8.3 Use of internal ratings and default and loss estimates

In accordance with Article 144(1)(b) of Regulation (EU) No 575/2013 and Articles 18 to 21 of the RTS on IRB assessment methodology institutions should use the same estimates of risk parameters for the purpose of own funds requirements calculation and for internal purposes, including risk management and decision-making processes, unless all of the following conditions are met:

• (a) the deviation is justified and appropriate for the specific area of use;
• (b) the deviation does not lead to a change in rank ordering in the assignment of obligors or facilities to grades and pools within a calibration segment other than within each grade or pool;
• (c) the deviation is due to the use of parameters for internal purposes without consideration of the MoC, without regulatory floors, without downturn adjustment in the case of LGD estimates or is due to the use of a different calibration method, which may entail specifying different calibration segments.

For the purpose of paragraph 208 it may also be considered adequate to group continuous risk parameter estimates into homogenous ranks for internal purposes.

Where institutions use for internal purposes estimates of risk parameters that are different from those used in the calculation of own funds requirements they should periodically reflect this in their internal reporting to senior management by providing information on both sets of parameters. In any case internal reporting should include all elements specified in Article 189(3) of Regulation (EU) No 575/2013 based on the estimates of risk parameters used for the purpose of calculation of own funds requirements.