1.1 This supervisory statement is aimed at Capital Requirements Regulation (CRR) firms and CRR consolidation entities [On 23 February 2017, this SS was updated - see appendix for full details.].

1.2 It sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms in relation to market risk and should be considered in addition to requirements set out in the Trading Book (CRR), Market Risk: General Provisions (CRR), Market Risk: Simplified Standardised Approach (CRR), Market Risk: Advanced Standardised Approach (CRR) and Market Risk: Internal Model Approach (CRR) Parts of the PRA Rulebook and the high-level expectations outlined in ‘The PRA’s approach to banking supervision’.

1.3 This statement details the PRA’s expectations with regard to the following:

• Material deficiencies in risk capture by an institution’s internal approach.

• Simplified standardised approach for options.

• • Offsetting derivative instruments.

• Corrections to modified duration for debt instruments subject to prepayment risk.

• Exclusion of back-testing exceptions when determining multiplication factor addends.

• Derivation of notional positions for standardised approaches.