Update 23 February 2017
This supervisory statement was updated following publication of PS4/17 ‘Responses to CP36/16 and correction to PS2/16 PIN rules’. See the appendix for full details.
Update 7 July 2016
This statement was updated to amend the expectations on the validation of firms’ risks not In VaR (RNIV) frameworks and reporting of extensions and changes to firms’ RNIV frameworks, and also provides clarification on the PRA’s reporting requirements around Internal Model Approach (IMA) model changes and extensions. In addition, the process for informing the PRA with regard to non-compliance has been clarified. There are changes to paragraphs 2.2, 9.16, and 12.1. Paragraphs 2.10 to 2.12, and paragraph 12.3 are new. In addition, Chapters 3A and 3B have been added in a way to maintain the integrity of the numbering of the chapters and paragraphs in the previous version of this statement.
Additionally amendments were made to bring attention to the PRA’s expectations for firms applying for: the use of own estimates of delta in the standardised approach for options; the use of sensitivity models under Article 331 of the Capital Requirements Regulation (CRR); and the exclusion of positions from the calculation of net open currency positions under Article 352(2) of the CRR. The amendments clarify the criteria expected of firms to satisfy the standards set out in the relevant CRR articles. These revisions are found in paragraphs 3.1, 3.2, and Chapters 3A and 3B.
The policy contained in this PS has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including changes arising once any new arrangements with the European Union take effect.
This supervisory statement is aimed at firms to which CRD IV applies.
Published on 19 December 2013
This statement details the PRA’s expectations with regard to the following:
- Material deficiencies in risk capture by an institution’s
- Standardised approach for options;
- Netting a convertible with its underlying instrument;
- Offsetting derivative instruments.
- Exclusion of backtesting exceptions when determining
multiplication factor addends;
- Derivation of notional positions for standardised
- Qualifying debt instruments;
- Expectations relating to internal models;
- Value-at-Risk (VaR) and stressed VaR (sVaR) calculation;
- Requirement to have an internal incremental risk charge
(IRC) model; and
- Annual SIF attestation of market risk internal models.