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    EC Regulation Amends Technical Standards on Benchmarking Exercise

    November 19, 2021

    The European Commission (EC) published Regulation 2021/1971 that sets out the implementing technical standards for templates, definitions, and IT solutions to be used by institutions when reporting to the European Banking Authority (EBA) and to the competent authorities in accordance with the Capital Requirements Directive (CRD IV). Regulation 2021/1971 amends Regulation 2016/2070 on benchmarking of internal models. With this amendment, annexes to Regulation 2016/2070 have been replaced by annexes to the Regulation 2021/1971, which shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    Regulation 2016/2070 specifies the reporting requirements for institutions to enable the competent authorities to monitor the range of risk-weighted exposure amounts or own funds requirements for exposures or transactions in the benchmark portfolio resulting from the internal approaches and to assess those approaches (the benchmarking exercise). For the credit risk analysis, previous benchmarking exercises highlighted some potential for improving both the definition of the benchmarking portfolios and the reporting instructions. In addition, the previous benchmarking exercises demonstrated that the number of portfolios reported and their complexity were a strong impediment to the quality of the data reported. Additionally, suggestions and feedback from institutions taking part in the past market risk benchmarking exercises showed the need to amend certain definitions of the instruments for the market risk exercise laid down in Annex V to Regulation 2016/2070. Thus, given the previous feedback and experiences and the need to improve the quality of reported data and to obtain more accurate benchmark values, the benchmarking portfolios are being revised along these three lines via Regulation 2021/1971: decrease in the number of benchmark portfolios, simplified design of the benchmark portfolios, and better, more stable benchmark portfolio definitions.

     

    Related Link: Regulation 2021/1971 (PDF)

    Effective Date: December 09, 2021

    Keywords: Europe, EU, Banking, Reporting, Implementing Technical Standards, Benchmarking Exercise, CRD IV, Credit Risk, Market Risk, Basel, Internal Model Approach, Internal Models, EBA

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