Document ID: chunk:federal_register_of_legislation:F2024L01182:body:0:p10
Version: federal_register_of_legislation:F2024L01182
Segment Type: other
Provision Reference: 
Character Range: 25693–28576

IRRBB management function.
 2.          For an ADI with an approved IRRBB model, such reviews must take place at the time of IRRBB model approval and thereafter at least once every three years and when a material change is made to the IRRBB management framework. A summary of the results of the review must be provided to the Board or Board committee. An ADI must provide a report on the review to APRA within three months of its completion.
 3.          For the purpose of the review, 'functionally independent' means that the party or parties conducting the reviews:
         1.           do not contribute to the ADI's IRRBB profile through the origination or alteration of risk; and
         2.           must not be, or have been:
                 1.             involved in the development, implementation or operation of the IRRBB measurement system; or
                 2.          part of, or reporting to, the risk management function for IRRBB.
It is not necessary that the same party undertake all aspects of the review.[3]

Regular model testing
 1.          An ADI that has IRRBB model approval must have a documented process in place to test the accuracy and consistency of its internal model and assumptions. The ADI must satisfy APRA that the process enables it to assess the performance of its internal model in a meaningful and consistent manner. An ADI must perform regular model testing against actual loss experience to ensure reasonableness of model estimates. An ADI must also document and regularly review the materiality of all model limitations and risks not captured by its internal model.
 2.          An ADI that has IRRBB model approval must have a robust and documented process for testing changes to its internal model, including assumptions and information that flows into that model.

Attachment A – Approved IRRBB models
 1.              This Attachment applies to an ADI that has an approved IRRBB model.

IRRBB capital charge
 1.              The IRRBB capital charge is calculated as:
where for a given repricing assumption ,
 at a calculation date is the greater of zero and:
where:
 are respectively the prospective IRRBB capital charges at the calculation date and the latest three month-ends, determined in accordance with paragraph 18 of this Attachment;
 is the embedded loss at the calculation date. This is defined as the sum over all items within an ADI's augmented banking book of the book value of minus the  determined in accordance with paragraph 18 of this Attachment. For the avoidance of doubt, the ADI's augmented banking book is determined in accordance with paragraph 29 of this Attachment and includes an earnings offset. As such,  incorporates an earnings offset. A negative  is permissible and represents an embedded gain.
 is the optionality capital charge at the calculation date, determined in accordance with paragraph