Related provisions for BIPRU 13.5.5

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BIPRU 4.8.13RRP
A firm must have systems and procedures for detecting deteriorations in the seller's financial condition and purchased receivables quality at an early stage, and for addressing emerging problems proactively. In particular a firm must have clear and effective policies, procedures, and information systems to monitor covenant violations, and clear and effective policies and procedures for initiating legal actions and dealing with problem purchased receivables.[Note: BCD Annex VII
BIPRU 4.8.14RRP
A firm must have clear and effective policies and procedures governing the control of purchased receivables, credit, and cash. In particular, written internal policies must specify all material elements of the receivables purchase programme, including the advancing rates, eligible collateral, necessary documentation, concentration limits, and the way cash receipts are to be handled. These elements must take appropriate account of all relevant and material factors, including the
BIPRU 4.8.21RRP
The risk weights for dilution risk for purchased receivables (both corporate exposures and retail exposures) must be calculated according to this rule. The risk weights must be calculated according to the formula in BIPRU 4.4.58 R. However, for the purposes of that formula, the total annual sales referred to in BIPRU 4.4.59 R are the weighted average by individual exposures of the pool. The input parameters PD and LGD and the exposure value must be determined under the applicable
BIPRU 4.8.24RRP
In the case of retail exposures, for dilution risk of purchased receivables PD must be set equal to EL estimates for dilution risk. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the PD estimate may be used.[Note: BCD Annex VII Part 2 point 19]
BIPRU 4.8.25RRP
The following LGD values apply for purchased corporate exposure receivables:(1) for senior purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 45%;(2) for subordinated purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 100%; and(3) for dilution risk of purchased corporate exposure receivables,
BIPRU 4.8.26RRP
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, for dilution risk and default risk if a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the LGD estimate for purchased corporate exposure receivables may be used.[Note: BCD Annex VII Part 2 point 9]
BIPRU 4.8.27RRP
For dilution risk of purchased retail exposure receivables an LGD value of 75% must be used. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the LGD estimate may be used.[Note: BCD Annex VII Part 2 point 21]
BIPRU 4.8.30RRP
The expected loss amounts for dilution risk of purchased receivables must be calculated according to the following formula: expected loss (EL) = PD × LGD; andexpected loss amount = EL × exposure value.[Note: BCD Article 88(5) and Annex VII Part 1 point 35]
SYSC 12.1.8RRP
A firm must:(1) have adequate, sound and appropriate risk management processes and internal control mechanisms for the purpose of assessing and managing its own exposure to group risk, including sound administrative and accounting procedures; and(2) ensure that its group has adequate, sound and appropriate risk management processes and internal control mechanisms at the level of the group, including sound administrative and accounting procedures.
SYSC 12.1.9GRP
For the purposes of SYSC 12.1.8 R, the question of whether the risk management processes and internal control mechanisms are adequate, sound and appropriate should be judged in the light of the nature, scale and complexity of the group's business and of the risks that the group bears. 18141212144
SYSC 12.1.11RRP
Where this section applies with respect to a financial conglomerate, the risk management processes referred to in SYSC 12.1.8R (2) or, for a Solvency II firm, the risk management system referred to in the PRA Rulebook: Solvency II firms: Conditions Governing Business, rule 3,12 must include:(1) sound governance and management processes, which must include the approval and periodic review by the appropriate managing bodies within the financial conglomerate of the strategies and
SYSC 12.1.12RRP
Where this section applies with respect to a financial conglomerate, the internal control mechanisms referred to in SYSC 12.1.8R (2) or, for a Solvency II firm, the internal control system referred to in the PRA Rulebook: Solvency II firms: Conditions Governing Business, rule 3,12 must include:(1) mechanisms that are adequate to identify and measure all material risks incurred by members of the financial conglomerate and appropriately relate capital in the financial conglomerate
SYSC 12.1.15RRP
In the case of a firm that:(1) is aCRRfirm; and810(2) has a mixed-activity holding company as a parent undertaking;the risk management processes and internal control mechanisms referred to in SYSC 12.1.8 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm'sparent undertakingmixed-activity holding company and any of the mixed-activity holding company'ssubsidiary
SYSC 12.1.18GRP
Assessment of the adequacy of a group's systems and controls required by this section will form part of the FCA’s14 risk management process.
SYSC 12.1.20GRP
In some cases the management of the systems and controls used to address the risks described in SYSC 12.1.8R (1) may be organised on a group-wide basis. If the firm is not carrying out those functions itself, it should delegate them to the group members that are carrying them out. However, this does not relieve the firm of responsibility for complying with its obligations under SYSC 12.1.8R (1). A firm cannot absolve itself of such a responsibility by claiming that any breach
BIPRU 7.6.7RRP
(1) The appropriate position risk adjustment for a position is that listed in the table in BIPRU 7.6.8R against the relevant underlying position.(2) If the firm uses the commodity extended maturity ladder approach or the commodity maturity ladder approach for a particular commodity under BIPRU 7.4 (Commodity PRR) the appropriate position risk adjustment for an option on that commodity is the outright rate applicable to the underlying position (see BIPRU 7.4.26R (Calculating the
BIPRU 7.6.8RRP

Table: Appropriate position risk adjustment

This table belongs to BIPRU 7.6.7R

Underlying position

Appropriate position risk adjustment

Equity

The position risk adjustment applicable to the underlying equity or equity index in the table in BIPRU 7.3.30R (Simplified equity method)

Interest rate

The sum of the specific risk position risk adjustment (see BIPRU 7.2.43R to BIPRU 7.2.51G (Specific risk calculation)) and the general market risk position risk adjustment (as set out in BIPRU 7.2.57R (General market riskposition risk adjustments)) applicable to the underlying position

Debt securities

The sum of the specific risk position risk adjustment (see BIPRU 7.2.43R to BIPRU 7.2.51G (Specific risk calculation)) and the general market risk position risk adjustment (as set out in the table in BIPRU 7.2.57R (General market riskposition risk adjustments)) applicable to the underlying position

Commodity

18% (unless BIPRU 7.6.7R requires otherwise)

Currency

8%

Gold

8%

CIU

32% (subject to BIPRU 7.6.6R and BIPRU 7.6.7R)
BIPRU 7.6.13RRP

Table: Derived positions

This table belongs to BIPRU 7.6.9R

Underlying

Option (or warrant)

Derived position

Equity

Option (warrant) on a single equity or option on a future/forward on a single equity

A notional position in the actual equity underlying the contract valued at the current market price of the equity.

