Related provisions for BIPRU 7.10.118
1 - 8 of 8 items.
BIPRU 7.10 provides details of when the appropriate regulator expects to allow a firm to use a VaR model (value at risk model) for the purpose of calculating part or all of its PRR. It introduces the concept of a VaR model, the methodology behind it and the link to the standard market risk PRR rules. It then goes on to detail the application and review process. The bulk of BIPRU 7.10 specifies the model standards and risk management standards that firms will be required to meet
The models described in BIPRU 7.10 are described as VaR models in order to distinguish them from CAD 1 models, which are dealt with in BIPRU 7.9 (Use of a CAD 1 model). A VaR model is a risk management model which uses a statistical measure to predict profit and loss movement ranges with a confidence interval. From these results PRR charges can be calculated. The standards described in BIPRU 7.10, and which will be applied by the appropriate regulator, are based on and implement
The aim of the VaR model approach is to enable a firm with adequate risk management systems to be subject to a PRR requirement that is more closely aligned with the risks to which it is subject than the PRR requirements generated by the standard market risk PRR rules. This provides a firm with an incentive to measure market risks as accurately and comprehensively as possible. It is crucial that those responsible for managing market risk at a firm should be aware of the assumptions
There are a number of general methodologies for calculating PRR using a VaR model. The appropriate regulator does not prescribe any one method of computing VaR measures. Moreover, it does not wish to discourage any firm from developing alternative risk measurement techniques. A firm should discuss the use of any alternative techniques used to calculate PRR with the appropriate regulator.
A firm should not use the VaR model approach to calculate PRR unless it has a VaR model permission. If a firm does not have such a permission it should use the standard market risk PRR rules. Therefore, a firm needs to apply for a VaR model permission in order to calculate its PRR using a VaR model instead of (or in combination with) the standard market risk PRR rules.
A waiver or other permission allowing the use of models in the calculation of PRR will not be granted if that would be contrary to the Capital Adequacy Directive and any VaR model permission which is granted will only be granted on terms that are compatible with the Capital Adequacy Directive. Accordingly, the appropriate regulator is likely only to grant a waiver or other permission allowing the use of models in the calculation of PRR if it is a VaR model permission or a CAD
BIPRU 7.10 sets out the minimum standards that the appropriate regulator expects firms to meet before granting a VaR model permission. The appropriate regulator will not grant a VaR model permission unless it is satisfied that the requirements of BIPRU 7.10 are met and it is satisfied about the procedures in place at a firm to calculate the model PRR. In particular the appropriate regulator will not normally grant a VaR model permission unless it is satisfied about the quality
The appropriate regulator recognises that the nature of VaR models will vary between firms. The scope of and the requirements and conditions set out in a VaR model permission may therefore differ in substance or detail from BIPRU 7.10 in order to address individual circumstances adequately. However any differences will only be allowed if they are compliant with the Capital Adequacy Directive. A VaR model permission will implement any such variation by modifying BIPRU 7.10. A VaR
Details of the general process for applying for a VaR model permission are set out in BIPRU 1.3 (Applications for advanced approaches). Because of the complexity of a VaR model permission, it is recommended that a firm discuss its proposed application with its usual contact at the appropriate regulator before it makes the application.
The VaR model review process may be conducted through a series of visits covering various aspects of a firm's control and IT environment. Before these visits the appropriate regulator may ask the firm to provide some information relating to the firm'sVaR model permission request accompanied by some specified background material. The VaR model review visits are organised on a timetable that allows the firm being visited sufficient time to arrange the visit and provide the appropriate
As part of the process for dealing with an application for a VaR model permission the following may be reviewed: organisational structure and personnel; details of the firm's market position in the relevant products; revenue and risk information; valuation and reserving policies; operational controls; information technology systems; model release and control procedures; risk management and control framework; risk appetite and limit structure; future developments relevant to model
The appropriate regulator may complement its own review of a VaR model permission request with one or more reviews by a skilled person under section 166 of the Act (Reports by skilled persons). Such a review may also be used where a VaR model permission has been granted to ensure that the requirements BIPRU 7.10 and of the VaR model permission continue to be met.
