Ordinance On Capital Adequacy

Original Language Title: Bekendtgørelse om kapitaldækning

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Read the untranslated law here: https://www.retsinformation.dk/Forms/R0710.aspx?id=128816

Overview (table of contents) Chapter 1 scope and definitions

Chapter 2 Adequate capital base and solvency needs

Chapter 3 the definition of records in the non-trading book and

Chapter 4 Credit risk

Chapter 5 market risk

Chapter 6 counterparty, settlement and delivery risk

Chapter VII operational risk

Chapter 8 the company's disclosure obligations

Chapter 9 of the reporting form

Chapter 10 penal provisions

Chapter 11 entry into force and transitional provisions etc.

Annex

Annex 1

Annex 2

Annex 3

Annex 4

Annex 5

Annex 6

Annex 7

Annex 8

Annex 9

Annex 10

Annex 11

Annex 12

Annex 13

Annex 14

Annex 15

Annex 16

Annex 17

Annex 18

Annex 19

Annex 20

Annex 21

Annex 22

Annex 23

Annex 24 full text notice on kapitaldækning1)

Under section 124, paragraph 9, article 143, paragraph 1, no. 1-5, 7 and 8 and paragraph 3, and § 373, paragraph 4, of the financial business Act, see. lovbekendtgørelse nr. 793 of 20. August 2009, fixed:

Chapter 1

Scope and definitions

§ 1. This Ordinance shall apply to:

1) financial institutions.

2) mortgage companies.

3) stockbroking companies.

4) Investment management companies.

5) Branches in this country by credit institutions, stockbroking firms or investment management companies authorised in a country outside the European Union, which the community has not concluded an agreement with the financial area.

6) Holding companies as defined in § 5 (1) (8). 10-14, in the financial business Act, and which are subject to the requirements of section 170, paragraph 1-4, in the financial business Act.

7) Groups, where one of the under nr. 1-4 or 6 listed companies is a parent undertaking, and where pursuant to section 170, paragraph 1-4, in the financial business Act must be carried out in a consolidated statement.

8), where one of the Subgroups under nr. 1-4 or 6 listed companies is a parent undertaking, and where in accordance with section 171, paragraph 2, article 172, paragraph 2, article 173, paragraph 2, or section 174, paragraph 2, of the law on financial activities must be carried out in a consolidated statement.

(2). Referred to in paragraph 1, institutions and companies are hereinafter referred to as "companies".

§ 2. Companies must develop capital adequacy statements drawn up in accordance with this Ordinance and relevant supporting documents.

§ 3. The capital base is calculated in accordance with the provisions of Chapter 10 of the financial business Act.

§ 4. By departments for the purposes of this Ordinance the in clause 5 (1) (8). 2, in the financial business Act, the credit institutions referred to in § 5 (1) (8). 3, in the financial business Act referred to in section 5 and of investment companies (1). 5, of the law on the financial company said management companies which are authorized and supervised by the FSA or equivalent foreign competent authorities.

(2). By a company's working capital means the sum of the deposits, debt securities, etc., issued subordinated capital and equity.

(3). By stockbroking firms and investment management companies ' fixed costs means the following items of the income statement in annex 3 to the Ordinance on financial reports for credit institutions and stockbroking companies, etc.:

1) expenditure on personnel and administration (record 8).

2) depreciation, amortisation and write-downs on intangible and tangible assets (item 9).

3) other operating expenses (item 10).

(4). By exposures for the purposes of this Ordinance the assets and off-balance-sheet items.

(5). By securities and financial instruments for the purposes of this Ordinance, margenlån repurchase transactions and transactions relating to the lending or borrowing of securities or commodities.

(6). By repurchase transactions shall mean any agreement under which a company or its counter-party transfers securities, commodities or guaranteed rights to acquire securities or commodities, and at the same time undertake to buy them, or equivalent securities or commodities back at a later date for a specified price. This will be a repurchase agreement (sale and repurchase agreements) for the company selling the securities or raw materials, and a reverse repurchase agreement (purchase-and back sales business) for the company, which buys the securities or raw materials. For repurchase transactions involving the purchase or sale of guaranteed rights, the guarantee provided by a regulated market or an equivalent foreign market for securities that are in the possession of the rights to the securities or the raw materials. The agreement on a repurchase transaction must not give a company the opportunity to assign or pledge a particular security or a particular commodity for more than one counter-party at one time.

(7). Margenlån for the purposes of this Ordinance by transactions in which a credit institution granting credit in connection with the purchase, sale, transfer or trade in securities with security in the securities in question. Margenlån does not include other loans that may be secured by collateral in the form of securities.

(8). By lending or securities or commodities borrowing shall mean all transactions by which a company or its counter-party transfers securities or commodities against appropriate collateral and subject to the condition that the borrower will return the securities or commodities of the same type at a later time, or when requested to do so by the transferor.

(9). By forward transactions shall mean transactions where a counterparty undertakes to provide a security or an amount in a foreign currency in Exchange for cash or other financial instruments – or vice versa – on a settlement or delivery dates, which, by agreement, is set at more than the briefest of market norm for that transaction and five working days after the day on which the company has entered into the transaction.

Paragraph 10. By securitiseringspositioner for the purposes of this Ordinance, cf. securitiseringer against exposures Annex 11.

Paragraph 11. By a similar instrument shall mean cash a certificate of deposit or similar instrument issued by the lending credit institution.

Chapter 2

Sufficient capital base and solvency needs

§ 5. The company's Board and management to determine the company's adequate capital base and individual solvency needs (solvency requirements). The company must take account of the conditions that are described in annex 1.