Option (warrant) on a basket of equities or option on a future/forward on a basket of equities

A notional position in the actual equities underlying the contract valued at the current market price of the equities.

Option (warrant) on an equity index or option on a future/forward on an equity index

A notional position in the index underlying the contract valued at the current market price of the index.

Interest rate

Option on an interest rate or an interest rate future/FRA

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the sum of the time to expiry of the contract and the length of the period on which the settlement amount of the contract is calculated valued at the notional amount of the contract.

Option on an interest rate swap

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the length of the swap valued at the notional principal amount.

Interest rate cap or floor

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the remaining period of the cap or floor valued at the notional amount of the contract.

Debt securities

Option (warrant) on a debt security or option on a future/forward on a debt security

The underlying debt security with a maturity equal to the time to expiry of the option valued as the nominal amount underlying the contract at the current market price of the debt security.

Option (warrant) on a basket of debt securities or option on a future/forward on a basket of debt securities

A notional position in the actual debt securities underlying the contract valued at the current market price of the debt securities.

Option (warrant) on an index of debt securities or option on a future/forward on an index of debt securities

A notional position in the index underlying the contract valued at the current market price of the index.

Commodity

Option on a commodity or option on a future/forward on a commodity

An amount equal to the tonnage, barrels or kilos underlying the option with (in the case of a future/forward on a commodity) a maturity equal to the expiry date of the forward or Futures contract underlying the option. In the case of an option on a commodity the maturity of the position falls into Band 1 in the table in BIPRU 7.4.28R (Table: Maturity bands for the maturity ladder approach).

Option on a commodityswap

An amount equal to the tonnage, barrels or kilos underlying the option with a maturity equal to the length of the swap valued at the notional principal amount.

CIU

(These provisions about CIUs are subject to BIPRU 7.6.35R)

Option (warrant) on a single CIU or option on a future/forward on a single CIU

A notional position in the actual CIU underlying the contract valued at the current market price of the CIU.

Option (warrant) on a basket of CIUs or option on a future/forward on a basket of CIUs

A notional position in the actual CIUs underlying the contract valued at the current market price of the CIUs.

Gold

Option on gold or option on a future/forward on gold

An amount equal to the troy ounces underlying the option with (in the case of a future/forward on gold) a maturity equal to the expiry date of the forward or futures contract underlying the option.

Currency

Currency option

The amount of the underlying currency that the firm will receive if the option is exercised converted at the spot rate into the currency that the firm will sell if the option is exercised.
BIPRU 7.6.20RRP
Under the option standard method, the PRR for a purchased option or warrant is the lesser of:(1) the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R); and(2) the market value of the option or warrant.
BIPRU 7.6.21RRP
Under the option standard method, the PRR for a written option or warrant is the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R). This result may be reduced by the amount the option or warrant is out of the money (subject to a maximum reduction to zero).
BIPRU 7.6.27RRP

Table: The hedging method of calculating the PRR (equities, debt securities and gold)

This table belongs to BIPRU 7.6.24R(1) - (3)

PRR

Option or warrantposition

In the money by more than the position risk adjustment

In the money by less than the position risk adjustment

Out of the money or at the money

Long in security or gold

Long put

Zero

Wp

X

Short call

Y

Y

Z

Short in security or gold

Long call

Zero

Wc

X

Short put

Y

Y

Z

Where:

Wp means

{(position risk adjustment-100%) x The underlying position valued at strike price}

+

The market value of the underlying position

Wc means

{(100% +position risk adjustment x The underlying position valued at strike price}

-

The market value of the underlying position

X means

The market value of the underlying position multiplied by the appropriate position risk adjustment

Y means

The market value of the underlying position multiplied by the appropriate position risk adjustment. This result may be reduced by the market value of the option or warrant, subject to a maximum reduction to zero.

