Article 37
Assessment of the analysis of overshootings
1. Competent authorities shall verify whether an institution analyses all overshootings referred to in Article 325bf of Regulation (EU) No 575/2013 in detail, in order to determine their causes.
2. For the purposes of paragraph 1, competent authorities shall verify whether the institution:
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(a) |
identifies which portfolios or trading desks primarily caused the overshooting; |
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(b) |
analyses the differences in the hypothetical and actual changes in the portfolio’s value; |
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(c) |
analyses whether and which market movements, risk factors or parameters caused the overshooting; |
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(d) |
analyses whether any modelling issues, or missing risk factors, contributed to the overshooting, and provides an explanation of which part of the changes in the portfolio’s value can be explained by the model and which cannot; |
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(e) |
analyses whether process failures, including positions not being properly captured or missing updates of data, contributed to or caused the overshooting; |
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(f) |
describes the results of actions taken as a result of points (a) to (e) when notifying competent authorities of overshootings that emerged from their back-testing programme conducted in accordance with Article 325bf of Regulation (EU) No 575/2013. |
3. Competent authorities shall verify whether, where the analysis referred to in paragraphs 1 and 2 identifies a material weakness or inaccuracy in the model or processes, the institution assesses that weakness or inaccuracy and promptly develops a plan for a timely return to compliance with the backtesting requirements to be assessed as part of the regular validation of the model.
4. Competent authorities shall verify whether the institution ensures both of the following:
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(a) |
any overshooting, including those relating to the back-testing referred to in Article 325bf(5) of Regulation (EU) No 575/2013, is reported to senior management within three working days of the date the overshooting has been identified; |
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(b) |
the analyses referred to in paragraphs 1 and 2 are reported to the competent authority and to the senior management within one month of the date the overshooting has occurred. |