Categories of extensions and changes to the use of alternative internal models
1. Institutions shall assign extensions and changes to the use of their alternative internal models to one of the following categories:
(a)
material extensions and changes to the use of alternative internal models, identified in accordance with Article 2(1) and (2), which require permission from the competent authorities;
(b)
non-material extensions and changes to the use of alternative internal models, which require notification to the competent authorities.
2. Institutions shall assign non-material extensions and changes to the use of their alternative internal models as referred to in paragraph 1, point (b), to one of the following sub-categories:
(a)
extensions and changes, identified in accordance with Article 3(1) and (2), to be notified with additional information;
(b)
extensions and changes to be notified with basic information.
Material changes to, and material extensions of, the use of alternative internal models
1. Institutions shall categorise changes to the use of their alternative internal models as material, as referred to in Article 1(1), point (a), where those changes fulfil any of the following conditions:
(a)
they meet any of the qualitative criteria set out in Part I of the Annex;
(b)
they result in a change equal to or higher than 1 %, in absolute terms, calculated for the first business day of the testing of the impact of the change, of any of the risk numbers Rn
i
as set out in paragraph 4 which are considered relevant pursuant to paragraph 5, and result in any of the following:
(i)
an increase equal to or higher than 15 %, in absolute terms, of the following sum:
where Rn
1 , Rn
2 and Rn
3 are the risk numbers referred to in paragraph 4 of this Article, respectively, and m c is the multiplication factor referred to in Article 325ba(1), point (b)(i), of Regulation (EU) No 575/2013;
(ii)
a decrease of 10 % or more, in absolute terms, of the sum S
IMA
referred to in point (b)(i) of this paragraph;
(iii)
an increase equal to or higher than 20 %, in absolute terms, of any of the risk numbers Rn
i
referred to in paragraph 4 which are considered relevant pursuant to paragraph 5;
(iv)
a decrease equal to or higher than 15 %, in absolute terms, of any of the risk numbers Rn
i
referred to in point (b)(iii) of this paragraph.
2. Institutions shall categorise extensions of the use of their alternative internal models as material, as referred to in Article 1(1), point (a), where those extensions fulfil any of the following conditions:
(a)
they meet any of the qualitative criteria set out in Part I of the Annex;
(b)
they result in a change equal to or higher than 1 %, in absolute terms, calculated for the first business day of the testing of the impact of the extension, of any of the risk numbers Rn
i
set out in paragraph 4 which are considered relevant pursuant to paragraph 5, and result in any of the following:
(i)
a change equal to or higher than 10 %, in absolute terms, of the sum S
IMA
referred to in paragraph 1, point (b)(i);
(ii)
a change equal to or higher than 15 %, in absolute terms, of any of the risk numbers Rn
i
set out in paragraph 4 which are considered relevant pursuant to paragraph 5.
3. By way of derogation from paragraphs 1 and 2, institutions shall not categorise as material extensions and changes to the use of their alternative internal models that were requested by their competent authority.
4. To assess whether the conditions in paragraph 1, point (b), and paragraph 2, point (b), are fulfilled, institutions shall consider the following risk numbers Rn
i
:
(a)
Rn
1 , the institution’s previous day’s expected shortfall risk measure (ES t-1 ) referred to in Article 325ba(1), point (a)(i), of Regulation (EU) No 575/2013, for the portfolio of all positions referred to in paragraph 10 of this Article;
(b)
Rn
2 , the institution’s previous day’s stress scenario risk measure (SS t-1 ) referred to in Article 325ba(1), point (a)(ii), of Regulation (EU) No 575/2013, for the portfolio of all positions referred to in paragraph 10 of this Article;
(c)
Rn
3 , the most recent own funds requirement for default risk referred to in Article 325ba(2), point (a), of Regulation (EU) No 575/2013, for the portfolio of all positions referred to in paragraph 10 of this Article.
5. Institutions shall consider the risk number Rn
i
set out in paragraph 4 as relevant where that risk number fulfils all the following conditions:
(a)
on at least one day over the period referred to in paragraph 9:
(b)
on the first business day of the testing of the impact of the extension or change:
where S
IMA
is the sum referred to in paragraph 1, point (b)(i).
Institutions shall check the conditions referred to in the first subparagraph both with and without the extension or change to the use of their alternative internal models.
6. To assess whether the conditions in paragraph 1, point (b)(i) or (b)(iii), are fulfilled, institutions shall determine the impact of the change to the use of their alternative internal models by taking the highest increase, in absolute terms over the period referred to in paragraph 9, of the ratios set out in paragraphs 7 or 8, respectively.
To assess whether the conditions in paragraph 1, point (b)(ii) or (b)(iv), are fulfilled, institutions shall determine the impact of the change to the use of their alternative internal models by taking the highest decrease, in absolute terms over the period referred to in paragraph 9, of the ratios set out in paragraphs 7 or 8, respectively.
To assess whether the conditions in paragraph 2, point (b)(i) or (b)(ii), are fulfilled, institutions shall determine the impact of the extension to the use of their alternative internal models by taking the highest change, in absolute terms over the period referred to in paragraph 9, of the ratios set out in paragraphs 7 or 8, respectively.
