Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p33
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 91568–94591

1 of this Attachment to use an alternative approach. In deciding whether to approve an alternative approach, APRA will consider whether the internal model adequately captures the risks involved and identifies the capital needed to support those risks in a comparable manner.
 3.              Unless required to do otherwise by APRA:
        1.           an ADI that has market-related activities in Australia and offshore branches (offshore Level 1 sites) and manages those market-related activities centrally may, for the purpose of calculating its Level 1 TFC capital requirement using the internal model approach, allow for netting of positions that have been taken within the ADI, whether in Australia or an offshore Level 1 site, and risk diversification between positions that have been taken by the ADI, whether within Australia or an offshore Level 1 site ('Level 1 globally diversified VaR calculation'); and

        2.           an ADI that has market-related activities in Australia and offshore Level 2 sites (offshore branches or offshore subsidiaries) and manages those market-related activities centrally may, for the purpose of calculating its Level 2 TFC capital requirement using the internal model approach, allow for netting of positions that have been taken within the group comprising the entities in Australia and the offshore Level 2 sites and risk diversification between positions that have been taken within the group comprising the entities in Australia and the offshore Level 2 sites ('Level 2 globally diversified VaR calculation');

subject to the following conditions:

        1.           positions taken in an offshore Level 2 site may only be included in a globally diversified VaR calculation if the position-taking of that site is monitored by the ADI's Australian office on a daily basis;

        2.           positions must not be included in a globally diversified VaR calculation where there are obstacles to the quick repatriation of profits from a foreign subsidiary or branch or from offshore transactions taken by the ADI itself; and

        3.           positions must not be included in a globally diversified VaR calculation where there are legal and procedural difficulties in carrying out the timely management of risks on a consolidated basis.

    Where the positions in an offshore Level 2 site are not included in a globally diversified VaR calculation, an ADI must calculate the VaR for that offshore Level 2 site separately. The ADI must calculate the total VaR as the sum of the globally diversified VaR and the VaRs for the offshore Level 2 site.

General criteria
 1.              An ADI using an internal model for regulatory capital purposes must:
        1.           have a market risk management strategy that is conceptually sound and implemented with integrity;

        2.           have sufficient numbers of staff skilled in the use of sophisticated models in the trading, risk control, audit and back-office areas;

        3.           have