The system used for measuring diversification effects referred to in Article 121(5) of Directive 2009/138/EC shall only be considered adequate where all of the following conditions are met:
(a)
the system used for measuring diversification effects identifies the key variables driving dependencies;
(b)
the system used for measuring diversification effects takes into account all of the following:
(i)
any non-linear dependence and any lack of diversification under extreme scenarios;
(ii)
any restrictions of diversification which arise from the existence of a ring-fenced fund;
(iii)
the characteristics of the risk measure used in the internal model;
(c)
the assumptions underlying the system used for measuring diversification effects are justified on an empirical basis.