Final Report on Draft RTS on the Materiality of Extensions and Changes to the Use of FRTB IMA and Changes to the Subset of MRF

EBA/RTS/2024/15
20 June 2024
Final Report
Draft Regulatory Technical Standards on the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the CRR

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Contents

1. Executive Summary 3
2. Background and rationale 5
   2.1 Scope of the materiality assessment of model extensions and changes, and changes to the
   institution’s choice of the subset of modellable risk factors 5
   2.2 General methodology for the assessment of the materiality of model extensions and
   changes 8
   2.3 General methodology for the assessment of the materiality of changes to the institution’s
   choice of the subset of modellable risk factors 14
   2.4 General provisions for assessing the materiality of model extensions and changes and
   changes to the institution's choice of the subset of the modellable risk factors 17
3. Draft regulatory technical standards 20
4. Accompanying documents 37
   4.1 Draft cost-benefit analysis / impact assessment 37
   4.2 Feedback on the public consultation 45

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS

1. Executive Summary
   Regulation (EU) 2019/876 (the Capital Requirements Regulation 2 – CRR2) amended Regulation (EU) No 575/2013 (CRR) and implemented in EU legislation, inter alia, the revised requirements to compute own funds requirements (OFR) for market risk of the Basel III package, i.e. the Fundamental Review of the Trading Book (FRTB). The CRR allows institutions to calculate their OFR for market risk using the alternative internal model approach (IMA), provided that permission from competent authorities (CAs) is granted. According to the CRR, material changes to the use of the IMA, the extension of the use of the IMA and material changes to the institution's choice of the subset of the modellable risk factors (MRF) require separate permission from CAs. All other extensions and changes to the use of the IMA require notification to the CAs.
   Article 325az(8)(a) of the CRR requests the EBA to draft regulatory technical standards (RTS) to
   specify the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors. The mandate in Article 325az(8)(a) of the CRR is very similar to the mandate in Article 363(4)(a), which constitutes the legal basis for the existing RTS on market risk model extension and changes, therefore the existing RTS is used as a starting point from which the new RTS is developed. These final draft RTS follow the CRR differentiation between material extensions and changes, to be approved by CAs, and non-material extensions and changes, to be notified to CAs four weeks in advance. The latter category is further divided into two sub-categories: notified extensions and changes requiring additional information and other extensions and changes, which are to be notified with basic information. For the categorisation of model extensions and changes to the relevant categories/sub-categories, a combination of qualitative and quantitative conditions is proposed. In particular, the quantitative conditions aim at assessing the effect of the extension or change on the IMA OFR and on each component of the FRTB IMA (ES, SS and DRC), before and after the planned extension or change. In addition, for changes to the institution’s choice of the subset of modellable risk factors, the effect of the change on the ratio PESt RC / PESt FC is also assessed. With the publication of these final draft RTS, the EBA has now completed its CRR2 FRTB roadmap published on 27 June 2019 1 . 1 With the exception of the mandate on GL on the meaning of exceptional circumstances for the reclassification of a position under Art. 104a(1), which has been postponed as a result of expected CRR3 provisions on the boundary between trading book and banking book and the EBA non-action letter published on 27 February 2023.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Next steps The draft regulatory technical standards will be submitted to the Commission for endorsement following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

2. Background and rationale
   Article 325az(1) and (2) of the CRR allow institutions to calculate its own funds requirements (OFR) for
   market risk using the alternative internal model approach (IMA), provided that permission from competent authorities (CAs) is granted.
   Article 325az(7) of the CRR specifies that material changes to the use of the IMA that an institution has
   received permission to use, the extension of the use of the IMA that the institution has received permission to use, and material changes to the institution's choice of the subset of the modellable risk factors (MRF) referred to in Art. 325bc(2), shall require separate permission from CAs. Institutions shall notify the CAs of all other extensions and changes to the use of the IMA for which the institution has received permission.
   Article 325az(8)(a) of the CRR requests the EBA to draft regulatory technical standards (RTS) to specify
   the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Art. 325bc (“reduced set” of MRF). The mandate in Article 325az(8)(a) of the CRR is very similar to the mandate in Article 363(4)(a), which constitutes the legal basis for the existing RTS on market risk model extension and changes 2 . The only novelty is that the new mandate separately mentions the changes to the “reduced set” of MRF for the rest of model extensions and changes. Considering the similarities between the existing and the new mandates, the existing RTS is used as a starting point from which the new RTS is developed. This background section provides an overview of the proposed conditions for assessing the materiality of model extensions and changes, and changes to the choice of the subset of MRF, as well as their rationale. In addition, clarification is provided, including by means of examples, around the notion of model extension and change and of changes to the choice of the subset of MRF.
   2.1 Scope of the materiality assessment of model extensions and
   changes, and changes to the institution’s choice of the subset of modellable risk factors It has been considered that the permission of CAs for the use of the IMA relates to the methods, processes, controls, data collection, organisation of the risk management and internal validation Commission Delegated Regulation (EU) No 529/2014 of 12 March 2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for assessing the materiality of extensions and changes of the Internal Ratings Based Approach and the Advanced Measurement Approach, as amended by Commission Delegated Regulation (EU) 2015/942 of 4 March 2015 as regards regulatory technical standards for assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk.

function, and IT systems used. As a consequence, ongoing alignment of the model to the dataset used, correction of errors or minor adjustments necessary for the day-to-day maintenance of the model are all elements that should not be considered as changes to the model, if they occur within the already approved methods, processes, controls, data collection, organisation of the risk management and internal validation function, and IT systems used. This understanding remains unchanged compared to the current RTS (see in particular recital 7 of the amending RTS on market risk model extensions and changes 3 ) and is also in line with current supervisory practices on materiality assessment for changes to internal models in other areas, such as counterparty credit risk and credit valuation adjustments.
2.1.1 Clarification of the notion of model extensions and changes
Similarly to the case of model maintenance, there exist other modifications to the IMA which should not be considered as model extensions or changes. In fact, it should be considered that some modifications to the IMA are automatically triggered by the regulation when specific conditions materialise and are not at the bank’s initiative. In general, those modifications should not be considered as model changes if they happen within the approved methods, processes, controls, data collection, organisation of the risk management and internal validation function, and IT systems used. In contrast,modifications to the IMA performed at the bank’s initiative should generally be considered as model extension or changes and should be covered under the scope of these RTS if they constitute a change of the approved methods, processes, controls, data collection, organisation of the risk management and internal validation function, and IT systems used. For example, changes of

• the valuation methodology for the use of the sensitivity-based pricing methods for the
  determination of the loss for some financial instruments or commoditiesin the SSRM context (as set out in Art. 13(3) of the RTS on the capitalisation of non-modellable risk factors 4 ),
• the bucketing approach from the regulatory bucketing approach to the use of the own￾bucketing approach for the risk factor modellability assessment (as set out in Art. 5(1) of the
  RTS on risk factor modellability 5
  )
• the parametric representation of an interest rate curve from principal components to the
  Nelson-Siegel approach
  Commission Delegated Regulation (EU) 2015/942 of 4 March 2015 amending Delegated Regulation (EU) No 529/2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council as regards regulatory technical standards for assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk Commission Delegated Regulation (EU) 2024/397 of 20 October 2023 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards on the calculation of the stress scenario risk measure Commission Delegated Regulation (EU) 2022/2060 of 14 June 2022 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the criteria for assessing the modellability of risk factors under the internal model approach (IMA) and specifying the frequency of that assessment under
  Article 325be(3) of that Regulation

should be considered model changes when they represent a change of the approved methods and approaches, for which it should be ensured that they are implemented in accordance with the regulatory requirements. In addition, it should also be considered that some cases are already covered in other parts of the regulatory framework and as such they should not be considered under these RTS, to avoid duplicate requirements. An example of these cases is represented by changesto an IRB model which produces the PDs and/or LGDs used for the purpose of the FRTB IMA DRC.
2.1.2 Grouping or splitting model extensions and changes
Another aspect to consider is the granularity which should be applied to define a modelextension or change, i.e. whether a group of modifications should be considered as a single model change or as different changes. It is EBA’s view that a guiding principle, in this sense, should be to consider similarities in the type of modification at hand. For example, changes of the parametric representation of interest rate curves from principal components to the Nelson-Siegel approach should constitute a unique model change if the methods, processes, controls, data collection, and IT systems used to model these curves are the same among the curves. On the other hand, it is also EBA’s view that timing should not be considered as a reason to justify the grouping or splitting of modifications into one or several model changes, respectively. For example, if the methodology to represent interest rate curves is changed in a phased approach, where the methodological change is first applied to some curves and subsequently to others, suchmodifications constitute one unique model change, if they constitute the same change to the approved methods, processes, controls, data collection, organisation of the risk management and internal validation function, and IT systems used. As a consequence, one unique materiality assessment should be performed encompassing all such modifications. Similarly, where a change in booking models leads to products, for which the institution was transferring the market risk to another entity of the group outside the scope of the highest level of consolidation within the Union/EEA, being progressively internally hedged and significantly changes the scope of positions of a given trading desk covered by the IMA, such progressive modification should be considered as one unique model extension.
2.1.3 Clarification of the notion of changes to the institution’s choice of the subset
of modellable risk factors
The choice of the reduced set of MRF is part of the institution’s approved and documented set of internal policies and procedures. Changes to the choice of the reduced set of MRF constituting modifications to such policies and procedures, are covered by thesedraft RTS in line with the mandate of Article 325az(8)(a) of the CRR. It may happen in practice, however, that changes to the composition of risk factors included in the reduced set occurwithin approved internal policies and procedures, for example,as a consequence of reduction of data availability. Such cases do not constitute a change to the institution’s choice of the subset in the sense of these draft RTS, because they do not entail a change in the approved policies and procedures defining the reduced set.

2.2 General methodology for the assessment of the materiality of
model extensions and changes
These new draft RTS follow the same approach of the existing RTS regarding the classification of model extensions and changes into different levels of materiality. The CRR differentiates between material extensions or changes that require permission, and all other extensions and changes that are subject to notification. Differently from the existing RTS, the new draft RTS propose to further differentiate extensions and changes subject to notification into two sub-categories: extensions and changes notified with additional information and extensions and changes notified with basic information. The former sub￾category encompasses all those extensions and changes which are not material but nonetheless are still of particular interest from a supervisory perspective, either because they produce a significant impact or because of their qualitative aspects. The latter sub-category includes all those extensions and changes which are neither material nor requiring additional information. In relation to the extensions and changes subject to notification, the timing of notification is not specified in the CRR, i.e. the CRR does not clarify whether the extension or change should be notified before or after implementation. Differently from the existing RTS, the EBA considers that non-material extensions and changes should be notified to competent authorities four weeks in advance of their implementation. This approach ensures that sufficient time is given to supervisors to review the notified extensions and changes, and to take follow-up actions, if necessary. For the categorisation of model extensions and changes to the relevant categories/sub-categories, these new draft RTS follow the same approach as in the existing RTS by employing a combination of qualitative and quantitative conditions. However, compared to the existing RTS, such qualitative and quantitative conditions have been streamlined. In what follows, the conditions for assigning model extensions and changes to each of the categories/sub-categories will be presented.
2.2.1 Conditions for assessing model extensions and changes as material
These new draft RTS provide (in Part I of the annex)a list of qualitative criteria for categorisingmaterial extensions and changes to the internal models. Such criteria, which have been fine-tuned following the consultation, are the following:

