatory references, excluding the AMA, and considering third-country authorities in the joint decision process. The document emphasizes that decision deadlines are set by primary legislation and cannot be altered by the ITS. The public consultation confirmed no need for substantial amendments. Recommendations are to adopt these changes to ensure compliance with CRR III, facilitate cooperation among authorities, and maintain legal clarity without burdening existing procedures (p. 3-5, 11-15).

Context and Objectives

The document was drafted to adapt the existing ITS, in force since 2016, to the regulatory developments introduced by CRR III, notably the removal of the Advanced Measurement Approach (AMA) for operational risk. The objective is to ensure effective and harmonized cooperation among competent authorities when assessing applications for authorization to use internal models for calculating prudential requirements. The framework aims to respect the legal six-month deadline for the joint decision, while clarifying roles and coordination among consolidating, national, and third-country authorities. The scope covers internal models for credit, market, and counterparty risk, now excluding AMA. The document specifies that the amendments are limited to necessary adjustments reflecting legislative changes, without a deep revision of the process (p. 4-5, 11).

Summary of Key Points by Theme

1. Regulatory framework and ITS scope:

- CRR III modifies the scope of internal models, notably by removing the AMA for operational risk, necessitating ITS updates (p. 3-5).

- The ITS specify the joint decision-making process between authorities for authorization applications referred to in Articles 143(1), 151(9), 283, 325az, and 363 of the CRR (p. 6-9).

2. Joint decision-making process (JD):

- The consolidating supervisor forwards the application to the relevant authorities within 10 days.

- The application is deemed complete if it contains all information required by the CRR.

- Authorities cooperate to assess the application, exchange contributions, and reach a decision within the legal six-month deadline (p. 8-9).

- Participation of third-country authorities is foreseen when models apply to exposures in those countries, with agreement on their role and contributions (p. 8).

3. Specific amendments made:

- Updating regulatory references to incorporate CRR III and new delegated regulations.

- Explicit removal of AMA from the scope.

- Provisional maintenance of the reference to Article 363 of the CRR regarding market risk, due to the postponement of FRTB rules application to 2026 (p. 5, 7-9).

4. Public consultation and feedback:

- Three responses received, confirming clarity of scope and relevance of amendments.

- Points raised outside ITS scope: excessive duration of JD process, need for better cooperation with third-country authorities.

- The EBA recalls that deadlines are set by primary legislation and alignment with third-country authorities exceeds the ITS mandate (p. 11-15).

5. Cost-benefit analysis:

- The amendments, essentially technical and legal, do not imply additional costs or impacts.

- Maintaining the current framework ensures effective cooperation and harmonization of practices (p. 11-12).

Main Findings and Lessons Learned

Established facts:

- The existing ITS framework is robust and appropriate, requiring only adjustments to reflect CRR III regulatory developments (p. 4-5).

- The removal of AMA for operational risk is a direct consequence of CRR III, not discussed within the ITS (p. 14).

- The legal six-month deadline for the joint decision is set by primary regulation and cannot be modified by the ITS (p. 13, 15).

Assumptions:

- Maintaining the reference to Article 363 of the CRR for market risk is provisional, due to the postponement of FRTB rules application (p. 5, 8).

Interpretations:

- The EBA considers that practical experience accumulated does not justify substantial changes to the JD process (p. 4-5).

- Cooperation with third-country authorities is recognized as important but its regulatory alignment exceeds the ITS framework (p. 12-13).

Uncertainties:

- Responses to the public consultation raised concerns about process duration and international cooperation, but these aspects remain outside the ITS scope (p. 12-15).

Conclusions and Recommendations

The EBA recommends adopting the proposed ITS amendments to ensure compliance with CRR III, notably the removal of AMA for operational risk and updating regulatory references. The amended framework will facilitate cooperation among competent authorities in the joint decision-making process for internal model approvals, while respecting legal deadlines. No substantial process changes are necessary, the existing framework being deemed effective. The EBA emphasizes that issues related to decision deadlines and cooperation with third-country authorities, although relevant, exceed the ITS mandate and fall under other regulatory initiatives. The draft will be submitted to the European Commission for approval, then to the European Parliament and the Council before publication in the Official Journal of the European Union (p. 3, 10-15).