A firm must use the VaR model approach to calculate the PRR for a position:(1) to the extent that the risks in relation to that position are within the scope of the VaR model permission (see BIPRU 7.10.136R (Link to standard PRR rules: Incorporation of the model output into the capital calculation)); and(2) if the position is of a type that comes within the scope of the VaR model permission.
In accordance with BIPRU 7.10.18R (1) a VaR model permission will set out the risk categories that it covers, which are expected to be one or more of the following types:(1) interest rate general market risk;(2) interest rate specific risk (in conjunction with interest rate general market risk);(3) equitygeneral market risk;(4) equityspecific risk (in conjunction with equitygeneral market risk);(5) CIU risk;(6) foreign currency risk; and(7) commodity risk.
It is the appropriate regulator's view that, where a firm uses a VaR model for one risk category as described in BIPRU 7.10.19G, it is good practice to extend its model over time to calculate all of its PRR risk categories. A firm will typically be expected to have a realistic plan in place to do this.
The appropriate regulator accepts that the scope and nature of VaR models varies across firms. This means that different firms are likely to calculate different estimates of market risk for the same portfolio. Systematic differences are due to length of data series, choice of methodology (historical or Monte Carlo simulation or variance-covariance method or a hybrid of these), differences in aggregating risks within and across broad risk factors, the treatment of options and other
If a firm uses a holding period other than 10 business days and converts the resulting VaR measure to a ten business day equivalent measure, it should be able to justify the choice of conversion technique. For example, the square root of time method will usually be justifiable. The appropriate regulator considers it good practice ultimately to move towards the application of an actual ten business day holding period, rather than using different holding periods.
Subject to BIPRU 7.10.31R, the calculation of VaR numbers must be based on an effective historical observation period that is the longest possible consistent with a prudent VaR number. That period must be at least one year or such longer period as may be set out in the firm'sVaR model permission. However if using that prescribed observation period does not result in a sufficiently prudent way of calculating a VaR measure or a component of a VaR measure the firm must shorten this
3The stressed VaR measure must be based on inputs calibrated to historical data from a continuous twelve-month period of significant financial stress relevant to the firm's portfolio. The choice of that historical period will be subject to the appropriate regulator's approval and will form part of a firm'sVaR model permission.
A firm must ensure that the data series used by its VaR model is reliable. Where a reliable data series is not available, proxies or any other reasonable value-at-risk measurement technique must be used. A firm must be able to demonstrate that the technique is appropriate and does not materially understate the modelled risks.
A data series is unreliable if it has, for example, missing data points, or data points which contain stale data. Reliable data series may be difficult to obtain for new products (for example an instrument of longer dated tenor that did not previously trade) and for less liquid risk factors or positions. With regard to less liquid risk factors or positions, a firm may use a combination of prudent valuation techniques and alternative VaR estimation techniques to ensure there is
(1) If a weighting scheme or other similar method is used to calculate VaR numbers, then the effective observation period must be at least one year. Where a weighting scheme is used, the weighted average time lag of the individual observations must not be less than six Months.(2) If a specific observation period or weighted average time lag is specified in a firm'sVaR model permission, the firm must comply with that if it is longer than the period specified in (1).(3) However,
In aggregating VaR measures across risk or product categories, a firm must not use the square root of the sum of the squares approach unless the assumption of zero correlation between these categories is empirically justified. If correlations between risk categories are not empirically justified, the VaR measures for each category must simply be added in order to determine its aggregate VaR measure. But to the extent that a firm'sVaR model permission provides for a different way
Subject to BIPRU 7.10.53R (Model standards: Materiality), a VaR model should capture and accurately reflect all material risks arising on the underlying portfolio on a continuing basis insofar as those risks are within the scope of the VaR model permission. This should encompass general market risk and, to the extent that this comes within the scope of the VaR model permission, specific risk. A firm should ensure that the VaR model has sufficient risk factor granularity to be
In the case of general market risk and risks with respect to which the standard market risk PRR rules do not distinguish between general market risk and specific risk, a firm'sVaR model must capture a sufficient number of risk factors in relation to the level of activity of the firm and in particular the risks set out in BIPRU 7.10.40R - BIPRU 7.10.44R.