• significant changes to the structure or organization of an institution’s trading desks under the
  IMA, as it could be the case for significant changes to the booking models, the risk management structure or the business strategy, including the cases where:
  o the institution aims at applying internal risk transfers for the first time, o trading desks capture FX or commodity risk in the non-trading book for the first time, o trading desks start to include positions in different asset classes other than those forming part of the existing IMA permission;

• inclusion in the IMA scope of a trading desk, which was not part of the granted permission at
  the moment of the request, in any of the following cases:
  o if, for that trading desk, different front office systems or IT systems are used, o if that trading desk is located in a third country jurisdiction where, at the moment of the request, no trading desk in the scope of the IMA is located, o if that trading desk entails positions in different asset classes other than those forming
  part of the existing IMA permission;

• changes in the fundamental approach to calculate the IMA partial expected shortfall measures,
  as it could be the case where there is a change between historical simulation, parametric or Monte Carlo approach;

• changes in the fundamental approach to calculate the default risk charge, as it could be the
  case where there are significant changes to the choice of the systematic risk factors or to the correlation structure of the model. These new draft RTS also propose quantitative thresholds to be applied as a ‘back-stop’ measure in addition to the lists of qualitative criteria when determining the materiality of model extensions and changes. Two types of quantitative conditions are included: one condition that relates to the effect of the extension or change on the IMAOFR(defined as the sum ES * mc + SS + DRC, mc is the multiplication factor referred to in Article 325ba(1)(b)(i) of the CRR) before and after the planned extension or change, and one condition that relates to the effect of the extension or change on each component of the FRTB IMA, namely the ES (as defined in Art. 325ba(1)(a)(i) of the CRR), the SS (as defined in Art. 325ba(1)(a)(ii) of the CRR) and the DRC (as defined in Art. 325ba(2)(a) of the CRR), before and after the planned extension or change. For model changes, the following threshold levels are used (as represented in Figure 1):
  +15% for increases in the IMA OFR;
  -10% for decreases in the IMA OFR;
  +20% for increases in at least one of ES, SS and DRC; -15% for decreases in at least one of ES, SS and DRC.

Figure 1 Graphic representation of the quantitative conditions for identifying material changes
For model extensions, the following threshold levels are used (as represented in Figure 2):
+10% for increases in the IMA OFR;
-10% for decreases in the IMA OFR;
+15% for increases in at least one of ES, SS and DRC; -15% for decreases in at least one of ES, SS and DRC.
Figure 2 Graphic representation of the quantitative conditions for identifying material extensions
The indicators on the change in requirements are to be calculated for an observation period of 15 consecutive business days,starting from the first business day of the testing of the impact of the model 25% 20% 15% 10% 5% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% D % ES, SS or DRC -5% -10% -15% -20% -25% Material changes Non-material changes D% IMA OFR 25% 20% 15% 10% 5% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% D % ES, SS or DRC -5% -10% -15% -20% -25% D% IMA OFR Material extensions Non-material extensions

extension or change. Such an observation period should be representative of the trading and hedging activity under normal market conditions for the portfolio of positions affected by the change. In addition, such an observation period should furthermore not be older than nine months from the notification date or request of permission to competent authority. Specific provisions have been also included in order to maintain the proportionality of the general approach. Firstly, where some of the risk measures ESt-1, SSt-1 and DRCt-1 represent a small proportion of the OFR, even small impacts on such risk measures may have the unintended consequence of triggering the corresponding quantitative conditions. In order to avoid such unintended consequence, these draft RTS specify that only the relevant risk measures should be checked as part of the quantitative conditions. For being considered relevant, a risk measure should represent more than 5% of the IMA OFR (defined as above, i.e. as the sum ES * mc + SS + DRC). Such condition should be checked for all the 15 days observation period, both with and without the extension or change. In addition, following the feedback received during the consultation, an additional precondition is included checking that the risk measure represents more than 1% of the IMA OFR on the first business day in order to consider such a measure relevant. Secondly, it has been considered more appropriate to set out quantitative conditions on the most recent FRTB IMA risk numbers only (i.e. on ESt-1, SSt-1 and DRCt-1). The averages of such risk numbers over the preceding 60 business days (i.e. ESavg, SSavg and DRCavg) are therefore disregarded for the purpose of assessing the quantitative conditions, including for assessing the impact on the IMA OFR (i.e. the IMA OFR are approximated by mc*ESt-1+SSt-1+DRCt-1). Thirdly, it should be noted that an additional pre-condition is included that exempts from the computation of the two conditions on IMA OFR and risk numbers for 15 business days. In fact, in order to avoid excessive burden on institutions, extensions and changes that lead to changes in the relevant risk numbers of less than 1% in absolute terms, on the first business day of the testing, should be directly considered non-material (unless any of the qualitative conditions is met).
2.2.2 Conditions for assessing model extensions and changes to be notified with
additional information
In order to identify non-material extensions and changes which needs to be notified with additional information to the CA, these new draft RTS provide (in Part II of the annex) a list of qualitative criteria. Such criteria, which have been fine-tuned following the consultation, are the following:

• the inclusion in the scope of a trading desk under the IMA of product classes requiring risk
  modelling techniques that are not part of the current IMA permission, such as o when more complex products (e.g. path-dependent or multi-underlying instruments) are included under the scope of the IMA, or

o when a change in booking models leads to products, which were previously back-to￾back to another entity of the group outside the scope of the highest level of consolidation within the Union/EEA at the time when IMA permission was granted, start being risk-managed within the institution;

• changes to the structure or organisation of an institution’s trading desks consisting of the
  merging or the splitting of IMA desks, provided that they do not meet the conditions set out in subsection 2.2.1;

• changes in the methodology used to assess the modellability of risk factors;

• changes in the methodology for calculating actual or hypothetical profit and loss (P&L), when
  such changes have the effect of reducing the number of overshootings and lead a desk to pass the back-testing requirements set out in Article 325bf of the CRR after the change is implemented;

• changes in the methodology for calculating hypothetical or theoretical P&L, when such
  changes have the effect of increasing the Spearman correlation coefficient and/or reducing the Kolmogorov-Smirnov test metric and lead a desk to changing its classification in accordance with the RTS on P&L attribution (e.g. from yellow to green);

• fundamental changes in the internal validation methodology according to Article 325bj of the
  CRR, which lead to significant changes in the way the institution assesses the overall performance and integrity of the alternative internal models, such as o when the scope of the internal validation review, its frequency or the quantity and/or quality of the tests and controls performed are reduced, or o when there are significant changes to the decision-making process in place to ensure that the findings and recommendations resulting from the validation process are properly taken into account by the senior management of the institution;

• structural, organizational or operational changes to the core processes in risk management or
  risk controlling functions, according to Article 325bi(1) of the CRR, such as o significant changes to the limit setting framework, o changes to the reporting framework leading to a loss of information or to a change of addresses in the senior management, o changes to the stress testing methodology leading to significant differences in the stress testing results, o changes to the policies and approval processes for new products, or o changes to the policies and approval processes for internal model changes;

• fundamental extensions and changes in the IT infrastructure relevant for the calculation of the
  own funds requirements for market risk using the alternative internal models, such as o extension of the IT system to vendor pricing models, or o outsourcing of central data collection functions. Also for the identification of non-material extensions and changes which require additional information, these new draft RTS propose quantitative conditions to be applied in addition to the qualitative criteria, employing the same measures used for assessing the materiality of extensions and changes (i.e. IMA OFR, ES, SS and DRC). For model changes requiring additional information, the following threshold levels are used (as represented in Figure 3):
  +10% (but less than +15%) for increases in the IMA OFR; -5% (but less than -10%) for decreases in the IMA OFR; +15% (but less than +20%) for increases in at least one of ES, SS and DRC; -10% (but less than -15%) for decreases in at least one of ES, SS and DRC.
  Figure 3 Graphic representation of the quantitative conditions for identifying changes requiring additional information
  For model extensions requiring additional information, the following threshold levels are used (as represented in Figure 4):
  +5% (but less than +10%) for increases in the IMA OFR; -5% (but less than -10%) for decreases in the IMA OFR; 25% 20% 15% 10% 5% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% D % ES, SS or DRC -5% -10% -15% -20% -25% D% IMA OFR Material changes Changes requiring additional info Other changes

+10% (but less than +15%) for increases in at least one of ES, SS and DRC; -10% (but less than -15%) for decreases in at least one of ES, SS and DRC.
Figure 4 Graphic representation of the quantitative conditions for identifying changes requiring additional information
The same provisions applying in the case of the quantitative materiality conditions, in terms of proportionality, apply also here (i.e. a 1% pre-condition to be verified on the testing date is included, only the most recent FRTB IMA risk numbers should be checked and only if they are relevant).
2.3 General methodology for the assessment of the materiality of
changes to the institution’s choice of the subset of modellable risk factors The reduced set of MRF identifies those risk factors to which scenarios of futures shocks are applied in order to calculate PESt RS, PESt RS,I , PESt RC and PESt RC,i. Article 325bc(2)(a) of the CRR requires that such reduced set of MRF is chosen to the satisfaction of the competent authorities, and that the following quantitative condition is met with the sum taken over from the preceding 60 business days:
If an institution at some point no longer meets the above condition, it shall immediately notify the CA and update the reduced set of MRF within two weeks in order to restore compliance with that condition. If, after two weeks, the institution still does not comply with that condition, it shall revert 25% 20% 15% 10% 5% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% D % ES, SS or DRC -5% -10% -15% -20% -25% Other extensions Extensions requiring additional info D% IMA OFR Material extensions

to the SA to calculate the market risk OFRfor some trading desks, until it is able to demonstrate to the CA that such condition is fulfilled. The classification of changes to the institution’s choice of the subset of MRF resembles the one proposed for the model extensions and changes, differentiating between material changes to the institution’s choice of the reduced set of MRF (that are subject consequently subject to approval), and other changes to the institution’s choice of the reduced setthat are subject to notification. The latter is further differentiated into two sub-categories: changes to the institution’s choice of reduced set of MRF requiring additional information and other changes to the institution’s choice of the reduced set of MRF. In relation to the changes to the institution’s choice of the reduced set of MRF which are subject to notification, the timing of notification is aligned to the one set out for the non-material model extensions and changes, i.e. four weeks in advance of their implementation, with one exception. The exception is represented by the case where the quantitative condition in Article 325bc(2)(a) of the CRR is breached. In such a case, it is important that the institution takes urgent actions on the choice of the reduced set of MRF to restore compliance with the regulatory requirements, and that the CA is duly and promptly informed. Therefore, exclusively in such a case, the institution may notify the CA immediately before the change is implemented. In what follows the conditions for assigning the changes to the institution’s choice of the reduced set of MRF to each of the categories/sub-categories will be presented.
2.3.1 Conditions for assessing changes to the institution’s choice of the subset of
modellable risk factors as material
These new draft RTS provide quantitative criteria for determining the materiality of changes to the institution’s choice of the reduced set of MRF. Such criteria should take into account that 1/ differently from other model changes, changes to the institution’s choice of the reduced set are expected to produce effects on ES only (via PESt RS, PESt RS,i, PESt RC , PESt RC,i) and no impact is expected on SS and DRC, and 2/ the ratio PESt RC / PESt FC , as highlighted in the L1 text, is of primary importance in the definition of the subset of modellable risk factors, and as such it should be considered as a criterion for assessing the materiality of changes to the reduced set. Three types of quantitative conditions are included: 1/ a condition related to the effect of change to the reduced set on the IMAOFR, 2/ a condition related to the effect of the change on the ES, and finally 3/ a condition related to the effect of the change on the requirement set out in Article 325bc(2)(a) of the CRR (i.e. the 75% threshold for the ratio PESt RC / PESt FC). As for the other model changes, an additional pre-condition is also included to exempt from the computation of the three conditions (on IMA OFR, ES and ratio PESt RC / PESt FC) for 15 business days. In fact, if the change to the reduced set leadsto a change in the ES of less than 1% in absolute terms, on the first business day of the testing, the change to the reduced set should be considered non-material.

