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Repealed by LN. 2013/198 as from 1.1.2014 - page 73 / 94

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Financial Services (Investment and Fiduciary Services)

FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007

SCHEDULE 5

Regulations 9, 10, 14, 22, 24 and 36

Use of Internal Models to Calculate Requirements

1. The competent authority shall, subject to the conditions laid down in this Schedule, allow institutions to calculate their capital requirements for position risk, foreign-exchange risk and/or commodities risk using their own internal risk-management models instead of or in combination with the methods described in Schedules 1, 3 and 4. Explicit recognition by the competent authority of the use of models for supervisory capital purposes shall be required in each case.

2.

Recognition shall only be given if the Authority is satisfied that the

investment firm’s risk management implemented with integrity and that, standards are met

system is conceptually sound and in particular, the following qualitative

  • (a)

    the internal risk-measurement model is closely integrated into the daily risk-management process of the investment firm and serves as the basis for reporting risk exposures to senior management of the investment firm;

  • (b)

    the investment firm has a risk control unit that is independent from business trading units and reports directly to senior management. The unit shall be responsible for designing and implementing the investment firm’s risk management system. It shall produce and analyse daily reports on the output of the risk measurement model and on the appropriate measures to be taken in terms of trading limits. The unit shall also conduct the initial and on-going validation of the internal model;

  • (c)

    the investment firm’s board of directors and senior management are actively involved in the risk control process and the daily reports produced by the risk control unit are reviewed by a level of management with sufficient authority to enforce both reductions of positions taken by individual traders as well as in the investment firm’s overall risk exposure;

  • (d)

    the investment firm has sufficient numbers of staff skilled in the use of sophisticated models in the trading, risk control, audit and back office areas;

© Government of Gibraltar (www.gibraltarlaws.gov.gi)

1989-47

Repealed Subsidiary 2007/002

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