Article 105 › 7

Institutions shall comply with the following requirements when marking to model: (a) senior management shall be aware of the elements of the trading book or of other fair-valued positions which are subject to mark to model and shall understand the materiality of the uncertainty thereby created in the reporting of the risk/performance of the business; (b) institutions shall source market inputs, where possible, in line with market prices, and shall assess the appropriateness of the market inputs of the particular position being valued and the parameters of the model on a frequent basis; (c) where available, institutions shall use valuation methodologies which are accepted market practice for particular financial instruments or commodities; (d) where the model is developed by the institution itself, it shall be based on appropriate assumptions, which have been assessed and challenged by suitably qualified parties independent of the development process; (e) institutions shall have in place formal change control procedures and shall hold a secure copy of the model and use it periodically to check valuations; (f) risk management shall be aware of the weaknesses of the models used and how best to reflect those in the valuation output; and (g) institutions' models shall be subject to periodic review to determine the accuracy of their performance, which shall include assessing the continued appropriateness of assumptions, analysis of profit and loss versus risk factors, and comparison of actual close out values to model outputs. For the purposes of point (d), the model shall be developed or approved independently of the trading desk and shall be independently tested, including validation of the mathematics, assumptions and software implementation.

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Source: EUR-Lex CELLAR · retrieved 2026-09-04