7. Institutions shall calculate the ratio to be used for assessing whether the conditions set out in paragraph 1, points (b)(i) and (ii), or paragraph 2, point (b)(i), are fulfilled as follows:
(a)
in numerator, the difference between the sum S
IMA
referred to in paragraph 1, point (b)(i), with and without the extension or change to the use of their alternative internal models;
(b)
in the denominator, the sum S
IMA
referred to in paragraph 1, point (b)(i), without the extension or change to the use of their alternative internal models.
8. Institutions shall calculate the ratio to be used for assessing whether the conditions set out in paragraph 1, points (b)(iii) and (iv), and paragraph 2, point (b)(ii), are fulfilled as follows:
(a)
in the numerator, the difference between the relevant risk number Rn
i
referred to in paragraph 4, with and without the extension or change to the use of their alternative internal models;
(b)
in the denominator, the relevant risk number Rn
i
referred to in paragraph 4, without the extension or change to the use of their alternative internal models.
9. Institutions shall calculate the ratios referred to in paragraphs 7 and 8 for a period of 15 consecutive business days starting from the first business day of the testing of the impact of the extension or change to the use of their alternative internal models.
The choice of the 15 consecutive business days period shall be representative of the trading and hedging activity under normal market conditions for the portfolio of positions affected by the extension or change to the use of their alternative internal models. That period shall be part of the 9 months preceding the notification or request for permission to their competent authority as referred to in Article 325az(7) of Regulation (EU) No 575/2013.
10. Institutions shall calculate the risk numbers Rn
i
set out in paragraph 4 for the portfolio of all positions assigned to trading desks which fulfil all the requirements set out in of Article 325az(2) of Regulation (EU) No 575/2013 at the moment of notification or request of permission to their competent authority as referred to in Article 325az(7) of Regulation (EU) No 575/2013.
Non-material changes to, and non-material extensions of, the use of the alternative internal models requiring notification with additional information
1. Institutions shall categorise non-material changes to the use of their alternative internal models as requiring notification with additional information, as referred to in Article 1(2), point (a), where those changes fulfil any of the following conditions:
(a)
they meet any of the qualitative criteria set out in the Part II of the Annex;
(b)
they result in a change equal to or higher than 1 %, in absolute terms, calculated for the first business day of the testing of the impact of the change of any of the risk numbers Rn
i
set out in Article 2(4) which are considered as relevant pursuant to Article 2(5), and result in any of the following:
(i)
an increase equal to or higher than 10 % and lower than 15 %, in absolute terms, of the sum S
IMA
referred to in Article 2(1), point (b)(i);
(ii)
a decrease equal to or higher than 5 % and lower than 10 %, in absolute terms, of the sum S
IMA
referred to in Article 2(1), point (b)(i);
(iii)
an increase equal to or higher than 15 % and lower than 20 %, in absolute terms, of any of the risk numbers Rn
i
referred to in Article 2(4) which are considered relevant pursuant to Article 2(5);
(iv)
a decrease equal to or higher than 10 % and lower than 15 %, in absolute terms, of any of the risk numbers Rn
i
referred to in Article 2(4) which are considered relevant pursuant to Article 2(5).
2. Institutions shall categorise non-material extensions to the use of their alternative internal models as requiring notification with additional information, as referred to in Article 1(2), point (a), where those extensions fulfil any of the following conditions:
(a)
they meet any of the qualitative criteria set out in Part II of the Annex;
(b)
they result in a change equal to or higher than 1 %, in absolute terms, calculated for the first business day of the testing of the impact of the extension of any of the risk numbers Rn
i
referred to in Article 2(4) which are considered relevant pursuant to Article 2(5), and result in any of the following:
(i)
a change equal to or higher than 5 % and lower than 10 %, in absolute terms, of the sum S
IMA
referred to in Article 2(2), point (b)(i);
(ii)
a change equal to or higher than 10 % and lower than 15 %, in absolute terms, of any of the risk numbers Rn
i
referred to in Article 2(4) which are considered relevant pursuant to Article 2(5).
3. Institutions shall notify their competent authorities in accordance with Article 325az(7), second subparagraph, of Regulation (EU) No 575/2013, 4 weeks before they implement a non-material extension or change to the use of their alternative internal models.
4. To assess whether the conditions referred to in paragraph 1, points (b)(i) or (b)(iii) are fulfilled, institutions shall determine the impact of the change to the use of their alternative internal models by taking the highest increase, in absolute terms over the period referred to in Article 2(9), of the ratios referred to in Article 2(7) or (8), respectively.
To assess whether the conditions referred to in paragraph 1, points (b)(ii) or (b)(iv) are fulfilled, institutions shall determine the impact of the change to the use of their alternative internal models by taking the highest decrease, in absolute terms over the period referred to in Article 2(9), of the ratios referred to in Article 2(7) or (8), respectively.
To assess whether the conditions referred to in paragraph 2, points (b)(i) or (b)(ii) are fulfilled, institutions shall determine the impact of the extension to the use of their alternative internal models by taking the highest change, in absolute terms over the period referred to in Article 2(9) of the ratios referred to in Article 2(7) or (8), respectively.