3A firm must incorporate risk factors that are included in its pricing model in its VaR model. A firm'sVaR model must capture nonlinearities for options and other products, as well as correlation risk and basis risk. Where proxies for risk factors are used they must show a good track record for the actual position held. In addition, BIPRU 7.10.40 R to BIPRU 7.10.44 R apply for individual risk types.
For interest rate risk, a VaR model must incorporate a set of risk factors corresponding to the interest rate curves in each currency in which the firm has interest rate sensitive positions. A firm must ensure that it captures the variations of volatility of rates along the yield curve. In order to achieve this, a firm must divide the yield curves of, at a minimum, the major currencies and markets in which it has material interest rate exposures into a minimum of six maturity
For commodity risk, the VaR model must use a separate risk factor at least for each commodity in which the firm has material positions. The VaR model must also capture the risk of less than perfectly correlated movements between similar, but not identical, commodities and the exposure to changes in forward prices arising from maturity mismatches. It must also take account of market characteristics, notably delivery dates and the scope provided to traders to close out position
(1) This paragraph contains guidance on the inclusion of CIUs in a VaR model.(2) The appropriate regulator may allow all types of CIU to be included within the scope of a firm'sVaR model permission.(3) BIPRU 7.10 does not distinguish between specific risk and general market risk for positions in CIUs. Therefore even if specific risk is not otherwise included within the scope of a firm'sVaR model permission, a firm should be able to demonstrate that its VaR model captures specific
(1) If a firm'sVaR model covers the calculation of PRR with respect to specific risk the firm must meet the VaR specific risk minimum requirements in addition to the other requirements of BIPRU 7.10.(2) The VaR model must explain the historical price variation in the portfolios concerned.(3) The VaR model must capture concentration in terms of magnitude and changes of composition of the portfolios concerned.(4) The VaR model must be robust to an adverse environment.(5) The VaR
This paragraph provides guidance onBIPRU 7.10.46 R (2). Take as an example a VaR model based on a factor model or on a historical simulation model. The ability of the model to explain price variation could be demonstrated by a statistical comparison over the same period of time between actual price changes on the portfolio and the profit and loss impact of risk factors included within the model. A firm may wish to include an estimate of residual variation not explained by the
(1) [deleted]33(2) A firm'sVaR model must conservatively assess the risk arising from less liquid positions and positions with limited price transparency under realistic market scenarios. In addition, the VaR model must meet minimum data standards. Proxies must be appropriately conservative and may be used only where available data is insufficient or is not reflective of the true volatility of a position or portfolio.
A firm'sVaR model must capture accurately all material price risks for positions within the scope of its VaRpermission, including risks relating to options or option-like positions. The firm must ensure that, if its VaR model does not accurately capture any material risk, the firm has capital resources adequate to cover that risk. These capital resources must be additional to those required to meet its capital resources requirement.
For example, BIPRU 7.10.53R might involve creating and documenting a prudent incremental PRR charge for the risk not captured in the VaR model and holding sufficient capital resources against this risk. In that case the firm should hold capital resources at least equal to its capital resources requirement as increased by adding this incremental charge to the model PRR. Alternatively the firm may make valuation adjustments through its profit and loss reserves to cover this material
3The incremental risk charge must cover all positions which are subject to a capital charge for interest-rate specific risk in accordance with the firm'sVaR model permission, except securitisationpositions and nth-to-default credit derivatives. Where permitted by its VaR model permission, a firm may choose consistently to include all listed equity positions and derivativespositions based on listed equities for which that inclusion is consistent with how the firm internally measures
3As part of its VaR model permission, the appropriate regulator may authorise a firm to use the all price risk measure to calculate an additional capital charge in relation to positions in its correlation trading portfolio if it meets the following minimum standards:(1) it adequately captures all price risks at a 99.9% confidence interval over a capital horizon of one year under the assumption of a constant level of risk, and adjusted, where appropriate, to reflect the impact
A firm should be able to demonstrate that it meets the risk management standards set out in the VaR model permission on a legal entity basis. This is particularly important for a subsidiary undertaking in a group subject to matrix management where the business lines cut across legal entity boundaries.
