BANK 3.1.6 Use of internal models

(1) The Regulatory Authority's requirements for banking business firms to maintain adequate capital and manage prudential risk are based on the approaches set out by the Basel Committee on Banking Supervision in the Basel Accords. The Accords allow firms to use internal models to assess capital adequacy and prudential risk, and this rule governs the use of such models.
(2) A firm must not use its own model to assess capital adequacy or prudential risk unless the Regulatory Authority has approved the model. The authority may approve a model subject to 1 or more conditions.
(3) In making its decision, the authority will take into account:
(a) the nature, scale and complexity of the firm's business;
(b) the standards proposed by the firm, the rigour of its compliance with them, and the ease with which the authority can assess that compliance;
(c) whether the model can be relied upon as a reasonable reflection of the risks undertaken by the firm; and
(d) any other matter that the authority considers relevant.
(4) The authority may revoke the approval if it is satisfied that the firm has failed to comply with any condition specified by the authority or any standard proposed by the firm.
(5) The firm must not stop using an approved model, or make significant changes to it, without the authority's approval.

Note The use of internal models to measure IRRBB is allowed under rule 8.1.5(b).
Derived from QFCRA RM/2014-2 (as from 1st January 2015).