CP10 (Full Document) - European Banking Authority

approaches for regulatory purposes have, by doing so, made the
choice of being viewed and assessed as a sophisticated institution.
22. These guidelines are neutral on the extent to which supervisors
perform their own assessments. This choice will reflect the different
approaches of individual national authorities regarding the use of
external auditors or internal inspectors for on­site missions or off­site
assessments.
23. In line with CEBS’ mandate and reflecting the nature of its consensus
based tools for promoting convergence, these guidelines reflect a
common understanding among European supervisory authorities of
the procedures to be used in processing, assessing, and making
decisions on the application of an institution to use an AMA or an IRB
approach for regulatory purposes. They also set out guidance, again
based on a common understanding among the supervisory
authorities, on the meaning and the implementation of the minimum
requirements for using these approaches, as set out in the Capital
Requirements Directive (CRD). However, as these guidelines are
neither comprehensive nor exhaustive, supervisors may impose
stronger or more detailed requirements than those listed in the
guidelines. No institution should therefore conclude that national
supervisors are prohibited from imposing additional requirements in
a given area simply because it is not covered by the CEBS guidelines.
24. Although supervisory authorities could encourage institutions to
move to advanced approaches for calculating all their capital
requirements, there is no specific requirement in the CRD for the
synchronised use of AMA and IRB Approaches. An institution that
adopts an advanced approach for credit risk is not obliged to move to
an advanced approach for operational risk, or vice versa. This is
ultimately a decision for the institution to make on the basis of
specific operational or credit risk elements and variables.
1.4. Contents of the guidelines
25. The first part of the guidelines (section 2 of this paper) describes the
supervisory co­operation process and sets out some minimum
requirements governing the application to use an AMA or an IRB
approach, the supervisor’s assessment of the application, and the
supervisor’s decision.
26. The second part of the guidelines (section 3 of the paper) expands
on the minimum requirements of the CRD, which institutions must
fulfil in order to use an IRB approach for regulatory purposes. These
minimum requirements relate to:
· The methodology used for assigning ratings, estimating risk
parameters, and documenting them internally.
· The data used for estimation.
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