Bank of Russia makes validation of banks' requests for using internal ratings more transparent

The new version of the Ordinance ‘On the Procedure for Obtaining Authorisation to Use Bank Credit Risk Management Methodologies and Credit Risk Quantification Models to Calculate Banks’ Capital Adequacy Ratios and the Procedure for Assessing Their Quality’ has been devised based on the experience accumulated by the Bank of Russia in the validation of banks’ requests for the right to use the internal ratings-based (IRB) approach.

The Ordinance contains the following amendments:

1. After a bank submits its initial request, there will be two types of requests: an additional request (when new methods and models are specified within a gradual migration plan) and a request for using buffers (to provide for a special application of risk ratio buffers to certain asset types).
2. The amendments have expanded the classification of non-conformities with the requirements of the regulation on the procedure for measuring credit risk based on internal ratings.
3. The new version has simplified the requirements for approving by banks’ management bodies of requests and decisions on the IRB approach application (the additional request and the request for using buffers may be approved by a bank's sole or collective executive body).
4. The requirements for the preparation and content of the documents submitted for validation have been stipulated in greater detail.
5. The new version has increased banks’ liability for failure to comply with the deadlines for the submission of the information requested by the validation working group.