(2). Solvency requirement is calculated as the percentage by which the adequate capital base forms of risk-weighted items.

(3). Solvency requirement must be reported to the FSA.

Chapter 3

The definition of records in the non-trading book and

§ 6. A company's trading book consists of the following items which the company holds with trading intent or in order to hedge other elements of the trading book:

1) securities.

2) derivative financial instruments, which are set out in annex 17.

3) securities financing instruments.

4) forward transactions.

5) credit derivatives.




Items included in the trading book must either be free of restrictive clauses concerning the possibilities to trade them or could be identified.



(2). Positions held with trading intent, positions are held for resale and/or which are taken in order to get the benefit of actual or short-term differences between buying and selling prices, or from other price or interest rate changes. The term "positions" shall include positions in securities and derivative financial instruments by the company for its own account, and positions based on customer service and market making.

(3). Trading book includes, among other things. Securities and derivative financial instruments included in pool schemes, where all of the positive results of the covered securities and derivative financial instruments shall accrue to the customers, and all the negative return on securities and derivative financial instruments shall be borne by the customers. Pool systems holdings of company's own shares and own bonds included in the measure of market risk for market value.

(4). Obligations corresponding to the assets, etc., mentioned in paragraph 3, included in the trading book.

(5). The trading book do not include premium bonds and mortgages.

§ 7. Positions and portfolios held with trading intent shall meet the requirements set out in annex 2. Companies must establish and maintain systems and controls to manage the trading book in accordance with Annex 2.

Chapter 4

Credit risk

§ 8. When calculating risk-weighted items for credit risk, the company must use the standardised approach for credit risk, which is evidenced by sections 9-18, or the internal ratings based approach to credit risk, which is evidenced by §§ 19-33.

(2). By records with credit risk for the purposes of this Ordinance the non-trading book exposures, including exposures with counterparty risk outside the trading book and the exposures by counterparty risk in the trading book.

The standardised approach for credit risk


§ 9. A company that uses the standardised approach for credit risk, must divide the exposures in the following categories:

1) Exposures against central Governments or central banks

2) Exposures to regional or local authorities

3) Exposures against public entities

4) Exposures on multilateral development banks;

5) Exposures against international organizations

6) Exposures against institutions, see. § 4 (1)

7) Exposures against businesses, etc.

8) Exposures against retail customers

9) Exposures secured by mortgages on real estate

10) Exposures in which there are arrears or overdraft

11) covered bonds

12) Securitiseringspositioner

13) Exposures against business enterprises, etc. with a short-term credit rating

14) Exposures against collective investment schemes

15) Exposures in other entries, including assets without counterparts.

(2). Exposures shall be weighted in accordance with the provisions of annex 3.

§ 10. When calculating the risk-weighted items according to the standardised approach for credit risk exposures are included with their value according to the Decree on financial reports for credit institutions and stockbroking companies et al., see. However, paragraphs 2 to 6 and § § 42-49. An asset, there shall be deducted from the capital base, are not included in the calculation of risk-weighted items.

(2). A company that uses a nettingaftale which satisfy the minimum requirements set out in annex 10, paragraphs 2-5, for securities financing instruments covered by nettingaftalen, quantify the size of exposure in accordance with annex 10 of the basic regulation. However, § 43.

(3). An undertaking which has authorization to use the internal model method for calculating the size of exposure under a nettingaftale that meet the minimum requirements set out in annex 10, paragraphs 2-5, may, in respect of forward transactions covered by nettingaftalen, quantify the size of exposure in accordance with the provisions of annex 10, paragraph 14-23, instead of pursuant to section 44.

(4). The provisions on the authorisation of the use of the internal model method for calculating the size of exposure under the netting agreements in accordance with paragraphs 2 and 3, as set out in annex 10, paragraph 14-23.

(5). Off-balance-sheet items which are not covered by paragraph 2-4 or § § 42-49, are included with the nominal value after deduction of provisions and be divided into records with full risk, records with intermediate risk, records with medium/low-risk and low-risk entries in accordance with the provisions of annex 4. Records with full risk included in the measure of exposure size with 100 per cent of the nominal amount of entries with intermediate risk part with 50 per cent of the nominal amount of entries with medium/low risk with 20 per cent of the nominal amount and items with low risk with 0 per cent.

(6). Paragraphs 1 to 5 shall not apply to securitiseringspositioner, see. § 11.

§ 11. A company that uses the standardised approach for credit risk, by statement of the risk-weighted items include the effect of securitisation of corporate exposures and quantify the risk-weighted items for securitiseringspositioner the non-trading book in accordance with the provisions of annex 11.

§ 12. A company that uses the standardised approach for credit risk, may, by statement of the risk-weighted items include the effect of guarantees, credit derivatives and collateral as well as netting of mutual deposits and loans in accordance with the provisions of annex 7.

(2). The effect of guarantees, credit derivatives and collateral as well as netting of mutual deposits and loans pursuant to paragraph 1 is calculated before applying the weights for entries with intermediate risk, records with medium/low-risk and low-risk entries in section 10, paragraph 5.

§ 13. By statement of risk-weighted exposures can the company apply the approved rating agencies credit ratings, see. sections 15-18. The use of rating agencies credit assessments for determining risk-weighted items must be consistent and in accordance with annex 5.

§ 14. Credit assessments of export credit agencies, including countries ratings compiled by the Organisation for Economic Cooperation and development (OECD), can be used to quantify the risk weights for central Governments and central banks.

