New Pre-Application Process for Significant Institutions to Use Before Submitting Formal Internal Model Requests to ECB


The European Central Bank (“ECB“) published a letter on June 13, 2018 (dated June 7, 2018) relating to internal model requests by significant institutions.

It appears that the letter has been sent to the boards of significant institutions that the ECB supervises under the single supervisory mechanism (“SSM“).

The ECB explains the set of documents and processes that firms are invited to use when communicating any applications for initial internal model approvals, material model changes and extensions, reversions to less sophisticated approaches, and modifications to the scope of assets for which permanent partial use of the standardised approach is permitted. The letter also contains links to the set of documents to be used when communicating any non-material model changes or extensions.

Firms are invited to follow a pre-application process, which aims to increase the efficiency of the assessment of internal model requests. The letter provides detail on the scope, process and timeline for the pre-application process.

The ECB believes that significant institutions that follow the pre-application process will benefit from a more certain and transparent time plan.

Participation in the pre-application process is not a legal requirement, but information that firms provide in the pre-application is key to enabling the ECB to efficiently plan its assessment of internal model requests. If firms do not use this process, the ECB can only carry out its preparation once it has received the formal application. The ECB also points out that the level of information requested after submission of the formal application is at least equivalent to that foreseen in the pre-application process.

Significant institutions are invited to follow the pre-application process for applications from 1 July 2018 onwards, using the forms referred to in the letter. The ECB advises that the pre-application process may be updated and enhanced in the light of post-implementation experience, and changes in the applicable legal framework.

For communicating non-material model changes, institutions are asked to start using the forms referred to as of 1 July 2018.

Separately, the ECB is consulting on a guide to internal models under the SSM.