Approval processApproval process

Approval process

An ADI that has sought model approval from APRA to use an internal ratings-based approach to credit risk or an advanced measurement approach to operational risk must also apply for model approval to use an internal model approach to IRRBB for Regulatory Capital purposes.
Any model approval granted may specify how the internal model is to apply in relation to the ADI, including approvals under other paragraphs of this Prudential Standard. APRA’s prior written approval is required for any material changes to the internal model. Prior notification to APRA is required for material changes to other components of the IRRBB management framework. APRA may impose conditions on a model approval.
Once an ADI has obtained model approval, it must continue to employ that internal model unless APRA revokes the approval. Revocation at the request of the ADI may only occur in exceptional circumstances.
APRA may, at any time in writing to the ADI, vary or revoke a model approval, or impose additional conditions on the approval if it determines that:

the ADI does not comply with this Prudential Standard; or
it is appropriate, having regard to the particular circumstances of the ADI, to impose the conditions or make the variation or revocation.

Where an ADI’s model approval has been revoked or the ADI does not receive model approval from APRA for determining its IRRBB capital requirement, the ADI must determine that requirement based on an alternative approach that APRA specifies, in writing, taking into account the nature of the ADI’s interest rate risk.
An ADI that has received model approval may rely on its own internal estimate based on the approved model of IRRBB for determining its IRRBB capital requirement. That estimate must be fundamentally sound and consistent with the scope of IRRBB defined in paragraph 7(d) of this Prudential Standard.
APRA may, in writing, require an ADI with model approval to reduce its level of IRRBB or increase its capital if APRA considers that the ADI’s capital for IRRBB is not commensurate with the ADI’s risk profile.