| (5) |
Combination of the internal models approach and the standardised approach |
When a bank adopts the internal models approach for the measurement of one or more risk categories such as interest rates, foreign exchange rates that include gold, equity prices or commodity prices, which risk categories shall include all related option volatilities, the bank shall during the time period specified in writing by the Registrar develop and implement an integrated risk measurement system that captures and measures the bank's aggregate exposure to market risk arising from all the said categories of risk, provided that—
| (a) |
unless specified otherwise in writing by the Registrar, once a bank developed and implemented one or more internal models for the measurement of— |
| (i) |
the bank's aggregate exposure to market risk; or |
| (ii) |
a particular category of risk such as interest rates or equity exposure, the bank shall not revert to the standardised approach specified in subregulation (7) in order to measure the bank's aggregate exposure to market risk or exposure to the said particular category of risk; |
| (b) |
in exceptional circumstances the Registrar may allow a bank to continue applying the standardised approach in respect of an insignificant risk category, such as commodities; |
| (c) |
any relevant exposure to market risk not captured by the bank's internal models shall be subject to the standardised approach specified in subregulation (7); |
| (d) |
during the period when the bank uses a combination of approaches as envisaged in this subregulation (5)— |
| (i) |
the bank shall not use a combination of the said two approaches within a particular risk category or across the bank's different risk centres in respect of the same type of risk, that is, each risk category shall be assessed using either the internal models approach or the standardised approach; |
| (ii) |
the bank shall not modify the combination of the two approaches without the prior written approval of the Registrar; |
| (iii) |
the bank shall ensure that no element of market risk escapes the bank's measurement of risk, that is, all the relevant exposures arising from all the specified risk categories, whether calculated according to the standardised approach or internal models approach, shall be captured; |
| (e) |
as a minimum, subject to any relevant requirements relating to minimum required capital and reserve funds that may be specified in or in terms of the provisions of regulation 38 of these Regulations, the bank's aggregate required amount of capital and reserve funds relating to market risk shall be equal to the sum of the amounts calculated in accordance with the relevant requirements specified in respect of the standardised approach and/or the internal models approach. |
Medicines and Related Substances Act, 1965
