Authorisation of risk models for calculating capital adequacy requirements

Banks and account-holding securities firms can use individual risk models to calculate their capital adequacy requirements, subject to SFMA’s authorisation.

This SFMA page gives applicants and supervised institutions a practical view of the authorisation of risk models for calculating capital adequacy requirements topic. It explains when a licence, approval, notification or registration may be needed, what information should be prepared, and which changes may require contact with the authority.

Authorisation requirements for risk models

The review focuses on whether the applicant is organised in a way that is suitable for authorisation of risk models for calculating capital adequacy requirements within the Licensing and authorisation requirements area. SFMA will normally look at governance, financial resources, responsible persons, risk controls, compliance arrangements, auditability, outsourcing and whether the planned activity can be carried out without creating avoidable risks for clients, investors, policyholders or market integrity.

Parallel calculations

This section explains how parallel calculations affects the authorisation of risk models for calculating capital adequacy requirements authorisation or registration topic. The relevant facts should be documented in a way that allows SFMA to understand the legal basis, operating responsibilities and supervisory implications.

Authorised risk models

Capital, risk and model topics require robust documentation. SFMA expects clear assumptions, governance, validation, internal controls and evidence that the model or instrument is appropriate for the risks and regulatory treatment requested.

Preparing a complete file

Applicants should keep the submission concise but complete: describe the activity, legal structure, people responsible, control framework, financial resources, relevant documents and any cross-border elements. Where uncertainty remains, the issue should be highlighted early rather than left to emerge during review.