Z means

The option hedging method is not permitted; the option standard method must be used.
BIPRU 7.6.30RRP
The option PRR for a written cliquet option is the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R) multiplied by F+1 (see the following provisions of this paragraph). This result may be reduced by the amount the option is out of the money (subject to a maximum reduction to zero). The option PRR for a written cliquet option is therefore defined by the following formula:[position risk adjustment *
BIPRU 7.6.31RRP
If the pay-out to the holder of a quanto option is fixed at the inception of the transaction a firm must add 8% to the position risk adjustment when applying the option standard method.
BIPRU 7.6.35RRP
For the purpose of identifying the appropriate treatment for the purpose of BIPRU 7.6.5R, the underlying position for the purpose of BIPRU 7.6.8R and the derived position under BIPRU 7.6.13R a firm may choose between treating an option on a CIU as being:(1) a position in the CIU itself; or(2) (if the conditions in BIPRU 7.7 (Position risk requirements for collective investment undertakings) for the use of the method in question are satisfied) positions in the underlying investments
BIPRU 7.6.36GRP
(1) This paragraph gives an example of how the appropriate position risk adjustment should be calculated for the purpose of deciding whether or not an option on a CIU is sufficiently in the money for the firm to have a choice whether or not to apply an option PRR. This example assumes that there is no leveraging (see BIPRU 7.7.11R (CIU modified look through method)).(2) Say that the CIU contains underlying equityposition and the firm is using one of the CIU look through methods.
BIPRU 4.2.2RRP
A firm's systems for the management and rating of credit risk exposures must be sound and implemented with integrity and, in particular, they must meet the following standards in accordance with the minimum IRB standards:(1) the firm'srating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;(2) internal ratings and default and loss estimates used
BIPRU 4.2.5GRP
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (1).(2) The information that a firm produces or uses for the purpose of the IRB approach should be reliable and take proper account of the different users of the information produced (customers, shareholders, regulators and other market participants).(3) A firm should establish quantified and documented targets and standards, against which it should test the accuracy of data used in its rating
BIPRU 4.2.7GRP
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (2).(2) The IRB approach as applicable to a firm should be an integral part of its business and risk management processes and procedures to the extent that credit risk is relevant to them. It should also have a substantial influence on its decision-making and actions.21(a) particular regard should be had to the use of the IRB approach in: (i) credit approval;(ii) individual and portfolio limit
BIPRU 4.2.8GRP
This paragraph provides further guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (2). In the appropriate regulator's view risk management has an essential role in informing risk decisions. However, an essential role does not necessarily mean an exclusive role or even always a primary role. There may be justifiable differences between the IRB approach and the firm's use of rating systems for its internal purposes as referred to in BIPRU 4.2.2 R (2). For example, internal
BIPRU 4.2.10GRP
To the extent that a firm uses LGD estimates in its internal risk management processes that differ from the downturn LGDs used in the calculation of risk weighted assets3 (see BIPRU 4.3.103 R), the reasons for the difference should be documented in accordance with BIPRU 4.3.109 R.
BIPRU 4.2.11RRP
A firm must be able to demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly in line with the minimum IRB standards for internal risk measurement and management purposes for at least three years prior to the date of its IRB permission.[Note:BCD Article 84(3)]
BIPRU 4.2.18RRP
To the extent that a firm'sIRB permission permits this, implementation may be carried out sequentially across the different IRB exposure classes within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk weights for the sovereign, institution and corporate IRB exposure class.3[Note:BCD Article 85(1) (part)]
BIPRU 4.2.23RRP
Subject to BIPRU 4.2.17 R - BIPRU 4.2.20 R, BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm that has an IRB permission must not use the standardised approach for the calculation of risk weighted exposure amounts for the exposures to which the IRB approach applies under the IRB permission.[Note:BCD Article 85(4)]1
BIPRU 4.2.26RRP
(1) To the extent that its IRB permission permits this, a firm permitted to use the IRB approach in the calculation of risk weighted exposure amounts and expected loss amounts3 for one or more IRB exposure classes may apply the standardised approach in accordance with this rule.3(2) A firm may apply the standardised approach to the IRB exposure class referred to in BIPRU 4.3.2 R (1) (Sovereigns) where the number of material counterparties is limited and it would be unduly burdensome
BIPRU 4.10.4RRP
(1) Where the requirements of BIPRU 5.2.2 R - BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, and, as relevant, expected loss amounts, may be modified in accordance with BIPRU 5 as modified by BIPRU 4.10.(2) No exposure in respect of which credit risk mitigation is obtained must produce a higher risk weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.(3) Where the
BIPRU 4.10.6RRP
(1) Residential real estate property which is or will be occupied or let by the owner or the beneficial owner in the case of personal investment companies and commercial real estate property, that is offices and other commercial premises, may be recognised as eligible collateral where the conditions set out in the remaining provisions of this paragraph are met.(2) The value of the property must not materially depend upon the credit quality of the obligor. This requirement does
BIPRU 4.10.15RRP
(1) For the recognition of receivables as collateral the requirements in this paragraph must be met.(2) The legal mechanism by which the collateral is provided must be robust and effective and ensure that the lender has clear rights over the proceeds.(3) A firm must take all steps necessary to fulfil local requirements in respect of the enforceability of security interests. There must be a framework which allows the lender to have a first priority claim over the collateral subject
BIPRU 4.10.19RRP
(1) Where the requirements set out in this paragraph are met, exposures arising from transactions whereby a firm leases property to a third party must be treated the same as loans collateralised by the type of property leased.(2) For the exposures arising from leasing transactions to be treated as collateralised by the type of property leased, the following conditions must be met:(a) the conditions set out or referred to in BIPRU 4.10.13 R or BIPRU 4.10.18 R as appropriate for
BIPRU 4.10.32RRP
(1) This rule sets out how the calculations under BIPRU 5.6.11 R (Using the supervisory volatility adjustments or the own estimates volatility adjustments approaches to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach,
BIPRU 4.10.35RRP
(1) This rule sets out how the calculations under BIPRU 5.4.28 R (Calculating adjusted values under the financial collateral comprehensive method) must be modified under the IRB approach.(2) E as referred to in the provisions listed in (1) is the exposure value as would be determined under the IRB approach if the exposure was not collateralised. For this purpose, where a firm calculates risk weighted exposure amounts under the IRB approach, the exposure value of the items listed
BIPRU 4.10.39RRP
Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach, to be eligible a guarantor must be internally rated by a firm in accordance with the provisions of the minimum IRB standards.[Note: BCD Annex VIII Part 1 point 27]
BIPRU 4.10.51RRP
GA as calculated under BIPRU 5.8.11 R is then taken as the value of the protection for the purposes of calculating the effects of unfunded credit protection under the IRB approach.[Note: BCD Annex VIII Part 4 point 8 (part)]
BIPRU 7.8.1GRP
BIPRU 7.8 sets out the method for calculating a net underwriting position or reduced net underwriting position, which is then included in the PRR calculation in other parts of BIPRU 7. It also deals with concentration risk. BIPRU 7.8 only relates to new securities, which is defined in BIPRU 7.8.12R.
BIPRU 7.8.2RRP
A firm which underwrites or sub-underwrites an issue of securities must, for the purposes of calculating its market risk capital component1:(1) identify commitments to underwrite or sub-underwrite which give rise to an underwritingposition (see BIPRU 7.8.8R);(2) identify the time of initial commitment (see BIPRU 7.8.13R); and(3) calculate the net underwriting position (set out in BIPRU 7.8.17R), reduced net underwriting position or the net underwriting exposure.
BIPRU 7.8.31RRP
For the purposes of calculating the total amount of its trading bookexposures to a person for concentration risk purposes, a firm must include net underwriting exposure to that person.
BIPRU 7.8.32RRP
A firm must include any other exposures arising out of underwriting (including any counterparty exposures to any sub-underwriters) for the purposes of calculating the total amount of its trading bookexposures to a person for concentration risk purposes.
BIPRU 7.8.33RRP
[deleted]1
BIPRU 7.8.37RRP
For the purposes of concentration risk monitoring only, a firm must report its net underwriting exposure both before and after the application of the reduction factors in the table in BIPRU 7.8.35R.
REC 2.3.3GRP
In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FCA5 may have regard to:5(1) the operational and other risks to which the UK recognised body is exposed;(2) if the UK recognised body guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity; 5(3) the amount and composition of the UK recognised body's capital;(4)
REC 2.3.6GRP
In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:5(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to
REC 2.3.7GRP
In considering whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 will normally have regard to two components: eligible financial resources and net capital.454
REC 2.3.9GRP
4(1) 4The FCA5 considers that a UK RIE which at any time holds:5(a) eligible financial resources not less than the greater of:(i) the amount calculated under the standard approach; and (ii) the amount calculated under the risk-based approach; and (b) net capital not less than the amount of eligible financial resources determined under (1)(a);will, at that time, have sufficient financial resources to meet the recognition requirement in respect of operational and other risks unless
