+Article 12 1

Article 12 1

1.   When assessing whether the scope of the internal validation referred to in Article 325bj of Regulation (EU) No 575/2013 is adequate, competent authorities shall verify whether the internal validation:

(a)

critically reviews all aspects of the methodologies and pricing functions used for capital purposes, including those applied to new products, thereby taking account of strengths and weaknesses compared to any alternative methodologies;

(b)

verifies:

(i)

the choice of market data;

(ii)

the mapping of risk factors to the relevant liquidity horizon;

(iii)

the mapping of a real price observation to a risk factor or to a bucket for which it is considered representative;

(iv)

the proxying approaches used;

(c)

verifies whether the distributional and any other relevant stochastic assumptions and parameters of the underlying stochastic processes, including volatility and correlation, are well justified, including with regard to:

(i)

the tails of the distributions relevant for the calculation of the expected shortfall risk measures referred to in Article 325bb of Regulation (EU) No 575/2013;

(ii)

the stress scenario risk measure referred to in Article 325bk of Regulation (EU) No 575/2013;

(d)

assesses the soundness of any empirical correlations used both within and across the broad categories of risk factors to calculate the unconstrained expected shortfall measure referred to in Article 325bh(2) of Regulation (EU) No 575/2013;

(e)

assesses the correlation assumptions made in the calculation of the own funds requirements for default risk, including:

(i)

the choice of the relevant copula, where modelled explicitly;

(ii)

the choice and weights of the systematic risk factors referred to in Article 325bp of Regulation (EU) No 575/2013;

(iii)

the ability of the model to explain default clusters;

(f)

assesses the assumptions made to obtain estimates of default probabilities and losses given default to compute own funds requirements for default risk;

(g)

assesses the assumptions made in relation to the modelling of hedges in the computation of own funds requirement for default risk as referred to in Article 325bo of Regulation (EU) No 575/2013;

(h)

analyses the results of the stress testing programme, including the results relating to default risk, and extracts relevant conclusions, if any, around methodological flaws or weaknesses stemming from particular market scenarios;

(i)

applies and analyses the results obtained for the hypothetical portfolios referred to in Article 325bj(3), point (c), of Regulation (EU) No 575/2013 to ensure that the internal model can account for structural features, including, where relevant, the following:

(i)

basis risks between different yield curves;

(ii)

less than perfectly correlated movements between similar but not identical positions;

(iii)

name-related basis risk and basis stemming from similar but not identical credit or equity positions;

(iv)

concentration risk;

(j)

verifies the robustness of the implementation of the internal risk measurement model in IT systems, and ensures that all business and support units apply methodologies consistently and for all relevant geographic areas;

(k)

verifies the appropriateness and materiality of the proxies by assessing:

(i)

the percentage of proxied time series used;

(ii)

the percentage marginal contribution of proxied time series;

(iii)

the impact that proxy usage may have in the recognition of diversification effects.

1. Panoramica

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1.1 Riferimenti

1.2 Requisiti identificati

1.3 Standard correlati

2. Requisiti identificati

Requisiti

3. Standard correlati

Standard