IFRS 9 Modeling Challenges
From Open Risk Manual
Contents
IFRS 9 Modelling Challenges
This is a list of specific technical areas that pose a challenge in the development and validation of robust IFRS 9 / CECL models. Given the wide scope of the Standard and the varying degree of prior experience of firms the list is split in several segments according to the starting point. High level regulatory guidance on the subject is provided in [1] and [2]
The focus of the list is on modelling challenges and not the broader resourcing, provisioning, governance etc. challenges associated with implementing an IFRS 9 programme.
Data availability and data quality challenges are in scope, as they typically have very significant impact on model development
Starting Point: All
| Challenge | Nature | Relevant Entries |
|---|---|---|
| Adequate selection of Credit Risk drivers, including impact of underwriting standards | ||
| Objective basis for the grouping of exposures while retaining SICR sensitivity | ||
| Coherence of SICR methodology with credit rating and ECL estimation | ||
| ECL Approaches for low default portfolios | ||
| ECL Approaches for new products with limited history | ||
| Number of scenarios in ECL estimation | ||
| Selection of all relevant forward looking information in ECL estimation | ||
| Addressing the impact of sovereign events (Rating Cap) | ||
| Capturing model risk, e.g., when multiple approaches are available |
Starting Point: Advanced IRB Basel Models
| Challenge | Nature | Relevant Entries |
|---|---|---|
| Conversion from prudential to best estimate | ||
| Conversion from one-year to multi-period | ||
| Conversion from TTC to PIT |
Starting Point: Standardized Basel Models
| Challenge | Nature | Relevant Entries |
|---|---|---|
Starting Point: Other
| Challenge | Nature | Relevant Entries |
|---|---|---|
