On 28 October, ESBG responded to the European Banking Authority (EBA) consultation on the supervisory handbook for Internal Rating Based (IRB) systems validation. The handbook aims to clarify the role of the validation function as part of corporate governance, in particular in terms of scope of work and interaction with the credit risk control unit.
As a general comment, we stressed that organizational suspension of the validation function should be independent of the size of the bank. In addition, it should be ensured that the validation manual is free of inconsistencies with existing supervisory regulations such as the ECB Guide on Internal Models.
ESBG stressed that it would be helpful to consider the aspect of proportionality more closely. The validation approach proposed by the EBA hardly differentiates between the materiality of models/portfolios and model changes. On the contrary, the intensity and scope of validation activities must always be based on the expected data situation, the importance of the rating procedure, and the scope and complexity of the changes made.
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TOPIC: Prudential regulation
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