Regulatory Alerts2023-04-20
Added · Updated
Commission Delegated Regulation (EU) 2023/1578 on regulatory technical standards for internal methodologies and external sources estimating default probabilities and losses given default
The European Commission adopted Delegated Regulation (EU) 2023/1578 to specify regulatory technical standards for institutions using internal methodologies or external sources to estimate default probabilities and losses given default under the internal default risk model. The regulation establishes specific requirements for these methodologies, including conservative floors for loss given default estimates (such as 75% for subordinated debt) and conditions for using simplified approaches when external data is unavailable or disproportionate. It mandates periodic validation of external sources, the establishment of source hierarchies, and detailed documentation of methodologies and assumptions for competent authorities. The regulation entered into force on 20 August 2023.