1.   The calibration of risk parameters shall be based on the institution’s definition of default that is applicable to the respective internal model for calculating KIRB in accordance with Article 255(4) of Regulation (EU) No 575/2013. Institutions calculating KIRB that use external data or proxy data for the calibration of risk parameters shall meet all of the following requirements:

(a)	they shall ensure that the definition of default used in the data is consistent with Article 178(1) of Regulation (EU) No 575/2013;

(b)

they shall ensure that the definition of default used in the data is consistent with the definition of default as implemented by the institution calculating KIRB in accordance with Article 255(4) of Regulation (EU) No 575/2013 for the relevant portfolio of qualifying securitised exposures, including all of the following: (i) the counting and number of days past due that triggers default; (ii) the structure and level of the materiality threshold for past due credit obligations; (iii) the definition of distressed restructuring that triggers default; (iv) the type and level of specific credit risk adjustments that triggers default; (v) the criteria to return to non-defaulted status;

(c)	they shall document sources of the data, the default definition used in those data, the analysis performed, and all identified differences.

2.   For each of the differences identified in the definition of default resulting from the assessment on the consistency of the definition of default referred to in paragraph 1, institutions calculating KIRB shall:

(a)	assess whether the adjustment to the internal definition of default would lead to an increased or a decreased default rate, or whether that is impossible to determine;

(b)	depending on the outcome of the assessment referred to in point (a), either adjust the data accordingly, or be able to demonstrate that the difference is negligible in terms of the impact on all risk parameters and own funds requirements, as appropriate.

3.   With regard to the totality of the differences identified in the definition of default resulting from the assessment referred to in paragraph 1,institutions calculating KIRB shall, and taking into account the adjustments performed in accordance with paragraph 2, point (b), achieve a broad equivalence with the internal definition of default used within the internal model for calculating KIRB, including, where possible, by comparing the default rate in internal data on a relevant type of exposures with external or proxy data.

4.   Where the assessment referred to in paragraph 1 identifies differences in the definition of default that are non-negligible but not possible to overcome by adjustments in the data, institutions calculating KIRB shall adopt an appropriate margin of conservatism in the estimation of risk parameters in accordance with Article 179(1), point (f), of Regulation (EU) No 575/2013. In that case, institutions calculating KIRB shall ensure that such additional margin of conservatism reflects the materiality of the remaining differences in the definition of default and their possible impact on all risk parameters.