Response to consultation on supervisory handbook on the validation of rating systems under the Internal Ratings Based approach
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P. 89: It is not clear what is meant by ""check the correct calculation of the IRB metrics"". Regulatory compliance as well as an adequate Internal Control System is in the responsibility of Internal Audit. While we understand, the independently by the IVU calculated IRB-metrics should be compliant to the regulatory requirements the responsibility to check the calculation of the CRCU should not necessary be by the IVU.
P. 102: The propesed opinion of the IVU on"" the integrity of the model implemented in the development environment and to be implemented in the production environment"" will lead to a change of the skill-profile of members of the IVU. Beside the scarce quantitative skills a mixture of quantitative and IT-skills will be needed leading to a more challenging recruitment, while the IT-skillset exist in the IT-department.
(ii) P. 133: It is expected that the IVU checks that any (non-material) model-change has been properly reflected in the business/functional requirements. It is not clear what is meant by business/functional requirements. The check of the model documentation and the adequate documentation of the productive model complemented by development documentations for model changes is in scope of the IVU. "
1a) How is the split between the first and the subsequent validation implemented in your institution?
The first validation assesses the model as a whole performing all analyses defined by the validation approach. The subsequent validation differntiates between analyses which needed to be performed every year and those which could be conducted at least all 3 years. In the first validation it depends whether the cut-off date from model development and validation differs. If it differs, analyses will be performed independently by the validation since more data and thus information are available. If it is equal, the analyses performed by the CRCU during development will be indepentendly challenged.1b) Do you see any constraints in implementing the proposed expectations (i) as described in section 4 for the first validation for a) newly developed models; and b) model changes; and (ii) as described in section 5 for the subsequent validation of unchanged models?
"(i) P. 88: It ist not clear, how the term ""reviews the documentation that will be submitted to CAs"" is defined. While the model and development documentation is in the scope of the validation from a methodological point of view, the whole Model Change Documentation incl. Internal-Audit-Reports etc. is not. This is in scope of the Internal-Audit Function to assess whether the Model Change Documentation is adequat and complete. Those responsibilities between IA and IVU are clearly documented in the MCP-Policy.P. 89: It is not clear what is meant by ""check the correct calculation of the IRB metrics"". Regulatory compliance as well as an adequate Internal Control System is in the responsibility of Internal Audit. While we understand, the independently by the IVU calculated IRB-metrics should be compliant to the regulatory requirements the responsibility to check the calculation of the CRCU should not necessary be by the IVU.
P. 102: The propesed opinion of the IVU on"" the integrity of the model implemented in the development environment and to be implemented in the production environment"" will lead to a change of the skill-profile of members of the IVU. Beside the scarce quantitative skills a mixture of quantitative and IT-skills will be needed leading to a more challenging recruitment, while the IT-skillset exist in the IT-department.
(ii) P. 133: It is expected that the IVU checks that any (non-material) model-change has been properly reflected in the business/functional requirements. It is not clear what is meant by business/functional requirements. The check of the model documentation and the adequate documentation of the productive model complemented by development documentations for model changes is in scope of the IVU. "