BIPRU 7.10 Use of a Value at Risk Model

BIPRU 7.10 applies to a firm with a VaR model permission.

A firm must use the VaR model approach to calculate the PRR for a position:

1. (1)

   to the extent that the risks in relation to that position are within the scope of the VaR model permission (see BIPRU 7.10.136R (Link to standard PRR rules: Incorporation of the model output into the capital calculation)); and

2. (2)

   if the position is of a type that comes within the scope of the VaR model permission.

A firm must comply with the minimum standards set out in BIPRU 7.10.26R - BIPRU 7.10.53R in calculating the model PRR.

The model PRR must be computed at least once every business day, using a 99% one-tailed confidence limit.

In calculating the VaR number, a firm must either use a ten business day holding period, or use a holding period converted to a ten business day holding period. However if the firm's VaR model permission specifies that the firm must use a specific method, the firm must do so.

Subject to BIPRU 7.10.31R, the calculation of VaR numbers must be based on an effective historical observation period that is the longest possible consistent with a prudent VaR number. That period must be at least one year or such longer period as may be set out in the firm's VaR model permission. However if using that prescribed observation period does not result in a sufficiently prudent way of calculating a VaR measure or a component of a VaR measure the firm must shorten this observation period until the observation period is consistent with a prudent VaR number.

A firm must ensure that the data series used by its VaR model is reliable. Where a reliable data series is not available, proxies or any other reasonable value-at-risk measurement technique must be used. A firm must be able to demonstrate that the technique is appropriate and does not materially understate the modelled risks.

1. (1)

   If a weighting scheme or other similar method is used to calculate VaR numbers, then the effective observation period must be at least one year. Where a weighting scheme is used, the weighted average time lag of the individual observations must not be less than six Months.

2. (2)

   If a specific observation period or weighted average time lag is specified in a firm's VaR model permission, the firm must comply with that if it is longer than the period specified in (1).

3. (3)

   However, if a weighting scheme in (1) or (2) would result in imprudent VaR numbers then the weighting scheme must be adjusted so that it is consistent with a prudent VaR number.

A firm must update data sets in accordance with the frequency set out in its VaR model permission. If volatility in market prices or rates necessitates more frequent updating in order to ensure a prudent calculation of the VaR measure the firm must do so.

The process for determining and implementing correlations within and across risk categories must be sound, implemented with integrity and consistent with the terms of the firm's VaR model permission.

In aggregating VaR measures across risk or product categories, a firm must not use the square root of the sum of the squares approach unless the assumption of zero correlation between these categories is empirically justified. If correlations between risk categories are not empirically justified, the VaR measures for each category must simply be added in order to determine its aggregate VaR measure. But to the extent that a firm's VaR model permission provides for a different way of aggregating VaR measures:

1. (1)

   that method applies instead of this rule; and

2. (2)

   if the correlations between risk categories used for that purpose cease to be empirically justified then the firm must notify the FSA at once.

In the case of general market risk and risks with respect to which the standard market risk PRR rules do not distinguish between general market risk and specific risk, a firm's VaR model must capture a sufficient number of risk factors in relation to the level of activity of the firm and in particular the risks set out in BIPRU 7.10.40R - BIPRU 7.10.44R.

For interest rate risk, a VaR model must incorporate a set of risk factors corresponding to the interest rate curves in each currency in which the firm has interest rate sensitive positions. A firm must ensure that it captures the variations of volatility of rates along the yield curve. In order to achieve this, a firm must divide the yield curves of, at a minimum, the major currencies and markets in which it has material interest rate exposures into a minimum of six maturity segments. The VaR model must also capture the risk of less than perfectly correlated movements between different yield curves.

For equity risk, a VaR model must use a separate risk factor at least for each of the equity markets in which the firm has material positions.

For foreign currency risk, a VaR model must incorporate risk factors corresponding to the individual foreign currencies, including gold, in which the firm's positions are denominated.

For commodity risk, the VaR model must use a separate risk factor at least for each commodity in which the firm has material positions. The VaR model must also capture the risk of less than perfectly correlated movements between similar, but not identical, commodities and the exposure to changes in forward prices arising from maturity mismatches. It must also take account of market characteristics, notably delivery dates and the scope provided to traders to close out positions.

1. (1)

   For CIUs the actual foreign currency positions of the CIU must be taken into account.

2. (2)

   A firm may rely on third party reporting of the foreign currency position of the CIU, where the correctness of this report is adequately ensured.

