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WSBI-ESBG concerned over EU default definition

WSBI-ESBG concerned over EU default definition

Expresses concerns on timeframe for implementing draft guidelines. ​

​ >> See the entire submission to the EBA consultation 


Published: BRUSSELS, 27 January 2016​

​BRUSSELS, 27 January 2016 ​ WSBI-ESBG this month submitted its response to the EBA consultation on guidelines on the application of the definition of default under Article 178 of Regulation (EU) 575/2013.

Before answering  questions included in the consultation paper, the trade association expressed concerns about the timeframe for implementing the draft guidelines. They will, jointly with the RTS on the materiality thresholds of past due credit obligations (once published), have a considerable impact on IRB banks, WSBI-ESBG argue, and will lead to complex technical issues which will need to be resolved in the implementation process.

The associations note that, bearing in mind that convergence between both the regulatory and the accounting treatment is needed and the IFRS 9 implementation is still in progress, an inadequate timeframe could lead to the result of having to invest a lot of money on technical developments within a short timeframe.

They stress that, in principle, it considers striving for the alignment of definitions as positive. At the same time, the proposed guidelines may require recalibration of a significant part of institutions' IRB portfolios, depending on the deviation between the currently-used definition and the proposed one. Requirements to adjust historical data to the proposed application of the default definition will be difficult since adequate data may be missing.

Based on the considerations above, it is of crucial relevance to determine the deadlines for the implementation of both these draft guidelines and the RTS on the materiality of past due credit obligations, in a wise and feasible manner. More precisely, ESBG expects considerable challenges in the development of IT-systems and models. Those tasks will be costly and time-consuming for institutions as well as for competent authorities which will potentially receive numerous applications on material changes to IRB models. To adapt to the new definition of default our assessment is that at least two to three years will be required, excluding time for competent authorities to assess material changes.

 ​ >> See the entire submission to the EBA consultation, includeing answers to questions 

European Supervisory Authorities (EBA-ESMA); IFRS