(2). The use of external credit assessments by export credit agencies must meet the same criteria as credit ratings from the rating agencies by the determination of risk weights, see. § 13.

§ 15. If your company uses credit ratings from approved rating agencies, the use of credit ratings where the credit assessed units even have asked to be credit rated (solicited rating), see. However, paragraph 2.

(2). The Danish financial supervisory authority may allow the companies use credit ratings where the credit assessed units did not even have asked to be credit rated (unsolicited ratings).

§ 16. An external credit assessment may only be used for the purpose of determining an exposure risk weight, if the credit-rating agency, providing it has been approved for this purpose by the FSA.

(2). At least one Danish credit institutions should expect to use credit-rating institution's credit assessments for the determination of risk weights, before eksponeringers rating Institute can be approved.

§ 17. A credit-rating agency can be authorised only if the credit rating institution's credit rating methods of satisfying the requirements of objectivity, independence, ongoing control and transparency, as well as to credit assessments meet the requirements of credibility and transparency, see. Annex 6.

(2). Is a credit-rating agency has been approved by the competent authorities in another country within the European Union or in a country with which the community has entered into an agreement on the financial area, the Danish financial supervisory authority approve the relevant rating agency on the basis of the assessment carried out in the other country.

§ 18. Taking into account the criteria set out in annex 5, FSA, which sets credit quality step credit ratings from a recognized rating agency may engage in.

(2). The competent authorities in another country within the European Union or in a country with which the community has entered into an agreement on financial matters, provided pursuant to paragraph 1, the Danish financial supervisory authority to approve the use of these credit quality steps.

The internal ratings based approach to credit risk (IRB approach)

§ 19. The Danish financial supervisory authority may give permission for the company instead of the standardised approach for credit risk encounter risk-weighted items concerning respectively the non-trading book, credit risk positions in shares outside the trading book, shares in collective investment schemes outside the trading book and for dilution risk of purchased corporate customer claims in accordance with the provisions of Annex 8, point 3-112 (IRB approach).

(2). Separate permission is required for each of the § 1, paragraph 1, the said companies.

(3). An application for authorisation in accordance with paragraph 1 shall be designed in accordance with the provisions in annex 21.

(4). If your company is part of a group, where the parent undertaking is a financial institution, mortgage lender, stockbroking firm or investment management company located in Denmark, the parent undertaking shall submit an application for authorisation to the Danish financial supervisory authority in accordance with the provisions in annex 21. If the parent undertaking is a financial holding company located in Denmark, all companies jointly shall submit an application for authorisation to the Danish FSA. If the parent company is located in another country within the European Union or in a country with which the community has entered into an agreement on financial matters, and where the procedure laid down in Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), art. 129, paragraph 2, applies, followed the guidelines on application for approval of the IRB approach, as laid down by the competent authorities of the country where the parent undertaking is located.

(5). An application for authorisation of the use of the IRB approach shall include all exposures in all legal entities that are part of the group, however, with the opportunities for temporary and permanent exceptions contained in §§ 24-26.

§ 20. There can only be given permission for use of the IRB approach under section 19, if the company's systems for the management and rating of credit risk exposures comply with the requirements of Annex 8, paragraphs 113-242.

(2). If your company is part of a group, can the FSA allow the minimum requirements set out in annex 8, paragraphs 113-242, met the Group's parent company and its subsidiaries considered together.


§ 21. If your enterprise are part of a group of companies in which the parent undertaking or one or more subsidiary undertakings is a credit institution, stockbroking company or investment management company authorised in another country within the European Union or in a country with which the community has entered into an agreement on financial matters, and where the procedure laid down in Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), art. 129, paragraph 2, applies, the Danish financial supervisory authority may authorise the use of the IRB approach under conditions agreed with the competent authorities of the country concerned, provided that the provisions relating to the corporate use of the IRB approach as described in Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) are met.

§ 22. A company applying for authorization to use the IRB approach shall demonstrate that it is for the relevant exposure categories have used rating systems, which essentially comply with the minimum requirements set out in annex 8, paragraphs 113-242 for a period of at least three years prior to the intended use of the IRB approach.

(2). In order to obtain approval for use of the IRB approach to be the bulk of the company's core business areas, which are not covered by an authorisation for permanent derogation without prejudice. section 26, be covered by the IRB approach at that point in time.

§ 23. A company in connection with the use of the IRB approach are applying for permission to use own estimates of losses from default (LGD) and conversion factors (CF) for business, institution and Government exposures, shall demonstrate that it has calculated and applied the own estimates of LGD and CF in a way that essentially meets the minimum requirements set out in annex 8, paragraphs 113-242 for a period of at least three years prior to the proposed use of own estimates of those parameters for the relevant exposure categories.

§ 24. The Danish financial supervisory authority may allow the company to impose the IRB approach in the company, the company's parent company and their subsidiaries after a pre-agreed deployment plan. A deployment plan may include a phased introduction of the IRB approach in the following areas:

1) exposure categories within the same business entity.

2) business units, including legal entities within the same group.

3) subcategories retail exposures secured by real estate, qualifying revolving retail exposures and other retail exposures.

4 the use of own estimates of LGDS) or CF for business, institution and Government exposures for businesses that have been permitted to use own estimates of LGDS and CF for business, institution and Government exposures.

(2). Stepwise introduction pursuant to paragraph 1, nr. 1-3 imply that the company temporarily uses the standardised approach for credit risk in the areas covered by the deployment plan.

