1.   Competent authorities shall apply:

(a)	where required to assess curves whose points are risk factors as referred to in Article 4 of Delegated Regulation (EU) 2022/2060, paragraph 2 of this Article;

(b)	where required to assess curves that have been modelled by means of function parameters as referred to in Article 6 of Delegated Regulation (EU) 2022/2060, paragraph 4 of this Article.

For the purposes of points (a) and (b), competent authorities shall assess the interpolation and extrapolation techniques used by the institution in accordance with paragraph 6.

2.   For curves for which the institution establishes buckets itself in accordance with Article 5(4) of Delegated Regulation (EU) 2022/2060, competent authorities shall verify that:

(a)	the institution’s internal policies have established criteria to decide on the numbers of risk factors to be used to model a curve, and that such criteria are based on the liquidity and materiality of the positions with exposure to that curve;

(b)	the criteria referred to in point (a) are accompanied by an analysis showing that the number of risk factors used allows for the volatility across different tenors to be captured.

For the purposes of point (b), where the competent authority considers that the number of risk factors used to model a curve are not appropriate, competent authorities may complement their assessment using the assessment method referred to in paragraph 3.

3.   For the purposes paragraph 2, point (b), competent authorities may:

(a)	require the institution to apply scenarios of future shocks to the curve’s risk factors as made in the internal risk-measurement model;

(b)	require the institution to derive the volatility of a point in the curve that is not a risk factor;

(c)	require the institution to obtain the observed volatility of the point in the curve referred to in point (b);

(d)	compare the volatility obtained in accordance with point (b) with the observed volatility obtained in accordance with point (c).

For the assessment referred to in paragraph 2, point (b), competent authorities shall base themselves on both the period referred to in Article 325bc(4), point (c), of Regulation (EU) No 575/2013 and the period of financial stress referred to in Article 325bc(2), point (c), of that Regulation.

4.   For curves that have been modelled by means of function parameters as referred to in Article 6 of Delegated Regulation (EU) 2022/2060, competent authorities shall assess whether the institution’s internal policies include analysis showing that shocking functions parameters allows capturing all material risks in the curves and the volatility across different tenors. Where appropriate, competent authorities may complement their assessment by using the assessment method referred to in paragraph 5 of this Article.

5.   For the purposes of paragraph 4, competent authorities may:

(a)	require the institution to apply scenarios of future shocks to the function parameters as made in the internal risk-measurement model;

(b)	require the institution to derive the volatility of a point in the curve;

(c)	require the institution to obtain the volatility of the point in the curve referred to in point (b);

(d)	compare the volatility obtained in accordance with point (b) with the observed volatility obtained in accordance with point (c).

For that assessment, competent authorities shall base themselves on both the period referred to in Article 325bc(4), point (c), of Regulation (EU) No 575/2013 and the period of financial stress referred to in Article 325bc(2), point (c), of that Regulation.

6.   Competent authorities shall assess whether all the techniques used by the institution to build a curve, including interpolation and extrapolation techniques, are sound. Where part of the curve is derived by extrapolating its two outer points, competent authorities shall verify whether the volatility of the returns observed in the market for the extrapolated part of the curve does not significantly differ from that resulting from the extrapolation. For that purpose, competent authorities may apply the assessment methods referred to in paragraphs 3 and 5 by picking a point in the curve obtained via extrapolation when applying point (b), of those paragraphs.