New Interest Rate Risk Regulation

The new requirements will replace the EBA/GL/2018/02 guideline. The regulatory package includes:

• An updated guideline on the internal management of IRRBB and CSRBB (EBA/GL/2022/14). These Guidelines will apply from 30 June 2023, except for the part on CSRBB, which will apply from 31 December 2023.
• RTS on the Supervisory Outlier Tests (SOT) for EVE and NII (EBA-RTS-2022-10). Applicable 20 days after publication in the Official Journal of the EU.
• RTS that introduce new standard models for EVE and NII to supplement internal methods and models. These models may be required by supervisors if they determine that the internal methods and models are insufficient.  (EBA-RTS-2022-09). Applicable 20 days after publication in the Official Journal of the EU.

In the light of the new EBA Guidelines and RTS, SFSA’s method for assessing the pillar 2 capital requirement for IRRBB and CSRBB may need to be updated. Currently, it is difficult to predict what the update will entail and to determine its impact.

The scope of the SOT has been expanded to include NII in addition to EVE. As a result, this change may increase the likelihood of several institutions being identified as outliers, which in turn could subject them to greater scrutiny and higher capital requirements.

Considering the expected changes needed, we recommend swift management action. This include in particular:

• Institution specific gap analysis
• Scope analysis for CSRBB
• Test calculation of new SOT for NII
• Test calculation of the new standard models

At Risk & Regulatory Advisory, we have extensive experience in implementing internal management frameworks, building and validating risk models for IRRBB and CSRBB. We are happy to assist you in preparing for the new requirements.”