Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p5
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 13328–16148

comprising the entities in Australia and the offshore Level 2 sites.

In each case the ADI may do so regardless of where the positions are booked (refer to paragraph 2 of Attachment B) and, if using the internal model approach, allowing for risk diversification between positions (refer to paragraph 6 of Attachment C).

The standard method
     1.          An ADI that does not have model approval must calculate its TFC capital requirement using the standard method as set out in Attachment B and, in relation to credit derivative instruments held in the trading book, Attachment D[2].

The internal model approach
     1.          An ADI may apply for model approval from APRA in relation to market risk.
     2.          An ADI's model approval may specify how the internal model is to apply, including approvals under Attachment C. APRA's prior written approval is required for any material changes to the market risk internal model. Prior notification to APRA is required for material changes to other components of the market risk management framework. APRA may impose conditions on the model approval.
     3.          Once an ADI has obtained model approval, it must continue to employ that internal model on an ongoing basis unless, or except to the extent that, the model approval is revoked or suspended in respect to some or all of the ADI's market risk exposures. A return, at the ADI's request, to the standard method to market risk will generally only be permitted in exceptional circumstances.
     4.          APRA may, at any time in writing to the ADI, vary or revoke a model approval, or impose additional conditions on the model approval if it determines that:
        1.           the ADI does not comply with this Prudential Standard; or
        2.           it is appropriate, having regard to the particular circumstances of the ADI, to impose the additional conditions or make the variation or revocation.
     1.          Where an ADI's model approval has been varied or revoked, APRA may, in writing, require the ADI to revert to the standard method to measure market risk for some or all of its market risk exposures, until it meets the conditions specified by APRA for returning to the internal model approach.
     2.          An ADI that has received model approval from APRA may rely on its own internal estimate (based on the approved market risk measurement model) of market risk for determining its TFC capital requirement. That estimate must be fundamentally sound and consistent with the scope of market risk defined in paragraph 8(e) of this Prudential Standard.
     3.          APRA may, in writing, require an ADI to reduce its market risk or increase its capital if APRA considers that the ADI's capital for market risk is not commensurate with the ADI's market risk profile.