REC 2.3.10GRP
4The FCA5 would expect to provide a UK recognised body with individual guidance, issued with a frequency determined in accordance with the usual prudential cycle for such bodies, communicated from time to time,6 on the amount of eligible financial resources which it considers would be sufficient for the UK recognised body to hold in respect of operational and other risks6 to satisfy the recognition requirements. In formulating its individual guidance, the FCA5 will ordinarily
REC 2.3.17GRP
4The financial risk assessment should be based on a methodology which provides a reasonable estimate of the potential business losses which a UK RIE might incur in stressed but plausible market conditions. The FCA5 would expect a UK RIE to carry out a financial risk assessment at least once in every twelve-month period, or more frequently if there are material changes in the nature, scale or complexity of the UK RIE's operations or its business plans that suggest such financial
BIPRU 3.2.2RRP
The off-balance sheet items listed in the table in BIPRU 3.7.2 R must be assigned to the risk categories as indicated in that table.[Note: BCD Article 78(1) part]
BIPRU 3.2.10RRP
To be eligible for the retail exposure class, an exposure must meet the following conditions:(1) the exposure must be either to an individual person or persons, or to a small or medium sized entity;(2) the exposure must be one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced; and(3) the total amount owed to the firm, its parent undertakings and its subsidiary undertakings, including any
BIPRU 3.2.14GRP
A key driver of the preferential risk weight afforded retail exposures is the lower correlation and systematic risk associated with such exposures. This aspect is unrelated to the absolute number of retail exposures. Accordingly in defining what constitutes a significant number of retail exposures for the purpose of BIPRU 3.2.10 R (2), a firm need only satisfy itself that the number of retail exposures is sufficiently large to diversify away idiosyncratic risk. This assessment
BIPRU 3.2.27ARRP
(1) 2For the purpose of BIPRU 3.2.25R (1)(e), a firm must be able on an ongoing basis to demonstrate fully to the appropriate regulator the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm. (2) In relation to a counterparty that is not a firm, the arrangements referred
BIPRU 3.2.28GRP
For the purpose of BIPRU 3.2.25 R (1)(c) it is the risk management functions of the group that should be integrated, rather than the group's operational management. A firm should ensure that if risk management functions are integrated in this way it should be possible for the appropriate regulator to undertake qualitative supervision of the management of the integrated risk management function.
BIPRU 3.2.37GRP
BIPRU 3 Annex 1 G is a flow chart guide to assessing whether an intra-group exposure can be zero risk weighted using the standardised approach subject to the conditions set out in BIPRU 3.2.25 R - BIPRU 3.2.35 R.
BIPRU 4.9.2RRP
The following must be calculated in accordance with BIPRU 9 (Securitisation):(1) risk-weighted exposure amounts for securitisedexposures and for exposures belonging to the IRB exposure class referred to in BIPRU 4.3.2 R (6) (securitisation positions); and(2) the expected loss amounts for securitisedexposures.[Note: BCD Article 87(10) and Article 88(3)]
BIPRU 4.9.3RRP
Where a firm provides credit protection for a number of exposures under terms that the nth default among the exposures shall trigger payment and that this credit event shall terminate the contract, if the product has an external credit assessment from an eligible ECAI the risk weights set out in BIPRU 9 must be applied. If the product is not rated by an eligible ECAI, the risk weights of the exposures included in the basket must be aggregated, excluding n-1 exposures where the
BIPRU 4.9.6RRP
The risk weighted exposure amounts must be calculated according to the formula:Risk-weighted exposure amount = 100% * exposure value except for when the exposure is a residual value of leased properties1 in which case it must1 be calculated as follows:1/t * 100% * exposure value;where t is the greater of 1 and the nearest number of whole years of the lease remaining.1[Note: BCD Annex VII Part 1 point 27]1
BIPRU 4.9.8RRP
Where a firm has full recourse in respect of purchased receivables for default risk and for dilution risk, to the seller of the purchased receivables, BIPRU 4.8.21 R and BIPRU 4.8.30 R need not be applied. The exposure may instead be treated as a collateralised exposure.[Note: BCD Article 87(2) (part)]
BIPRU 4.9.11RRP
(1) Where exposures in the form of a CIU1 meet the criteria set out in BIPRU 3.4.121 R2(Conditions for look through treatment under the standardised approach) and the firm is aware of all of the underlying exposures of the CIU, the firm must look through to those underlying exposures in order to calculate risk weighted exposure amounts and expected loss amounts in accordance with the methods set out in BIPRU 4.BIPRU 4.9.12 R applies to the part of the underlying exposures of the
BIPRU 4.9.12RRP
(1) Where exposures in the form of a CIU do not meet the criteria set out in BIPRU 3.4.121 R2(Conditions for look through treatment under the standardised approach) or the firm is not aware of all of the underlying exposures of the CIU, a firm must look through to the underlying exposures and calculate risk weighted exposure amounts and expected loss amounts in accordance with the approach set out in BIPRU 4.7.9 R - BIPRU 4.7.12 R (Simple risk weights). If, for those purposes,
SYSC 6.3.1RRP
A firm must ensure the policies and procedures established under SYSC 6.1.1 R include systems and controls that:1(1) enable it to identify, assess, monitor and manage money laundering risk; and(2) are comprehensive and proportionate to the nature, scale and complexity of its activities.
SYSC 6.3.2GRP
"Money laundering risk" is the risk that a firm may be used to further money laundering. Failure by a firm to manage this risk effectively will increase the risk to society of crime and terrorism.
SYSC 6.3.6GRP
In identifying its money laundering risk and in establishing the nature of these systems and controls, a firm should consider a range of factors, including:1(1) its customer, product and activity profiles;(2) its distribution channels;(3) the complexity and volume of its transactions;(4) its processes and systems; and(5) its operating environment.
SYSC 6.3.7GRP
A firm should ensure that the systems and controls include:1(1) appropriate training for its employees in relation to money laundering;(2) appropriate provision of information to its governing body and senior management, including a report at least annually by that firm'smoney laundering reporting officer (MLRO) on the operation and effectiveness of those systems and controls;(3) appropriate documentation of its risk management policies and risk profile in relation to money laundering,
SYSC 6.3.11GRP
3The FCA provides guidance on steps that a firm can take to reduce the risk that it might be used to further financial crime in FCG (Financial Crime Guide: A firm’s guide to countering financial crime risks) and FCTR (Financial Crime Thematic Reviews)6.
MIPRU 4.2BA.5RRP
(1) Economic substance: the risk management and capital treatment of a securitisation must be determined on the basis of its economic substance and not its legal form.(2) Eligible structures: only standalone traditional securitisations are eligible.(3) Eligible underlying assets: term assets (e.g. residential mortgages) originated by the firm are eligible. (4) Effective credit-risk transfer: the securitisation mechanism (e.g. true sale) must effectively transfer the risks of the
MIPRU 4.2BA.9RRP
Policies and procedures: a firm must evaluate and address all risks, including reputational risks, through appropriate policies and procedures, to ensure in particular that the economic substance of the transaction is fully reflected in risk assessments and management decisions.
MIPRU 4.2BA.12RRP
Stress testing: the firm must carry out regular stress testing which takes into account: (1) the firm-wide impact of securitisation activities and exposures in stressed market conditions; and(2) the implications for other sources of risk including, but not limited to, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk.
MIPRU 4.2BA.49RRP
Where the firm is unable to determine the risk weights that would be applied to the securitised exposures, it must apply a risk weight of 1250%.
MIPRU 4.2BA.50RRP
(1) A conversion factor of 100% must be applied to the nominal amount of unrated liquidity facilities unless the conditions in MIPRU 4.2BA.51 R or MIPRU 4.2BA.53 R for a conversion factor of 50% or 0% are met. (2) The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures by a firm holding those exposures.
MIPRU 4.2BA.51RRP
(1) A conversion factor of 50% may be applied to the nominal amount of an unrated liquidity facility where all the conditions in MIPRU 4.2BA.52 R are met. (2) The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures by a firm holding those exposures.
MIPRU 4.2BA.52RRP
The conditions for the application of a conversion factor of 50% are:(1) the liquidity facility documentation must clearly identify and limit the circumstances under which the facility may be drawn;(2) it must not be possible for the facility to be drawn so as to provide credit support by covering losses already incurred at the time of drawdown, for example by providing liquidity for exposures in default at the time of drawdown or by acquiring assets at more than fair value;(3)
BIPRU 3.5.1GRP
This section (BIPRU 3.5) sets out a simplified approach to calculating risk weights. This approach is only relevant to an exposure class for which risk weights are determined by the ratings of a nominated ECAI or an export credit agency. For other exposure classes a firm should use the normal approach under the standardised approach.
BIPRU 3.5.3GRP
Rather than risk weightingexposures individually, a firm eligible to apply the simplified approach should apply a single risk weight to all exposures in each exposure class. The simplified risk weight for exposures in a particular class will be the risk weighting for unrated entities for each exposure class in which the external credit assessments influence risk weights.
BIPRU 3.5.4GRP
The table in BIPRU 3.5.5 G has a summary of the risk weights that a firm should use if it uses the simplified method of calculating risk weights referred to in BIPRU 3.5.1 G.
BIPRU 3.5.5GRP

