1. When assessing the institution’s compliance with Article 325bh(1), point (a), of Regulation (EU) No 575/2013 in relation to the requirement to include in the internal risk-measurement model at least those risk factors that are used in the calculation of the own funds requirements under the alternative standardised approach, the competent authority shall verify whether:
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(a)
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the institution documents whether there are risk factors used in the standardised approaches that are not included in the internal risk-measurement model;
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(b)
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the institution highlights all of the following aspects:
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(i)
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whether there are currencies for which general interest rate risk, including inflation risk or cross-currency basis risk, are not modelled;
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(ii)
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whether there are issuer’s credit spreads that are not modelled;
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(iii)
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whether there are equity spot prices and equity repo rates that are not modelled;
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(iv)
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whether there are commodity spot prices that are not modelled;
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(v)
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whether there are spot exchange rates that are not modelled;
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(vi)
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whether there are cases where the implied volatility in instruments with optionality is not modelled;
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(c)
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where there are risk factors used in the alternative standardised approach that are not included in the internal risk-measurement model, the institution, in addition to providing information on the impact of the exclusion of those risk factors on the profit and loss attribution results as required by Article 325bh(1), point (a), of Regulation (EU) No 575/2013:
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(i)
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provides an appropriate rationale for not including those risk factors in the internal risk-measurement model and, where such exclusion is due to a lack of representative prices for those risk factors, the rationale for not capturing those risk factors in the calculation of the stress scenario risk measure referred to in Article 325bk of Regulation (EU) No 575/2013, and documents such a rationale;
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(ii)
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calculates and monitors the impact on the own funds requirements resulting from excluding those risk factors from the internal risk-measurement model.
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2. When assessing an institution’s compliance with Article 325bh(1), point (a), of Regulation (EU) No 575/2013 in relation to the requirement to include in the internal risk-measurement model a sufficient number of risk factors, competent authorities shall perform the following steps in the following order:
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(a)
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require the institution to provide an overview of the factors used in the calculation of the end-of-day value of the portfolio, including, where appropriate, a list of aggregates of factors used in the calculation of the end-of-day value, which specifies, for each aggregate, all of the following:
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(i)
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the number of factors per aggregate;
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(iii)
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a gross and net sensitivity of the institution portfolio to the factors that are part of the aggregate;
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(iv)
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whether the factors are included or not in the internal risk-measurement model, and:
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(1)
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where included, whether each factor is directly modelled as a risk factor in the internal-risk measurement model without any proxy being used, or whether other techniques are used;
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(2)
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where not included, the rationale for that choice.
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(b)
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based on the overview referred to in point (a):
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(i)
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verify that there are no material factors that are not modelled, and that the rationales supporting the exclusions of non-modelled factors are appropriate;
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(ii)
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assess how the institution, for factors that are not modelled directly as risk factors in the risk-measurement model referred to in point (a)(iv), ensures that all material risks, including material basis risks, are captured.
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For the purposes of point (a), institutions shall aggregate factors so that each aggregate shares the same attributes in relation to point (ii), point (iv)(1), and point (iv)(2).
For the purposes of point (b)(i), competent authorities shall apply the assessment method referred to in paragraph 3, and may complement that method by the assessment method referred to in paragraph 4.
For the assessment referred to in paragraph 2, point (b)(i), competent authorities shall identify trading desks or hypothetical portfolios used by the institution for the internal validation referred to in Article 325bj(3), point (c), of Regulation (EU) No 575/2013 whose values depend on factors that are not included in the internal risk-measurement model. Competent authorities shall verify for those trading desks whether the results of the back-testing referred to in Article 325bf of Regulation (EU) No 575/2013 or of the own internal model validation tests referred to in Article 325bj(3), point (b), of Regulation (EU) No 575/2013 indicate weaknesses in the internal risk-measurement model.
3. For the assessment referred to in paragraph 2, point (b)(i), competent authorities may identify trading desks or hypothetical portfolios used by the institution for the internal validation referred to in Article 325bj(3), point (c), of Regulation (EU) No 575/2013 whose values depend on factors that are not included in the internal risk-measurement model, and apply the following steps in the following order:
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(a)
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require the institution to calculate:
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(i)
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the hypothetical changes in a trading desk portfolio’s value or in the hypothetical portfolio’s value calculated in accordance with Article 3 of Delegated Regulation (EU) 2022/2059;
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(ii)
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the hypothetical changes in the trading desk portfolio’s value or in the hypothetical portfolio’s value calculated in accordance with Article 3 of Delegated Regulation (EU) 2022/2059, while keeping unchanged the factors that are not included as risk factors in the internal risk-measurement model;
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(iii)
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the risk-theoretical changes in the trading desk portfolio’s value or in the hypothetical portfolio’s value calculated in accordance with Article 12 of Delegated Regulation (EU) 2022/2059.
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(b)
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require the institution to explain deviations in the changes in the portfolio’s values calculated in accordance with points (a)(i), (ii), and (iii).
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