CA-9.2.1
The Agency will give its approval for the use of internal models to measure market risks only if, in addition to the detailed requirements described later in this chapter, it is satisfied that the following general criteria are met:
(a) that the bank's risk management system is conceptually sound and is implemented with integrity;
(b) that the bank has, in the Agency's view, sufficient numbers of staff skilled in the use of sophisticated models not only in the trading area but also in the risk control, audit and the back office areas;
(c) that the bank's models have, in the Agency's judgement, a proven track record of reasonable accuracy in measuring risk. The Agency recognises that the use of internal models is, for most banks in Bahrain, a relatively new development and, therefore, it is difficult to establish a track record of reasonable accuracy. The Agency, therefore, will require a period of initial monitoring and live testing of a bank's internal model before it is used for supervisory capital purposes; and