Table : Simplified method of calculating risk weights

This table belongs to BIPRU 3.5.4 G.

Exposure class

Exposure sub-class

Risk weights

Comments

Central government

Exposures to United Kingdom government or Bank of England in sterling

0%

3

3

3

3

3

3

3

3

Exposures to central governments or central banks of certain countries outside the UK3 in currency of that country

See next column

The risk weight is whatever it is under local law. See BIPRU 3.4.6 R for precise details.

3

3

Other exposures

100%

Regional/local governments

Exposures to the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in sterling

0%

3

3

3

3

3

3

3

3

3

Exposures to local or regional governments of certain countries outside the UK3 in currency of that country

0%

See BIPRU 3.4.19 R for details of type of local/regional government covered.

See Note.3

Exposures to United Kingdom local/regional government in sterling3 if the exposure has original effective maturity of 3 months or less

20%

3

3

3

Exposures to local or regional governments of countries outside the UK3 in currency of that country if the exposure has original effective maturity of 3 months or less

20%

See Note.3

Other exposures

100%

PSE

Exposures to a PSE of the United Kingdom if that PSE is guaranteed by central government and if the exposure is in sterling3.

0%

BIPRU 3.4.24 R describes the United KingdomPSEs covered3.

Exposures to PSE of a country outside the UK3 if that PSE is guaranteed by the country's central government and if the exposure is in currency of that country.

0%

See BIPRU 3.4.26 R and Note.3

Exposures to a PSE of the United Kingdom in sterling3 if the exposure has original effective maturity of 3 months or less

20%

3

3

3

Exposures to PSE of a country outside the UK3 in currency of that country if the exposure has original effective maturity of 3 months or less

20%

See Note3.

