Counterparties shall adjust the value of collected collateral using own volatility estimates in accordance with Annex III.
Counterparties shall update their data sets and calculate the own volatility estimates referred to in Article 21 whenever the level of market prices' volatility changes materially and at least quarterly.
For the purposes of paragraph 2, counterparties shall pre-determine the levels of volatility that trigger a recalculation of the haircuts as referred to in Annex III.
The procedures referred to in Article 2(2)(d) shall include policies to monitor the calculation of the own volatility estimates and the integration of those estimates into the risk management process of that counterparty.
The policies referred to in paragraph 4 shall be subject to an internal review that includes all of the following:
the integration of the estimates into the risk management process of the counterparty, which shall take place at least annually;
the integration of estimated haircuts into daily risk management;
the validation of any significant change in the process for the calculation of the estimates;
the verification of the consistency, timeliness and reliability of data sources used to calculate the estimates;
the accuracy and appropriateness of the volatility assumptions.
The review referred to in paragraph 5 shall be carried out regularly within the internal auditing process of the counterparty.
Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.
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