FI Identifies Significant Weaknesses in SEB’s Credit Risk Models

On 13 October 2026, the Swedish Financial Supervisory Authority (Finansinspektionen – FI) issued a decision requiring Skandinaviska Enskilda Banken AB (SEB) to take corrective measures following significant shortcomings in its internal models for calculating capital requirements for credit risk under the Internal Ratings-Based (IRB) approach.

FI identified deficiencies in six areas of SEB’s probability of default (PD) models for corporate and other non-retail, non-public-sector exposures: model assignment, risk differentiation, the risk classification process, risk quantification, adjustments and margins of conservatism, and the review of estimates. The review covered models used within the SEB Group, excluding those limited to the Baltic region. FI found that the models did not adequately assess debtor characteristics, differentiate risks or produce correct and consistent risk estimates. It also identified extensive deficiencies in model documentation and in the rationale for model design.

According to FI, these shortcomings mean that SEB does not meet the fundamental requirements for using the IRB approach under the Capital Requirements Regulation (CRR). The deficiencies had already been identified in the 2023 Supervisory Review and Evaluation Process (SREP) and were found to persist and be more extensive than previously assessed.

To address the resulting risks, FI requires SEB to apply a risk-weight floor at model level to the exposures covered by the review. The floor is based on a percentage of the risk exposure amount that would apply to the same exposures under the CRR's standardised approach. It must be allocated proportionally across the models according to the risk weights they generated as of 30 June 2026. The measure increases SEB's capital requirements without fully applying the standardised approach and is intended to mitigate the impact of the model deficiencies and prevent an undue competitive advantage. FI will closely monitor SEB's progress in remedying the shortcomings.

Why it matters: The decision highlights the importance of adequate probability of default models and compliance with the CRR requirements for institutions using the IRB approach.  It serves as a reminder for credit institutions to review their models, particularly with regard to risk differentiation, risk quantification, model documentation and validation processes, to assess whether these meet the applicable regulatory requirements.