Other exposures

100%

Multilateral development banks

Exposures to multilateral development banks listed in paragraph (1) of the Glossary definition

0%

Simplified approach does not apply. Normal rules apply.

Other exposures

Various

Treated as an institution

EU2, The3 International Monetary Fund and the Bank for International Settlements

2

0%

Simplified approach does not apply. Normal rules apply.

Institutions

Exposures to United Kingdominstitution in sterling with original effective maturity of three months or less

20%

3

3

3

3

3

3

3

3

Exposures to institution with a head office in a country outside the UK3 in the currency of that country with original effective maturity of three months or less

20%

See Note3.

Exposures to United Kingdominstitution in sterling with original effective maturity of over three months

50%

3

3

3

3

1

3

3

1

3

3

Exposures to institution with a head office in a country outside the UK3 in the currency of that country with original effective maturity of over three1 months

50%

See Note3.

Other exposures

100%

Corporates

100%

Retail exposures

75%

Simplified approach does not apply. Normal rules apply.

Mortgages on residential or commercial property

Various

Simplified approach does not apply. Normal rules apply.

Past due items

Various

Simplified approach does not apply. Normal rules apply.

High risk items

150%

Simplified approach does not apply. Normal rules apply.

Covered bonds

Various

Risk weights are based on the risk weight of issuer as described in BIPRU 3.4.110 R. The risk weight of the issuer for this purpose should be calculated under the simplified approach.

Securitisationexposures

Generally 1250%. May look through to underlying exposures if BIPRU 9 allows.

Use the BIPRU 9rules for unrated exposures under the standardised approach

Short term exposures with rating

See BIPRU 3.4.112 R. Not applicable as uses ECAI ratings.

CIUs

May look through to underlying under BIPRU 3.4.123 R

Various

Simplified approach does not apply. Normal rules apply. May use simplified approach to underlying if simplified approach applies to underlying.

May use average risk weight under BIPRU 3.4.124 R

Various

Simplified approach does not apply. Normal rules apply. May use simplified approach to underlyings if simplified approach applies to underlying.

High risk under BIPRU 3.4.118 R

150%

Simplified approach does not apply. Normal rules apply.

Others

100%

Other items under BIPRU 3.2.9 R (16)

Various

Simplified approach does not apply. Normal rules apply.

Note3: The risk weight should not be lower than the risk weight that applies for national currency exposures of the central government of the third country in question under BIPRU 3.5. That means that this risk weight only applies if the third country is one of those to which BIPRU 3.4.6 R (Preferential risk weight for exposures of the central government of countries outside the UK3 that apply equivalent prudential standards) applies.

3

3
BIPRU 3.5.7GRP
If an exposure is collateralised and if under BIPRU 5 the firm may recognise the collateral, the simplified approach may be used to determine the risk weight to be applied to the collateralised exposure. The key provisions are BIPRU 5.4.18 R to BIPRU 5.4.21 R.
SYSC 19E.2.1RRP
1A management company must establish and apply remuneration policies and practices for UCITS Remuneration Code staff that: (1) are consistent with and promote sound and effective risk management;(2) do not encourage risk taking which is inconsistent with the risk profiles or the instrument constituting the fund or the prospectus, as applicable, of the UCITS it manages; (3) do not impair the management company’s compliance with its duty to act in the best interests of the UCITS
SYSC 19E.2.5RRP
A management company must ensure that its remuneration policy: (1) is consistent with, and promotes sound and effective risk management; and(2) does not encourage risk taking which is inconsistent with the risk profiles or the instrument constituting the fund of the UCITS it manages.[Note: article 14b(1)(a) of the UCITS Directive]
SYSC 19E.2.7RRP
(1) A management company must ensure that its management body in its supervisory function: (a) adopts and reviews at least annually the general principles of the remuneration policy; and(b) is responsible for the implementation of the general principles of the remuneration policy.(2) The tasks in (1) must be undertaken only by members of the management body who:(a) do not perform any executive functions in the management company concerned; and (b) have expertise in risk management
SYSC 19E.2.9RRP
(1) A management company must establish a remuneration committee if it is significant in terms of: (a) its size, or the size of the UCITS that it manages2; (b) [deleted]2(c) the complexity of its internal organisation; and2(d) the nature, the scope and the complexity of its activities.(2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on: (a) remuneration policies and practices; and(b) the incentives created
SYSC 19E.2.11RRP
A management company must ensure the remuneration of the senior officers in the risk management and compliance functions is directly overseen by: (1) the remuneration committee; or(2) if such a committee has not been established, the management body in its supervisory function.[Note: article 14b(1)(f) of the UCITS Directive]
SYSC 19E.2.13RRP
A management company must ensure that the assessment of performance is set in a multi-year framework appropriate to any holding period recommended to the investors of the UCITS managed by the management company to ensure that the: (1) assessment process is based on the long-term performance of the UCITS and its investment risks; and (2) actual payment of the performance-based components of remuneration is spread over the same period. [Note: article 14b(1)(h) of the UCITS Dire
BIPRU 7.7.4RRP
A firm may rely on a third party to calculate and report PRR capital requirements for position risk (general market risk and specific risk) for positions in CIUs falling within BIPRU 7.7.9R and BIPRU 7.7.11R, in accordance with the methods set out in BIPRU 7.7, provided that the correctness of the calculation and the report is adequately ensured.
BIPRU 7.7.5RRP
Without prejudice to other provisions in BIPRU 7.7, a position in a CIU is subject to a collective investment undertaking PRR (general market risk and specific risk) of 32%. Without prejudice to provisions in BIPRU 7.5.18R (Foreign currency PRR for CIUs) or, if the firm has a VaR model permission, BIPRU 7.10.44R (Commodity risks and VaR models) taken together with BIPRU 7.5.18R, where the modified gold treatment set out in those rules is used, a position in a CIU is subject to
BIPRU 7.7.9RRP
(1) Where a firm is aware of the underlying investments of the CIU on a daily basis the firm may look through to those underlying investments in order to calculate the securities PRR for position risk (general market risk and specific risk) for those positions in accordance with the methods set out in the securities PRR requirements or, if the firm has a VaR model permission, in accordance with the methods set out in BIPRU 7.10 (Use of a Value at Risk Model).(2) Under this approach,
BIPRU 7.7.10RRP
(1) A firm may calculate the securities PRR for position risk (general market risk and specific risk) for positions in CIUs in accordance with the methods set out in the securities PRR requirements or, if the firm has a VaR model permission, in accordance with the methods set out in BIPRU 7.10 (Use of a Value at Risk Model), to assumed positions representing those necessary to replicate the composition and performance of the externally generated index or fixed basket of equities
BIPRU 7.7.11RRP
Where a firm is not aware of the underlying investments of the CIU on a daily basis, the firm may calculate the securities PRR for position risk (general market risk and specific risk) in accordance with the methods set out in the securities PRR requirements, subject to the following conditions:(1) it must be assumed that the CIU first invests to the maximum extent allowed under its mandate in the asset classes attracting the highest securities PRR for position risk (general market
BIPRU 7.3.11GRP
(1) An example of BIPRU 7.3.10R is as follows. The current market value of a particular equity is £2.50. If a firm contracts to sell this equity in five year's time for £3 it would treat the notional short equityposition as having a value of £2.50 when calculating the equity PRR.(2) In effect, the forward position has been treated as being equivalent to a spot position for the purposes of calculating equity PRR. To capture the risk that the forward price changes relative to the
BIPRU 7.3.29RRP
Under the simplified equity method, the PRR for each equity, equity index, or equity basket equals the market value of the net position (ignoring the sign) multiplied by the appropriate position risk adjustment from the table in BIPRU 7.3.30R. The result must be converted into the firm'sbase currency at current spot foreign currency rates.
BIPRU 7.3.30RRP

