Financial Services (Investment and Fiduciary Services)
Repealed Subsidiary 2007/002
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT
FIRMS) REGULATIONS 2007 The approach to capture the incremental risks shall be consistent with the institution’s internal risk management methodologies for identifying, measuring, and managing trading risks.
5i. An institution shall document its approach to capturing incremental default and migration risks so that its correlation and other modelling assumptions are transparent to the competent authority.
Internal approaches based on different parameters
5j. If the institution uses an approach to capturing incremental default and migration risks that does not comply with all requirements of this point but that is consistent with the institution’s internal methodologies for identifying, measuring and managing risks, it shall be able to demonstrate that its approach results in a capital requirement that is at least as high as if it was based on an approach in full compliance with the requirements of this point. The competent authority shall review compliance with the previous sentence at least annually.
Frequency of calculation
5k. An institution shall perform the calculations required under its chosen approach to capture the incremental risk at least weekly.
5l. The competent authority shall recognise the use of an internal approach for calculating an additional capital charge instead of a capital charge for the correlation trading portfolio in accordance with point 14a of Schedule 1 of these Regulations provided that all conditions in this point are fulfilled.
Such an internal approach shall adequately capture all price risks at the 99,9 % confidence interval over a capital horizon of 1 year under the assumption of a constant level of risk, and adjusted where appropriate to reflect the impact of liquidity, concentrations, hedging and optionality. The institution may incorporate any positions in the approach referred to in this point that are jointly managed with positions of the correlation trading portfolio and may then exclude those positions from the approach required under point 5a.
The amount of the capital charge for all price risks shall not be less than 8 % of the capital charge that would be calculated in accordance with point 14a of Schedule 1 of these Regulations for all positions incorporated in the charge for all price risks.