1. When assessing whether institution’s internal model is implemented with integrity as required by Article 325bi(1) of Regulation (EU) No 575/2013 in relation to the requirement for the expected shortfall risk measures referred to in Article 325bb of Regulation (EU) No 575/2013 to reflect historically observed data in accordance with Article 325bc(2), point (c), and Article 325bc(4), point (c), of that Regulation, competent authorities shall verify whether:
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(a)
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the distributional and any other relevant statistical assumptions used in the model, including volatility and correlations, are well justified, including with regard to the tail of the distributions relevant for the expected shortfall calculation;.
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(b)
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the empirical correlations that the institution uses when applying scenario of future shocks to reflect the joint movement of risk factors in the calculation of the expected shortfall risk measures referred to in Article 325bb of Regulation No 575/2013 are based on historically observed data in accordance with Article 325bc(2), point (c), and Article 325bc(4), point (c), of that Regulation.
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For the purposes of point (b) of the first subparagraph, competent authorities may, where appropriate, require the institution to:
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(a)
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provide a sample of time series;
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(b)
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calculate the empirical correlations among those time series;
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(c)
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verify whether the correlations referred to in point (b) do not materially differ from the correlations used by the institution in its internal risk-measurement model.
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