Technical Standards on the IMA under the FRTB

This package of 11 draft technical standards specifies essential aspects of the Internal Model Approach (IMA) under the Fundamental Review of the Trading Book (FRTB) and represents an important contribution to a smooth and harmonised implementation of the FRTB in the EU. The package includes (i) the draft RTS on liquidity horizons for the IMA, which specify how institutions should map risk factors to risk factors categories and subcategories, the currencies that constitute the most liquid currencies for interest rate risk, the currency pairs that constitute the most liquid pairs for foreign exchange (FX) risk and the definition of a small and large capitalisation for equities; (ii) the draft RTS on back-testing and profit and loss attribution (PLA) requirements, which specify the technical elements that institutions should consider where calculating the hypothetical, actual and risk-theoretical changes (HPL, APL and RTPL) in the relevant portfolio's value for the purpose of the back-testing and the PLA test, as well as the criteria ensuring that the RTPL is sufficiently close to the HPL, the consequences for institutions with desks showing misalignments between RTPL and HPL, the frequency at which the PLA tests should be performed and the formula to be used where aggregating the own funds requirements for market risk for reporting purposes; and (iii) the draft RTS on the criteria for assessing the modellability of risk factors under the IMA, which set out how institutions should determine whether a risk factor is modellable or not, and the frequency of the assessment.