3. (3)

   If a firm is not aware of the foreign currency positions in a CIU, this position must be carved out and treated in BIPRU 7.5.18R (Derivation of notional positions in CIUs for the foreign currency PRR).

1. (1)

   If a firm's VaR model covers the calculation of PRR with respect to specific risk the firm must meet the VaR specific risk minimum requirements in addition to the other requirements of BIPRU 7.10.

2. (2)

   The VaR model must explain the historical price variation in the portfolios concerned.

3. (3)

   The VaR model must capture concentration in terms of magnitude and changes of composition of the portfolios concerned.

4. (4)

   The VaR model must be robust to an adverse environment.

5. (5)

   The VaR model must capture name-related basis risk. That is the firm must be able to demonstrate that the VaR model is sensitive to material idiosyncratic differences between similar but not identical positions.

6. (6)

   The VaR model must capture event risk.

7. (7)

   In addition to the other requirements in BIPRU 7.10, a firm must have an approach in place to capture, in the calculation of its capital requirements, the default risk of its trading book positions that is incremental to the default risk captured by the VaR measures as specified in this rule, BIPRU 7.10.48R, BIPRU 7.10.49R and BIPRU 7.10.107R (Backtesting: Specific risk backtesting).

8. (8)

   A firm must be able to demonstrate that the approach referred to in (7) meets soundness standards comparable to the approach set out in BIPRU 4 (The IRB approach), under the assumption of a constant level of risk, and adjusted where appropriate to reflect the impact of liquidity, concentrations, hedging and optionality.

1. (1)

   Where a firm is subject to event risk that is not reflected in its VaR measure, because it is beyond the 10-day holding period and 99 percent confidence interval (low probability and high severity events), the firm must ensure that the impact of such events is factored into its internal capital assessment.

2. (2)

   A firm's VaR model must conservatively assess the risk arising from less liquid positions and positions with limited price transparency under realistic market scenarios. In addition, the VaR model must meet minimum data standards. Proxies must be appropriately conservative and may be used only where available data is insufficient or is not reflective of the true volatility of a position or portfolio.

As techniques and best practices evolve, a firm must avail itself of these advances.

To avoid double counting capital requirements under BIPRU 7.10.46R (7) a firm may, when calculating its incremental default charge, take into account the extent to which default risk has already been incorporated into the VaR calculation, especially for risk positions that could and would be closed within 10 business days in the event of adverse market conditions or other indications of deterioration in the credit environment. Where a firm captures its incremental default risk through a surcharge, it must have in place methodologies for validating the measure.

A firm that does not capture the incremental default risk through an internally developed approach must calculate the surcharge through an approach consistent with either the standardised approach to credit risk or the IRB approach.

With respect to securitisation exposures that would be subject to a deduction treatment in the calculation of its capital resources or risk weighted at 1250% as set out in BIPRU 9, these positions (cash or synthetic) are subject to a capital charge that is no less than set forth under that treatment. A firm that is a dealer in these exposures may apply a different treatment where it could demonstrate to the FSA, in addition to trading intent, that a liquid two-way market exists for the securitisation exposures or, in the case of synthetic securitisation that rely solely on credit derivatives, for the securitisation exposures themselves or all their constituent risk components. For the purposes of this rule a two-way market is deemed to exist where there are independent good faith offers to buy and sell so that a price reasonably related to the last sales price or current good faith competitive bid and offer quotations can be determined within one day and settled at such a price within a relatively short time conforming to trade custom. For a firm to apply a different treatment, it must have sufficient market data to ensure that it fully captures the concentrated default risk of these exposures in its internal approach for measuring the incremental default risk in accordance with the VaR specific risk minimum requirements.

A firm's VaR model must capture accurately all material price risks for positions within the scope of its VaR permission, including risks relating to options or option-like positions. The firm must ensure that, if its VaR model does not accurately capture any material risk, the firm has capital resources adequate to cover that risk. These capital resources must be additional to those required to meet its capital resources requirement.

A firm must have a conceptually sound risk management system surrounding the use of its VaR model that is implemented with integrity and that in particular meet the qualitative standards set out in BIPRU 7.10.59R - BIPRU 7.10.82R.

A firm must base its model PRR calculation on the output of the VaR model which is used for its internal risk management rather than one developed specifically to calculate its PRR.

