Updated 25/12/2024
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Article 2 - Methods to be applied by competent authorities

Article 2

Methods to be applied by competent authorities

1.   For the purposes of assessing initial applications for permission to use the IRB Approach, competent authorities shall apply all compulsory methods set out in this Regulation. They may also apply other methods set out in this Regulation in accordance with paragraph 7 and any other methods in accordance with paragraph 8.

2.   For the purposes of assessing applications for permission to extend the IRB Approach in accordance with a sequential implementation plan, competent authorities shall apply all compulsory methods set out in Chapters 4, 5, 7 and 8. They may also apply other methods set out in this Regulation in accordance with paragraph 7 and any other methods in accordance with paragraph 8.

3.   For the purposes of assessing applications for prior permission to carry out changes to the IRB Approach, competent authorities shall review the documents required to be submitted by institutions with regards to the change in accordance with Article 8 of Delegated Regulation (EU) No 529/2014. They may also apply any methods set out in this Regulation in accordance with paragraphs 7 and any other methods in accordance with paragraph 8.

4.   For the purposes of assessing changes to rating systems and internal models approaches to equity exposures which have been notified, competent authorities shall review the documents required to be submitted by institutions with regard to the change in accordance with Article 8 of Delegated Regulation (EU) No 529/2014 and may apply any methods set out in this Regulation in accordance with paragraph 7 and any other methods in accordance with paragraph 8.

5.   For the purposes of conducting ongoing reviews of the use of the IRB Approach, competent authorities may apply any methods set out in this Regulation in accordance with paragraph7 and any other methods in accordance with paragraph 8.

6.   For the purposes of assessing the applications to revert to the use of less sophisticated approaches, competent authorities may apply any of the methods set out in Chapter 2 of this Regulation in accordance with paragraph 7 and any other methods in accordance with paragraph 8.

7.   Where this Regulation provides for optional use of methods, the competent authorities may apply any of those methods which are suitable and appropriate to the nature, size and degree of complexity of the institution’s business and organisational structure, taking into account:

(a)

the materiality of the types of exposures covered by rating systems;

(b)

the complexity of the rating models and risk parameters and their implementation.

8.   In addition to the methods set out in this Regulation, competent authorities may use other methods, which are suitable and appropriate to the nature, size and degree of complexity of the institution's business and organisational structure, where this is necessary for the assessment of compliance with the requirements to use the IRB Approach.

9.   When applying the methods set out in this Regulation, competent authorities may take into account results from recent assessments made by themselves or by other competent authorities, if those assessments fulfil both of the following conditions:

(a)

the assessment was based wholly or in part on the compulsory methods;

(b)

the subject of the assessment included the same or a similar rating system in the same class of exposures.