IBANK 3.1.6 Use of Internal Models

(1) The Regulatory Authority's requirements for Islamic banking business firms to maintain adequate capital and manage risk are based on the approaches set out by the IFSB in its standards and guidelines on capital adequacy and the Basel Committee on Banking Supervision in the Basel Accords. The standards, guidelines and Accords allow firms to use internal models to assess capital adequacy and risk, and this rule governs the use of such models.
(2) A firm must not use its own model to assess capital adequacy or 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 on as a reasonable reflection of the risks undertaken by the firm; and
(d) anything else 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.
Derived from QFCRA RM/2015-2 (as from 1st January 2016).