Irrespective of whether a firm is using external, internal, pooled data sources or a combination of the three, for its estimation of loss characteristics, the length of the underlying historical observation period used must be at least five years for at least one source. If the available observation spans a longer period for any source, and these data are relevant, this longer period must be used. However:

(1) a firm need not give equal importance to historic data if this is compatible with its IRB permission; and

(2) (in the case of a firm with an IRB permission that permits this treatment of historic data) the firm must be able to convince the appropriate regulator that more recent data is a better predictor of loss rates.

[Note: BCD Annex VII Part 4 point 71 (part)]