ISDA Responds to EBA Consultation on Internal Models Benchmarking

On February 15, 2021, ISDA submitted a response to the European Banking Authority (EBA) on its consultation on the implementing technical standards for the 2022 internal models benchmarking exercise.

Article 78 of Directive 2013/36/EU (CRD IV) requires competent authorities to conduct an annual assessment of the quality of internal approaches used for the calculation of own funds requirements. To assist competent authorities in this assessment, the EBA calculates and distributes benchmark values against which individual institutions’ risk parameters can be compared. These benchmark values are based on data submitted by institutions as laid out in Commission Implementing Regulation (EU) 2016/2070, which specifies the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercises.

The industry appreciates the EBA’s efforts to harmonize the output of firms’ internal models. However, there is concern that the benchmarking exercise for market risk for IMA (internal model approach) banks is proposed to extend and also cover the Fundamental Review of the Trading Book alternative standardized approach (ASA). The industry appreciates that the EBA only aims to include information that is already part of the ASA calculation, but it will nevertheless be an additional burden to IMA banks.

The industry furthermore proposes that any ASA sensitivities that are reported use the industry standard common risk interchange format (SA-CRIF), as this has been widely tested and used by industry participants.

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