The VaR model must be fully integrated into the daily risk management process of the firm, and serve as the basis for reporting risk exposures to senior management of the firm.

A firm must have a risk control unit which is independent from business trading units and which reports directly to senior management. It:

1. (1)

   must be responsible for designing and implementing the firm's risk management system;

2. (2)

   must produce and analyse daily reports on the output of the VaR model and on the appropriate measures to be taken in terms of the trading limits; and

3. (3)

   conduct the initial and on-going validation of the VaR model.

A firm's governing body and senior management must be actively involved in the risk control process, and the daily reports produced by the risk control unit must be reviewed by a level of management with sufficient authority to enforce both reductions of positions taken by individual traders as well as in the firm's overall risk exposure.

A firm must have sufficient numbers of staff skilled in the use of sophisticated models in the trading, risk control, audit and back office areas.

A firm must establish, document and maintain policies, controls and procedures to an auditable standard:

1. (1)

   concerning the operation of its VaR model approach; and

2. (2)

   for monitoring and ensuring compliance with the policies, controls and procedures in (1).

A VaR model must be adequately documented.

A firm's VaR model must have a proven track record of acceptable accuracy in measuring risk.

Adequate procedures must be in place to ensure that model changes are validated before being introduced.

1. (1)

   A firm must frequently conduct a rigorous programme of stress testing. The results of these tests must be reviewed by senior management and reflected in the policies and limits the firm sets.

2. (2)

   The programme must particularly address:

   1. (a)

      concentration risk;

   2. (b)

      illiquidity of markets in stressed market conditions;

   3. (c)

      one way markets;

   4. (d)

      event and jump to default risks;

   5. (e)

      non linearity of products;

   6. (f)

      deep out of the money positions;

   7. (g)

      positions subject to the gapping of prices;

      2
   8. (h)

      full revaluation, or a reliable approximation, of positions;2

      2
   9. (i)

      instant shocks as well as effects of longer term periods of stress;2

   10. (j)

       calibration changes under stressed conditions;2

   11. (k)

       secondary risk factors (such as volatility);2

   12. (l)

       basis risk;2

   13. (m)

       systemic and localised stresses; and2

   14. (n)

       other risks that may not be captured appropriately in the VaR model (for example, recovery rate uncertainty, implied correlations and skew risk).2

3. (3)

   The shocks applied must reflect the nature of the portfolios and the time it could take to hedge out or manage risks under severe market conditions.2

A firm must have procedures to ensure that the valuation of assets and liabilities is appropriate, that valuation uncertainty is identified and appropriate reserving is undertaken where necessary.

At least once a year, a firm must conduct, as part of its regular internal audit process, a review of its risk management process. This review must include both the activities of the business trading units and of the independent risk control unit, and must be undertaken by suitably qualified staff independent of the areas being reviewed. This review must consider, at a minimum:

1. (1)

   the adequacy of the documentation of the risk management system and process;

2. (2)

   the organisation of the risk control unit;

3. (3)

   the integration of market risk measures into daily risk management;

4. (4)

   the integrity of the management information system;

5. (5)

   the process for approving risk pricing models and valuation systems used in front and back offices;

6. (6)

   the validation of any significant changes in the risk management process;

7. (7)

   the scope of risks and products captured by the VaR model;

8. (8)

   the accuracy and completeness of position data;

9. (9)

   the process used to ensure the consistency, timeliness, independence and reliability of data sources (including the independence of such data sources);

10. (10)

    the accuracy and appropriateness of volatility and correlation assumptions;

11. (11)

    reserving policies and the accuracy of the valuation procedures and risk sensitivity calculations;

12. (12)

    the process employed to evaluate the VaR model's accuracy, including the programme of backtesting;

13. (13)

    the controls surrounding the development of the VaR model; and

14. (14)

    the process employed to produce the calculation of the model PRR.

