The approval process for the use of IRC models is considered by De Nederlandsche Bank (DNB) to be no different from that of the process governing the current market risk framework set out in Section 2, art. 37 (2) of the Capital Adequacy Directive (2006/49/EC), which states that “Article 129(2) of Directive 2006/48/EC shall also apply to the recognition of internal models”.Therefore, firms are expected to supply DNB with a full list of trading locations, size of desk (regardless of whether they are in the EU or not), and models governing the capital requirements for those desks.DNB will then communicate with the relevant host country regulators.As a result, three to six months will be added to the approval process.
Significant Change Procedure
The application for use of an IRC model can be regarded as a significant change to the specific position risk model (market risk). The significant changes is, amongst other factors, dependent on the approval the institution had for use of market risks models before the application for use of the IRC model. In case of a significant change to an internal model DNB also discusses the application with host supervisors. As a consequence the procedures for a significant change are in principle the same as the procedures for the application of a market risk model.