- The "Final Report on Draft Regulatory Technical Standards (RTS)" by the EBA details the framework for assessing the materiality of changes to internal models used by financial institutions under the Fundamental Review of the Trading Book (FRTB) guidelines.
- Scope: The RTS apply to changes in internal model approaches (IMA) used for calculating own funds requirements (OFR) for market risk. They categorize changes as material or non-material, with further subcategories for non-material changes.
- Material Changes: Require prior approval from competent authorities (CAs) and include significant modifications such as changes to trading desk structures, new asset classes, or major shifts in risk calculation methodologies. These are assessed using qualitative and quantitative criteria.
- Non-material Changes: Require notification to CAs four weeks in advance. They are divided into: With Additional Information: Include changes in risk modeling techniques or validation processes that are not as significant as material changes. With Basic Information: Minor adjustments within already approved methodologies.
- Implementation and Documentation: Approved material changes must be implemented on the specified date, with delays communicated along with corrective plans. Comprehensive documentation is required for both approvals and notifications, detailing descriptions, impact assessments, and validation reports.