A firm'sVaR model output should be an integral part of the process of planning, monitoring and controlling a firm'smarket risk profile. The VaR model should be used in conjunction with internal trading and exposure limits. The links between these limits and the VaR model should be consistent over time and understood by senior management. The firm should regard risk control as an essential aspect of the business to which significant resources need to be devoted.
A firm must have a risk control unit which is independent from business trading units and which reports directly to senior management. It:(1) must be responsible for designing and implementing the firm's risk management system;(2) must produce and analyse daily reports on the output of the VaR model and on the appropriate measures to be taken in terms of the trading limits; and(3) conduct the initial and on-going validation of the VaR model.
(1) An example of documents required by BIPRU 7.10.67R may be a manual that describes the basic principles of the risk management framework, clearly setting out empirical techniques, principles and assumptions used within it.(2) This documentation should be of sufficient detail for the appropriate regulator to be able to develop a clear understanding of how the VaR model works from that documentation on its own.
(1) A firm must frequently conduct a rigorous programme of stress testing. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.(2) The programme must particularly address:(a) concentration risk;(b) illiquidity of markets in stressed market conditions;(c) one way markets;(d) event and jump to default risks;(e) non linearity of products;(f) deep out of the money positions;(g) positions subject to the gapping of
At least once a year, a firm must conduct, as part of its regular internal audit process, a review of its risk management process. This review must include both the activities of the business trading units and of the independent risk control unit, and must be undertaken by suitably qualified staff independent of the areas being reviewed. This review must consider, at a minimum:(1) the adequacy of the documentation of the risk management system and process;(2) the organisation
A firm must have processes in place to ensure that its VaR model has been adequately validated by suitably qualified parties independent of the development process to ensure that it is conceptually sound and adequately captures all material risks. This validation must be conducted when the VaR model is initially developed and when any significant changes are made to the VaR model. The validation must also be conducted on a periodic basis but especially where there have been any
(1) In addition to regulatory backtesting programs, testing for model validation should be carried out using additional tests which may include for example:(a) testing carried out using hypothetical changes in portfolio value that would occur were end of day positions to remain unchanged;(b) testing carried out for longer periods than required for the regular backtesting programme (for example, 3 years);(c) testing carried out using confidence intervals other than the 99 percent
In assessing whether the VaR model is implemented with integrity as described in BIPRU 7.10.58R (Stress testing), the appropriate regulator will consider in particular the information technology systems used to run the model and associated calculations. The assessment may include:(1) feeder systems; risk aggregation systems; time series databases; the VaR model system; stress testing system; the backtesting system including profit and loss cleaning systems where appropriate; data
A firm must ensure that it has adequate controls relating to:(1) the derivation of the model PRR;(2) the integrity of the backtesting programme, including the calculation of the profit and loss account;(3) the integrity and appropriateness of the VaR model, including the VaR model's geographic coverage and the completeness of data sources;(4) the VaR model's initial and ongoing development, including independent validation;(5) the valuation models, including independent validation;
A firm must periodically and actively identify all the worst case scenarios that are relevant to its portfolio. Scenarios used must be appropriate to test the effect of adverse movements in market volatilities and correlations and the effect of any change in the assumptions underlying the VaR model. Scenarios involving low probability market events must nevertheless be plausible.