(3). Stepwise introduction pursuant to paragraph 1, nr. 4, implies that the company of the exposure categories and business units, which are subject to the deployment plan for the respective risk parameters, use the in annex 8, paragraphs 60-70, provided values for LGD or in § 27, paragraph 8, no. 1, provided values for CF.

(4). The company shall use its own calculations of the maturity (M) in accordance with the provisions of Annex 8, paragraphs 61-67, for any business, institution and Government exposures, if the company is using own estimates of LGDS or CF at some exposure categories within business, institution or State exposures.

(5). The company uses the IRB approach for at least one exposure category, the company must, at the same time use the IRB approach for stock exposure category, unless equity exposures exempted permanently under section 26 (1) (8). 5, 6 and 9.

§ 25. The phased introduction under section 24 shall take place within a reasonable period of time, however, a maximum of three years after the use of the IRB approach is commenced, and on detailed conditions laid down in annex IX. However, paragraph 3.

(2). The overall timetable and sequence for the phased introduction shall, together with the conditions attached to the step-by-step introduction, appear in the company's deployment plan.

(3). The Danish financial supervisory authority may, in exceptional cases, allow a longer period of time than specified in paragraphs (1) and may allow the deployment plan is changed during the deployment period, if the business or other essential conditions are changing.

section 26. The Danish financial supervisory authority may allow the company to exempt the following exposures from the IRB approach and instead use the standardised approach for credit risk for those exposures:

1) Exposures against the Danish Government, the Danish regions, Danish municipalities, Greenland, the Faroe Islands ' Landsstyre, Greenlandic and Faroese municipalities, The Danish people's Church and Danmarks Nationalbank.

2) Exposures to central Governments, regional authorities, local authorities, public bodies and central banks in other Member States or countries with which the community has entered into an agreement on financial matters, and where the company's subsidiary undertaking or parent undertaking of the parent undertaking or other subsidiaries are resident and subject to the provisions of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) or Directive 2006/49/EC of 14. June 2006 laying down the requirements for the capital adequacy of investment firms and credit institutions (recast), provided that the following are complied with:

(a)) which, by virtue of special public events is no difference in risk between the exposures against the State and these other exposures.

(b)) the exposures against the central Government is linked to reduce under the standardised approach for credit risk.

3) Other exposures to central Governments, regional authorities, local authorities, public bodies and central banks, which are not covered by nr. 1 and 2, but where the number of material counterparties is limited and it would be unduly burdensome for the company to introduce a rating system for these counterparties.

4) Department exposures, where the number of material counterparties is limited and it would be unduly burdensome for the company to introduce a rating system for these counterparties.

5) Equity exposures, if the total value of these exposures on average through the previous year does not exceed 10 per cent of the company's capital base. If the number of those equity exposures is less than 10 individual holdings, is the limit of 5 percent of the company's capital base.

6) Equity exposures against entities whose credit obligations qualify for reduce after the standardised approach for credit risk, including Government-backed entities, on which can be applied to reduce that.

7) Exposures against counterparties, which is the company's parent company, the company's subsidiary or a subsidiary of the company's parent company.

8) Exposures in non-core business units, as well as on exposure categories, there is insubstantial in terms of size and risk profile when the following conditions are met:

a) business units and exposure categories which are exempt from the IRB approach with this justification, must collectively represent less than 15 per cent of risk-weighted items, see. However, paragraph 2.

(b)) A single business entity or a single exposure category, which in themselves represent up to 15 per cent of risk-weighted items, shall not be regarded as insignificant and can thus not be exempt from the IRB approach, see. However, paragraph 2.

9) Equity exposures held by other Member States or countries with which the community has entered into an agreement on financial matters, has exempted pursuant to article 89, paragraph 1 (f) and (g) of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).

(2). The Danish financial supervisory authority may permit the limits laid down in paragraph 1, no. 8 (a) and (b) for a period of time is exceeded, and to specific exposures permanently exempt from the limits.

§ 27. When calculating the risk-weighted items pursuant to § 19 included exposures with their value before impairment or other value adjustment, see. However, paragraph 2-9 and § § 42-49. This also applies to assets acquired at a price different from the amount owed. An asset, there shall be deducted from the capital base, are not included in the calculation of risk-weighted items.

(2). Exposures that are measured at fair value in accordance with Ordinance on financial reports for credit institutions and stockbroking companies et al., concludes with the fair value of the exposure before write-downs and provisions for credit risk.

(3). Exposures in the form of shares outside the trading book forms part of the value, they are accounted for in accordance with the Ordinance on financial reports for credit institutions and stockbroking companies and others.

(4). Exposures in the form of assets without counterparts, as defined in annex 8, paragraph 24, included with the value they are accounted for in accordance with the Ordinance on financial reports for credit institutions and stockbroking companies and others.

(5). Exposures in relation to credit risk on purchased receivables are stated at the outstanding amount minus the solvency requirement for dilution risk, see. Annex 8, paragraphs 106 and 107. Solvency requirement for dilution risk is calculated on the basis of the outstanding amount, without application of the provisions concerning risk reduction in annex 9.


(6). Exposures in the form of securities made to security or lent in connection with securities and financial instruments, is included with the value they are accounted for in accordance with the Ordinance on financial reports for credit institutions and stockbroking companies et al., see. However, paragraph 7 and section 43.

(7). section 10, paragraphs 2 to 4 shall apply mutatis mutandis to a company, which uses the IRB approach for credit risk.

