2. When assessing an institution’s compliance with Article 325bh(1), point (a), of Regulation (EU) No 575/2013 in relation to the requirement to include in the internal risk-measurement model a sufficient number of risk factors, competent authorities shall perform the following steps in the following order:
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(a)
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require the institution to provide an overview of the factors used in the calculation of the end-of-day value of the portfolio, including, where appropriate, a list of aggregates of factors used in the calculation of the end-of-day value, which specifies, for each aggregate, all of the following:
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(i)
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the number of factors per aggregate;
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(ii)
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the broad category of risk factors and broad sub-category of risk factors, as referred to in Table 2 of Article 325bd of Regulation (EU) No 575/2013, to which the factors in the aggregate can be mapped;
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(iii)
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a gross and net sensitivity of the institution portfolio to the factors that are part of the aggregate;
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(iv)
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whether the factors are included or not in the internal risk-measurement model, and:
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(1)
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where included, whether each factor is directly modelled as a risk factor in the internal-risk measurement model without any proxy being used, or whether other techniques are used;
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(2)
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where not included, the rationale for that choice.
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(b)
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based on the overview referred to in point (a):
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(i)
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verify that there are no material factors that are not modelled, and that the rationales supporting the exclusions of non-modelled factors are appropriate;
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(ii)
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assess how the institution, for factors that are not modelled directly as risk factors in the risk-measurement model referred to in point (a)(iv), ensures that all material risks, including material basis risks, are captured.
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For the purposes of point (a), institutions shall aggregate factors so that each aggregate shares the same attributes in relation to point (ii), point (iv)(1), and point (iv)(2).
For the purposes of point (b)(i), competent authorities shall apply the assessment method referred to in paragraph 3, and may complement that method by the assessment method referred to in paragraph 4.
For the assessment referred to in paragraph 2, point (b)(i), competent authorities shall identify trading desks or hypothetical portfolios used by the institution for the internal validation referred to in Article 325bj(3), point (c), of Regulation (EU) No 575/2013 whose values depend on factors that are not included in the internal risk-measurement model. Competent authorities shall verify for those trading desks whether the results of the back-testing referred to in Article 325bf of Regulation (EU) No 575/2013 or of the own internal model validation tests referred to in Article 325bj(3), point (b), of Regulation (EU) No 575/2013 indicate weaknesses in the internal risk-measurement model.