ECB-SSM Tightens the Supervisory Approval Process for Material Changes and Extensions to Certain Models
How might EGMA-1 change processes and timelines of model governance for direct ECB-supervised and other Banking Union Supervised Institutions (BUSIs)?
EGMA-1 introduces technical rules on how the ECB’s Single Supervisory Mechanism (SSM) will approach providing its supervisory approval for "material" changes or extensions to models or provide a supervisory notification in respect of “immaterial” changes. Changes to models impact regulatory capital planning. The finalisation of EGMA-1 details how the ECB-SSM will evaluate the internal models that BUSIs use in connection with their trading books and security financing activities. This will affect BUSIs, specifically those, that for Banking Union purposes are categorised as "Significant Credit Institutions" (SCIs) operating in the Eurozone and directly supervised by the SSM. EGMA-1 will also have an impact on certain subsidiaries of third-country banks. In particular, those contemplating creating or expanding a subsidiary in the Eurozone in response to BREXIT will need to adhere to the ECB's approach. This Client Alert focuses on how EGMA-1’s impact might require BUSIs and more specifically those that for Banking Union purposes are categorised as "Significant Credit Institutions" (SCIs), and thus are directly supervised by the SSM, to forward-plan and assess their respective model approval processes and operations.