This chapter sets out minimum requirements for banks to use internal models to calculate risk-weighted assets for market risk.

Version effective as of 01 Jan 2023

More rigorous model approval process that enables supervisors to remove internal modelling permission for individual trading desks. Updated to take account of the revised implementation date announced on 27 March 2020.

General criteria

30.1 The use of internal models for the purposes of determining market risk capital requirements is conditional upon the explicit approval of the bank's supervisory authority.

30.2 The supervisory authority will only approve a bank's use of internal models to determine market risk capital requirements if, at a minimum:

(1) the supervisory authority is satisfied that the bank's risk management system is conceptually sound and is implemented with integrity;

(2) the bank has, in the supervisory authority's view, a sufficient number of staff skilled in the use of sophisticated models not only in the trading area but also in the risk control, audit and, if necessary, back office areas;

(3) the bank's trading desk risk management model has, in the supervisory authority's judgement, a proven track record of reasonable accuracy in measuring risk;

(4) the bank regularly conducts stress tests along the lines set out in MAR30.19 to MAR30.23; and