Document ID: chunk:federal_register_of_legislation:F2012L02334:body:0:p9
Version: federal_register_of_legislation:F2012L02334
Segment Type: other
Provision Reference: 
Character Range: 21723–24925

notice to the Board, or Board committee, of material changes or exceptions from established policies that could have an impact on the operation of the IRRBB management framework, including the IRRBB capital requirement.

Sufficient resources

    8.             An ADI must have sufficient numbers of personnel skilled in the management and measurement of IRRBB to ensure that its IRRBB management framework continues to operate effectively.

Interest rate risk in the banking book risk management function

    9.             An ADI must have an independent specialist IRRBB management function (function) that complies with the requirements set out in this Attachment. This function must:
(a)          have reporting lines and responsibilities that are independent of the activities that contribute to the ADI's IRRBB profile;
(b)          have all roles and responsibilities of people and functions involved in the management of IRRBB clearly defined and documented;
(c)          have responsibility for the design and maintenance of an ADI's IRRBB management framework, and for ensuring its implementation; and
(d)          continuously monitor the ADI's compliance with the framework and produce and analyse regular reports on the output of the internal model.

Documentation of interest rate risk in the banking book framework

    10.         An ADI's IRRBB management framework must be clearly documented.
    11.         Documentation relating to the IRRBB measurement system must be comprehensive and provide a level of detail sufficient to ensure that an ADI's approach to determining its IRRBB capital requirement is transparent and capable of independent review and validation.
    12.         An ADI's technical documentation relating to its IRRBB measurement system must include the following information:
(a)          the rationale for all assumptions and specifications underpinning the IRRBB measurement system;
(b)          the analytics and relevant theory behind all calculations;
(c)          details of interest rate model parameters and assumptions, and any other assumptions made, whether implicitly within the model or explicitly as inputs to it, when modelling each component of IRRBB, including the ADI's justification for their use and the processes undertaken for checking and validating those assumptions;
(d)          an explanation of how the ADI ensures that the required soundness standard (refer to paragraph 30 of this Prudential Standard) is achieved; and
(e)          details of dependence structures used in the measurement system, including evidence supporting their use.

Internal reporting of interest rate risk in the banking book exposures

    13.         An ADI must implement a process to regularly monitor its IRRBB profile. To support the proactive management of this risk, there must be regular reporting of relevant information to the Board, or Board committee, and 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