A Commission Delegated Regulation, in the form of Regulatory Technical Standards specifying conditions for data waiver permissions, was published in the Official Journal of the European Union. The Capital Requirements Regulation outlines the requirements specific to own-loss given default (“own-LGD”) for regulators when quantifying the risk parameters to be associated with rating grades or pools. The RTS lays down the mandatory conditions under which national regulators may grant firms permissions to use data covering a period of two years, rather than five years, for probability of default, own-LGD and own-conversion factor estimates as set out in the CRR. The RTS stipulates that exposures to central governments, central banks, banks and investment firms would be eligible for data waiver permissions, subject to certain additional requirements being met. First, exposures to corporates would be eligible for data waiver permissions where they are not structurally characterized by few or no observed defaults. Second, types of exposures which were not included in the bank or investment firm’s portfolio at the time when the firm started to implement the Internal Ratings Based Approach should not be eligible for a data waiver permission.
The RTS stipulates both quantitative and qualitative conditions that must be satisfied before a national regulator may grant a data waiver permission, including that a firm provides well-documented evidence that certain qualitative conditions are satisfied for every type of exposure.
Regulators may only grant waiver permissions for the first five years after the date when a firm was first permitted to calculate its risk-weighted exposure amounts using the IRB approach in accordance with the CRR. Data waivers granted by regulators before entry into force of the RTS will not be subject to the requirements of the RTS. The RTS will apply from February 3, 2017.
View the RTS.
