Document ID: chunk:federal_register_of_legislation:F2012L02334:body:0:p10
Version: federal_register_of_legislation:F2012L02334
Segment Type: other
Provision Reference: 
Character Range: 24645–27689

senior management.
    14.         In developing an appropriate reporting framework, an ADI must consider the nature of its IRRBB exposure and the strategy adopted for managing and measuring it. Management reports must be produced and reviewed regularly and include information on the output of the ADI's internal model, limit utilisation and the performance of risk management strategies. The reviews must be conducted by a level of management with sufficient seniority and authority to enforce, where necessary, mitigation of the ADI's exposure to IRRBB.
    15.         An ADI must have in place a process for ensuring that the ADI's Board, or Board committee, and senior management are able to respond appropriately to the information contained in IRRBB management reports. This process must include escalation procedures for key IRRBB issues to facilitate appropriate action between formal reporting cycles.

Integration of the interest rate in the banking book measurement system into day-to-day risk management

    16.         An ADI's IRRBB measurement system must be closely integrated into the ADI's risk management processes. This requires that the inputs and outputs of the ADI's measurement system, as relevant, play an integral role in the ADI's decision-making, corporate governance, risk management and internal capital allocation processes.
    17.         IRRBB exposure limits must be related to the ADI's internal model in a manner that is consistent over time and well understood by senior management.

Independent review of the interest rate risk in the banking book management framework and measurement system

    18.         An ADI's IRRBB management framework (including the IRRBB measurement system) must be subject to effective and comprehensive independent review both initially (that is, at the time the model approval is sought) and then on an ongoing basis, to ensure the continued integrity of the framework. Such reviews must be conducted by functionally independent, appropriately trained and competent personnel, must cover both the activities of relevant business units and of the IRRBB management function and must take place at least once every three years or when a material change is made to the framework.
    19.         For the purpose of paragraph 18 of this Attachment, 'functionally independent' means that:
       (a)          the party or parties conducting the reviews do not contribute to the ADI's IRRBB profile through the origination or alteration of risk; and
       (b)          the party or parties conducting the reviews must not be involved in the development, implementation or operation of the IRRBB measurement system, or be part of, or report to the risk management function referred to in paragraph 6 of this Attachment.
    It is not necessary that the same party undertake all aspects of the review[6].

Attachment B

Quantitative standards for measuring the capital requirement

Interest rate risk in the banking book measurement system track record

     1. An ADI's IRRBB