S.L. 371.16 Art. 7Ongoing review of the permission to use internal approaches.

(1) The competent authority shall review on a regular basis, and at least every three years, credit institutions’ compliance with the requirements regarding approaches that require permission by the competent authority for the calculation of own funds requirements in accordance with Part Three of the CRR. The competent authority shall have particular regard to changes in a credit institution’s business and to the implementation of those approaches to new products. Where material deficiencies are identified in risk capture by a credit institution’s internal approach, the competent authority shall ensure they are rectified or take appropriate steps to mitigate their consequences, including by imposing higher multiplication factors, or imposing capital add-ons, or taking other appropriate and effective measures.

(2) The competent authority shall in particular review and assess whether the credit institution uses well developed and up-to-date techniques and practices for those approaches.

(3) If for an internal market risk model numerous over-shootings as referred to in Article 366 of the CRR indicate that the model is not or is no longer sufficiently accurate, the competent authority shall revoke the permission for using the internal model or impose appropriate measures to ensure that the model is improved promptly.

(4) If a credit institution has received permission to apply an approach that requires permission by the competent authority before using such an approach for the calculation of own funds requirements in accordance with Part Three of the CRR but no longer meets the requirements for applying that approach, the competent authority shall require the credit institution to either demonstrate to the satisfaction of the competent authority that the effect of non-compliance is immaterial, where applicable in accordance with the requirements of the CRR, or present a plan for the timely restoration of compliance with the requirements and set a deadline for its implementation. The competent authority shall require improvements to that plan if it is unlikely to result in full compliance or if the deadline is inappropriate. If the credit institution is unlikely to be able to restore compliance within an appropriate deadline and, where applicable, has not satisfactorily demonstrated that the effect of non-compliance is immaterial, the permission to use the approach shall be revoked or limited to compliant areas or those where compliance can be achieved within an appropriate deadline.

(5) The competent authority shall take into account the analysis carried out by the EBA in terms of Article 101(5) of the CRD and the guidelines containing benchmarks on the basis of that analysis issued by the EBA, for the review of the permissions it grants to credit institutions to use internal approaches for the calculations of own funds requirements.