The ECB's streamlined approval framework promises faster implementation of material IRB model changes. But the real shift is strategic: supervisors are placing greater reliance on banks' own governance, validation and assurance functions. Institutions that strengthen those capabilities now will be best positioned to benefit.
A shift in supervisory accountability
In 2025, the ECB conducted 74 internal model investigations, the majority relating to new model approvals and material model changes. From October 2026, the approval process for many model changes will begin to look very different.
From 1 October 2026, the ECB will allow banks to implement material changes to credit risk internal models shortly after submitting a complete application package, provided the bank’s internal control function credibly confirms regulatory compliance and implementation readiness.
Banks should not view the reform as deregulation. The ECB is changing how assurance is obtained, not reducing supervisory expectations. Governance, validation and implementation readiness are becoming increasingly important determinants of supervisory outcomes.
Previous process
- Application
- ECB assessment
- IMI approval
- Implementation
Streamlined process
- Application
- Credible internal controls
- Earlier implementation
- Ex-post IMI
Faster approvals, unchanged accountability
Eligible material IRB model changes may, in some circumstances, be implemented without waiting for a dedicated Internal Model Investigation. While approvals may be faster, supervisory safeguards remain.
The ECB may still apply risk-weight floors, conduct targeted investigations or require the standard approval process for higher-risk cases. The result is a faster pathway for some model changes, not a lower supervisory standard.
What supervisors will focus on next
Governance is becoming a supervisory differentiator
The ECB's proposals signal a shift in accountability for demonstrating model compliance and implementation readiness. Rather than relying primarily on investigation before implementation, supervisors are increasingly expecting banks' own governance, validation and audit functions to provide credible evidence that model changes are compliant and operationally ready.
For many institutions, this will require a shift from a compliance-driven sign-off process to a genuinely evidence-based assurance model. Independent Validation, Internal Audit and model governance functions will need to demonstrate effective challenge, clear accountability and robust oversight.
The ECB has also indicated that supervisory resources will increasingly focus on higher-risk institutions, portfolios and models. Firms with unresolved findings, governance weaknesses, data quality concerns or anomalous model outcomes may therefore continue to attract heightened scrutiny.
Understanding which weaknesses matter most to supervisors will become increasingly important as the framework evolves.
Five questions for Boards, CROs and Heads of Model Risk
Banks should use the transition period to assess whether their governance and assurance frameworks are ready for increased supervisory reliance on internal control functions.
Key questions include:
Addressing these questions early can help banks identify capability gaps, strengthen governance arrangements and reduce the risk of delays or adverse findings during future supervisory reviews.
Institutions that address these questions now are likely to be better positioned to benefit from streamlined approvals while reducing the risk of future supervisory challenge.
Preparing for greater supervisory reliance
Conclusion
The ECB's simplification of IRB model change approvals represents one of the most significant developments in internal model supervision in recent years. While the reforms are intended to make approvals faster and more predictable, they do not signal a reduction in supervisory expectations.
Instead, they reflect a broader shift towards greater reliance on banks' governance, validation and assurance frameworks.
The institutions most likely to benefit from the new regime will be those that strengthen governance, complete remediation programmes, enhance validation and audit capabilities, and maintain proactive engagement with supervisors.
The competitive advantage will not come from implementing model changes faster. It will come from being able to demonstrate, with credible evidence, that those changes can be implemented safely, effectively and in line with supervisory expectations.
How KPMG can help
Assess your readiness for the ECB's new supervisory model
The institutions most likely to benefit from the ECB's streamlined approval framework will be those that can demonstrate strong governance, credible validation and effective internal assurance.
Now is the time to assess whether your model change framework would withstand supervisory challenge.
