3. When assessing whether an institution’s internal model is implemented with integrity as required by Article 325bi(1) of Regulation (EU) No 575/2013 in relation to the profit and loss attribution requirements referred to in Article 325bg of that Regulation, competent authorities shall:
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(a)
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in relation to the calculation of the theoretical changes in the portfolio’s value:
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(i)
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verify whether the business days used in the calculation of the theoretical changes in the portfolio’s value are the same as those used in the calculation of the expected shortfall risk measure referred to in Article 325bb of Regulation (EU) No 575/2013 and the stress scenario risk measure referred to in Article 325bk of that Regulation;
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(ii)
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verify whether the positions used in the calculation of the hypothetical changes are those used for calculating the theoretical changes.
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(iii)
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verify whether when the institution calculates the theoretical changes, positions are assumed to be unchanged, as required by Article 12(1) of Delegated Regulation (EU) 2022/2059;
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(iv)
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verify that there are no differences between the pricing methods, model parametrisations, market data and any other technique used in the internal risk-measurement model, and those used for calculating the theoretical changes, as required by Article 12(2) of Delegated Regulation (EU) 2022/2059;
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(v)
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verify that, theoretical changes in the portfolio’s value reflect only changes in the values of risk factors that are shocked when calculating the expected shortfall risk measure referred to in Article 325bb of Regulation (EU) No 575/2013 or the stress scenario risk measure referred to in Article 325bk of that Regulation, as required by Article 12(3) of Delegated Regulation (EU) 2022/2059;
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(vi)
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verify that the rectification processes referred to in paragraph 2, point (e) are robust and are followed in practice whenever contingencies, exceptions, errors, and pricing failures occur;
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(b)
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in relation to the profit and loss attribution results:
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(i)
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verify whether the Spearman correlation coefficient and the Kolmogorov-Smirnov test metric are calculated correctly;
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(ii)
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verify whether the risk factors for which the institution uses input data used in calculating the hypothetical changes to calculate the theoretical changes, as allowed by Article 14(1) of Delegated Regulation (EU) 2022/2059, are only those for which the conditions referred to in that Article are met;
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(iii)
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verify that risk factors, whose values employed in calculating the hypothetical changes are used by the institution to calculate the theoretical changes in accordance with Article 14(2) of Delegated Regulation (EU) 2022/2059, are only those for which the conditions referred to in that Article are met.
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For the purposes of point (a)(ii), competent authorities shall evaluate whether the institution’s IT systems ensure the calculation of those changes on the same positions. To that effect, competent authorities may require the institution to provide the inventory of positions captured in the actual and theoretical changes, and compare those positions.
For the purposes of point (a)(iv), competent authorities shall verify whether the institutions’ systems ensure that the pricing functions used for calculating the theoretical changes are those used in the calculation of the expected shortfall risk measure referred to in Article 325bb of Regulation (EU) No 575/2013 and the stress scenario risk measure referred to in Article 325bk of that Regulation.
For the purposes of point (a)(v), competent authorities shall verify whether the institutions’ systems ensure that the value of other risk factors is kept constant when calculating the theoretical changes. Competent authorities may complement their assessment by using the assessment method referred to in paragraph 5.
For the purposes of point (a)(vi), competent authorities shall review the history of contingencies, exceptions, errors, and pricing failures in the calculations of the changes in the portfolios’ values, assess whether and how they have been remediated and, where relevant, assess the impact of those errors on the back-testing and profit-and-loss attribution test results.