A firm must have processes in place to ensure that its VaR model has been adequately validated by suitably qualified parties independent of the development process to ensure that it is conceptually sound and adequately captures all material risks. This validation must be conducted when the VaR model is initially developed and when any significant changes are made to the VaR model. The validation must also be conducted on a periodic basis but especially where there have been any significant structural changes in the market or changes to the composition of the portfolio which might lead to the VaR model no longer being adequate. As techniques and best practices evolve, a firm must avail itself of these advances. Model validation must not be limited to backtesting, but must, at a minimum, also include the following:

1. (1)

   tests to demonstrate that any assumptions made within the VaR model are appropriate and do not underestimate or overestimate the risk (including testing of the validity of the assumptions and approximations underlying the VaR model);

2. (2)

   in addition to the regulatory backtesting programmes, a firm must carry out its own model validation tests in relation to the risks and structures of its portfolios, such as statistical validation techniques and other methods of measuring performance and validity;

3. (3)

   the use of hypothetical portfolios to ensure that the VaR model is able to account for particular structural features that may arise, for example material basis risks and concentration risk; and

4. (4)

   investigation of the limitations of the VaR model including testing of the accuracy of parts of the VaR model as well as of the whole.

A firm must ensure that it has adequate controls relating to:

1. (1)

   the derivation of the model PRR;

2. (2)

   the integrity of the backtesting programme, including the calculation of the profit and loss account;

3. (3)

   the integrity and appropriateness of the VaR model, including the VaR model's geographic coverage and the completeness of data sources;

4. (4)

   the VaR model's initial and ongoing development, including independent validation;

5. (5)

   the valuation models, including independent validation; and

6. (6)

   the adequacy, security and integrity of the information technology infrastructure.

BIPRU 7.10.84G-BIPRU 7.10.90G relate to stress testing of a VaR model (see BIPRU 7.10.72R (Risk management standards: Stress testing)).

A firm must have the capacity to run daily stress tests.

Stress testing must involve identifying market scenarios or other low probability events in all types of risks that generate the greatest losses on a firm's portfolio.

A firm must periodically and actively identify all the worst case scenarios that are relevant to its portfolio. Scenarios used must be appropriate to test the effect of adverse movements in market volatilities and correlations and the effect of any change in the assumptions underlying the VaR model. Scenarios involving low probability market events must nevertheless be plausible.

Stress testing must capture non-linear effects.

A firm must have procedures to assess and respond to the results produced from stress testing. In particular, stress testing results must be:

1. (1)

   used to evaluate its capacity to absorb such losses or identify steps to be taken to reduce risk; and

2. (2)

   communicated routinely to senior management and periodically to the governing body.

A firm must have the capacity to analyse and compare its clean profit and loss figures and clean hypothetical profit and loss figures to the VaR measure, both at the level of the whole portfolio covered by the VaR model permission and at the level of individual books that contain material amounts of risk.

A firm must, on each business day, compare each of its 250 most recent business days' clean profit and loss figures (ending with the business day preceding the business day in question) with the corresponding one-day VaR measures.

The one-day VaR measure for a particular business day is the VaR number for that business day calibrated to a one business day holding period and a 99% one-tailed confidence level.

The clean profit and loss figure for a particular business day is the firm's actual profit or loss for that day in respect of the trading activities within the scope of the firm's VaR model permission, adjusted by stripping out:

1. (1)

   fees and commissions;

2. (2)

   brokerage;

3. (3)

   additions to and releases from reserves which are not directly related to market risk (e.g. administration reserves); and

4. (4)

   any inception profit exceeding an amount specified for this purpose in the firm's VaR model permission (where inception profit is defined as any profit arising immediately on entering into a new transaction).

A backtesting exception is deemed to have occurred for any business day if the clean profit and loss figure for that business day shows a loss, which in absolute magnitude, exceeds the one-day VaR measure for that business day. The only exception is if that business day is identified in the firm's VaR model permission as giving rise to an excluded backtesting exception.

If a backtesting exception occurs, the firm must notify its usual supervisory contact at the FSA orally by close of business two business days after the business day for which the backtesting exception occurred. Within five business days following the end of each Month, the firm must submit to the FSA a written account of the previous Month's backtesting exceptions (if any). This explanation must include the causes of the backtesting exceptions, an analysis of whether the backtesting exception indicate a deficiency in the firm's VaR model and the firm's planned response (if any).

If a firm's VaR model permission covers specific risk, the firm must validate its VaR model through backtesting aimed at assessing whether specific risk is being accurately captured. This backtesting must be carried out in accordance with the provisions of its VaR model permission. If the VaR model permission provides for this backtesting to be performed on the basis of relevant sub-portfolios, these must be chosen in a consistent manner.

If ten or more backtesting exceptions or ten or more specific risk backtesting exceptions are recorded in a 250 business day period, a firm must take immediate corrective action.

