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Version date: 27 March 2020 - onwards

MAR32 Internal models approach: backtesting and P&L attribution test requirements (paras. 32.1-32.45) (effective as of 1 January 2023)

This chapter sets out the profit and loss attribution test and backtesting requirements for banks that use the internal models approach.

Version effective as of 01 Jan 2023

First version in the format of the consolidated framework, updated to take account of the revised implementation date announced on 27 March 2020.

Introduction

32.1 As set out in MAR30.4, a bank that intends to use the internal models approach (IMA) to determine market risk capital requirements for a trading desk must conduct and successfully pass backtesting at the bank-wide level and both the backtesting and profit and loss (P&L) attribution (PLA) test at the trading desk level as identified in MAR30.4(2).

32.2 For a bank to remain eligible to use the IMA to determine market risk capital requirements, a minimum of 10% of the bank’s aggregated market risk capital requirement must be based on positions held in trading desks that qualify for use of the bank’s internal models for market risk capital requirements by satisfying the backtesting and PLA test as set out in this chapter. This 10% criterion must be assessed by the bank on a quarterly basis when calculating the aggregate capital requirement for market risk according to MAR33.43.

32.3 The implementation of the backtesting programme and the PLA test must begin on the date that the internal models capital requirement becomes effective.