CA-14.8.3
Past version: Effective from 01 Apr 2008 to 31 Mar 2011
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The validation of the models by the external auditors should include, at a minimum, the following steps:
(a) verifying and ensuring that the internal validation processes described in section CA-14.3 are operating satisfactorily;
(b) ensuring that the formulae used in the calculation process as well as for the pricing of options and other complex instruments are validated by a qualified unit, which in all cases should be independent from the trading area;
(c) checking and ensuring that the structure of the internal models is adequate with respect to the bank's activities and geographical coverage;
(d) checking the results of the bank's back-testing of its internal measurement system (i.e., comparing value-at-risk estimates with actual profits and losses) to ensure that the model provides a reliable measure of potential losses over time; and
(e) making sure that data flows and processes associated with the risk measurement system are transparent and accessible.
Apr 08