Legal references and instructions |
Row number | Explanation |
EU (a) | When disclosing information referred to in point (c) of Article 455 CRR on the extent and methodologies for compliance with the requirements of Article 104 CRR, institutions shall include: a description of the procedures and systems implemented for the assurance of tradability of the positions included in the trading book to comply with the requirements of Article 104 CRR; a description of the methodology used to ensure that the policies and procedures implemented for the overall management of the trading book are appropriate. |
EU (b) | When disclosing information referred to in point (c) of Article 455 CRR on the extent and methodologies for compliance with the requirements of Article 105 CRR, institutions shall include: a description of the valuation methodologies, including an explanation of how far mark-to-market and mark-to-model methodologies are used; description of the independent price verification process; procedures for valuation adjustments or reserves (including a description of the process and the methodology for valuing trading positions by type of instrument). |
(A) | Institutions using VaR models and SVaR models, as defined in Article 365 CRR |
(a) | When disclosing information referred to in point (a)(i) of Article 455 and point (b) of Article 455 CRR, institutions shall include a description of activities and risks covered by the VaR and SVaR models, specifying how they are distributed in portfolios/sub-portfolios for which the competent authority has granted permission. |
(b) | When disclosing referred to in point (b) of Article 455 CRR, institutions shall include: a description of the scope of application of the VaR and SVaR models for which the competent authority has granted permission; when relevant, information on which entities in the group use these models and how the models represent all the models used at the group level, as well as the percentage of own funds requirements covered by the models /or if the same models of VaR/SVaR are used for all entities with market risk exposure. |
| Disclosures of information referred to in point (a)(i) of Article 455 CRR on the characteristics of the model used shall include: |
(c) | A general description of regulatory VaR and SVaR models |
(d) | A discussion of the main differences, if any, between the models used for management purposes and the model used for regulatory purposes (10 day 99%) for VaR and SVaR models |
(e) | For VaR models: |
(i) | The data updating frequency; |
(ii) | The length of the data period that is used to calibrate the model. A description of the weighting scheme that is used (if any); |
(iii) | A description on how the institutions determines the 10-day holding period (for example, does it scale up a 1-day VaR by the square root of 10, or does it directly model the 10-day VaR?); |
(iv) | A description of the aggregation approach, which is the method for aggregating the specific and general risk (i.e. do the institutions calculate the specific charge as a stand-alone charge by using a different method than the one used to calculate the general risk or do the institutions use a single model that diversifies general and specific risk?); |
(v) | Valuation approach (full revaluation or use of approximations); |
(vi) | Whether, when simulating potential movements in risk factors, absolute or relative returns (or a mixed approach) are used (i.e. proportional change in prices or rates or absolute change in prices or rates). |
(f) | For SVaR models: |
(i) | A description on how the 10-day holding period is determined. For example, does the institution scale up a 1-day VaR by the square root of 10, or does it directly model the 10-day VaR? If the approach is the same as for the VaR models, the institutions may confirm this and refer to disclosure (e) (iii) above; |
(ii) | A description of the stress period chosen by the institution and the rationale for this choice; |
(iii) | A description of the valuation approach (full revaluation or use of approximations). |
(g) | When disclosing information referred to in point (a)(iii) of Article 455 CRR, institutions shall include a description of stress testing applied to the modelling parameters consistent with information disclosed under (A)(a) above (main scenarios developed to capture the characteristics of the portfolios to which the VaR and SVaR models apply at the group level). |
(h) | When disclosing information referred to in point (a)(iv) of Article 455 CRR, institutions shall disclose a description of the approach used for backtesting/validating the accuracy and internal consistency of data and parameters used for the internal models and modelling processes. |
(B) | Institutions using internal models to measure the own funds requirements for the incremental default and migration risk (IRC) in accordance with Sections 3 and 4 of Chapter 5 of Title IV of Part Three CRR |
(a) | When disclosing information referred to in point (a)(ii) of Article 455 and with point (b) of Article 455 CRR, institutions shall include a description of risks covered by the IRC models, specifying how they are distributed in portfolios/sub-portfolios for which the competent authority has granted permission. |
