Financial Services (Investment and Fiduciary Services)
Repealed Subsidiary 2007/002
FINANCIAL SERVICES (CAPITAL ADEQUACY OF INVESTMENT FIRMS) REGULATIONS 2007
senior management shall be aware of the elements of the trading book or of other fair-valued positions which are subject to mark to model and shall understand the materiality of the uncertainty thereby created in the reporting of the risk/performance of the business;
market inputs shall be sourced, where possible, in line with market prices, and the appropriateness of the market inputs of the particular position being valued and the parameters of the model shall be assessed on a frequent basis;
where available, valuation methodologies which are accepted market practice for particular financial instruments or commodities shall be used;
where the model is developed by the investment firm itself, it shall be based on appropriate assumptions, which have been
there shall be formal change control procedures in place and a secure copy of the model shall be held and periodically used to check valuations;
assessed and challenged by suitably independent of the development process;
risk management shall be aware of the weaknesses of the models used and how best to reflect those in the valuation output; and
the model shall be subject to periodic review to determine the accuracy of its performance (e.g. assessing the continued appropriateness of assumptions, analysis of profit and loss versus risk factors, comparison of actual close out values to model outputs).
For the purposes of paragraph (d), the model shall be developed or approved independently of the front office and shall be independently tested, including validation of the mathematics, assumptions and software implementation.
7. Independent price verification shall be performed in addition to daily marking to market or marking to model. This is the process by which market prices or model inputs are regularly verified for accuracy and independence. While daily marking to market may be performed by dealers, verification of market prices and model inputs should be performed by a unit independent of the dealing room, at least monthly (or, depending on the nature of the market/ trading activity, more frequently). Where independent pricing