As in the assessment of the materiality of model extensions and changes, for the quantitative conditions 1/ and 2/ the following threshold levels are used:
+15% for increases in the IMA OFR;
-10% for decreases in the IMA OFR;
+20% for increases in the ES;
-15% for decreases in the ES.
For the quantitative condition 3/, the following needs to be checked (in accordance with the feedback received from the consultation):
decreases of the ratio PESt
RC
/ PESt
FC, with the change implemented, to a level below 80% (i.e. changes to the institution’s choice of the reduced set which lead to 𝑅𝑐ℎ𝑎𝑛𝑔𝑒 ≤ 80% are material, where 𝑅𝑐ℎ𝑎𝑛𝑔𝑒 = ∙ ∑ 𝑃𝐸𝑆𝑡+𝑘 𝑅𝐶 𝑃𝐸𝑆𝑡+𝑘 𝐹𝐶 𝑘=0 ). The ratio 𝑅𝑐ℎ𝑎𝑛𝑔𝑒 defined in terms of PESt RC /PESt FC is calculated over 15 business days starting from the test date and is considered as a forward-looking proxy of the ratio set out in Article 325bc(2)(a) of the CRR (which considers the preceding 60 business days).
2.3.2 Conditions for assessing changes to the institution’s choice of the subset of
modellable risk factors to be notified with additional information The approach to identify non-material changes to the institution’s choice of the reduced set which needs to be notified with additional information is similar to the one proposed for model extensions and changes, but it is adjusted to reflect the considerations made around the specificities of the changes to the reduced set (i.e. only quantitative criteria are included and only on IMA OFR and ES). The following threshold levels are used (as in the case of model extensions and changes requiring additional information):
+10% (but less than +15%) for increases in the IMA OFR; -5% (but less than -10%) for decreases in the IMA OFR; +15% (but less than +20%) for increases in the ES; -10% (but less than -15%) for decreases in the ES. Also in this case, the additional 1% pre-condition applies.

2.4 General provisions for assessing the materiality of model
extensions and changes and changes to the institution's choice of the subset of the modellable risk factors
2.4.1 Principles for the categorisation of model extensions and changes and
changes to the institution's choice of the subset of the modellable risk factors In order to facilitate the categorisation of model extensions and changes and changes to the reduced set, some guiding principles that institutions should follow have been included in these new draft RTS, as it is already the case for the existing RTS. In particular, for the purposes of the assessment of the quantitative impacts, institutions are requested to use the most recent model setup and calibration. In addition, the data inputs used shall be the ones corresponding to the selected 15 days period. When extensions and changes have no direct quantitative impact, then institutions are not required to perform any quantitative assessment. As set out in section 2.1.2, an important aspect to consider is the granularity which should be applied to define a modelextension or change. If a group of modifications to the model are considered by the institution as separate model changes and as such are submitted to the CA for notification or approval, but they are interlinked, then the CA should consider them as a unique model change. Similarly, CAs should consider groups of modifications to the model as separate model changes, in case such modifications to the model are not interlinked. In case of doubt on the correct allocation of a model extension or change or change to the reduced set to the proper category and/or sub-category, institutions are requested to inform the CA regarding the difficulties encountered in the categorization, provide the CA with an explanatory note justifying the choices of category and/or sub-category, also presenting possible alternatives. In such a case, the CA has the power to change the category and/or sub-category, provided in the request or notification, of the model extension or change, or change to the reduced set.
2.4.2 Implementation of model extensions and changes and changes to the subset
of the modellable risk factors
Some considerations should also be made around the implementation of model extensions and changes and changes to the reduced set. In particular, in case CAs have requested to implement a material model extension or change, or change to the reduced set, institutions are required to calculate the OFR based on the new version of the IMA, which includes the requested extension or change, from the date specified in the request. In case of delay of the implementation of a material model extension or change, or material change to the reduced set, for which permission has been granted, the institution is requested to notify without

undue delay the CA and present a plan for a timely implementation of the approved extension or change, to be agreed with the CA. In case a non-material model extension or change, or non-material change to the reduced set, is notified to the CA but, subsequently to the notification, the institution decides not to implement it, the institution is requested to notify the CA without undue delay.
2.4.3 Documentation requirements
Regarding the documentation that institutions are requested to submit as part of the notification or approval request, these draft RTS set out the following requirements, which are broadly in line with the ones set out in the existing RTS. For material model extensions and changes, and for material changes to the reduced set of MRF, institutions are requested to submit, together with the application, the following documentation (fine￾tuned following the consultation):
a) a description of the model extension or change, or the change to the reduced set, its rationale and objective; b) planned implementation date; c) scope of trading desks affected, with volume and risk characteristics; d) technical and process documents; e) reports of the institutions' independent review or validation; f) confirmation that the model extension or change, or the change to the reduced set, has been approved through the institution's approval processes by the competent bodies and date of approval; g) where applicable, the quantitative impact of the model extension or change, or the change to the reduced set, on the basis of the relevant quantitative conditions applied, and the justification of representativeness of the 15 days period selected for the quantitative impact; h) additional information relating to the potential impact produced on trading desks not fulfilling all the requirements set out in of Article 325az(2) of the CRR at the moment of notification or request of permission to the competent authority; i) records of the current and previous version number of the institution's IMA. For model extensions and changes notified with additional information, and for changes to the reduced set notified with additional information, institutions are requested to submit, together with the notification, all the documentation referred to in points a) to i) above. For model extensions and changes notified with basic information, and changes to the institution’s choice of the reduced set

notified with basic information, institutions are requested to submit, together with the notification, the documentation referred to in points a), b), c), f), g), h) and i) above. Compared to the existing RTS, the new draft RTS clarify the minimum content of the reports of the institutions' independent review or validation, considering that such reports could provide significant help to CAs when reviewing the requested or notified extensions and changes. The reports of the institutions' independent review or validation must include all the following:
a) verification of the materiality assessment as well as the representativeness of the data period used; b) a critical review of the characteristics of the model extension or change, or change to the reduced set, performed in accordance with Articles 325bi(2) and 325bj of the CRR; c) a plan for a timely implementation of necessary corrective measures suggested as part of the independent review or validation process.

3. Draft regulatory technical standards

COMMISSION DELEGATED REGULATION (EU) …/… of XXX supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the institution’s choice of the subset of the modellable risk factors referred to in Article 325bc (Text with EEA relevance) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 6 , and in particular Article 325az(8), first subparagraph, point (a), and third subparagraph thereof, Whereas:
(1) Permission of competent authorities for the use of the alternative internal models relates to the methods, processes, controls, data collection, organisation of the risk control unit and internal validation function, and IT systems, in accordance with Articles 325bh, 325bi and 325bj of Regulation (EU) No 575/2013. Modifications to the approved meth￾ods, processes, controls, data collection and IT systems, performed at the institution’s initiative, should be approved by or notified to the competent authority. This also apply to modifications triggered by the regulatory framework, where those modifications entail the use of methods or approaches that are not part of the existing competent authority’s permission. Modifications occurring within the already approved methods, processes, controls, data collection and IT systems, and recorded accordingly, do not have to be approved by or notified to the competent authority. (2) The choice of the subset of the modellable risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 should be part of the institution’s approved and docu￾mented set of internal policies and procedures. Modifications to such policies and proce￾dures should be approved by or notified to the competent authority, as constituting changes to the choice of the subset of the modellable risk factors. On the contrary, changes to the composition of the list of risk factors included in the subset referred to in Article 325bc of that Regulation, which do not occur as a consequence of changes in the institu￾tion’s policies and procedures, as it could be the case for a reduction in data availability, should not be considered as changes to the institution’s choice of the subset of modellable risk factors. 6 OJ L 176, 27.6.2013, p. 1.

(3) Ongoing alignment of the alternative internal models to the data sources used, correction of errors or minor adjustments necessary for the day-to-day maintenance of the models that occur within the already approved methods, processes, controls, data collection and IT systems and are recorded accordingly, do not have to be approved by or notified to the competent authority. (4) Qualitative and quantitative criteria should be set out in order to classify model extensions and changes into the categories requiring prior permission by competetent authorities or notification. Some changes, such as organisational changes, internal process changes or risk management process changes, may not have direct quantitative impact but may influence the accuracy, soundness and use of the model. In this case, only the qualitative criteria should be used for the assessment of the materiality of those changes. (5) In order to allow competent authorities to review the extensions and changes to the use of the alternative internal models, and changes to the institution’s choice of the subset of the modellable risk factors, which are subject to a notification procedure in accordance with Article 325az(7) of Regulation (EU) No 575/2013, all extensions and changes should be notified before their implementation. (6) For the changes to the instituton's choice of the subset of the modellable risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 that are undertaken as a consequence of failing to meet the condition set out in Article 325bc(2), point (a), of that Regulation, it is important that institutions take urgent actions on their choice of the subset to restore compliance with the regulatory requirements, and that competent authorities are duly and promptly informed. Therefore, competent authorities should be immediately notified when the change is implemented. (7) In order to permit competent authorities to adequately review the notified extensions and changes to the use of the alternative internal models, and the changes to the institution’s choice of the subset of the modellable risk factors, sufficient time should be given to competent authorities to review the notified extensions and changes and to take follow￾up actions, if necessary. (8) For the purpose of the review by competent authorities of extensions and changes to the use of alternative internal models, and changes to the institution’s choice of the subset of the modellable risk factors, it is necessary to specify the content of the documentation that needs to be submitted together with the permission request or notification of extensions and changes. (9) Quantitative thresholds should be designed to take into account the overall impact of an extension or change to the use of the alternative internal models, and changes to the institution’s choice of the subset of the modellable risk factors, on some relevant risk numbers, as well as on the combined market risk capital requirements. In
order to facilitate the computation of these quantitative thresholds, it is appropriate to consider the most recent risk numbers only. (10) When calculating the required risk numbers, an observation period of 15 business days should be considered rather than a single point in time, in order to take into account the effect of possible large changes to trading book positions which typically happen on a daily basis. The ability to perform the calculation of the required risk numbers is not required from insitutions when granting intitial permission to calculate own funds requirements by using alternative internal models. However, institutions should comply with this requirement, when they need to assess the materiality of model extensions and changes, and of changes to the choice of the subset of the modellable risk factors. In order to include a certain degree of proportionality in the assessment of quantitative impact of extension and changes, the general observation period of 15 business days should be

subject to exemptions in case the assessed quantitative impact is very minor on the first testing date and there is a presumption that the quantitative thresholds would not be breached during the 15 business days period. (11) Competent authorities may at any time take appropriate supervisory measures with regard to notified extensions and changes to internal approaches, based on the ongoing review of existing permissions to use internal approaches provided in Article 101 of Directive 2013/36/EU of the European Parliament and of the Council 7 . The conditions for new permissions and notifications of extensions and changes to internal approaches should not affect the supervisory review of internal approaches. (12) In order to ensure that competent authorities take, at any time, appropriate supervisory measures with regard to extensions and changes to the alternative internal models, and changes to the institution’s choice of the subset of the modellable risk factors, competent authorities should consider a group of related modifications to the model, submitted separately, as a unique model extension or change. In such a case, the materiality assessment should be performed at the level of the unique model extension or change. (13) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority. (14) The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council 8 , HAS ADOPTED THIS REGULATION:
CHAPTER 1
CONDITIONS FOR ASSESSING THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF ALTERNATIVE INTERNAL MODELS
Article 1
Categories of extensions and changes to the use of alternative internal models
1. Institutions shall assign extensions and changes to the use of alternative internal models to
one of the following categories, in accordance with Article 325az(7) of that Regulation:
(a) material extensions and changes to the use of alternative internal models, identified in accordance with Articles 2(1) and 2(2), which require permission from the competent authorities; (b) non-material extensions and changes to the use of alternative internal models, which require notification to the competent authorities. 7 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12–47).

