SSM guide for IMM model change materiality assessment

The European Central Bank's Single Supervisory Mechanism (SSM) has published a guide on assessing the materiality of extensions and changes to internal models for counterparty credit risk. The EGMA assists significant institutions in their self-assessment under the Capital Requirements Regulation.

Navigating IMM model changes

The European Central Bank's Single Supervisory Mechanism (SSM) has issued its Guide on Materiality Assessment (EGMA) for extensions and changes to the Internal Model Method (IMM).

This guide assists significant institutions in interpreting the Capital Requirements Regulation (CRR) for counterparty credit risk (CCR) models.

While CRR mandates model approval for material changes, specific regulatory technical standards (RTS) for IMM are not yet in place.

Published in June 2026, the EGMA provides a framework for institutions to self-assess the materiality of their IMM model adjustments.

It clarifies that the guide is not legally binding but offers a course of action within the existing legal framework.

The updated EGMA version 2.0, effective from January 1, 2025, removes all references to the Advanced Credit Valuation Adjustment (A-CVA) approach, which has been substituted by the Standardised Approach for CVA (SA-CVA) as mandated by CRR Article 383a(5)(a).

The two-step classification process

The ECB developed the EGMA to guide institutions on assessing Internal Model Method (IMM) changes, as the Capital Requirements Regulation (CRR) lacks specific regulatory technical standards (RTS) for IMM, unlike other risk categories.

The EGMA outlines a two-step classification: institutions first self-assess, categorizing changes as 'not material' or 'needing investigation'.

'Not material' changes are implemented after notification.

However, 'extensions and changes that need to be investigated' require an ECB internal model investigation for final classification, which must conclude before implementation.

Certain changes, like those reducing overall Risk-Weighted Assets (RWA) by at least 1%, are always deemed material backstops, ensuring robust supervisory oversight.

Guidance, not a mandate

This guide addresses a critical regulatory gap by standardizing materiality assessments for IMM models where no specific RTS exists.

While not legally binding, it provides essential clarity for banks and supervisors, fostering more consistent capital requirement calculations across the euro area.

Its effectiveness will, however, depend on the degree of voluntary adoption and the ECB's enforcement through its supervisory review process.