Backtesting conducted only at a whole portfolio level using a single measure of profit and loss has limited power to distinguish an accurate VaR model from an inaccurate one. Backtesting should therefore be regarded as an additional safeguard rather than a primary validation tool. Such testing does however form the basis of the appropriate regulator'splus factor system. The test has been chosen as the basis of the backtesting regime because of its simplicity. A firm will therefore
The ultimate purpose of backtesting is to assess whether capital is sufficient to absorb actual losses. Actual daily profit and loss means the day's profit and loss arising from trading activities within the scope of the VaR model permission. This measure should, however, be 'cleaned' using BIPRU 7.10.100R inclusion in profit and loss of non-modelled factors.3
The profit and loss figure3 for a particular business day is the firm's actual profit or loss for that day in respect of the trading activities within the scope of the firm'sVaR model permission, adjusted by stripping out:3(1) fees and commissions;(2) brokerage;(3) additions to and releases from reserves which are not directly related to market risk (e.g. administration reserves); and(4) any inception profit exceeding an amount specified for this purpose in the firm'sVaR model
The appropriate regulator will review as part of a firm'sVaR model permission application the processes and documentation relating to the derivation of profit and loss used for backtesting. A firm's documentation should clearly set out the basis for cleaning profit and loss. To the extent that certain profit and loss elements are not updated every day (for example certain reserve calculations) the documentation should clearly set out how such elements are included in the profit
A backtesting exception is deemed to have occurred for any business day if the hypothetical profit and loss figure3 for that business day shows a loss, which in absolute magnitude, exceeds the one-day VaR measure for that business day. The only exception is if that business day is identified in the firm'sVaR model permission as giving rise to an excluded backtesting exception.3
If a backtesting exception occurs, the firm must notify its usual supervisory contact at the appropriate regulator orally by close of business two business days after the business day for which the backtesting exception occurred. Within five business days following the end of each Month, the firm must submit to the appropriate regulator a written account of the previous Month'sbacktesting exceptions (if any). This explanation must include the causes of the backtesting exceptions,
(1) This paragraph gives guidance on the backtesting calculation and reporting process in BIPRU 7.10.96R - BIPRU 7.10.104R.(2) Let the day on which the loss referred to in BIPRU 7.10.100R is made be day n. The value-at-risk measure for that day will be calculated on day n-1, or overnight between day n-1 and day n. Profit and loss figures are produced on day n+1, and backtesting also takes place on day n+1. The firm's supervisor should be notified of any backtesting exceptions
(1) This paragraph gives guidance on the process for excluding backtesting exceptions as referred to in BIPRU 7.10.103R.(2) The appropriate regulator will respond flexibly to backtesting exceptions. However, the appropriate regulator's starting assumption will be that a backtesting exception should be taken into account for the purpose of the calculation of plus factors. If the firm believes that a backtesting exception should not count for that purpose, then it should seek a
If a firm'sVaR model permission covers specific risk, the firm must validate its VaR model through backtesting aimed at assessing whether specific risk is being accurately captured. This backtesting must be carried out in accordance with the provisions of its VaR model permission. If the VaR model permission provides for this backtesting to be performed on the basis of relevant sub-portfolios, these must be chosen in a consistent manner.
Specific risk backtesting involves the backtesting of a standalone specific riskVaR measure against a profit and loss series determined by reference to exposure risk factors categorised as specific risk. Alternatively specific risk backtesting may take the form of regular backtesting of trading books and portfolios that are predominantly exposed to risk factors categorised as specific risk. The precise requirements for specific risk backtesting will be specified in the firm'sVaR
Where backtesting reveals severe problems with the basic integrity of the VaR model, the appropriate regulator may withdraw model recognition. In particular, if ten or more backtesting exceptions are recorded in a 250 business day period, the appropriate regulator may apply a plus factor greater than one or the appropriate regulator may consider revoking a firm'sVaR model permission. The appropriate regulator may also consider revoking a firm'sVaR model permission if ten or more
A firm must perform backtesting against a hypothetical profit and loss figure3 with respect to each business day. A hypothetical profit and loss figure3 for a business day means the hypothetical profit and loss figure3 that would have occurred for that business day if the portfolio on which the VaR number for that business day is based remained unchanged.3333
(1) A hypothetical profit and loss figure3 is based on the day's change in the value of the same portfolio that was used to generate the value-at-risk forecast.3(2) [deleted]33(3) The firm may also need to calculate a hypothetical profit and loss figure3 in order to produce profit attribution reports and to analyse the cause of backtesting exceptions.3
3The definition of hypothetical profit and loss figure may be amended or replaced in an individual VaR model permission if the firm can demonstrate to the appropriate regulator that the alternative method meets the spirit and purpose of the provisions in BIPRU 7.10 about the hypothetical profit and loss figure.
