The European Banking Authority (EBA) published its progress report on the roadmap set out in 2016 to address the concerns about undue variability in the internal models used to calculate own funds requirements for credit risk under the internal-ratings-based (IRB) approach. It marks the finalisation of the regulatory review of the IRB framework, which encompassed all the EBA related guidelines and technical standards. The EBA has decided to extend the deadline for introducing changes in the rating systems by one year, to the end of 2021. In addition, considering the interactions with the final Basel III framework, published by the Basel Committee on Banking Supervision (BCBS) in December 2017, the EBA allowed for the changes in the loss-given-default (LGD) and conversion-factors models for low-default portfolios to be implemented by the end of 2023.
Besides the Guidelines on credit risk mitigation (CRM), which are currently under consultation, the EBA does not intend to make any further revisions to its guidance on internal models. The EBA's efforts will now focus on monitoring and exploring whether there is evidence of reduced variability of risk-weighted exposure amounts. It has also started work to improve transparency through harmonised Pillar-3 disclosures, based on the revised requirements set out in the revised Capital Requirements Regulation (CRR II). In parallel, the EBA will undertake work on supervisory reporting to align it with the revised disclosure requirements. The EBA will carry out a comprehensive review to improve the consistency of data requests with the definitions and clarifications developed in the regulatory review of the IRB approach. This broader work will consider all the data requirements, including both supervisory reporting and data collected for the purpose of supervisory benchmarking.