Table: simplified equity method position risk adjustments

This table belongs to BIPRU 7.3.29R

Instrument

Position risk adjustment

Single equities

16%2

2

Qualifying equity indices2 (see BIPRU 7.3.38R)

2

8%

All other equity indices or baskets

16%2

2

If it is necessary to distinguish between the specific risk position risk adjustment and the general market risk position risk adjustment, the specific risk position risk adjustment for the first and third rows is 8%2 and that for the second row is 0%. The rest of the position risk adjustment in the second column is the general market risk position risk adjustment

2
BIPRU 7.3.32RRP
Under the standard equity method, a firm must:(1) group equitypositions into country portfolios as follows:(a) a position in an individual equity belongs to:(i) the country it is listed in;(ii) any of the countries it is listed in, if more than one; or(iii) the country it was issued from, if unlisted;(b) a position in an equity basket or index that is treated under BIPRU 7.3.15R(2), is allocated to one or more country portfolios based on the countries to which the underlying equities
BIPRU 7.3.33RRP
Under the standard equity method, a firm must calculate a PRR for specific risk based on the net position in each equity, equity index or equity basket by multiplying its market value (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.3.34R.
BIPRU 7.3.34RRP

Table: position risk adjustment for specific risk under the standard equity method

This table belongs to BIPRU 7.3.33R1

Instrument

Position risk adjustment

Qualifying equity indices2 (see BIPRU 7.3.38R)

