Key data
| Regulation | Decision (EU) 2026/2040 of the European Central Bank (ECB/2026/24) |
|---|---|
| Publication | September 11, 2026 |
| Entry into force | September 1, 2026 |
| Affected parties | Significant credit institutions directly supervised by the ECB in the eurozone |
| Category | Business Regulation / Banking Supervision |
| Regulatory framework | Single Supervisory Mechanism (SSM) |
| Subject matter | Substantial modifications in internal rating systems (IRB) for calculating capital requirements for credit risk |
Significant banks directly supervised by the ECB face a relevant change in the approval procedure for their internal credit risk models. The Decision (EU) 2026/2040 of the ECB, published on September 11, 2026 with effect from September 1, formally designates unit heads with delegated capacity to adopt decisions on substantial modifications in internal rating systems (IRB) used to calculate capital requirements for credit risk.
The change is not minor: until now, this type of decision had to be escalated to the ECB Supervisory Board or Governing Council. The delegation seeks to streamline supervisory decision-making within the Single Supervisory Mechanism (SSM), but it also means that banks must know exactly who now approves their requests and how to adapt their internal processes.
What does this regulation establish?
Decision ECB/2026/24 regulates the formal delegation of supervisory powers regarding IRB models. Specifically, it establishes that certain unit heads of the ECB are authorized to adopt, by delegation, decisions on substantial modifications in the internal rating systems that credit institutions use to calculate their capital requirements against credit risk.
The key points of what it regulates are:
- Subject: Substantial modifications in internal rating systems (IRB) for calculating capital requirements for credit risk.
- Mechanism: Delegation of decision-making authority from the ECB Supervisory Board and Governing Council to designated unit heads.
- Framework: It is part of the Single Supervisory Mechanism (SSM), which directly supervises significant banks in the eurozone.
- Stated objective: To streamline supervisory decision-making, avoiding the need to escalate each model modification to the ECB's governing bodies.
- Scope of application: Exclusively significant credit institutions under direct ECB supervision.
The regulation does not modify the material requirements for approving changes in IRB models, but rather the ECB's internal procedure for processing and resolving those requests. The evaluation standard remains the same; what changes is who signs the decision.
Economic and operational impact
For the risk, capital and compliance departments of significant banks, this decision has immediate practical consequences:
- Model validation timelines: Delegation to unit heads can shorten ECB response times in approving IRB modifications, by eliminating the need to escalate each case to governing bodies. This can promote greater agility in model updates.
- Capital planning: IRB models directly determine risk-weighted assets (RWA) and, therefore, capital requirements. Any change approved or denied in a model has a direct impact on the entity's capital ratio. Greater agility in approval can facilitate faster adjustments in capital planning.
- Supervisory interaction: Banks must now identify the new designated contacts within the ECB for processing their model modification requests, adapting their communication channels and teams responsible for the supervisory relationship.
- Internal model project management: Model validation and development teams must update their internal procedures to reflect the new ECB approval flow, including expected timelines and contact points.
Who does it affect?
- Significant credit institutions directly supervised by the ECB in the eurozone (the so-called "significant banks" of the SSM).
- Credit risk departments responsible for the development and maintenance of IRB models.
- Capital planning and ICAAP teams that depend on internal models to calculate capital requirements.
- Regulatory and compliance areas responsible for the relationship with the supervisor and the processing of requests to the ECB.
- Chief Financial Officers (CFO) and Chief Risk Officers (CRO) of significant banks, who must understand the new procedure to anticipate timelines and resources.
- Consultants and specialized advisors in banking regulation who assist entities in IRB model modification processes.
Less significant credit institutions, indirectly supervised by the ECB through national competent authorities, are not directly affected by this decision.
Practical example
A significant eurozone bank decides to update its IRB mortgage risk model to incorporate new macroeconomic variables. Before Decision ECB/2026/24, the request to approve this substantial modification had to be processed and resolved at the level of the ECB Supervisory Board, with the associated timelines.
From September 1, 2026, that same request can be resolved directly by the designated unit head at the ECB with delegated authority for this matter. The bank must now direct its request to the correct contact within the new structure, update its internal model project management procedures, and anticipate that response timelines may vary from historical ones. If the approved model reduces risk-weighted assets (RWA), the impact translates directly into an improvement in the entity's capital ratio.
What should companies do now?
- Identify the new contacts at the ECB: Locate which unit heads have been designated to resolve IRB model modification requests and update contacts in supervisory relationship teams.
- Review the inventory of pending model modifications: Check if there are ongoing or planned requests that must be processed under the new delegated procedure, and adjust estimated response timelines.
- Update internal model management procedures: Reflect in internal manuals and workflows the new ECB approval circuit, including contact points and required request formats.
- Review capital planning: Evaluate whether there are IRB model modification projects whose more agile approval can be anticipated in the capital plan, adjusting RWA projections and solvency ratios.
- Inform internal governing bodies: The CFO, CRO and Risk Committee must understand the procedural change to incorporate it into internal model governance and communication with the board of directors.
Frequently asked questions
What are internal rating systems (IRB) and why do they need ECB approval?
IRB systems (Internal Ratings-Based) are proprietary models that banks use to estimate credit risk in their portfolios and calculate capital requirements. Since they are internal methodologies that directly determine regulatory capital, any substantial modification must be approved by the supervisor—in this case the ECB for significant banks—before implementation.
What does it mean that the ECB delegates approval to unit heads?
Until Decision ECB/2026/24, decisions on substantial modifications in IRB models had to be adopted by the ECB Supervisory Board or Governing Council. With the new regulation, formally designated unit heads can adopt those decisions by delegation, without the need to escalate them to governing bodies. The objective is to streamline the supervisory process.
When does this ECB decision become applicable?
Decision (EU) 2026/2040 (ECB/2026/24) entered into force on September 1, 2026, although it was published in the EU Official Journal on September 11, 2026. IRB model modification requests processed from that date are governed by the new delegated procedure.
Does this regulation affect all banks or only some?
It affects exclusively significant credit institutions directly supervised by the ECB within the Single Supervisory Mechanism (SSM). Less significant banks, supervised by national competent authorities, are not directly subject to this decision.
Does the ECB's evaluation standard for approving IRB model changes change?
No. Decision ECB/2026/24 modifies the internal procedure for decision-making at the ECB (who approves), but does not alter the material criteria or technical requirements that IRB model modifications must meet to be approved. The supervisory evaluation standard remains unchanged.
Official source
Consult complete regulation in official source
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific decisions, consult a qualified professional. Source: https://eur-lex.europa.eu/./legal-content/AUTO/?uri=OJ:L_202602040
