Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p34
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 94281–97196

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 a proven track record of reasonable accuracy in measuring risk; and

        4.           regularly conduct stress tests.

 1.              An ADI must also be able to participate in testing exercises to provide any additional information required to satisfy APRA of the adequacy of the internal model (both prior to model approval and subsequently, if APRA wishes to review the internal model).

Qualitative standards
 1.              An ADI must have an independent risk control unit that is responsible for the design and implementation of the ADI's market risk management system. The risk control unit must produce and analyse daily reports on the output of the ADI's risk measurement model, including an evaluation of limit utilisation. This risk control unit must be independent from business trading and other risk-taking units and must report directly to senior management of the ADI.
 2.          The risk control unit must conduct a back-testing program at least quarterly that complies with the minimum requirements in paragraphs 81 to 87 of this Attachment.
 3.          The Board, or a Board committee, and senior management of an ADI must be actively involved in the risk control process and must treat risk control as an essential aspect of the business, to which significant resources need to be devoted. The daily reports prepared by the independent risk control unit must be reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual traders and reductions in the ADI's overall risk exposure.
 4.          An ADI's internal market risk measurement model must be closely integrated into the day-to-day risk management process of the ADI. Accordingly, the output of the model must be an integral part of the process of planning, monitoring and controlling the ADI's market risk profile.
 5.          An ADI's market risk measurement system must be used in conjunction with internal trading and exposure limits. An ADI's trading limits must be related to the ADI's VaR measurement model in a manner that is consistent over time and that is well understood by both traders and senior management.
 6.          An ADI must have a routine and robust program of stress testing as a supplement to the risk analysis based on the day-to-day output of the risk measurement model. The results of stress testing exercises must be used in the internal assessment of capital adequacy and reflected in the policies and limits set by management and the Board, or Board committee. The results of stress testing must be routinely