ECB publishes guide to on-site inspections and internal model investigations




The European Central Bank (ECB) has published on 21 September a guide to on-site inspections and internal model investigations.


Objective of the ECB inspections are:

  • examine and assess the level, nature and features of the inherent risks to which the entity is exposed, also taking into account its risk culture;

  • examine and assess the appropriateness and quality of the inspected legal entity's corporate governance and internal control framework in the light of the nature of its business and risks;

  • assess the inspected legal entity’s control systems and risk management processes, focusing, in particular, on detecting weaknesses or vulnerabilities that could have an impact on its own funds;

  • examine the quality of balance-sheet items and the financial situation of the inspected legal entity;

  • assess the business model of the inspected legal entity;

  • check the inspected legal entity’s compliance with banking regulation, and, in the case of internal models, with the legal requirements pertaining to internal models used for the calculation of capital requirements (initial approval, material changes, extensions, roll-out, permanent partial use or reversion to less sophisticated approaches).

The execution of the inspections will include:

  • Observation, information verification and analysis

  • Targeted Interviews

  • Walk-through

  • Sampling/case-by-case examinations

  • Confirmation of data

  • Model testing

Link to full guide: https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf