Article 325az
Alternative internal model approach and permission to use alternative internal models
1.
The alternative internal model approach may be used by an institution to calculate its own funds requirements for market risk, provided that the institution meets all of the requirements laid down in this Chapter.
2.
After having verified institutions' compliance with the requirements set out in Articles 325bh, 325bi and 325bj, competent authorities shall grant permission to those institutions to calculate their own funds requirements for the portfolio of all positions assigned to trading desks by using their alternative internal models in accordance with Article 325ba, provided that all the following requirements are met:
(a)
the trading desks were established in accordance with Article 104b;
(b)
the institution has provided to the competent authority a rationale for the inclusion of the trading desks in the scope of the alternative internal model approach;
(c)
the trading desks have met the back-testing requirements referred to in Article 325bf(3);
(d)
the trading desks have met the profit and loss attribution (‘P&L attribution’) requirements referred to in Article 325bg;
(e)
for trading desks that have been assigned at least one of those trading book positions referred to in Article 325bl, the trading desks fulfil the requirements set out in Article 325bm for the internal default risk model;
(f)
no securitisation or re-securitisation positions have been assigned to the trading desks;
(g)
no positions in CIUs that meet the condition set out in Article 104(8), point (b), have been assigned to the trading desks.
For the purposes of point (b) of the first subparagraph of this paragraph, not including a trading desk in the scope of the alternative internal model approach shall not be motivated by the fact that the own funds requirement calculated under the alternative standardised approach set out in point (a) of Article 325(3) would be lower than the own funds requirement calculated under the alternative internal model approach.
3.
Institutions that have been granted permission to use the alternative internal model approach shall also meet the reporting requirement set out in Article 325(3).
4.
An institution that has been granted the permission referred to in paragraph 2 shall immediately notify its competent authorities that one of its trading desks no longer meets at least one of the requirements set out in that paragraph. That institution shall no longer be permitted to apply this Chapter to any of the positions assigned to that trading desk and shall calculate the own funds requirements for market risk in accordance with the approach set out in Chapter 1a for all the positions assigned to that trading desk from the earliest reporting date and until the institution demonstrates to the competent authorities that the trading desk again fulfils all the requirements set out in paragraph 2.
5.
By way of derogation from paragraph 4, in extraordinary circumstances, competent authorities may permit an institution to continue using its alternative internal models for the purpose of calculating the own funds requirements for the market risk of a trading desk that no longer meets the conditions referred to in point (c) of paragraph 2 of this Article and in Article 325bg(1). When competent authorities exercise that discretion, they shall notify EBA and substantiate their decision.
6.
For positions assigned to the trading desks for which an institution has not been granted permission as referred to in paragraph 2, the own funds requirements for market risk shall be calculated by that institution in accordance with Chapter 1a of this Title. For the purposes of that calculation, all those positions shall be considered on a stand-alone basis as a separate portfolio.
7.
Material changes to the use of alternative internal models that an institution has received permission to use, the extension of the use of alternative internal models that the institution has received permission to use, and material changes to the institution's choice of the subset of the modellable risk factors referred to in Article 325bc(2), shall require separate permission from its competent authorities.
Institutions shall notify the competent authorities of all other extensions and changes to the use of the alternative internal models for which the institution has received permission.
8.
EBA shall develop draft regulatory technical standards to specify:
(a)
the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc;
(b)
the assessment methodology under which competent authorities verify an institution’s compliance with the requirements set out in this Chapter.
EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2024.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.
9.
EBA shall issue an opinion as to whether extraordinary circumstances as referred to in paragraph 5 of this Article and in Article 325bf(6), second subparagraph, have occurred.
For the purpose of providing that opinion, EBA shall monitor the market conditions to assess whether extraordinary circumstances have occurred and, where that is the case, shall notify the Commission immediately.
10.
EBA shall develop draft regulatory technical standards to specify the conditions and indicators that EBA is to use to determine whether extraordinary circumstances have occurred.
EBA shall submit those draft regulatory technical standards to the Commission by 30 June 2024.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.