2

0%

All equities, and other2equity indices or equity2 baskets

22

8%2

2
BIPRU 7.3.48RRP
If a firm nets off positions in one or more of the equities constituting an equity index future, forward or CFD against one or more positions in the equity index future, forward or CFD itself, the firm must apply an additional equity PRR to the netted position to cover the risk of loss caused by the value of the future, forward or CFD not moving fully in line with that of its constituent equities. The same applies if a firm holds opposite positions in a future, forward or CFD
BIPRU 9.7.1RRP
An ECAI's credit assessment may be used to determine the risk weight of a securitisation position in accordance with BIPRU 9.9 only if the ECAI is an eligible ECAI.[Note:BCD Article 97(1)]
BIPRU 9.7.2RRP
(1) A firm must2 not use a credit assessment of an eligible ECAI to determine the risk weight of a securitisation position in accordance with BIPRU 9.9 unless it complies with the principles of credibility and transparency as elaborated in (2) to (6).222(2) There must be no mismatch between the types of payments reflected in the credit assessment and the types of payment to which the firm is entitled under the contract giving rise to the securitisation position in question.(3)
BIPRU 9.7.2AGRP
2The requirements in BIPRU 9.7.2R (5) and (6) apply to situations where a firm holds securitisation positions which receive a lower risk weight by virtue of unfunded credit protection provided by the firm itself acting in a different capacity in the securitisation transaction. The assessment of whether a firm is providing unfunded support to its securitisation positions should take into account the economic substance of that support in the context of the overall transaction and
BIPRU 9.7.3GRP
The guidance in BIPRU 3.3 (Recognition of ratings agencies) applies for the purposes of BIPRU 9 as it does to exposurerisk weighting in BIPRU 3, save that the reference in BIPRU 3.3 to the regulation 221 of the Capital Requirements Regulations 20061 should be read as a reference to regulation 231 of the Capital Requirements Regulations 20061 for the purposes of BIPRU 9.
BIPRU 9.7.4GRP
2Where BIPRU 9.7.2R (5) applies to securitisation positions in an ABCP programme, the firm may be granted a waiver which allows it to use the risk weight assigned to a liquidity facility in order to calculate the risk weighted exposure amount for the positions in the ABCP programme, provided that the liquidity facility ranks pari passu with the positions in the ABCP programme so that they form overlapping positions and 100% of the commercial paper issued by the ABCP programme
BIPRU 7.2.2GRP
The interest rate PRR calculation divides the interest rate risk into the risk of loss from a general move in market interest rates, and the risk of loss from an individual debt security's price changing for reasons other than a general move in market interest rates. These are called general market risk and specific risk respectively.
BIPRU 7.2.43RRP
(1) A firm must calculate the specific risk portion of the interest rate PRR for each debt security by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.44R or as specified by BIPRU 7.2.45R - BIPRU 7.2.48L R or by BIPRU 7.11.13 R - BIPRU 7.11.17 R.33(2) Notional positions in zero-specific-risk securities do not attract specific risk.(3) For the purpose of (1), a firm may cap the
BIPRU 7.2.46AGRP
3BIPRU 7.2.43 R includes both actual and notional positions. However, notional positions in a zero-specific-risk security do not attract specific risk. For example:(1) interest-rate swaps, foreign-currency swaps, FRAs, interest-rate futures, foreign-currencyforwards, foreign-currencyfutures, and the cash leg of repurchase agreements and reverse repurchase agreements create notional positions which will not attract specific risk; while(2) futures, forwards and swaps which are based
BIPRU 7.2.48ARRP
(1) 3Subject to (3), a firm must calculate the specific risk portion of the interest rate PRR for each securitisation and resecuritisationposition by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.48D R or BIPRU 7.2.48E R, or in accordance with BIPRU 7.2.48F R, as applicable.(2) In calculating the specific risk capital charge of an individual net securitisation or resecuritisation
BIPRU 7.2.48GRRP
3Where a securitisation position in the trading book is subject to an increased risk weight in accordance with BIPRU 9.15, the appropriate position risk adjustment must be calculated as 8% of the risk weight that would apply to the position in accordance with BIPRU 9.15.
BIPRU 7.2.48LRRP
(1) 3Where a firm holds a position in the correlation trading portfolio, it must calculate:(a) The total specific risk capital charges that would apply just to the net long positions of the correlation trading portfolio; and(b) The total specific risk capital charges that would apply just to the net short positions of the correlation trading portfolio.(2) The higher of (1)(a) and (1)(b) will be the specific risk capital charge for the correlation trading portfolio.(3) In calculating
BIPRU 7.2.50RRP
A firm must not treat a debt security as a qualifying debt security if it would be prudent to consider that the debt security concerned is subject to too high a degree of specific risk for it to be treated as a qualifying debt security.
BIPRU 4.3.7RRP
The calculation of expected loss amounts in accordance with BIPRU 4.3.6 R must be based on the same input figures of PD, LGD and the exposure value for each exposure as being used for the calculation of risk weighted exposure amounts in accordance with BIPRU 4. For defaultedexposures,where a firm uses its own estimate of LGDs, EL must be the firm's best estimate of expected loss (ELBE), for the defaultedexposure in accordance with BIPRU 4.3.122 R.[Note:BCD Article 88(2)]
BIPRU 4.3.23GRP
A firm's documentation relating to data should include clear identification of responsibility for data quality. A firm should set standards for data quality and aim to improve them over time. A firm should measure its performance against those standards. A firm should ensure that its data is of high enough quality to support its risk management processes and the calculation of its capital requirements.
BIPRU 4.3.49GRP
(1) This paragraph contains guidance on BIPRU 4.3.43 R and more general guidance about the governance of rating systems.(2) In determining the assignment referred to in BIPRU 4.3.43 R, a firm should have regard to the sensitivity of the rating to movements in fundamental risk drivers.(3) A firm should, for any rating system, be able to demonstrate that it acts appropriately or has an appropriate policy, as applicable, with respect to:(a) any deficiencies caused by its not being
BIPRU 4.3.57RRP
The following provisions also apply with respect to the definition of default:(1) for overdrafts, days past due commence once an obligor has breached an advised limit, has been advised a limit smaller than current outstandings, or has drawn credit without authorisation and the underlying amount is material;(2) an advised limit means a limit which has been brought to the knowledge of the obligor;(3) days past due for credit cards commence on the minimum payment due date;(4) in
BIPRU 4.3.60GRP
(1) This paragraph contains guidance on the definition of default.(2) If:(a) a firm ordinarily assigns exposures in the sovereign, institution and corporate IRB exposure class to a member of a group substantially on the basis of membership of that group and a common group rating; and(b) the firm does so in the case of a particular group;(3) the firm should consider whether members of that group should be treated as a single obligor for the purpose of the definition of default.(4)
BIPRU 4.3.116RRP
A firm must consider the extent of any dependence between the risk of the obligor with that of the collateral or collateral provider. Cases where there is a significant degree of dependence must be addressed in a conservative manner.[Note:BCD Annex VII Part 4 point 75]
BIPRU 4.3.120RRP
To the extent that LGD estimates take into account the existence of collateral, a firm must establish internal requirements for collateral management, legal certainty and risk management that are generally consistent with those set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10.[Note:BCD Annex VII Part 4 point 78]
BIPRU 4.3.131RRP
If a firm uses different estimates of conversion factors for the calculation of risk weighted exposure amounts and internal purposes it must be documented. The firm must be able to demonstrate their reasonableness to the appropriate regulator.[Note:BCD Annex VII Part 4 point 92]
BIPRU 5.6.19RRP
(1) A firm must be able to satisfy the appropriate regulator that the firm's risk management system for managing the risks arising on the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and that, in particular, the minimum qualitative standards in (2) – (11) are met.(2) The internal risk-measurement model used for calculation of potential price volatility for the transactions is closely integrated into the daily risk-management
BIPRU 5.6.22RRP
A firm may use empirical correlations within risk categories and across risk categories provided that it is able to satisfy the appropriate regulator that the firm's system for measuring correlations is sound and implemented with integrity.[Note: BCD Annex VIII Part 3 point 19]
BIPRU 5.6.24RRP
The fully adjusted exposure value (E*) for a firm using the master netting agreement internal models approach must be calculated according to the following formula:E* = max {0, [(∑E -∑C) + (VaR output of the internal models)]}where(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities
BIPRU 5.6.25RRP
In calculating risk weighted exposure amounts using the master netting agreement internal models approach, a firm must use the previous business day's model output.[Note: BCD Annex VIII Part 3 point 21]
BIPRU 5.6.29RRP
(1) A firm must under the standardised approach calculate risk weighted exposure amounts for repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions covered by master netting agreements under this rule.(2) E* as calculated under BIPRU 5.6.5 R to BIPRU 5.6.25 R must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement