AI Summary of Article 325be Assessment of the modellability of risk factors
Institutions are mandated to evaluate the modellability of all risk factors linked to trading desks authorised under Article 325az(2). Competent authorities may permit the use of third-party market data for this assessment. Notably, if the data inputs fail to satisfy the requirements outlined in Article 325bc(6), authorities can require institutions to classify those risk factors as non-modellable.
In exceptional circumstances of reduced trading activity, authorities may allow institutions to treat certain non-modellable risk factors as modellable, subject to specific conditions including temporary application and no substantial decrease in total market risk capital requirements. The EBA is tasked with developing regulatory technical standards to refine the assessment criteria for risk factor modellability.
Article 325be Assessment of the modellability of risk factors
1. Institutions shall assess the modellability of all the risk factors of the positions assigned to the trading desks for which they have been granted permission as referred to in Article 325az(2) or are in the process of being granted such permission.
For the purposes of the assessment referred to in first subparagraph, competent authorities may allow institutions to use market data provided by third-party vendors.
1a. Competent authorities may require an institution to consider not modellable a risk factor that has been assessed as modellable by the institution in accordance with paragraph 1 of this Article, where the data inputs used to determine the scenarios of future shocks applied to the risk factor do not meet, to the satisfaction of the competent authorities, the requirements referred to in Article 325bc(6).
2. As part of the assessment referred to in paragraph 1 of this Article, institutions shall calculate the own funds requirements for market risk in accordance with Article 325bk for those risk factors that are not modellable.