(b) | Information referred to in point (b) of Article 455 CRR shall include a description of the scope of application of the IRC model for which the competent authority has granted permission, and shall be complemented by information on which entities in the group use these models and how the models represent all the models used at the group level, including the percentage of own funds requirements covered by the models or if the same models of IRC is used for all entities with market risk exposure. |
| Information referred to in point (a)(ii) of Article 455 CRR on the characteristics of the IRC models used shall include: |
(c) | A general description of the methodology used for internal models for incremental default and migration risk, including: |
(i) | Information about the overall modelling approach (notably, the use of spread-based models or transition matrix-based models); |
(ii) | Information on the calibration of the transition matrix; |
(iii) | Information about correlation assumptions; |
(d) | Institutions shall include a description of the approach used to determine liquidity horizons; |
(e) | Institutions shall include a description of the methodology used to achieve a capital assessment that is consistent with the required soundness standard; |
(f) | Institutions shall include a description of the approach used in the validation of the models. |
(g) | Information referred to in point (a)(iii) of Article 455 CRR shall include a description of the stress testing applied to the modelling parameters consistent with information disclosed under (B)(a) above (main scenarios developed to capture the characteristics of the portfolios to which the IRC models apply at the group level). |
(h) | Information referred to in point (a)(iv) of Article 455 CRR shall include a description of the approach used for backtesting/validating the accuracy and internal consistency of data and parameters used for the IRC internal models and modelling processes |
(C) | Institutions using internal models to measure own funds requirements for correlation trading portfolio (comprehensive risk measure) in accordance with Section 5 of Chapter 5 of Title IV of Part Three CRR |
(a) | When disclosing information referred to in point (a)(ii) of Article 455 and point (b) of Article 455 CRR, institutions shall include a description of risks covered by the comprehensive risk measure models, specifying how they are distributed in portfolios/sub-portfolios for which the competent authority has granted permission. |
(b) | Information referred to in point (b) of Article 455 CRR shall include a description of the scope of application of the comprehensive risk measure models for which the competent authority has granted permission. It shall be complemented by information on which entities in the group use these models and how the models represent all the models used at the group level, including the percentage of own funds requirements covered by the models or if the same models of IRC is used for all entities with market risk exposure. |
| Information referred to in point (a)(ii) of Article 455 CRR on the characteristics of the comprehensive risk measure models used shall include: |
(c) | A general description of the methodology used for correlation trading, including: |
(i) | Information about the overall modelling approach (choice of model correlation between default/migrations and spread: (i) separate but correlated stochastic processes driving migration/default and spread movement; (ii) spread changes driving migration/default; or (iii) default/migrations driving spread changes); |
(ii) | Information used to calibrate the parameters of the base correlation: LGD pricing of the tranches (constant or stochastic); |
(iii) | Information on the choice of whether to age positions (profits and losses based on the simulated market movement in the model calculated based on the time to expiry of each position at the end of the 1-year capital horizon or using their time to expiry at the calculation date); |
(d) | Institutions shall include a description of the approach used to determine liquidity horizons. |
(e) | Institutions shall include a description of the methodology used to achieve a capital assessment that is consistent with the required soundness standard. |
(f) | Institutions shall include a description of the approach used in the validation of the models. |
(g) | Information referred to in point (a)(iii) of Article 455 CRR shall include a description of stress testing applied to the modelling parameters (main scenarios developed to capture the characteristics of the portfolios to which the comprehensive risk measure models apply at the group level). |
(h) | Information referred to in point (a)(iv) of Article 455 CRR shall include a description of the approach used for backtesting or validating the accuracy and internal consistency of data and parameters used for the comprehensive risk measure internal models and modelling processes. |
(i) | Institutions shall complement the disclosed information regarding the internal models for the incremental default and migration risk and for correlation trading portfolios with the information referred to in point (f) of Article 455 on the weighted average liquidity horizon for sub-portfolios, coherent with the description provided under rows (B) (a) and (d) and (C) (a) and (d)) of table EU MRB. |