2. Institutions shall assign non-material extensions and changes to the use of alternative
internal models referred to in paragraph 1, point (b), to one of the following sub-categories:
(a) extensions and changes, identified in accordance with Articles 3(1) and 3(2), to be notified with additional information; (b) extensions and changes to be notified with basic information.
Article 2
Material extensions and changes to the use of alternative internal models
1. Institutions shall categorise changes to the use of alternative internal models as material, in
accordance with Article 1(1), point (a), if they fulfil any of the following conditions:
(a) they meet any of the qualitative criteria set out in the Annex, Part I; (b) they result in a change equal to or higher than 1 %, in absolute terms, computed for the first business day of the testing of the impact of the change, of any of the risk numbers 𝑅𝑛𝑖 set out in paragraph 4 which are relevant in accordance with paragraph 5, and in any of the following cases:
(i) an increase equal to or higher than 15 %, in absolute terms, of the following sum:
𝑆𝐼𝑀𝐴 = 𝑅𝑛1
∙ 𝑚𝑐 + 𝑅𝑛2 + 𝑅𝑛3 where 𝑅𝑛1
, 𝑅𝑛2 and 𝑅𝑛3 are the risk numbers referred to in Article 2(4), points (a) to (c), respectively, and mc is the multiplication factor referred to in Article 325ba(1), point (b)(i), of Regulation (EU) No 575/2013; (ii) a decrease of 10 % or more, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in point (b)(i); (iii) an increase equal to or higher than 20 %, in absolute terms, of any of the risk numbers 𝑅𝑛𝑖 set out in paragraph 4 which are relevant in accordance with paragraph 5; (iv) a decrease equal to or higher than 15 %, in absolute terms, of any of the risk numbers 𝑅𝑛𝑖 referred to in point (b)(iii).
2. Institutions shall categorise extensions of the use of alternative internal models as material,
in accordance with Article 1(1), point (a), if they fulfil any of the following conditions:
(a) they meet any of the qualitative criteria set out in the Annex, Part I; (b) they result in a change equal to or higher than 1 %, in absolute terms, computed for the first business day of the testing of the impact of the extension, of any of the risk numbers 𝑅𝑛𝑖 set out in paragraph 4 which are relevant in accordance with paragraph 5, and in any of the following cases:

(i) a change equal to or higher than 10 %, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in paragraph 1, point (b)(i); (ii) a change equal to or higher than 15%, in absolute terms, of any of the risk numbers 𝑅𝑛𝑖 set out in paragraph 4 which are relevant in accordance with paragraph 5.
3. Notwithstanding paragraphs 1 and 2, extensions and changes to the use of alternative
internal models that fulfill requests made by the competent authority, shall not be considered material.
4. For the purposes of assessing the fulfilment of the conditions set out in paragraph 1, point
(b), and paragraph 2, point (b), the following risk numbers 𝑅𝑛𝑖 shall be considered:
(a) 𝑅𝑛1
, the institution’s previous day’s expected shortfall risk measure (ESt-1) referred to in
Article 325ba(1)(a)(i) of Regulation (EU) No 575/2013, for the portfolio of all positions
referred to in paragraph 10;
(b) 𝑅𝑛2
, the institution’s previous day’s stress scenario risk measure (SSt-1) referred to in
Article 325ba(1)(a)(ii) of Regulation (EU) No 575/2013, for the portfolio of all positions
referred to in paragraph 10;
(c) 𝑅𝑛3
, the most recent own funds requirement for default risk referred to in Article 325ba(2)(a) of Regulation (EU) No 575/2013, for the portfolio of all positions referred to in paragraph 10.
5. A risk number 𝑅𝑛𝑖
set out in paragraph 4 shall be considered relevant if it fulfils all the following conditions:
(a) on at least one day over the period referred to in paragraph 9 𝑅𝑛𝑖 𝑆𝐼𝑀𝐴

5%
(b) the first business day of the testing of the impact of the extension or change 𝑅𝑛𝑖 𝑆𝐼𝑀𝐴
1%
where 𝑆𝐼𝑀𝐴 is the sum referred to in paragraph 1, point (b)(i).
The conditions above shall be checked both with and without the extension or change.

6. For the purposes of assessing the fulfilment of the conditions set out in paragraph 1, points
   (b)(i) or (b)(iii), the impact of any change shall be assessed as the highest increase, in absolute terms over the period referred to in paragraph 9, of the ratios set out in paragraphs 7 or 8, respectively. For the purposes of assessing the the fulfilment of the conditions set out in paragraph 1, points (b)(ii) or (b)(iv), the impact of any change shall be assessed as the highest decrease, in absolute terms over the period referred to in paragraph 9, of the ratios set out in paragraphs 7 or 8, respectively.

For the purpose of assessing the the fulfilment of the conditions set out in paragraph 2, point (b)(i) or (ii), the impact of any extension shall be assessed as the highest change, in absolute terms over the period referred to in paragraph 9, of the ratios set out in paragraphs 7 or 8, respectively.
7. The ratio to be used for assessing the conditions in paragraph 1, points (b)(i) and (ii), or
paragraph 2, point (b)(i), shall be calculated as follows:
(a) in numerator, the difference between the sum 𝑆𝐼𝑀𝐴 referred to in paragraph 1, point (b)(i), with and without the change, or with and without the extension; (b) in the denominator, the sum 𝑆𝐼𝑀𝐴 referred to in paragraph 1, point (b)(i), without the change, or without the extension.
8. The ratio to be used for assessing the conditions in paragraph 1, points (b)(iii) and (iv), and
paragraph 2, point (b)(ii), shall be calculated as follows:
(a) in the numerator, the difference between the relevant risk number 𝑅𝑛𝑖 set out in paragraph 4, with and without the extension or change; (b) in the denominator, the relevant risk number 𝑅𝑛𝑖 set out in paragraph 4, without the extension or change.
9. The ratios referred to in paragraphs 7 and 8 shall be calculated for a period of 15
consecutive business days starting from the first business day of the testing of the impact of the extension or change. The choice of the 15 consecutive business days period shall be representative of the trading and hedging activity under normal market conditions for the portfolio of positions affected by the extension or change. This period shall not be older than nine months from the notification or request of permission to competent authority.
10. The risk numbers 𝑅𝑛𝑖
set out in paragraph 4 shall be calculated for the portfolio of all positions assigned to trading desks which fulfil all the requirements set out in of Article 325az(2) of Regulation (EU) No 575/2013 at the moment of notification or request of permission to competent authority.
Article 3
Non-material extensions and changes to the use of the alternative internal models

1. Institutions shall categorise non-material changes to the use of the alternative internal
   models as requiring notification with additional information, in accordance with Article 1(2), point (a), if they fulfil any of the following conditions:
   (a) they meet any of the qualitative criteria set out in the Annex, Part II; (b) they result in a change equal to or higher than 1 %, in absolute terms, computed for the first business day of the testing of the impact of the change of any of the risk numbers 𝑅𝑛𝑖 set

out in Article 2(4) which are relevant in accordance with Article 2(5), and in any of the following cases:
(i) an increase equal to or higher than 10% and lower than 15%, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in Article 2(1), point (b)(i); (ii) a decrease equal to or higher than 5% and lower than 10%, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in Article 2(1), point (b)(i); (iii) an increase equal to or higher than 15% and lower than 20%, in absolute terms, of any of the risk numbers 𝑅𝑛𝑖 set out in Article 2(4) which are relevant in accordance with Article 2(5); (iv) a decrease equal to or higher than 10% and lower than 15%, in absolute terms, of any of the risk numbers 𝑅𝑛𝑖 set out in Article 2(4) which are relevant in accordance with Article 2(5).
2. Institutions shall categorise non-material extensions of the alternative internal models as
requiring notification with additional information , in accordance with Article 1(2), point (a), if they fulfil any of the following conditions:
(a) they meet any of the qualitative criteria set out in the Annex, Part II; (b) they result in a change equal to or higher than 1 %, in absolute terms, computed for the first business day of the testing of the impact of the extension of any of the risk numbers 𝑅𝑛𝑖 set out in Article 2(4) which are relevant in accordance with Article 2(5), and in any of the following cases:
(i) a change equal to or higher than 5% and lower than 10%, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in Article 2(2), point (b)(i); (ii) a change equal to or higher than 10% and lower than 15%, in absolute terms, of any of the risk numbers 𝑅𝑛𝑖 set out in Article 2(4) which are relevant in accordance with Article 2(5).
3. Notification to competent authorities in accordance with Article 325az(7), second
subparagraph of Regulation (EU) No 575/2013, shall be made four weeks before implementation of a non-material extension or change to the use of the alternative internal models.
4. For the purposes of assessing the conditions set out in paragraph 1, points (b)(i) or (iii), the
impact of any change shall be assessed as the highest increase, in absolute terms over the period referred to in Article 2(9), of the ratios set out in Article 2, paragraphs 7 or 8, respectively. For the purposes of assessing the conditions set out in paragraph 1, points (b)(ii) or (b)(iv), the impact of any change shall be assessed as the highest decrease, in absolute terms over the period referred to in Article 2(9), of the ratios set out in Article 2, paragraphs 7 or 8, respectively. For the purpose of assessing the conditions set out in paragraph 2, points (b)(i) or (ii), the impact of any extension shall be assessed as the highest change, in absolute terms over the period referred to in Article 2(9) of the ratios set out in Article 2, paragraphs 7 or 8, respectively.