A firm must also perform backtesting against a clean hypothetical profit and loss figure with respect to each business day. A clean hypothetical profit and loss figure for a business day means the clean profit and loss figure that would have occurred for that business day if the portfolio on which the VaR number for that business day is based remained unchanged.

The model PRR is, for any business day (the "relevant" business day), calculated in accordance with the following formula:

1. (1)

   the higher of:

   1. (a)

      the VaR number for the relevant business day; and

   2. (b)

      the average of its daily VaR numbers for each of the 60 business days ending with the relevant business day, multiplied by the multiplication factor for the relevant business day; and

2. (2)

   (in the case of a VaR model permission that covers specific risk) the incremental default risk charge for the relevant business day.

For any day that is not a business day, the model PRR is the amount for the prior business day.

The VaR number for any business day means the VaR measure, in respect of the previous business day's close-of-business positions in products coming within the scope of the VaR model permission, calculated by the VaR model and in accordance with BIPRU 7.10 and any methodology set out in the VaR model permission. The VaR number must not be calculated taking into account matters on the business day for which it is the VaR number.

The incremental default risk charge for any business day means the incremental default risk charge required under the provisions in BIPRU 7.10 about specific risk, in respect of the previous business day's close-of-business positions with respect to which those provisions apply.

The multiplication factor for any business day is the sum of the minimum multiplication factor and the plus factor for that day.

The minimum multiplication factor is three or any higher amount the VaR model permission defines it as.

Something that would otherwise be a breach of the minimum standards to in BIPRU 7.10.26R - BIPRU 7.10.53R is not a breach to the extent that that thing is identified in the firm's VaR permission as a reason for an increase in the minimum multiplication factor above 3.

The table in BIPRU 7.10.125R sets out the plus factors to be added to the minimum multiplication factor for any business day. It is based on the number of backtesting exceptions that occurred during the backtesting period as referred to in BIPRU 7.10.96R (Backtesting: Basic testing requirements) ending three business days preceding the business day for which the model PRR is being calculated.

A firm must, no later than the number of business days after the end of each quarter specified in the VaR model permission for this purpose, submit, in respect of that quarter, a report to the FSA about the operation of the VaR model, the systems and controls relating to it and any changes to the VaR model and those systems and controls. Each report must outline as a minimum the following information in respect of that quarter:

1. (1)

   methodological changes and developments to the VaR model;

2. (2)

   the introduction of all new pricing models used in connection with the VaR model and any changes to any pricing models used in connection with the VaR model, including details of any material associated valuation or risk management issues;

3. (3)

   a summary of backtesting performance against clean profit and loss figures and clean hypothetical profit and loss figures, which must be provided in electronic format as stipulated by the VaR model permission;

4. (4)

   (if the VaR model permission covers specific risk) the results of the specific risk backtesting including specific risk backtesting exceptions;

5. (5)

   any change to any feeder or pre-processing systems in connection with the VaR model, including changes to any of the systems set out in the list described in BIPRU 7.10.131G (1) (as it exists at the date of the VaR model permission), and any introduction of a new such system;

6. (6)

   any changes to the products coming within the scope of the VaR model;

7. (7)

   any material changes or additions to any of the matters referred to in the firm's internal documentation in relation to the VaR model (as it exists at the date of the VaR model permission) or to any matters subsequently notified under (7);

8. (8)

   any changes in senior management;

9. (9)

   an up-to-date list of products covered by the VaR model permission showing all changes made since the VaR model permission was granted; and

10. (10)

    where applicable (nil returns are not required), details of:

    1. (a)

       any use of a changed historical observation period in accordance with BIPRU 7.10.30R or any change in the use of any weighting scheme as described in BIPRU 7.10.33R;

    2. (b)

       any data series becoming unreliable as described in BIPRU 7.10.31R and any subsequent use of alternative value-at-risk measurement techniques;

    3. (c)

       the frequency of updating data sets being increased in accordance with BIPRU 7.10.34R;

    4. (d)

       any change in the method employed to derive 10-day VaR measure (see BIPRU 7.10.28R);

    5. (e)

       to the extent that the use of correlations is permitted by a firm's VaR model permission, a summary of any notifications that are required under BIPRU 7.10.37R; and

    6. (f)

       the VaR model not accurately capturing risks (as referred to in BIPRU 7.10.53R) and any steps taken under BIPRU 7.10.53R.

A firm must provide to, and discuss with, the FSA details of any significant planned changes to the VaR model before those changes are implemented. These details must include information about the nature of the change and an estimate of the impact on VaR numbers and the incremental default risk charge.

To the extent that a position does not fall within the scope of a firm's VaR model permission the firm must calculate the PRR under the standard market risk PRR rules1 or, as applicable, those provisions as modified by the firm's CAD 1 waiver.

1. (1)

   This rule applies to a position of a type that comes within the scope of a firm's VaR model permission.

2. (2)

   If, where the standard market risk PRR rules apply, a position is subject to a PRR charge and the firm's VaR model permission says that it covers the risks to which that PRR charge relates, the firm must, for those risks, calculate the PRR for that position under the VaR model approach rather than under the standard market risk PRR rules.

3. (3)

   If, where the standard market risk PRR rules apply, a position is subject to one or more PRR charges and the firm's VaR model permission does not cover all the risks to which those PRR charges relate, the firm must calculate the PRR for that position under the VaR model approach (for those risks that are covered) and under the standard market risk PRR rules (for those other risks).

4. (4)

   Where the standard market risk PRR rules distinguish between specific risk and general market risk a firm's VaR model permission covers specific risk to the extent that it says it does. If the firm's VaR model permission does not cover specific risk, BIPRU 7.10.143R and BIPRU 7.10.144R apply.

5. (5)

   If a firm's VaR model permission covers positions in CIUs it covers specific risk with respect to those positions.

A firm may exclude from the VaR model approach immaterial risks within the scope of its VaR model approach. If a firm does so it must instead apply the standard market risk PRR rules to those risks.

1. (1)

   If a firm calculates its market risk capital requirement using a combination of the standard market risk PRR rules and either the VaR model approach or the VaR model approach with the CAD 1 model approach the PRR from each method must be added together.

2. (2)

   A firm must take appropriate steps to ensure that all of the approaches are applied in a consistent manner.

If:

1. (1)

   the standard market risk PRR rules provide for a choice of which of the PRR charges to use or specify that one type must be used in some circumstances and that another type must be used in other circumstances;

2. (2)

   one of those types is disapplied under BIPRU 7.10.136R; and

3. (3)

   the other type is not disapplied;

the firm:

1. (4)

   must use the VaR model approach if under the standard market risk PRR rules the firm must use the standard market risk PRR rules in (2); and

2. (5)

   may use the VaR model approach if under the standard market risk PRR rules the firm may use the standard market risk PRR rules in (2).

The standard market risk PRR rules for the option PRR are only disapplied to the extent that the derived positions arising under BIPRU 7.6.13R (Table: Derived positions) come within the scope of the VaR model permission.

If a firm's VaR model permission covers interest rate general market risk but not interest rate specific risk, the firm must calculate the interest rate PRR so far as it relates to interest rate specific risk in accordance with the standard market risk PRR rules except that the firm must not use the basic interest rate PRR calculation in BIPRU 7.3.45R (Basic interest rate calculation for equity instruments).

If a firm's VaR model permission covers equity general market risk but not equity specific risk, the firm must calculate the equity PRR so far as it relates to equity specific risk in accordance with the standard market risk PRR rules except that the PRR for equity specific risk must be calculated under the standard equity method.

1. (1)

   To the extent that a firm's VaR model permission does not allow it to use an approach set out in BIPRU 7.10 the relevant provisions in BIPRU 7.10 do not apply to that firm.

2. (2)

   If a provision of the Handbook refers to BIPRU 7.10, that reference must, in the case of a particular firm with a VaR model permission, be treated as excluding provisions of BIPRU 7.10 that do not apply under the VaR model permission and as taking into account any modifications to BIPRU 7.10 made by the VaR model permission. Such references also include requirements and conditions contained in the VaR model permission but not BIPRU 7.10 and to the rules modified by the VaR model permission.

A VaR model must be a value-at-risk model. It must provide an estimate of the worst expected loss on a portfolio resulting from market movements over a period of time with the specified confidence level.

If a firm ceases to meet the conditions or requirements in its VaR model permission or BIPRU 7.10 it must notify the FSA at once.

A firm may change its VaR model to such extent as it sees fit, except that it must not make a change that (either on its own or together with other changes since the date of VaR model permission) would:

1. (1)

   be inconsistent with VaR model permission or BIPRU 7.10; or

2. (2)

   mean that backtesting in accordance with BIPRU 7.10 and the VaR model permission would result in the use of data that is inappropriate for the purposes of measuring the performance of the VaR model.