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E U R O P E A N B A N K I N G A U T H O R I T Y
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The EBA continued its work on the enhance-
ment of the
comparability of capital require-
ments
, as part of the broad review of the Inter-
nal Ratings Based (IRB) approach started in the
previous year. The use of internal models is an
important element to improve risk-sensitive-
ness when measuring capital requirements.
In February, the EBA issued a roadmap for
the implementation of the
regulatory review
of internal models
, consisting of four phases
according to the following priorities: assess-
ment methodology; definition of default; risk
parameters; and credit risk mitigation (CRM).
The last phase will be finalised by the end of
2017 and the implementation of the changes in
the institutions’ models and processes should
be finalised by the end of 2020 at the latest, as
outlined in a separate EBA opinion.
The EBA continued to work on risk parame-
ters and the consistency of
risk-weighted as-
sets (RWAs)
in the EU banking sector through
the development of annual supervisory bench-
marking exercises for credit and market risk.
The 2016 exercise covered credit risk for small
and medium-sized enterprises (SMEs), other
corporate and residential mortgage (the so-
called high-default portfolios) and market risk
portfolios. The EBA published two reports at
the beginning of 2017.
In November 2016, the EBA published its final
draft Regulatory Technical Standards (RTS)
that specify the conditions under which compe-
tent authorities (CAs) assess the significance
of positions included in the scope of
market
risk internal models
, as well as the methodol-
ogy they shall apply when assessing an insti-
tution’s compliance with the requirements to
use an Internal Model Approach (IMA) for mar-
ket risk. Regarding market infrastructure, the
three European Supervisory Authorities (ESAs)
published in March 2016 the final draft RTS
outlining the European Market Infrastructure
Regulation (EMIR) margining framework for
non-centrally cleared over-the-counter (OTC)
derivative transactions, which was adopted in
October 2016 by the European Commission.
In December 2015, EBA recommended to de-
velop a new, more risk-sensitive prudential
framework for
investment firms
, taking into
account the objectives of preserving financial
stability, protecting investors and ensuring
failures are managed in an orderly fashion. In
June 2016, the EBA launched a consultation
in response to the European Commission’s
call for technical advice on the design of a new
prudential regime for investment firms. The
approach presented in the discussion paper
aimed to better capture the risks for invest-
ment firms that are not deemed to be system-
ic and bank-like, and recommended a single,
harmonised set of requirements that are rea-
sonably simple, proportionate and more rel-
evant to the risks that investment firms pose
to customers and markets.
Following the launch of the first EBA impact
assessment of
International Financial Re-
porting Standards (IFRS) 9
, that gathered
results from of approximately 50 banks in the
EU, the EBA published in November 2016, a
report that included qualitative and quantita-
tive observations. This report was the first EU
initiative launched to get a clearer picture of
the institutions’ arrangements regarding the
IFRS 9 implementation. It highlighted that,
as of December 2015, banks were still in the
early stages of preparation. A second impact
assessment on a similar sample of banks was
launched at the end of November 2016.
Following the public consultation on the initial
proposals, the EBA issued in November 2016
the final guidelines on the
communication
between competent authorities
supervising
credit institutions and the statutory auditors
of credit institutions. The guidelines are effec-
tive from 31 March 2017. Effective communi-