CHAPTER 2
CONDITIONS FOR ASSESSING THE MATERIALITY OF CHANGES TO THE INSTITUTION'S CHOICE OF THE SUBSET OF THE MODELLABLE RISK FACTORS
Article 4
Categories of changes to the institution’s choice of the subset of the modellable risk factors
1. Insitutions shall assign changes to choice of the subset of the modellable risk factors referred
to in Article 325bc(2) of Regulation (EU) No 575/2013, to one of the following categories, in accordance with Article 325az(7) of that Regulation:
(a) material changes to the institution’s choice of the subset of the modellable risk factors, identified in accordance with Article 5(1), which require permission from the competent authorities; (b) non-material changes to the institution’s choice of the subset of the modellable risk factors, which require notification to the competent authorities.
2. Insitutions shall assign changes to the institution’s choice of the subset of the modellable
risk factors referred to in paragraph 1, point (b), to one of the following sub-categories:
(a) changes to the institution’s choice of the subset of the modellable risk factors, identified in accordance with Article 6(1), to be notified with additional information; (b) changes to the institution’s choice of the subset of the modellable risk factors to be notified with basic information.
Article 5
Material changes to the institution's choice of the subset of the modellable risk factors
1. Institutions shall categorise changes to the institution's choice of the subset of the modellable
risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 as material, in accordance with Article 4(1), point (a), if they result in:
(a) a change equal to or higher than 1 %, in absolute terms, computed for the first business day of the testing of the impact of the change to the institution's choice of the subset of the modellable risk factors, of the risk number 𝑅𝑛𝑖 set out in Article 2(4), point (a), and (b) any of the following cases:
(i) an increase equal to or higher than 15 %, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in
Article 2(1), point (b)(i);
(ii) a decrease equal to or higher than 10 %, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in
Article 2(1), point (b)(i);

(iii) an increase equal to or higher than 20 %, in absolute terms, of the risk number 𝑅𝑛𝑖 set out in Article 2(4), point (a); (iv) a decrease equal to or higher than 15 %, in absolute terms, of the risk number 𝑅𝑛𝑖 set out in Article 2(4), point (a); (v) a decrease of the ratio set out in paragraph 4, which leads to the following condition being met:
𝑅𝑐ℎ𝑎𝑛𝑔𝑒 ≤ 80% where 𝑅𝑐ℎ𝑎𝑛𝑔𝑒 is the ratio set out in paragraph 4 with the implementation of the change to the choice of the subset of modellable risk factors.
2. Notwithstanding paragraph 1, changes to the institution's choice of the subset of the
modellable risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 that fulfill requests made by the competent autority, shall not be considered material.
3. Notwithstanding paragraph 1, changes to the institution's choice of the subset of the
modellable risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 that are undertaken as a consequence of failing to meet the condition set out in Article 325bc(2), point (a), of that Regulation, shall be considered as non-material changes to be notified with basic information.
4. For the purposes of paragraph 1, point (b)(v), the following ratio 𝑅𝑐ℎ𝑎𝑛𝑔𝑒 shall be
considered:
𝑅𝑐ℎ𝑎𝑛𝑔𝑒 =
15 ∙ ∑
𝑃𝐸𝑆𝑡+𝑘
𝑅𝐶
𝑃𝐸𝑆𝑡+𝑘
𝐹𝐶
𝑘=0 where PESt+kRC and PESt+kFC are calculated in accordance with Article 325bc(3) and (4) of Regulation (EU) No 575/2013, 𝑡 is the first business day of the testing of the impact of the change to the institution's choice of the subset of the modellable risk factors, and the sum shall be taken over the 15 consecutive business days period referred to in Article 2(8).
5. For the purposes of assessing the conditions set out in paragraph 1, points (b)(i) or (b)(iii),
the impact of any change to the institution's choice of the subset of the modellable risk factors shall be assessed as the highest increase, in absolute terms over the period referred to in Article 2(9), of the ratios set out in Article 2, paragraphs 7 or 8, respectively. For the purposes of assessing the conditions set out in paragraph 1, points (b)(ii) or (b)(iv), the impact of any change to the institution's choice of the subset of the modellable risk factors shall be assessed as the highest decrease, in absolute terms over the period referred to in Article 2(9), of the ratios set out in Article 2, paragraphs 7 or 8, respectively.

Article 6
Non-material changes to the institution's choice of the subset of the modellable risk factors

1. Institutions shall categorise non-material changes to the institution's choice of the subset of
   the modellable risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 as requiring notification with additional information, in accordance with Aticle 4(2), point (a), if they result in:
   (a) a change equal to or higher than 1 %, in absolute terms, computed for the first business day of the testing of the impact of the change to the institution's choice of the subset of the modellable risk factors, of the risk number 𝑅𝑛1 set out in Article 2(4), point (a), that do not meet the criterion set out in Article 5(1), point (b)(v), and (b) in any of the following cases:
   (i) an increase equal to or higher than 10% and lower than 15%, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in Article 2(2), point (b)(i); (ii) a decrease equal to or higher than 5% and lower than 10%, in absolute terms, of the sum 𝑆𝐼𝑀𝐴 referred to in Article 2(2), point (b)(i); (iii) an increase equal to or higher than 15% and lower than 20%, in absolute terms, of the risk number 𝑅𝑛1 set out in Article 2(4), point (a); (iv) a decrease equal to or higher than 10% and lower than 15%, in absolute terms, of the risk number 𝑅𝑛1 set out in Article 2(4), point (a).
2. Notification to competent authorities according to Article 325az(7), second subparagraph of
   Regulation (EU) No 575/2013, shall be made four weeks before implementation of a non￾material change to the institution's choice of the subset of the modellable risk factors. Notwithstanding the first subparagraph, changes to the institution's choice of the subset of the modellable risk factors referred to in Article 325bc of Regulation (EU) No 575/2013 that are undertaken as a consequence of failing to meet the condition set out in Article 325bc(2), point (a), of that Regulation, shall be notified before implementation.
3. For the purposes of assessing the conditions set out in paragraph 1, points (b)(i) or (iii), the
   impact of any change to the institution's choice of the subset of the modellable risk factors shall be assessed as the highest increase, in absolute terms over the period referred to in Article 2(9), of the ratios set out in Article 2, paragraphs 7 or 8, respectively. For the purposes of assessing the conditions set out in paragraph 1, points (b)(ii) or (iv), the impact of any change to the institution's choice of the subset of the modellable risk factors shall be assessed as the highest decrease, in absolute terms over the period referred to in Article 2(9), of the ratios set out in Article 2, paragraphs 7 or 8, respectively.

CHAPTER 3
GENERAL PROVISIONS FOR ASSESSING THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF THE ALTERNATIVE INTERNAL MODELS AND CHANGES TO THE INSTITUTION'S CHOICE OF THE SUBSET OF THE MODELLABLE RISK FACTORS
Article 7
Principles for the classification of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors
1. When calculating the quantitative impacts in accordance with Articles 2(1), 2(2), 3(1), 3(2),
5(1) and 6(1), institutions shall use the most recent model setup and calibration and the data inputs corresponding to the period referred to in Article 2(9). No calculation requirements apply to extensions and changes having no direct quantitative impact.
2. Competent authorities shall consider several modifications to the model, separately
submitted by an institution, as a unique model extension or change, in case such modifications are similar in nature or related in scope. Competent authorities shall consider groups of modifications to the model, submitted as a unique model extension or change, as separate model extensions or changes, in case such modifications to the model are not similar in nature or related in scope.
3. In case of doubt on the categorisation as set out in Articles 1 or 4, the institution shall provide
the competent authority with an explanatory note justifying its choices of category and/or sub￾category, and presenting possible alternatives. The competent authority has the power to change the category and/or sub-category provided in the request or notification.
Article 8
Implementation of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors
1. Where competent authorities have provided their permission in relation to a material
extension or change, institutions shall calculate the own funds requirements based on the approved extension or change from the date specified in the permission.
2. In case of delay of the implementation of an extension or change for which permission from
the competent authority has been granted, the institution shall notify without undue delay the competent authority, and present a plan for a timely implementation of the approved extension or change, to be agreed by the competent authority.
3. Where an extension or change has been notified to the competent authority and the institution
decides not to implement such extension or change, it shall be notified to the competent authority without undue delay.

Article 9
Documentation of extensions and changes to the use of the alternative internal models and changes to the institution's choice of the subset of the modellable risk factors

1. For material extensions or changes as set out in Article 1(1), point (a), or 4(1), point (a),
   institutions shall submit, together with the application, the following documentation:
   (a) description of the extension or change to the use of the alternative internal models or the change to the institution's choice of the subset of the modellable risk factors, its rationale and objective; (b) implementation date; (c) scope of trading desks affected by the extension or change to the use of the alternative internal models or the change to the institution's choice of the subset of the modellable risk factors, with volume characteristics; (d) technical and process documents; (e) reports of the institutions' independent review or validation; (f) confirmation that the extension or change to the use of the alternative internal models or the change to the institution's choice of the subset of the modellable risk factors, has been approved through the institution's approval processes by the competent bodies and date of approval; (g) where applicable, the quantitative impact of the extension or change to the use of the alternative internal models on the sum referred to in Article 2(1), point (b)(i), or the relevant risk numbers 𝑅𝑛𝑖 set out in Article 2(4), or the quantitative impact of the change to the institution's choice of the subset of the modellable risk factors on the sum referred to in Article 2(1), point (b)(i), or the risk number 𝑅𝑛1 set out in Article 2(4), point (a), or the ratio set out in
   Article 5(4), and the justification of representativeness of the period selected for the quantitative
   impact;
   (h) information relating to the potential impact produced on trading desks not fulfilling all the requirements set out in of Article 325az(2) of Regulation (EU) No 575/2013 at the moment of notification or request of permission to competent authority, such as an estimate of the quantitative impact on the relevant risk numbers 𝑅𝑛𝑖 set out in Article 2(4). (i) records of the current and previous version number of the institution's alternative internal models which are under scope.

2. For non-material extensions or changes to be notified with additional information, as set out
   in Article 1(2), point (a), or 4(2), point (a), institutions shall submit, together with the notification, all the documentation referred to in paragraph 1, points (a) to (i).

3. For non-material extensions or changes to be notified with basic information, as set out in
   Article 1(2), point (b), or 4(2), point (b), institutions shall submit, together with the notification,
   the documentation referred to in paragraph 1, points (a) to (c) and (f) to (i).

4. The reports of the institutions' independent review or validation referred to in paragraph 1,
   point (e) shall include all the following:
   (a) verification of the materiality assessment as well as the representativeness of the data period used; (b) a critical review of the characteristics of the extension or change to the use of the alternative internal models, or change to the institution's choice of the subset of the modellable risk factors, performed in accordance with Articles 325bi(2) and 325bj of Regulation (EU) No 575/2013; (c) a plan for a timely implementation of necessary corrective measures suggested as part of the independent review or validation process.
   Article 10
   Entry into force
   This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels, For the Commission The President

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS
ANNEX
PART I
EXTENSIONS AND CHANGES REQUIRING COMPETENT AUTHORITIES' PERMISSION (‘MATERIAL’)

1. Significant changes to the structure or organisation of an institution’s trading desks for which
   permission has been granted to calculate the own funds requirements for market risk by using the alternative internal models, such as the ones involving significant changes in the booking models, in the risk management structure or in the business strategy, including any of the following cases:
   a. the case where the institution aims to apply internal risk transfers for the first time, b. the case where trading desks capture FX or commodity risk in the non-trading book for the first time,
   c. the case where trading desks start to include positions in asset classes different from
   those forming part of the permission to use the alternative internal models.
2. Inclusion in the scope of the alternative internal model approach of a trading desk, which, at
   the moment of the request, is not part of the granted permission to calculate the own funds requirements for market risk by using the alternative internal models, and which verifies any of the following conditions:
   a. for that trading desk, front office systems or IT systems different from those forming
   part of the permission to use the alternative internal models are used,
   b. that trading desk is located in a third country jurisdiction where, at the moment of the request, no trading desk in the scope of the alternative internal models is located,
   c. that trading desk entails positions in asset classes different from those forming part of
   the permission to use the alternative internal models.
3. Changes of the fundamental approach to calculate the partial expected shortfall measures
   referred to in Article 325bb(1) of Regulation (EU) No 575/2013, such as between historical simulation, parametric or Monte Carlo approach.
4. Changes of the fundamental approach to calculate the own funds requirement for default risk
   referred to in Article 325ba(2) of Regulation (EU) No 575/2023, such as significant changes to the choice of the systematic risk factors or to the correlation structure of the model.
   PART II
   EXTENSIONS AND CHANGES REQUIRING NOTIFICATION WITH ADDITIONAL INFORMATION

