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Application provision

1.1 Unless otherwise stated, this Part applies to:

5.1

01/01/2016

Where marking to market is not possible, a firm must use mark to model in order to measure the value of the investments and positions.

5.2

01/01/2016

When the model used is developed by the firm, that model must be:

  1. (1) based on appropriate assumptions which have been assessed and challenged by suitably qualified parties independent of the development process; and
  2. (2) independently tested, including validation of the mathematics, assumptions, and software implementation.

5.3

01/01/2016

A firm must ensure that its senior management are aware of the positions which are subject to mark to model and understand the materiality of the uncertainty this creates in the reporting of the performance of the business of the firm and the risks to which it is subject.

5.4

01/01/2016

A firm must source market inputs in line with market prices so far as possible and assess the appropriateness of the market inputs for the position being valued and the parameters of the model on a frequent basis.

5.5

01/01/2016

A firm must use generally accepted valuation methodologies for particular products where these are available.

5.6

01/01/2016

A firm must establish formal change control procedures, hold a secure copy of the model, and periodically use that model to check valuations.

5.7

01/01/2016

A firm must ensure that its risk management functions are aware of the weaknesses of the models used and how best to reflect those in the valuation output.

5.8

01/01/2016

A firm must periodically review the model to determine the accuracy of its performance.