13.The Board must ensure that Board-approved policies adequately provide for market risk measurement methodologies commensurate with the risk profile, nature, size and complexity of the Bank’s business and structure. A Bank that has a trading book must have a robust modelling framework. Development, internal approval and ongoing use of models and other market risk management methodologies must be governed by Board-approved policies and procedures, which at a minimum must address initial and ongoing validation, valuation and independent review by the internal audit function.
14.The risk management function must produce and analyse daily reports on the output of the Bank’s market risk measurement models, including an evaluation of the relationship between measures of risk exposure and trading limits. This function must be independent from business trading units and must report directly to Senior Management.
15.A Bank’s internal risk measurement models must be closely integrated into the day-to-day risk management process of the Bank. Model output must be an integral part of the process of planning monitoring and controlling the Bank’s Market Risk profile.
16.The Market Risk measurement system must be used in conjunction with internal trading and exposure limits. In this regard, trading limits must be related to the Bank’s risk measurement model in a manner that is consistent over time and that it is well understood by both traders and Senior Management.
17.A Bank must include in its internal models risk factors deemed relevant for pricing. Any proxies used must show a good track record of the actual position held; for example, an equity index for a position in an individual stock.