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS

1. The inclusion in the scope of a trading desk under the alternative internal models of product
   classes requiring other risk modelling techniques than those forming part of the permission to use those alternative internal models, such as path-dependent products, or multi￾underlying positions, including cases where a change in booking models leads to products, for which the institution was transferring the market risk to another entity of the group outside the scope of the highest level of consolidation within the Union/EEA at the time when permission for internal model approval was granted and start being risk-managed in the institution.
2. Changes to the structure or organisation of an institution’s trading desks consisting of the
   merging or the splitting of desks for which permission has been granted to calculate the own funds requirements for market risk by using the alternative internal models, provided that they do not meet the conditions set out in Article 2.
3. Changes in the methodology used to assess the modellability of risk factors according to Article
   325be of Regulation (EU) No 575/2013.
4. Changes in the methodology for calculating actual or hypothetical profit and loss, when such
   changes have the effect of reducing the number of overshootings of a trading desk for which permission has been granted to use alternative internal models, restoring its compliance with the conditions on back-testing set out in Article 325bf(3) of Regulation (EU) No 575/2013.
5. Changes in the methodology for calculating hypothetical or theoretical profit and loss, when
   such changes have the effect of increasing the Spearman correlation coefficient and/or reducing the Kolmogorov-Smirnov test metric of a trading desk for which permission has been granted to use alternative internal models, changing its classification in accordance with Article 9 of Commission Delegated Regulation (EU) 2022/2059, for the purpose of meeting the P&L attribution requirements set out in Article 325bg of Regulation (EU) No 575/2013.
6. Fundamental changes in the internal validation methodology according to Article 325bj of
   Regulation (EU) No 575/2013, which lead to significant changes in the way the institution assesses the overall performance and integrity of the alternative internal models, such as when the scope of the internal validation review, its frequency or the quantity and/or quality of the tests and controls performed are reduced, or when there are significant changes to the decision-making process in place to ensure that the findings and recommendations resulting from the validation process are properly taken into account by the senior management of the institution.
7. Structural, organisational or operational changes to the core processes in risk management or
   risk controlling functions, according to Article 325bi(1) of Regulation (EU) No 575/2013, such as significant changes to the limit setting framework, changes to the reporting framework leading to a loss of information or to a change of addresses in the senior management, changes to the stress testing methodology leading to significant differences in

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS the stress testing results, changes to the policies and approval processes for new products or internal model changes.
8. Fundamental extensions and changes in the IT infrastructure, including data storage, relevant
for the calculation of the own funds requirements for market risk using the alternative internal models, such as extension of the IT system to vendor pricing models, outsourcing of central data collection functions to data vendors or introduction of cloud computing and/or data storage.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS
4. Accompanying documents
4.1 Draft cost-benefit analysis / impact assessment
As per Article 10 of Regulation (EU) No 1093/2010 (EBA Regulation), any draft regulatory technical standards RTS developed by the EBA shall be accompanied by an Impact Assessment (IA), which analyses ‘the potential related costs and benefits’. This analysis presents the IA of the main policy options included in the Draft Regulatory Technical Standards on the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in
Article 325bc under Article 325az(8)(a) of the CRR (“the draft RTS”). The analysis provides an
overview of the identified problem, the proposed options to address this problem as well as the potential impact of these options. The IA is high level and qualitative in nature. A. Problem identification and background In January 2019, the Basel Committee on Banking Supervision (BCBS) finalised the standards on Minimum capital requirement for market risk (FRTB). The new framework introduces a new IMA that relies upon the use of an expected shortfall metric for modellable risk factors (‘MRF’) and a separate capital requirement for risk factors that are deemed non-modellable. Furthermore, institutions are required to compute an additional own fund requirements for the default risk that positions in their portfolio may be subject to. CCR2 implements FRTB in EU legislation and introduces the new IMA, referred to as the alternative internal model approach, under Chapter 1b of the CRR. To calculate their market risk own funds requirements (‘OFR’), institutions may use the internal model approach (‘IMA’) for the portfolio of all positions assigned to trading desks for which they have been granted permission from their respective competent authorities (‘CAs’). CAs shall grant permission to those institutions to use their IMA provided that requirements disclosed in the CRR are met. Once the permission is received, Article 325az of the CRR states that “Material changes to the use of alternative internal models that an institution has received permission to use, the extension of the use of alternative internal models that the institution has received permission to use, and material changes to the institution's choice of the subset of the modellable risk factors referred to in Article 325bc(2), shall require separate permission from its competent authorities” and that “Institutions shall notify the competent authorities of all other extensions and changes to the use of the alternative internal models for which the institution has received permission.”. As such, in order to dissociate the obligation of requesting permission with the obligation of sending

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS notification when a change or an extension to the use of the alternative internal models occur, institutions need to assess whether or not this change or extension is material. However, the CRR does not specify how the materiality assessment of model extensions and changes, and changes to the reduced set, should be performed. The lack of a common framework for the materiality assessment of model extensions and changes, and changes to the reduced set, can result in inconsistent application of the notification or permission requirements across the EU. This may lead to an uneven playing field across member states, an increased risk of regulatory arbitrage and unharmonised supervisory practises. In this context, Article 325az(8)a mandates the EBA to “develop draft regulatory technical standards to specify the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in
Article 325bc”.
An RTS on the conditions for assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk (‘the existing RTS’) was developed by EBA in 2014 under the mandate of Article 363(4) of the CRR. However, the materiality assessment included in the existing RTS is based on the previous internal model approach (based on Value-at-Risk) specified in Chapter 5 of Title IV of Part Three of the CRR, which is fundamentally different from the alternative internal model approach (based on Expected Shortfall). Thus, while some parts of the RTS are still relevant for the materiality assessment of model extensions and changes, others are not anymore. B. Policy objectives The draft RTS aims at providing support to institutions and competent authorities for identifying the materiality of changes or extension to the use of alternative internal models and of changes to the institution’s choice of the subset of the modellable risk factors.
C. Options considered, assessment of the options and preferred options
Section C. presents the main policy options discussed and the decisions made by the EBA during
the development of the draft RTS. Advantages and disadvantages, as well as potential costs and benefits from the qualitative perspective of the policy options and the preferred options resulting from this analysis, are provided. As mentioned above, there is already an existing RTS on the conditions for assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk. Considering that similarities exist between the existing and the new mandates, the existing RTS is used as a starting point from which the draft RTS is developed.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Categories and materiality of model extensions and changes, and changes to the reduced set As mentioned above, institutions have to differentiate between material and non-material model extensions or changes, or changes to the reduced set, and the EBA has to provide support to institutions and CAs for identifying this materiality. While the CRR only envisages two categories, the EBA analysed whether further distinction within those categories would be appropriate . Two options have been considered:
Option 1a: Setting only two categories of model extensions and changes, and changes to the reduced set (i.e. material requiring permission and non-material requiring notification). Option 1b: Setting two categories of model extensions andchanges, and changes to the reduced set (i.e., material requiring permission and non-material requiring notification) and two sub￾categories for the non-material model extensions and changes, and changes to the reduced set (i.e. extensions and changesrequiring additional information and other extensions and changes). On the one hand, setting two categories of extensions and changes only (material requiring permission and non-material requiring notification), has merits in terms of simplicity. On the other hand, this option is very binary as it would lead to either an obligation of requesting permission, undertaking a long approval process, or, on the other extreme, just a notification to CAs. This binary option prevents a more tailored approach and could provoke, depending on the thresholds’ levels, either too much request of permission by the institutions, which would create a burden for institutions and CAs, or too few requests and more simple notifications, which is obviously not prudent from a supervisory perspective. Costs related to the shift from two categories to three are not deemed to be significant (the levels of thresholds under the quantitative materiality conditions could have impact on costs and this will be treated in the next option). On the basis of the above, option 1b has been chosen as the preferred option and the draft RTS will set two categories of model extensions and changes, and changes to the reduced set (i.e., material requiring permission and non-material requiring notification) and two sub-categories for the non-material model extensions and changes, and changes to the reduced set (i.e. extensions and changes requiring additional information and other extensions and changes). Threshold levels for the quantitative conditions for assessing the materiality of model extensions and changes In order to differentiate between material and non-material model extensions or changes, quantitative conditions are set out in these draft RTS (as it was the case for the existing RTS). Two options have been considered:
Option 2a: Use the same quantitative thresholds to differentiate between material and non￾material model extensions and changes (‘quantitative materiality thresholds’), as in the existing RTS.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Option 2b: Use different quantitative materiality thresholds, than the ones in the existing RTS. The quantitative materiality conditionsset in the existing RTS are triggered by symmetric increases and decreases in capital and risks numbers. Under such symmetric approaches, increases or decreases in overall OFR for market risk (IMA + SA) higher than 5% in absolute terms, or increases or decreases in IMA risk numbers (VaRt-1, sVaRt-1, IRCt-1) higher than 10% in absolute terms, trigger the conditions for categorising a change or extension as material. These market risk own funds quantitative materiality thresholds had to be changed since the share of the IMA OFR is likely to, according to the preliminary information provided by the industry, decrease in comparison to the share of the SA OFR and consequently the effect of a change in the IMA can be significantly diluted, if both SA and IMA OFR are considered in the quantitative materiality thresholds. Then, for model changes, the willingness to increase the focus on decrease of own funds ratios entailed an asymmetric approach in the setting of the quantitative materiality thresholds. Furthermore, in the view of simplifying the assessment process of model extensions and changes on both institutions’ and CAs’ sides, setting higher quantitative materiality thresholds was seen as an efficient mean in order to reduce the number of permissions requests that have to be done for extensions and changes categorised as material. In the current proposal, material model changes are identified as the ones that produce increases in IMA own funds requirements higher than 15% or decreases higher than 10% in absolute terms and increases in risk numbers 9 higher than 20% or decreases higher than 15% in absolute terms. For material model extensions, those are the ones that produce increases or decreases in IMA own funds requirements higher than 10% in absolute terms and increases or decreases in risk numbers 10 higher than 15% in absolute terms. As this increase of the quantitative materiality thresholds is significant, and with the aim of balancing the need of decreasing the number of permissions requests with the CA’s need of information, lower thresholds are foreseen - inside the ‘non-material changes and extensions’ -that would trigger the obligation for institutions to provide additional information with their notifications to CA’s. For these reasons, option 2ahas been rejected and option 2b seen as a better option. The costs of option 2b are deemed to be lower than the option 2a ones as it should decrease the number of permissions requests. The benefits of option 2a could be higher for CAs as more information would be available but would not warrant the higher costs incurred for institutions. On the basis of the above, the option 2b has been chosen as the preferred
option and the draft RTS will use different quantitative thresholds to differentiate between material and non-material model extensions and changes, than the ones in the existing RTS. The relevant risk numbers considered in the draft RTS are ESt-1, SSt-1 and DRCt-1, which are broad risk measures directly related to the IMA own funds requirements. It has been considered that those measures broadly correspond to the ones included in the existing RTS (VaRt-1, sVaRt-1 and IRCt-1) 10 The relevant risk numbers considered in the draft RTS are ESt-1, SSt-1 and DRCt-1, which are broad risk measures directly related to the IMA own funds requirements. It has been considered that those measures broadly correspond to the ones included in the existing RTS (VaRt-1, sVaRt-1 and IRCt-1)

