Regulatory Alerts2021-12-15 | NBB_2021_31Added · Updated
Circular NBB_2021_31 / EBA Guidelines of 13 July 2021 specifying criteria for input data in the risk measurement model under Article 325f of Regulation (EU) No 575/2013
The National Bank of Belgium integrates the European Banking Authority's guidelines on input data criteria for the Internal Model Approach for Funding Risks into its supervisory practice, effective 1 January 2022. These guidelines apply to Belgian credit institutions, approved financial companies, and significant Belgian broker-dealers, requiring input data to be accurate, appropriate, sufficiently updated, and complete. Institutions must reconcile data with verifiable prices or market systems, update calibration data more frequently than monthly if necessary, and ensure data reflects risk factor distributions and dependency structures. The circular specifically outlines the National Bank of Belgium's approach for less significant institutions while recommending that significant institutions supervised directly by the ECB follow these same standards.
NBB_2021_31 – 15 December 2021 Circular – Page 1/3 14 Berlaimont Boulevard – BE-1000 Brussels tel. +32 2 221 30 17 company number: 0203.201.340 RPM Brussels www.bnb.be
Circular Brussels, 15 December 2021 Reference: NBB_2021_31 Your contact: Gaëtan Doucet tel. +32 2 221 38 10 gaetan.doucet@nbb.be
Guidelines of the European Banking Authority (EBA) of 13 July 2021 specifying the criteria relating to the use of input data in the risk measurement model referred to in Article 325f of Regulation (EU) No 575/2013
Scope This circular applies to Belgian credit institutions and approved or designated Belgian financial companies (hereinafter "institutions"), and to Belgian broker-dealers referred to in Article 1, paragraphs 2 and 5 of Regulation 2019/2033 (hereinafter, "significant Belgian broker-dealers").
Summary/Objectives The EBA guidelines EBA/GL/2021/07 (hereinafter "the EBA guidelines specifying the criteria relating to the use of input data in the risk measurement model referred to in Article 325f of Regulation (EU) No 575/2013") define the characteristics that input data used in the risk model developed by a Belgian institution or significant Belgian broker-dealer should present. These guidelines apply with effect from 1 January 2022. This circular clarifies the NBB's approach regarding less significant institutions (LSI) and significant Belgian broker-dealers. It is recommended that significant institutions subject to direct supervision by the ECB follow this circular to the extent that the ECB does not publish guidelines on this matter.
Circular – Page 2/3 NBB_2021_31 – 15 December 2021
Madam, Sir, The National Bank of Belgium wishes to indicate by this circular that the EBA guidelines specifying the criteria relating to the use of input data in the risk measurement model referred to in Article 325f of Regulation (EU) No 575/2013 are integrated into its supervisory practice. These guidelines apply with effect from 1 January 2022. In order to be used in the risk measurement model referred to in Article 325f, input data should present the following characteristics, some important elements of which are recalled below:
- they should be accurate,
- they should be appropriate,
- they should be updated with sufficient frequency,
- they should be complete.
The accuracy of input data covers various dimensions detailed in the guidelines. In particular, institutions should reconcile input data for the current period either with corresponding data derived from verifiable prices, or with corresponding data used by front-office or back-office systems. Reconciliation can also be performed on prices produced by their internal risk measurement model based on the input data of the current period, either with verifiable prices or with prices produced by front-office or back-office systems. When these techniques are not possible, it is authorized to resort to historical data used to calibrate input data or prices resulting from this historical data. Furthermore, input data should reflect the properties of the distributions of the corresponding risk factors as well as their dependency structure.
The guidelines also specify the conditions under which substitute data from the period of financial stress can be used to account for the effect of fundamental changes. Finally, accuracy is also emphasized in the case of the use of beta approximations or other random data generation methods for the determination of future shock scenarios, as well as in the case of the use of combinations of risk factors. The appropriateness of input data refers to the coverage, where applicable, of general market risks and specific market risks, for which institutions are expected to produce detailed analyses.
Institutions should update the historical data used to calibrate the input data for the current period more frequently than once a month, when a monthly update could lead to an inaccurate estimate. When institutions use beta approximations or other random data generation approaches for the determination of future shock scenarios, they should recalibrate at least once a month. Finally, the guidelines specify the conditions for the completeness of input data, particularly in the case of missing or inconsistent values, as well as regarding alternative data sources (for example, to address the unavailability of usual sources).
NBB_2021_31 – 15 December 2021 Circular – Page 3/3 The EBA guidelines specifying the criteria relating to the use of input data in the risk measurement model referred to in Article 325f of Regulation (EU) No 575/2013 can be consulted on the EBA website: Guidelines on use of data inputs in the IMA_FR.pdf (europa.eu) or on the NBB website. A copy of this circular is sent to the commissioner(s), approved auditor(s) of your institution. Please accept, Madam, Sir, the assurance of my distinguished consideration.
Pierre Wunsch Governor