European regulators turn up the heat on IFRS 9 model overlays

After warnings from EBA and BoE, risk managers urge ‘soul-searching’ on post-model adjustments

Credit: montage

When two different regulators both signal they are stepping up scrutiny of the same risk, banks would be well advised to pay attention. In the space of a few weeks in late 2023, the European Banking Authority and the Bank of England (BoE) raised explicit concerns about the use of model overlays to adjust forecasts for expected credit loss (ECL) under the International Financial Reporting Standard 9 (IFRS 9). For the EBA, it was the second such report benchmarking banks’ application of IFRS 9

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