(8). Off-balance-sheet items which are not covered by paragraph 7 or § § 42-49, are included with the nominal amount without any deduction for unearned premiums multiplied by a conversion factor (CF) according to the following criteria:

1) an undertaking in connection with the use of the IRB approach are not permitted to use own estimates of loss given default (LGD) and conversion factors (CF) for business, institution and Government exposures, as defined in annex 8, paragraphs 6-8, must apply the following CF'er for off-balance-sheet exposures within the relevant exposure categories:

(a)) Of credit commitments, which the company can terminate at any time, without notice and without conditions, or which effectively ensures automatic termination by a deterioration of the credit quality of the counterparty, used a CF at 0% the company must, in order to be able to use a CF at 0 per cent to closely monitor the counterparty's financial situation and its internal control systems should instantly be able to identify deterioration in counterparty credit quality.

(b)) For open and confirmed letters of credit with short maturity and similar instruments used a CF at 20 per cent for both the issuing and advising company.

(c)) For undrawn purchase commitments for revolving purchased receivables with specific customers, which can be terminated without conditions, or where it is effectively ensured that the company can automatically terminate them at any time and without notice, shall use a CF at 0% the company must, in order to be able to use a CF at 0 per cent to closely monitor the debtor's financial situation and its internal control systems must immediately identify the debtor's credit quality deterioration.

(d)) For other credit commitments, including loan deals, which are not covered by points (a), and guarantees for loan programs, used a CF at 75 per cent.

e) All other off-balance-sheet items other than those referred to in subparagraphs (a) to (d) shall be placed into risk categories in accordance with the provisions of annex 4. In determining the size of exposures with full risk exposure using a CF at 100 per cent. For exposures with intermediate risk using a CF at 50 per cent. For exposures with medium/low-risk use a CF at 20 per cent. For low-risk exposures utilizing a CF at 0 per cent.

2) companies that are permitted to use own estimates of LGDS and CF for business, institution and Government exposures, shall, except in areas covered by the stepwise introduction under section 24 (1). 4, use of own estimates of CF for the categories of products referred to in point 1. 1 (a) to (d) and (e), 3.-5. PT.

3) the company shall, in respect of retail exposures, as defined in annex 8, paragraph 11-19, using own estimates of CF for the product categories referred to in point 1. 1 (a) to (d) and (e), 3.-5. PT.

4) Is an obligation linked to the expansion of another obligation, used the lower of the two CF'er that apply to individual obligations.

(9). Paragraphs 1 to 8 shall not apply to securitiseringspositioner, see. section 30.

section 28. A company using the IRB approach, to quantify the expected losses on exposures covered by the IRB approach as well as the difference between the expected loss and the accounting value adjustments and provisions on these exposures in accordance with the provisions of Annex 8, paragraphs 243-256.

section 29. A company using the IRB approach, and who do not have permission to use own estimates of loss given default (LGD) and conversion factors (CF) for business, institution and Government exposures, may, by statement of the risk-weighted items and expected loss amounts for these exposure classes include the effect of guarantees, credit derivatives and collateral as well as netting of mutual lending and deposits in accordance with the provisions of Annex 9 without prejudice to article. However, paragraph 2.

(2). A company that is permitted to use own estimates of LGDS and CF for business, institution and Government exposures, are subject to the provisions of Annex 9, paragraph 14-16, on the conditions for the application of the risk weight formula for recognition of "double default effect" of guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps", see. Annex 8, paragraph 80 and 81.

(3). A company using the IRB approach, and using either the simple risk weight method or PD/LGD method shares the non-trading book, can take into account the effect of guarantees and credit derivatives, has been achieved on these stock exposures, in accordance with the provisions of Annex 9.

(4). The effect of guarantees, credit derivatives and collateral as well as netting in accordance with paragraphs 1 and 2 are stated before the use of conversion factors (CF) in § 27, paragraph 8.

section 30. A company using the IRB approach for credit risk, by statement of the risk-weighted items include the effect of securitisation of corporate exposures and quantify the risk-weighted items for securitiseringspositioner the non-trading book in accordance with the provisions of annex 11.

section 31. A company that has permission to use the IRB approach, may not stop with this and instead use the standardised approach for credit risk, unless the company obtains permits from the Danish financial supervisory authority.

section 32. A company in connection with the use of the IRB approach has permitted to use own estimates of loss given default (LGD) and conversion factors (CF) for business, institution and Government exposures, can not stop and instead use the in annex 8, paragraph 50-60, provided values for LGD or in § 27, paragraph 8, no. 1, provided values for the CF, unless the company obtains permits from the Danish financial supervisory authority.

section 33. If a company that has permission to use the IRB approach, ceases to meet the requirements of Annex 8, the company must either submit a plan to the FSA for a prompt return to compliance with the requirements or demonstrate that non-compliance is of negligible importance.

Chapter 5

Market risk

§ 34. When calculating risk-weighted items for positions with market risk, the company must apply standard methods for market risk, see. sections 35-39, or internal models for market risk (VaR-models), see. sections 40-41.

(2). By positions with market risk, for the purposes of this Ordinance records in the trading book referred to in article 6. section 6 as well as positions with commodities risk and currency risk non-trading book.

Standard methods for market risk

section 35. The standard method for calculating the risk-weighted items for position risk for debt instruments, shares and units in collective investment schemes in the trading book are set out in annex 12.

