Document ID: chunk:federal_register_of_legislation:F2024L01181:body:0:p5
Version: federal_register_of_legislation:F2024L01181
Segment Type: other
Provision Reference: 
Character Range: 11426–14371

circumstances, APRA's approval of the model may permit the ADI to use a combination of the internal model approach and an alternative APRA-agreed approach for regulatory capital purposes. This approach is referred to as 'partial use'.
     2.          An ADI must provide APRA with appropriate written information, both at the time of the initial application for use of the internal model approach and subsequent to the ADI obtaining model approval, on the business activities for which the ADI proposes not to use its internal model approach.
     3.          Approval for partial use of an internal model approach will, at a minimum, require that:
        1.           all sources of IRRBB across the ADI are captured within its total amount of IRRBB capital requirement; and
        2.           a substantial majority of an ADI's IRRBB is captured by its measurement system.
    In the case of partial use of an internal model, diversification benefits for any part of the ADI's operations that is excluded from the IRRBB measurement system will not be recognised.
     1.          APRA may approve partial use of an ADI's internal model approach on a short-term basis. In this case, the ADI must adopt a phased roll-out of the internal model approach across all material business activities of the ADI. A phased roll-out may include (but need not be limited to) adoption of the internal model approach, in accordance with a specified timetable, across business activities within a particular legal entity or legal entities within the Level 2 group.
     2.          An ADI that has received approval to adopt a phased roll-out of the internal model approach must have a written APRA-approved implementation plan in place that specifies the extent and timing of roll-out of the internal model approach across all material business activities.
     3.          Permanent partial use of an internal model approach will be approved only in exceptional circumstances and where the ADI is able to demonstrate to APRA that those business activities to which the internal model does not apply are immaterial in terms of size and perceived risk profile. The calculated IRRBB capital requirement for such business activities, if considered necessary by APRA, may be subject to additional capital.

Interest rate risk in the banking book management framework

     1.          An ADI with internal model approval must have in place an IRRBB management framework that is sufficiently robust to facilitate quantitative estimates of its IRRBB capital requirement that are sound, relevant and verifiable. APRA must be satisfied that the ADI's IRRBB management framework is suitably rigorous and consistent with the complexity of its business. Where industry risk modelling practices evolve and improve over time, the ADI must consider these developments in assessing its own practices. Furthermore, the IRRBB measurement system must play an integral role