Is the RWA capped at EAD amount for IRBA exposures as suggested by SBP validation check v6210

SBP validation check v6210 is set as an error which prevents the reporting of exposures with RWA higher than 12,5xEAD.  Verification is sought to the legal rationale behind setting such a maximum RWA limit.

CRR articles 153 or 154 do not include a cap for RWs. Neither CRR articles 161 or 164 include caps for LGD parameter. CRR suggests that RWA or LGD has no upper limit. LGD modelling has to consider also economical losses which in the case of small exposures may be higher than the actual EAD. From this it follows, that RWA may be higher than 12,5xEAD. However, SBP validation check v6210 is set as an error (blocking reporting), so it seems that the above reasoning based on CRR is not correct and v6210 suggests that CRR contains provisions that set an upper limit to the RWA for an individual contract. Furthermore, IRBA model or parameter changes require in most cases supervisory permission (COMMISSION DELEGATED REGULATION (EU) No 529/2014). Thus it is not possible to update parameters or RWs retrospectively to be in line with validation rules. Retrospective updates would require: 1. supervisory approval of model update 2. recalculation of RWAs (resubmission of COREP) 3. resubmission of SBP. Alone the first step would have a timeline of at least 6 months. In case SBP validation check v6210 is valid as an error, EBA should provide the legal rationale for setting maximum RWA to 12,5xEAD as the CRR does not provide such rationale. This would lead to resubmission of COREP after implementation of RWA cap to 12,5xEAD.