§ 36. Financial institutions and insurance holding companies can calculate risk-weighted items included in the trading book, which are covered by the standard method for position risk in the trading book in accordance with the provisions of Chapter 4 instead of by the provision in section 35, if no. 1 or no. 2 are met:

1) the undertaking's trade volume, measured gross,

(a) shall be a maximum of 5 per cent) usually of an organization's entire balance sheet and off-balance-sheet items and usually constitute no more than the equivalent of 15 million. euro and

b) at no time exceed 6 per cent of the company's overall balance sheet and off-balance-sheet items and at no time exceed the equivalent of 20 million. euro.

2) The undertaking concerned working capital at the end of the last financial year amounted to no more than 250 million. us $.

(2). Groups, where the parent undertaking is a financial holding company whose business consists wholly or mainly in owning subsidiaries which are insurance companies, can quantify the risk-weighted items included in the trading book in accordance with the provisions of Chapter 4 instead of by the provision in section 35.

(3). The Danish financial supervisory authority may provide that undertakings covered by paragraph 1, nr. 2, or (2) shall calculate the risk-weighted items included in the trading book in accordance with the provisions of annex 12.

section 37. Stockbroking companies subject to section 9, paragraph 8, last paragraph, of the law on financial business, as well as investment management companies subject to section 10, paragraph 5, 1. paragraphs, see. (1) of the financial business Act, can quantify the risk-weighted items included in the trading book, which are covered by the standard method for position risk in the trading book referred to in article 6. section 35, in accordance with the provisions of Chapter 4 instead of by the provision in section 35.

(2). The Danish financial supervisory authority may provide that undertakings covered by paragraph 1 shall calculate the risk-weighted items for position risk in the trading book referred to in article 6. section 35, in accordance with the provisions of annex 12.

section 38. The default method for the estimation of risk-weighted items for positions in commodity derivatives are set out in annex 13.

§ 39. The default method for the estimation of risk-weighted items for positions in foreign currency and gold are set out in annex 14.

Internal models for market risk (VaR-models)


§ 40. The Danish financial supervisory authority may grant permission for the company to encounter the risk-weighted items for market risk through the use of internal models (VaR-models) in accordance with Annex 15, instead of following the standard procedures described in annex 12, 13 and 14. The permit may include the company's non-trading book interest rate risk.

(2). A permit may include the use of internal models to calculate all positions with market risk, see. section 34, paragraph 2, or market risk of a delportefølje, so that the business encounter risk-weighted items for market risk by a combination of internal models and standard methods set out in annex 12, 13 and 14.

(3). Permission can be granted only if the entity meets the requirements laid down in annex 15.

(4). The authorization may include the use of internal models for the calculation of risk-weighted items at specific risk for shares and debt instruments, if the entity meets the requirements laid down in annex 15, paragraph 13-20.

(5). For a company that has permission to use internal models for specific risk under paragraph 4, and which deals with positions in securitiseringer, can the authorization pursuant to paragraph 4 include the possibility of using a lower risk weight than 1,250 per cent of positions in securitiseringer, in accordance with Annex 11 would be subject to a risk weight of 1,250 percent. If the requirements in annex 15, paragraph 13-20, are met.

(6). Authorisation pursuant to paragraph 1 may include the use of empirical correlations within risk categories and across risk categories if the company's systems for calculation and assessment of the correlations is conceptually sound and implemented with integrity.

§ 41. If your enterprise are part of a group of companies shall be subject to section 19, paragraph 2, 4 and 5, and section 21, mutatis mutandis, to applications under section 40.

(2). The provisions relating to the application for use of internal models for market risk are set out in annex 22.

Chapter 6

Counterparty, settlement and delivery risk

Counterparty risk

§ 42. The company must determine the size of exposure for derivative financial instruments covered by Annex 17, as well as for credit derivatives in the trading book in accordance with either the market value method for counterparty risk contained in annex 16, paragraph 10-17, standard method for counterparty risk contained in annex 16, paragraph 18-38, or the internal model method for counterparty risk contained in annex 16, paragraph 39-82, see. However, §§ 45 and 46.

(2). The company may use a combination of market value method and standard method of counterparty risk in the cases referred to in annex 16, paragraph 36.

(3). If your company is part of a group, it may use one of the methods referred to in paragraph 1, no matter what methods other legal entities within the group are using.

section 43. The company can quantify the size of exposure for securities financing instruments in accordance with the internal model method for counterparty risk instead of by value in accordance with section 10, or, where relevant, the value pursuant to section 27 of the basic regulation. However, § 46.

§ 44. The company may, independently of the method used for estimating the size of exposure for derivative financial instruments covered by Annex 17, credit derivatives in the trading book and securities financing instruments, assessing exposure size for forward transactions in accordance with either the market value method for counterparty risk, standard method for counterparty risk or the internal model method for counterparty risk, see. However, § 46.

§ 45. The size is fixed at zero on the acquired credit derivatives, which uncovers the credit risk on a non-trading book exposure or exposure to counterparty risk in the trading book.

§ 46. Exposure size shall be set at zero for derivative financial instruments, financial instruments and securities forward transactions related to non-rejected contracts concluded with a central counterparty, which all of the participants in the central counterparty systems provides full security for their daily exposures against the central counterparty. Exposure value for other exposures against a central counterparty arising from derivative financial instruments, financial instruments and securities forward transactions concluded with the central counterparty, can also be set to zero.

(2). By a central counterparty for the purposes of this Ordinance a device which occurs between the counterparties to contracts that are traded on one or more financial markets, becoming the buyer against the seller and seller against buyer.

§ 47. The size of a given counterparty exposure is calculated in market value method for counterparty risk, standard method of counterparty risk and the internal model method for counterparty risk exposure, size, calculated as the sum of for each netting set with that counterparty.

