Third, and relating to model approvals, is the issue of the PRA’s own internal views on model calibration. We 8  have previously commented on our use of quantitative indicators , or QIs, but I think it is worth repeating that they are indicators and not pass/ fail standards. In particular, the standard for model approval is that firms must meet the tests and standards laid out under the Solvency II directive, and that is the basis for our 6  http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/eu-insuranceregulation/written/47301.pdf 7 http://www.bankofengland.co.uk/publications/Pages/speeches/2016/921.aspx 8 SS17/16, http://www.bankofengland.co.uk/pra/Documents/publications/ss/2016/ss1716.pdf. CP20/16, http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp2016.pdf 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  assessments. We do not operate QIs as a minimum standard, but rather as an indication of the sort of calibration level we would expect to see for standard portfolios. Models falling outside of our QI ranges (both above and below) attract increased scrutiny. Take as an example our QIs for corporate bonds. We feel that it is hard to argue that a model calibrated below the levels of credit spread increase we saw as recently as 2008-2009 meets the one-in-200-year standard required by the Directive. And so we set our QIs accordingly. But modelling credit risk is a complex business, subject to nuance and considerable expert judgement. Indeed, reasonable, knowledgeable experts might perfectly well disagree on some of the key assumptions.

It continues to record robust activities in the financial market, reaching daily volume as high as USD16.1 billion compared to USD14.1 billion recorded in 2016, The onshore market volume on forwards and swaps alone has surpassed the observed offshore forward market volume which now records an average of USD1.0 billion a day. In addition, there is a narrowing of bid-offer spreads that would indicate an improvement in liquidity. Anecdotal evidence suggests that market participants, including corporates, continue to access the market to meet their business needs; Risk exposure from high non-resident participation in the onshore market has effectively reduced. Risks from high non-residents holding have significantly subsided as footloose short term positions have exited the market in the early part of the year. The non-resident investors that remain in the domestic market comprise mostly of long term investors. They are less affected by short-term market dynamics. Their investments tend to remain stable and at times act counter cyclically to short-term investors, providing stability to the overall bond market; 4/7  BIS central bankers' speeches  On reserves, our level is sufficient to meet our needs. A point often overlooked, is that the central bank’s international reserves is not the only source to meet external liabilities. The availability of external assets and also currency denomination of the external liabilities are alternative sources of funding. In fact, BNM holds only 25 percent of the system’s foreign currency reserves. The rest is with the financial system itself.