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Relevance of the risk numbers The fact that the quantitative materiality thresholds for the risk numbers are set in relative terms could have unexpected consequences. In this context, the EBA considered two options:
Option 3a: To introduce a condition for assessing the relevance of the risk numbersto be checked for the materiality assessment of model extensions and changes. Option 3b: Not to introduce a condition for assessing the relevance of the risk numbers to be checked for the materiality assessment of model extensions and changes. Under certain circumstances, some of the relevant risk numbers previously mentioned (i.e. ESt-1, SSt-1 and DRCt-1) may be very low or near zero and, as the quantitative materiality thresholds are set in relative terms, the impact of model extensions and changes may have the unintended consequence of reaching these thresholds even if the absolute amount of the impact is negligible. Not introducing additional conditions on the relevance of the risk numbers could have, in such cases, the consequence of obligation for the institutions to request permissions for insignificant changes or extensions for which CAs would gain very low supervisory benefits of their reviews. Thus, costs for both institutions and CAs of option 3b would exceed the benefits and this option was rejected. On the basis of the above, the option 3a has been chosen as the preferred option and the draft RTS will introduce a condition for assessing the relevance of the risk numbers to be checked for the materiality assessment of model extensions and changes. Period for the assessment of the quantitative conditions As described above, for the purposes of assessing the materiality of extensions and changes to the use of alternative internal models, institutions have to assess several qualitative materiality conditions and to assess the impact of any extension or change on defined ratios and risk numbers against quantitative materiality thresholds. Thisimpact shall be assessed as the highest increase, in absolute terms over a period starting from the first business day of the testing of the impact of the extension or change. For the duration of this period, the EBA considered two options:
Option 4a: Keeping the duration set in the existing RTS: the period which is the shorter between (a) 15 consecutive business days and (b) a period ending the first day where one of the quantitative conditions is met. Option 4b: Always use a 15 consecutive business days period. Having two different durations of periods as in the existing RTS is leading to heterogeneous set of information received by CAs. This heterogeneity is complexifying the CAs’ review.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Always setting the duration period to 15 days(to be noticed that a lower number of days is deemed not to be sufficiently prudent and may hamper the representativeness of the testing window) could lead in certain situations to additional computation of ratios and risk numbers for the institutions. Nevertheless, as they should have in place in any case the process for performing those computations for several days, the fact of actually performing such calculations and producing results for some additional days should entail little to no additional burden. On the basis of the above, the Option 4b has been chosen as the preferred option and the draft RTS will always set the period for the assessment of the quantitative conditions to 15 business days. Notification timing for non-material extensions and changes Institutions have to send notification to their CAs for the non-material extensions and changes to the use of the alternative internal models. Regarding the timing for sending these notifications, the EBA considered two options:
Option 5a: Keeping the timing of the existing RTS which, in this context, differentiates two types of non-material extensions and changes (the ones requiring ex-ante notifications and the others) and states that extensions and changes requiring ex-ante notification should be notified two weeks in advance, while the other extensions and changes should be notified at least on an annual basis. Option 5b: Setting, for all non-material notifications, the timing of notifications at four weeks. It is expected, with the proposed increase of quantitative material thresholds, that some extensions and changes previously categorized as material under the existing RTS would be categorized in the future as non-material under the draft RTS. As such, some extensions and changes that would have, under the existing RTS, followed the formal approval process for permission, will be subject to notifications under the draft RTS. Those changes and extensions would have higher impact than the changes and extensions that were previously under notifications. In order to enable CAs to adequately review and take actions for those changes and extensions, the length of the notification period (before the extension or change is implemented) should thus be extended and four weeks is viewed as appropriate. Moreover, in order to harmonize the whole process of notifications, it was deemed relevant to set this timing of four weeks for all non-material changes and extensions’ notifications. Costs associated with the choice of setting the timing to four weeks instead of two weeks or the yearly notification are deemed to be very low for institutions, and are expected to be exceeded by the benefit that such extension in length can produce on the CA’s side. On the basis of the above, the Option 5b has been chosen as the preferred option and the draft RTS will set, for all non-material notifications, the timing of notifications at four weeks. Material changes to the institution's choice of the subset of the modellable risk factors

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS
Article 325az of the CRR mentions the changes to the institution's choice of the subset of the
modellable risk factors separately from all the other changes and extensions to the use of alternative internal models. Institutions have to dissociate material and non-material changes in the subset of modellable risk factors and the EBA has to provide support to institutions and competent authorities for identifying this materiality. The EBA will not set qualitative materiality thresholds but, regarding the quantitative ones, the EBA considered two options:
Option 6a: Following the same asymmetric approach than the one proposed for model changes with some adaptations to the particularities of modellable risk factors. Option 6b: Following a fully differentiated approach than the one proposed for model changes. Changes of modellable risk factors are expected to provoke impacts on the IMA own funds requirements. In the view of consistency and harmonization, it was thus deemed relevant to set the same quantitative materiality thresholds related to the impact on IMA own funds requirements for the changes of modellable risk factors than for the model changes. On the other hand, since no impact of changes of modellable risk factors is expected on two risk numbers (SSt-1 and DRCt-1) defined in the context of changes and extensions of models, an adaptation related to risk numbers was seen as necessary and a different quantitative condition based on the ratio PESt RC/PESt FC was set. Option 6a would have the benefit of more consistency between model changes and changes of modellable risk factors, and costs associated with this option should not differ significantly from the ones associated with option 6b. On the basis of the above, the Option 6a has been chosen as the preferred option and the draft RTS will, for modellable risk factors, follow the same asymmetric approach than the one proposed for model changes with some adaptations to the particularities of modellable risk factors. Documentation of extensions and changes to the use of the alternative internal models and changes to the institution's choice of the subset of the modellable risk factors For material extensions and changes to the use of the alternative internal models and for material changes to the institution's choice of the subset of the modellable risk factors, institutions shall submit some documentation together with the application. Amongst this documentation, the institutions need to submit the reports of the institutions’ independent review or validation. The existing RTS already envisage the provision of reports of the institutions' independent review or validation but without further guidance on the content. In this context, the EBA considered two options:
Option 7a: As in the existing RTS, not providing guidance for the content of the reports of the institutions’ independent review or validation. Option 7b: Providing guidance for the content of the reports of the institutions’ independent review or validation.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Providing guidance on the content of these reports could on one hand create additional costs for institutions as a minimum set of elements would be required in these reports and those elements were not compulsory in the existing RTS. On the other hand, this guidance would give the benefit for institutions to know what should contain those reports and this should lower the costs related to the elaboration of the framework of these reports. In addition, this should decrease the need of exchanges, questions or request of additional information from the CAs to the institutions about these reports and thus save time for institutions. Furthermore, guidance on the content of such reports would enhance the significant help they provide to CAs when reviewing the requested or notified extensions and changes. This harmonization of the reports would also speed up the CAs’ approval process and thus save costs on the CAs side. On the basis of the above, the Option 7b has been chosen as the preferred option and the draft RTS will provide guidance for the content of the reports of the institutions’ independent review or validation. D. Conclusion The Draft Regulatory Technical Standards on the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the CRR will provide guidance to institutions for identifying the materiality conditions – both qualitative and quantitative -triggering the obligation of requesting permission to implement such extensions or changes. It will also provide the institutions with quantitative and qualitative thresholds for differentiating non￾material changes or extensions that need additional information when notified from the ones that do not need additional information when notified. For the institutions and CAs, the draft RTS is not expected to trigger significant additional costs compared to the costs associated to the existing RTS. The main benefits will be to further refine the materiality criteria and the institutions will benefit from a lower number of material changes or extensions leading to less obligation of permission requests. Overall, the impact assessment on the draft RTS suggests that the expected benefits are higher than the incurred expected costs.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS
4.2 Feedback on the public consultation
The EBA publicly consulted on the draft proposal contained in this paper.
The consultation period lasted for three months and ended on 29 February 2024. One response was received, published on the EBA website. This paper presents a summary of the key points and other comments arising from the consultation, the analysis and discussion triggered by these comments and the actions taken to address them if deemed necessary. In some cases the same body repeated its comments in the response to different questions. In such cases, the comments, and EBA analysis are included in the section of this paper where EBA considers them most appropriate. Changes to the draft RTS have been incorporated as a result of the response received during the public consultation. Summary of key issues and the EBA’s response The respondent remarked the importance of having proportionate qualitative and quantitative criteria in the rules which aim to determine whether model changes or extensions are material, and that they do not lead to unnecessary operational burden which may negatively impact the adoption of the FRTB IMA. The EBA shares the view that a proportional approach should be set out, avoiding unnecessary burden whenever possible. The respondent also suggested to further review the thresholds for both material model changes and extensions for changes in the subset of modellable risk factors, proposing two alternative options to amend the thresholds and materiality assessment. The EBA remarks that the threshold levels proposed in the CP, both for model changes and extensions, are higher compared to the ones in the existing RTS, also to take into account that the FRTB IMA risk measures are different from the Basel 2.5 IMA ones and to reduce the number of breaches. In absence of a proper justification for a further increase of the level of the thresholds, the EBA is of the view of maintaining the threshold levels as set out in the CP. However, in order to alleviate the computational burden that institutions may face in assessing the quantitative conditions, additional proportionality has been included to account for the relevance of the risk measures used in the materiality assessment of the model extensions and changes. In addition, the respondent claimed that model changes related to a change to the structure of a desk or a change in the business strategy of a desk should be categorized as “non-material changes requiring additional information”. Taking into account the feedback provided, the EBA fine-tuned the qualitative criteria set out in the draft RTS, in particular in relation to the splitting or merging of IMA trading desks. The EBA takes also note of the suggestion provided by the respondent relating to the categorisation of movements of desks from the IMA to the SA, considering that those movements may be assessed depending on their quantitative impact only.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS In addition, the respondent asked for clarification on how the materiality assessment should be performed in the presence of a change in the scope of IMA desks (because of some IMA desks not fulfilling the requirements of Art. 325az(2) and as such being capitalized under the SA). The EBA recognises that model changes that affect primarily IMA desks currently capitalised under the SA may have low quantitative impact (on the basis of the fact that the impact is calculated on the current IMA perimeter). In order to account for the potential future impact that a model change may produce on such desks once they return within the IMA perimeter, the EBA identifies additional information to be provided on the potential impact produced on such desks. Finally, the respondent suggested that both the length of the testing window as well as the ex-ante notification period should be shortened. The EBA considers that reducing the length of the testing period is not sufficiently prudent as a shorter period may humper the representativeness of the testing window, biasing the outcome of the materiality assessment of the extension or change. In addition, the EBA considers that a shorter notification period may not give sufficient time to competent authorities to review non-material but still significant changes, i.e. those that typically require additional information. Therefore, the EBA considers that a four-week notification period is needed in view of the expected increase of extensions and changes categorised as non-material.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Summary of responses to the consultation and the EBA’s analysis General comments Proportionality in the approach and avoidance of excessive burden The respondent remarks the importance to have proportionate qualitative and quantitative criteria in the rules and that they do not lead to unnecessary operational burden which may negatively impact adoption of IMA. The EBA takes note of the feedback provided and shares the view that a proportional approach should be set out, avoiding unnecessary burden whenever possible. N/a. Responses to questions in Consultation Paper EBA/CP/2023/36 Question 1. What are your views on requiring additional information for specific extensions and changes? The respondent suggests to categorise as “non￾material extension and changes requiring additional information” any change in the structure of desks which are the product of:

• splitting an existing IMA desk into two or
  more IMA desks, on the basis that there is no material change on the overall products and pricing models of these desks post re￾structure;
• merging two IMA or more desks into one
  new IMA desk, on the basis that there is no material change in the overall products and pricing models of the new desk post merging. Separately, the respondent suggests that any desk move from IMA to SA should be automatically categorized under the “non-material extension and changes requiring additional information” category, The EBA takes note of the concerns expressed by the respondent relating to the splitting or merging of IMA trading desks. The EBA considers that such cases may be considered as non-material changes requiring additional information to be provided to the competent authority. The EBA takes also note of the suggestion provided by the respondent relating to the categorisation of movements of desks from the IMA to the SA. The EBA considers that movements of desks from the IMA to the SA may be assessed depending on their quantitative impact only. Regarding the suggested categorisation of the extension of the granted IMA permission to include an SA desk in the IMA scope, the EBA considers that fine-tuning of the related qualitative condition may be provided. Amendments to Part I and II of the Annex.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS on the basis that there is no additional regulatory burden stemming from a move to the simpler and more conservative SA, which acts as a fallback to the IMA in any case. Additionally, for any other types of changes related to desk structures (e.g. move of an SA desk to IMA), the respondent proposes to assess the quantitative conditions in the first place, in order to determine whether the change is categorized as material or non-material, providing additional information when non-material. As such, amendments to Part I and II of the Annex to the RTS have been introduced. Question 2. Do you agree with the proposed quantitative conditions for determining the materiality of extensions and changes? The respondent states that the model change impact assessments should be performed on the current actual IMA perimeter, agreeing with the RTS proposal. The respondent notes that any changes to the models ineligible for IMA will have by construction a low quantitative impact. Instead, for a desk currently capitalised in SA, a model change may have an impact only if in the future the desk is included within the IMA perimeter. In this case, the impact would be driven by the difference of OFR when in IMA versus SA. The EBA acknowledges that no concerns have been expressed in relation to the proposed quantitative conditions. No change needed. Question 3. What are your views on the selected threshold levels? The respondent recommends to review the suggested thresholds for both material model extensions and changes and for changes of the subset of modellable risk factors. The respondent proposes two alternative options:

• To align the upper and lower threshold
  proposed in the RTS, without
  The EBA remarks that the proposed thresholds for material changes were set focusing on decreases of risk measures, providing a certain extent of leeway for increases. Therefore, the EBA is of the view of maintaining a certain degree of asymmetry in the threshold levels for the materiality assessment of model changes. No change needed.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS differentiating between material model extension and changes, to the maximum of the two and, specifically, +/- 15% for the IMA OFR and +/-20% in at least one of relevant risk measure (Expected Shortfall (ES), Stressed Expected Shortfall (SS) and Default Risk Charge (DRC). Similarly, for the changes of the subset of the modellable risk factors the respondent proposes thresholds of +/-15% for the IMA OFR and +/- 20% for the ES.

• To introduce an additional pre-condition
  for considering material a model extension or change. Specifically, the quantitative conditions as proposed in the CP should be assessed only when changes or extensions lead to an impact on IMA OFR greater than 5% in absolute terms of the Sum of IMA and SA OFR. In case of an impact lower than 5% the model extension or change should not be considered material, disrespectful of the outcomes of the other quantitative conditions. A similar approach is proposed for the change of subset of modellable risk factors. For model extensions, the rationale was for the thresholds to be aligned with the ones prescribed for the case of model changes, but keeping them symmetric (i.e. same level for increases and decreases), on the basis that a model extension is, in principle, equally likely to suppose an increase or a decrease in own funds requirements. For that purpose, the threshold levels were set in a conservative way, taking the lower value (i.e. decreases) as reference. In addition, the EBA remarks that the threshold levels proposed in the CP, both for model changes and extensions, are higher compared to the ones in the existing RTS, also to take into account that the FRTB IMA risk measures are different from the Basel 2.5 IMA ones and to reduce the number of breaches. Regarding the suggestion to introduce an additional pre-condition based on the impact on total market risk OFR (i.e. IMA + SA), the EBA is of the view that such a proposal may be biased by the proportion of SA OFR compared to total market risk OFR, independently of the impact on the IMA OFR. As such, the EBA is of the view of maintaining the threshold levels as set out in the CP, without including any additional pre-condition based on impact on the total market risk OFR.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS Question 4. Do you agree with the proposal to introduce a condition for assessing the relevance of the risk measures to be checked for the materiality assessment of model extensions and changes The respondent states that, while agreeing with the proposal to introduce a condition for assessing the relevance of the risk measures, if on day one a risk measure does not represent more than 5% of the sum of all IMA risk measures it should be considered irrelevant straight away and should not be considered for the 15-day testing. The EBA takes note of the concerns expressed by the respondent. The EBA is of the view of keeping the current condition by which, for being considered relevant, a risk measure should represent more than 5% of the sum of all the risk measures, which should be checked for all the 15 days observation period, both with and without the extension or change. Nevertheless, in order to avoid excessive burden on institutions, the EBA is introducing an additional pre￾condition by which, if on the first business day of the testing, a risk measure represent less than 1% of the sum of all the risk measures, it should be directly considered non-relevant (i.e. no need to check the relevance for the entire 15-day testing period), similarly to the pre-condition included in Article 2(2). Inclusion of new condition in Article 2, paragraph 5 Question 5. Do you agree with the proposal to always assess the quantitative conditions on a 15 consecutive business days period? The respondent observes that the FRTB IMA framework is more complicated and computationally intensive than the Basel 2.5 framework and that, based on the outcomes observed in the current parallel runs for IMA, the impact for both IMCC and NMRF remain reasonably stable within the proposed thresholds of the RTS. Moreover, the respondent asks for clarification on the 15-day assessment period when the end of a quarter is approaching and the IMA scope changes. The respondent claims that in the current framework, the assessment period is the shorter between the 15-day assessment period and the The EBA takes note of the concerns expressed by the respondent. However, the EBA considers that reducing the length of the testing period from 15 to 5 business days is not sufficiently prudent as such a shorter period may humper the representativeness of the testing window biasing the outcome of the materiality assessment of the extension or change. Regarding the request for clarification on the 15-day assessment period when the end of a quarter is approaching and the IMA scope changes, the EBA expects institutions to select a 15-day testing period where the IMA scope does not change. In fact, the EBA is of the view that the IMA scope for the Inclusion of paragraph 10 in
Article 2

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS period ending when one of the quantitative conditions is met. While recognising that the occurrence of the shorter period is rare, the respondent asks to reduce the operational burden related to the 15-day assessment period suggesting to reduce it to a 5-day period. materiality assessment should correspond to the current IMA scope. Question 6. Do you agree with the proposal to require non￾material extensions and changes to be notified four weeks before their planned implementation? The respondent observes that the requirement to notify non-material extensions and changes four weeks before their planned implementation, combined with the requirement of a 15-day materiality assessment, may jeopardise remediating observed model weaknesses in time before the following end of quarter. The respondent expresses concerns about the potential consequences of this process (at least 7 weeks), since it may lead in some instances for a desk to fail the next quarters eligibility test, potentially reducing the IMA scope for a long period (i.e. until the desk returns to the “green zone”). The respondent suggests that the ex-ante notification period should be shortened to the maximum extent possible and, in any case, be no longer than the current 2-week period. The EBA acknowledges the concerns expressed by the respondent. However, the EBA is of the view that no sufficient rationale has been provided to reduce the notification period to two weeks. In particular, the EBA considers that a shorter notification period may not give sufficient time to competent authorities to review non-material but still significant changes, i.e. those that typically require additional information. Therefore, as explained in the CP, the EBA consider that a four-week notification period is needed in view of the expected increase of extensions and changes categorised as non-material (e.g. due to the increase in the threshold levels). No change needed. Question 7. Do you agree with the proposed conditions for determining the materiality of changes to the institution's choice of the subset of the modellable risk factors? The respondent states that satisfying all three conditions (on IMA OFR, ES and ratio PESt RC/PESt FC) imposes additional burden in an already complex framework, suggesting either to keep the condition on the ratio PESt RC/PESt FC or the conditions on ES and IMA OFR. The EBA acknowledges the concerns expressed by the respondent. However, the EBA would like to remark that the materiality assessment of changes to the institution's choice of the subset of the modellable risk factors is simpler than the one set out for the other model changes, as neither qualitative No change needed.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS conditions are specified nor conditions based on DRC and SS are applicable. The EBA is also of the view that the three quantitative conditions (on IMA OFR, ES and ratio PESt RC/PESt FC) set out in the CP are complementary as they are intended to capture different aspects of the potential impact of the change. In addition, the EBA recalls that also in this case an additional pre-condition on the testing date is included, to reduce the computational burden as much as possible. Therefore, the EBA considers that no sufficient argument has been set out to justify a reduction of the number of quantitative conditions to be checked. Question 8. Which one of the options do you think is more appropriate for a quantitative condition based on the ratio PESt RC/PESt FC (option 1 or option 2)? Please provide the rationale for the chosen option. The respondent stated that Option 1 is preferred, on the basis that it is simpler and easier, as opposed to Option 2, which penalizes institutions that already have a high PESt RC/PESt FC ratio. The EBA acknowledges that Option 1 is preferred for simplicity. Option 1 is retained. Question 9. What are your views on the proposed clarification to the content of the reports of the institutions' independent review or validation? The respondent agrees with the proposed clarification. The respondent also suggests that, when a change targets model deficiencies of a desk failing the IMA eligibility tests, the bank may provide an impac t assessment on some risk monitoring metrics The EBA acknowledges that model changes that affect primarily IMA desks currently capitalised under the SA because not meeting the requirements of Art. 325az(2) may have low quantitative impact, on the basis of the fact that the impact is calculated on the current IMA perimeter. Inclusion of new point (h) under paragraph 1 of
Article 9.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS covering desks within the IMA intended perimeter (i.e. the perimeter for which the bank has received approval from its competent authority for the use of the IMA conditional to meeting the back-testing and P&L attribution test requirements) but currently capitalised in the SA (because either back testing or P&L attribution test has failed). For instance, a bank monitoring the internal model firm-wide VaR (i.e. the VaR of all desks intended to be capitalised under IMA) may provide, as part of the documentation package of Article 9 of the RTS, the model change firm-wide VaR impact. In order to account for the potential future impact that a model change may produce on such desks once they return within the IMA perimeter (i.e. once they restore their compliance with the requirements of Art. 325az(2)), additional information should be provided. As suggested by the respondent, such information may relate to VaR numbers that the institution produce either for regulatory or for internal purposes, provided that they are informative enough of the impact produced on the IMA desks capitalised under the SA. Question 10. Do you agree with the proposed qualitative criteria to identify material extensions and changes, as set out in Part I of the Annex? The respondent expresses concern about the qualitative criteria for categorising as material certain extensions and changes related to the structure or organization of trading desks under IMA. The respondent states that changes related to the structure of the desks or changes related to the business strategy of a desk should be placed under the category “Non-material extensions and changes which require additional information”. The EBA takes note of the concerns expressed by the respondent relating to the categorisation of certain extensions and changes related to the structure or organization of trading desks under IMA. As indicated in the analysis provided on Q1, the EBA considers that cases such as splitting or merging of IMA trading desks may be considered as non-material changes requiring additional information. However, the EBA considers that categorising all changes related to the structure of the desks or changes related to the business strategy of a desk as non-material may neither be appropriate nor prudent. Amendments to Part I and II of the Annex. Question 11. Do you agree with the proposed qualitative criteria to identify extensions and changes requiring The respondent did not provide an answer to this question. N/a. No change needed.

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS additional information, as set out in Part II of the Annex?

FINAL REPORT ON DRAFT RTS ON THE MATERIALITY OF EXTENSIONS AND CHANGES TO THE USE OF FRTB IMA AND CHANGES TO THE SUBSET OF THE MODELLABLE RISK FACTORS