in force 2025-01-01 MODIFIED+421 −218§
Amended by Regulation (EU) 2024/1623 32024R1623 · Regulation (EU) 2024/2987 32024R2987 · Regulation (EU) 2024/2795 32024R2795
applies from: unchanged
The opening sentence changes from describing an institution's optional use of statistical models and other mechanical methods as conditional, to stating that institutions shall use statistical or other mathematical methods to assign exposures to obligor or facility grades or pools, and it now refers to 'own funds requirements' rather than 'capital requirements'.
Point (a) in the after text drops the sentences on input variables forming a reasonable and effective basis and the model not having material biases, moving that wording, along with a new requirement of a functional link between inputs and outputs that may be determined through expert judgement, into a separate paragraph following point (e).
Cited: Art. 174, v1 · Art. 174, v2
text before / after
02013R0575-20240709 → 02013R0575-20250101
Article 174
Use of models
If an institution uses Institutions shall use statistical models and or other mechanical mathematical methods (models) to assign exposures to obligors obligor or facilities facility grades or pools, the pools. The following requirements shall be met:
(a) the model shall have good predictive power and capital own funds requirements shall not be distorted as a result of its use. The input variables shall form a reasonable and effective basis for the resulting predictions. The model shall not have material biases; use;
(b) the institution shall have in place a process for vetting data inputs into the model, which includes an assessment of the accuracy, completeness and appropriateness of the data;
(c) the data used to build the model shall be representative of the population of the institution's actual obligors or exposures;
(d) the institution shall have a regular cycle of model validation that includes monitoring of model performance and stability; review of model specification; and testing of model outputs against outcomes;
(e) the institution shall complement the statistical model by human judgement and human oversight to review model-based assignments and to ensure that the models are used appropriately. Review procedures shall aim at finding and limiting errors associated with model weaknesses. Human judgements shall take into account all relevant information not considered by the model. The institution shall document how human judgement and model results are to be combined.For the purposes of the first paragraph, point (a), the input variables shall form a reasonable and effective basis for the resulting predictions. The model shall not have material biases. There shall be a functional link between the inputs and the outputs of the model, which may be determined through expert judgement, where appropriate.