The model PRR is, for any business day (the "relevant" business day), calculated in accordance with the following formula:(1) the higher of:(a) the VaR number for the relevant business day; and(b) the average of its daily VaR numbers for each of the 60 business days ending with the relevant business day, multiplied by the multiplication factor for the relevant business day; and(2) (in the case of a VaR model permission that covers specific risk) the higher of:33(a) the incremental
The VaR number for any business day means the VaR measure, in respect of the previous business day's close-of-business positions in products coming within the scope of the VaR model permission, calculated by the VaR model and in accordance with BIPRU 7.10 and any methodology set out in the VaR model permission. The VaR number must not be calculated taking into account matters on the business day for which it is the VaR number.
The following equation expresses BIPRU 7.10.113R mathematically:where:(1) PRRVaris a firm'smodel PRR;(2) VaRt represents the previous day's value-at-risk figure;(3) VaRt-i represents the value-at-risk calculated for ibusiness days earlier;(4) f is the multiplication factor for VaR3;3(5) SVARt represents the latest stressed VaR figure;33(6) SVARt-i represents the stressed VaR calculated for ibusiness days earlier;3(7) s is the multiplication factor for stressed VaR;3(8) y is the
The minimum multiplication factor, for VaR and stressed VaR,3 will never be less than three. If the appropriate regulator does set the minimum multiplication factor, for VaR and stressed VaR,3 above three the VaR model permission will have a table that sets out the reasons for that add on and specify how much of the add on is attributable to each reason (see BIPRU 7.10.121R). If there are weaknesses in the VaR model that may otherwise be considered a breach of the minimum standards
Typically, any add on will be due to a specific weakness in systems and controls identified during the appropriate regulator's review that the appropriate regulator does not consider material enough to justify withholding overall model recognition. The firm will be expected to take action to address the reasons for any add on. The appropriate regulator will then review these periodically and, where satisfactory action has been taken, the add on will be removed through a variation
The table in BIPRU 7.10.125R sets out the plus factors to be added to the minimum multiplication factor, for VaR and stressed VaR,3 for any business day. It is based on the number of backtesting exceptions that occurred during the backtesting period as referred to in BIPRU 7.10.96R (Backtesting: Basic testing requirements) ending three business days preceding the business day for which the model PRR is being calculated.
A VaR model that correctly predicts a one-tailed 99% confidence level is expected to produce, on average, 2.5 backtesting exceptions every 250 days. Random events may cause the number of backtesting exceptions actually observed to vary. The plus factor system is designed to take this into account. Hence plus factors are only imposed on the firm if it has five or more recorded backtesting exceptions. Therefore, where a backtesting exception appears to be caused simply by chance,
A VaR model permission will contain requirements for what the firm should report to the appropriate regulator and the procedures for reporting. The precise requirements will vary from VaR model permission to VaR model permission. BIPRU 7.10.129R-BIPRU 7.10.130R set out what the appropriate regulator regards as the standard requirements.
A firm must, no later than the number of business days after the end of each quarter specified in the VaR model permission for this purpose, submit, in respect of that quarter, a report to the appropriate regulator about the operation of the VaR model, the systems and controls relating to it and any changes to the VaR model and those systems and controls. Each report must outline as a minimum the following information in respect of that quarter:(1) methodological changes and developments
A firm must provide to, and discuss with, the appropriate regulator details of any significant planned changes to the VaR model before those changes are implemented. These details must include information about the nature of the change and an estimate of the impact on VaR numbers and the incremental risk charge.33
The information in BIPRU 7.10.131G will vary over time. It is therefore not included in a VaR model permission as a rule but for information only. The appropriate regulator will update that information regularly in accordance with information supplied under BIPRU 7.10.129R. That updating will not amount to a variation of the VaR model permission.
