The European Central Bank has begun a consultation on the first chapter of a proposed guide to internal models. The Capital Requirements Regulation requires the ECB to assess and grant permission for banks directly supervised by the ECB to use internal models for credit risk, counterparty credit risk and market risk. The ECB's proposed guide aims to set out how the ECB intends to approach the assessment of whether a firm meets the necessary requirements for the permission to be granted.

The consultation covers only the first chapter of the proposed guide. This chapter is on general topics comprising overarching principles for internal models, implementation of the internal ratings-based approach, internal model governance, internal validation and audit, model use and change management as well as third-party involvement. The ECB intends to consult on model-specific chapters, including for credit, market and counterparty credit risks, at a later date.

The consultation closes on May 25, 2018.

View the consultation paper.