1. The competent authorities shall, subject to the conditions laid down in this Annex, 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 Annexes I, III and IV. Explicit recognition by the competent authorities of the use of models for supervisory capital purposes shall be required in each case.
2. Recognition shall only be given if the competent authority is satisfied that the institution's risk‑management system is conceptually sound and implemented with integrity and that, in particular, the following qualitative standards are met:
(a) the internal risk‑measurement model is closely integrated into the daily risk‑management process of the institution and serves as the basis for reporting risk exposures to senior management of the institution;
(b) the institution has a risk control unit that is in