By modifying GENPRU 2.1.52 R (Calculation of the market risk capital requirement) to allow the firm to use the VaR model to calculate all or part of its PRR for certain positions, the appropriate regulator is treating it like an application rule. The modification means that the PRR calculation set out in BIPRU 7.10 supersedes the standard market risk PRR rules for products and risks coming within the scope of the VaR model permission.
(1) This rule applies to a position of a type that comes within the scope of a firm'sVaR model permission.(2) Subject to BIPRU 7.10.136A R, if, 3where the standard market risk PRR rules apply, a position is subject to a PRR charge and the firm'sVaR model permission says that it covers the risks to which that PRR charge relates, the firm must, for those risks, calculate the PRR for that position under the VaR model approach rather than under the standard market risk PRR rules.3(3)
(1) If a firm calculates its market risk capital requirement using a combination of the standard market risk PRR rules and either the VaR model approach or the VaR model approach with the CAD 1 model approach the PRR from each method must be added together.(2) A firm must take appropriate steps to ensure that all of the approaches are applied in a consistent manner.
If:(1) the standard market risk PRR rules provide for a choice of which of the PRR charges to use or specify that one type must be used in some circumstances and that another type must be used in other circumstances;(2) one of those types is disapplied under BIPRU 7.10.136R; and(3) the other type is not disapplied;the firm:(4) must use the VaR model approach if under the standard market risk PRR rules the firm must use the standard market risk PRR rules in (2); and(5) may use
The treatment of a convertible is an example of a situation in which BIPRU 7.10.140R applies. The table in BIPRU 7.3.3R (Table: Instruments which result in notional positions) shows that there are circumstances in which under the standard market risk PRR rules a firm should calculate an equity PRR and that there are circumstances in which a firm may choose between calculating an equity PRR and an interest rate PRR. BIPRU 7.10.140R would be relevant if a firm'sVaR model permission
If a firm'sVaR model permission covers interest rate general market risk but not interest rate specific risk, the firm must calculate the interest rate PRR so far as it relates to interest rate specific risk in accordance with the standard market risk PRR rules except that the firm must not use the basic interest rate PRR calculation in BIPRU 7.3.45R (Basic interest rate calculation for equity instruments).
If a firm'sVaR model permission covers equitygeneral market risk but not equityspecific risk, the firm must calculate the equity PRR so far as it relates to equityspecific risk in accordance with the standard market risk PRR rules except that the PRR for equityspecific risk must be calculated under the standard equity method.
(1) To the extent that a firm'sVaR model permission does not allow it to use an approach set out in BIPRU 7.10 the relevant provisions in BIPRU 7.10 do not apply to that firm.(2) If a provision of the Handbook refers to BIPRU 7.10, that reference must, in the case of a particular firm with a VaR model permission, be treated as excluding provisions of BIPRU 7.10 that do not apply under the VaR model permission and as taking into account any modifications to BIPRU 7.10 made by the
If a firm ceases to meet any of the requirements set out in BIPRU 7.10, the appropriate regulator's policy is that the VaR model permission should cease to have effect. In part this will be achieved by making it a condition of a firm'sVaR model permission that it complies at all times with the minimum standards referred to in BIPRU 7.10.26R - BIPRU 7.10.53R. Even if they are not formally included as conditions, the appropriate regulator is likely to consider revoking the VaR model
A firm may change its VaR model to such extent as it sees fit, except that it must not make a change that (either on its own or together with other changes since the date of VaR model permission) would:(1) be inconsistent with VaR model permission or BIPRU 7.10; or(2) mean that backtesting in accordance with BIPRU 7.10 and the VaR model permission would result in the use of data that is inappropriate for the purposes of measuring the performance of the VaR model.
