[F1 ANNEX VIII U.K. INTERNAL MODELS

Textual Amendments

F1 Inserted by Directive 98/31/EC of the European Parliament and of the Council of 22 June 1998 amending Council Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions.

4. For the purpose of calculating capital requirements for specific risk associated with traded debt and equity positions, the competent authorities may recognise the use of an institution's internal model if in addition to compliance with the conditions in the remainder of this Annex the model: U.K.

• explains the historical price variation in the portfolio,

• captures concentration in terms of magnitude and changes of composition of the portfolio,

• is robust to an adverse environment,

• is validated through back-testing aimed at assessing whether specific risk is being accurately captured. If competent authorities allow this back-testing to be performed on the basis of relevant sub-portfolios, these must be chosen in a consistent manner.]