(2). By netting set for the purposes of this Ordinance a group of transactions with a single counterparty, subject to a legally valid bilateral nettingsystem, for which netting is recognised in accordance with the provisions of Annex 16, paragraph 83-92. Any transaction not included in a legally valid bilateral nettingsystem, as is recognized in accordance with Annex 16, paragraph 83-92, is considered its own netting set.

section 48. The size of exposure calculated in accordance with § § 42-47 are included in the estimation of risk-weighted items for credit risk in accordance with the provisions of Chapter 4.

(2). A company using the IRB approach for credit risk, see. § § 19-33, can quantify the risk-weighted items for exposures relating to forward transactions, in accordance with the standardised approach for credit risk, see. § § 9-18, regardless of the extent of such businesses.

§ 49. Application of the internal model method for counterparty risk require FSA authorisation.

(2). Permission can be granted only if the entity meets the requirements laid down in annex 16, paragraph 39-82.

(3). The provisions relating to the application for the use of the internal model method set out in Annex 23.

(4). If your enterprise are part of a group of companies shall be subject to section 19, paragraph 2, 4 and 5, and section 21, mutatis mutandis, to requests under paragraphs 1-3.

Settlement risk (delivery versus payment)

§ 50. If a purchase or sale of securities in the trading book, including spot transactions, forward transactions and other businesses with physical delivery, not settled at the latest at the beginning of the fifth working day following the agreed settlement date, included the settlement risk on this, see. (2) with a weight of 1,250 percent, until the execution has taken place. If settlement risk on a paper value is zero or negative, it is not included in the calculation of the overall settlement risk.

(2). With the purchase of securities settlement risk is calculated as the market value of the securities in question on the assessment day minus the agreed settlement price. In case of sale of securities settlement risk is calculated as the agreed settlement price minus the relevant securities market price on the inventory date.

Delivery risk (free deliveries)

§ 51. If the company has paid for securities or currency for trading prior to delivery or delivered securities or currency in the trading book, until it has received payment, delivery risk is included with the following weights, see. However, paragraph 4:

1) and with the first contractual repayment date are weighted the outstanding payments, securities and currencies with 0 per cent.

2) After first contractual repayment date and up to and including four working days after second contractual repayment date are weighted the outstanding payments, securities and currencies as exposures in accordance with the provisions of Chapter 4 of the basic regulation. However, paragraphs 2 and 3.

3) from the fifth working days after second contractual repayment date and forward to the receivable, securities or currencies either paid, delivered or written off, be deducted from the value of the transferred payments, securities and currencies as well as any positive market value of the business in the base capital, see. section 139, paragraph 1, no. 6, in the financial business Act.

(2). If your company uses the IRB approach for credit risk, see. § § 19-33, the company may, by statement of the risk-weighted items pursuant to paragraph 1, nr. 2, assign a probability of default (PD) to the counterparties, which it does not have the exposures against the non-trading book, taking into account the other party's external rating. If your company uses the IRB approach with own estimates of LGDS, can the company when calculating the risk-weighted items pursuant to paragraph 1, nr. 2, assign the exposure an LGD value as set out in annex 8, paragraph 53, where the company uses LGD values set out in annex 8, paragraph 53, to all such exposures. Alternatively, companies can calculate risk-weighted items for exposures referred to in paragraph 1, no. 2, according to the standardised approach for credit risk, see. § § 9-18, if it uses this method to all such exposures, or apply a risk weight of 100% to all such exposures.

(3). If the outstanding payments, securities and currencies with delivery risk referred to in paragraph 1, no. 2, not by substantially, the company may, regardless of the method the company uses in determining risk-weighted items for credit risk, by statement of the risk-weighted items pursuant to paragraph 1, nr. 2, apply a risk weight of 100% to all such exposures.


(4). If the risk of delivery in accordance with paragraph 1 has occurred as a result of a comprehensive system failure in a clearing or settlement system, FSA, exempt from the requirements of paragraphs 1 to 3 above, the error is rectified. If a counterparty in such conditions fail to settle a trade, it is not considered a breach under section 52 and annex 8, paragraphs 31-36.

Notification of the other party's breach

§ 52. If the company's counterparties in repurchase transactions or transactions relating to the lending or borrowing of securities or commodities lending and defaulting on its obligations, the company must immediately report this to the Danish financial supervisory authority in accordance with article 35 of Directive 2006/49/EC of 14. June 2006 laying down the requirements for the capital adequacy of investment firms and credit institutions (recast).

Chapter 7

Operational risk

§ 53. The company shall calculate the risk-weighted items for operational risk in accordance with the basic indicator approach, the standard indicator method or the advanced measurement approach.

(2). By operational risk means the risk of loss as a result of inappropriate or inadequate internal procedures, human errors and systemic error or as a result of external events, including legal risks.

§ 54. Basic indicator method for the estimation of risk-weighted items for operational risk set out in annex 18, paragraph 3-9.

§ 55. The company may use the default indicator method for the estimation of risk-weighted items for operational risk, which is set out in annex 18, paragraph 10 and 13, if the entity meets the requirements laid down in annex 18, paragraph 14 and 16.

section 56. The company can only use a combination of the basic indicator approach and standard indicator method in extraordinary situations. By extraordinary situations means merging with other companies and other essential extensions of business areas, which may necessitate a transitional period relating to the use of standard indicator method.

(2). The combined use of the basic indicator approach and standard indicator method is subject to the condition that the company uses standard indicator method in accordance with a schedule approved by the Danish financial supervisory authority.