The applicable data items referred to in SUP 16.12.4 R are set out according to firm type in the table below:Description of data item45Firms' prudential category and applicable data items(note 1)IFPRU investment firms and BIPRU firmsFirmsother thanBIPRU firms or IFPRU investment firmsIFPRUBIPRUIPRU(INV)Chapter 3IPRU(INV)Chapter 5IPRU(INV)Chapter 9IPRU(INV)Chapter 1338Solvency statementNo standard format (note 11)No standard format (note 20)No standard format (note 11)38Balance
The applicable data items referred to in SUP 16.12.4 R are set out76 according to firm type76 in the table below: 48Description of data itemFirms' prudential category and applicable data items (note 1)IFPRU investment firms and BIPRU firmsFirms other than BIPRU firms or IFPRU investment firmsIFPRUBIPRUIPRU(INV) Chapter 3IPRU(INV) Chapter 5IPRU(INV) Chapter 9IPRU(INV) Chapter 11 (collective portfolio management firms only)IPRU(INV) Chapter 1248IPRU(INV) Chapter 1338Solvency statement(Note
2The applicable data items referred to in SUP 16.12.4 R are set out according to type of firm in the table below:45Description ofData itemFirms' prudential category and applicable data item (note 1)IFPRUBIPRU firmExempt CAD firmssubject toIPRU(INV)Chapter 13Firms(other thanexempt CAD firms) subject toIPRU(INV)Chapter 13Firmsthat are also in one or more ofRAGs1 to 6 and not subject toIPRU(INV)Chapter 13Solvency statementNo standard format (note 11)Balance SheetFSA001/FINREP (Notes
2The applicable data items referred to in SUP 16.12.4 R are set out according to type of firm in the table below:45Description of data itemFirms' prudential category and applicable data item(note 1)IFPRU investment firms and BIPRU firmsFirmsother thanBIPRU firms or IFPRU investment firmsIFPRUBIPRUIPRU(INV)Chapter 3IPRU(INV)Chapter 5IPRU(INV)Chapter 9IPRU(INV)Chapter 1338Solvency statement (note 11)No standard format38Balance sheetFSA001/FINREP (Notes 2 and 30)FSA001 (Note 2)FSA029FSA029FSA029Section
Table of application, notification, vetting and other fees payable to the FCA3231Part 1: Application, notification and vetting fees3131(1) Fee payer(2) Fee payable (£)37Due date(a) Any applicant for Part 4A permission (including an incoming firm applying for top-up permission) whose fee is not payable pursuant to sub- paragraph (zza)52 of this table26(1) Unless (2),41 (3) or (4)41 applies, in1 respect of a particular application, the highest of the tariffs set out in FEES 3 Annex
An authorised fund manager carrying out due diligence for the purpose of the rules in this section should make enquiries or otherwise obtain information needed to enable him properly to consider:(1) whether the experience, expertise, qualifications and professional standing of the second scheme's investment manager is adequate for the type and complexity of the second scheme;(2) the adequacy of the regulatory, legal and accounting regimes applicable to the second scheme and its
An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure a high level of security during the electronic data processing referred to in COLL 6.13.5 R as well as the integrity and confidentiality of the recorded information, as appropriate.[Note: article 7(2) of the UCITS implementing Directive]
(1) 5In addition, an authorised fund manager or a UK UCITS management company of an EEA UCITS scheme subject to COLL 6.12.3R(2) should submit a notification to the FCA if there has been a significant change to the fund’s risk profile since its last report, by sending the form in COLL 6 Annex 2R, completed as applicable, to fundsupervision@fca.org.uk.(2) A significant change to the fund’s risk profile could include, but is not limited to:(a) the first use of derivatives for investment
(1) 2An authorised fund manager must calculate the global exposure of a UCITS scheme by using:(a) the commitment approach; or(b) the value at risk approach.(2) An authorised fund manager must ensure that the method selected in (1) is appropriate, taking into account:(a) the investment strategy pursued by the UCITS scheme;(b) the types and complexities of the derivatives and forward transactions used; and(c) the proportion of the scheme property comprising derivatives and forward
(1) This rule does not apply in respect of a transferable security or an approved money-market instrument to which COLL 5.6.8R (Spread: government and public securities) applies21. (2) Not more than 20% in value of the scheme property is to consist of deposits with a single body.(3) Not more than 10% in value of the scheme property is to consist of transferable securities or money-market instruments issued by any single body subject to COLL 5.6.23 R (Schemes replicating an index).(3A)