§ 57. The company may apply to the FSA for permission to calculate the risk-weighted items for operational risk using the advanced measurement approach (AMA-models) in annex 19 instead of after the base indicator method or standard indicator method set out in annex 18.

(2). Permission can only be granted if the company meets the requirements of annex 19 of the basic regulation. However, paragraph 4.

(3). A permission may include application of the advanced measurement approach (AMA-models) for the calculation of risk-weighted items for all the company's operational risk or in combination with the base indicator method or standard indicator method, when the conditions set out in annex 19, paragraph 33 and 34 are met.

(4). If your company is part of a group, the Danish financial supervisory authority may permit the requirements in annex 19 met the Group's parent company and its subsidiaries considered together.

§ 58. If your enterprise are part of a group of companies shall be subject to section 19, paragraph 2, 4 and 5, and section 21, mutatis mutandis, to applications under section 57.

(2). The provisions relating to the application on the application of the advanced measurement approach to operational risk set out in annex 24.

section 59. A company that uses the default indicator method, may not subsequently make use of the basic indicator approach.

(2). A company that uses the advanced measurement approach, may not subsequently make use of standard indicator method or basic indicator approach.

(3). The Danish financial supervisory authority may, in exceptional cases, grant derogations from paragraph 1 and paragraph 2.

Chapter 8

The company's disclosure obligations

section 60. The company must publish the information provided for in annex 20 of the basic regulation. However, paragraphs 2 to 7.

(2). In groups, where the parent undertaking is one of those referred to in article 1 (1) (8). 1-4 or 6 listed companies, the parent undertaking shall not publish information about the Group on a consolidated basis. Subgroups, see. section 1, paragraph 1, no. 8, shall not publish information on the sub-consolidated level.

(3). If one of those referred to in article 1 (1) (8). 1-4 or 6 listed companies, has a parent company in another country, the company may fail to disclose information pursuant to paragraph 1, if its parent company is subject to the legislation of a country within the European Union or in a country with which the community has entered into an agreement on financial matters, and the concerned parent company publishes information at least equivalent to the obligation to provide information without prejudice to article. (1) of the Member State or the country in which the parent company is domiciled. If the subsidiary undertaking or subsidiary and its daughter company of subconsolidated basis has a working capital which exceeded 25 billion. DKK at the end of the last financial year, the subsidiary, however, independently or subconsolidated basis publish information in accordance with paragraph 1.

(4). A company whose parent undertaking is governed by the law of a country outside the European Union which do not have entered into an agreement with the community in the financial field, FSA can give permission to refrain from publishing information, provided that the parent company publishes information at least equivalent to the information referred to in paragraph 1.

(5). Obligation to publish the information contained in annex 20, PT. 5-10, shall only apply to the establishments covered by article 1, paragraph 1, no. 1 and 2.

(6). Paragraphs 2 to 4 shall not apply to the information included in annex 20, paragraphs 5-10.

(7). Establishments covered by the obligation to publish the information contained in annex 20, PT. 5-10, and belonging to a group with other establishments covered by this obligation, can disclose corporate information in a single publication. In annex 20, paragraph 5, mentioned descriptions can be described overall for all companies in the group, provided that the said descriptions are wide for all companies in the group, which is covered by the obligation to publish the information contained in annex 20, paragraphs 5-10. The total publication must be published by each company.

section 61. One or more of the elements listed in annex 20 can be omitted if the information published, disseminated, cannot be regarded as significant.

(2). Information shall be considered as material if omission or error citation of this information could affect the assessment of a user based on the information in question with a view to making economic decisions.

(3). The Danish financial supervisory authority may require the company to disclose information, as the company does not consider to be essential.

(4). The Danish financial supervisory authority may require that the contained in annex 20, PT. 5-10, said information should be further specified. These specifications will also be covered by the requirement of publication.

§ 62. The company may choose not to publish one or more of the elements listed in annex 20, if the information is disseminated, must be considered as confidential, or if the disclosure of information would undermine the company's competitiveness.

(2). Information is to be treated as confidential, subject to conditions relating to customer relationships, involving a confidentiality obligation to the company.

(3). The company must provide a justification for non-publication of the obligation to provide information pursuant to paragraph 1. In addition, the company must publish more general information about the conditions that are omitted from the obligation to provide information.

(4). A company subject to section 1, paragraph 1, no. 1 and 2, in order not to harm his or her legitimate interests under his own responsibility delay the publication of the information contained in annex 20, PT. 5-10, provided that this will not mislead the public, and the company can ensure that information is processed confidentially. The company must publish the information as soon as it is possible without harming the legitimate interests of the company.

section 63. The company must adopt a policy of compliance with the obligation to provide information, including complete assessments of whether the published information are appropriate, as well as assessments of control and frequency.

section 64. The information must be published at least once a year, and as soon as practicable, in accordance with article 3. However, paragraphs 2 to 5.

(2). The company shall assess the need to make public information more frequently than annually.

(3). The Danish financial supervisory authority may impose disclosure deadlines facing a company and require a company publishes information more frequently than annually.

(4). Establishments covered by the obligation to publish the information contained in annex 20, PT. 5-10, shall publish the information listed in annex 20, paragraph 5, at least once a year. Financial institutions, which by the end of fiscal year recently had a working capital of 10 billion. USD or more, banks issuing shares admitted to trading on a regulated market, as well as mortgage credit institutions shall publish the information listed in annex 20, item 6-10, on a quarterly basis. Other companies within the scope of the obligation to publish the information contained in annex 20, PT. 5-10, shall publish the information listed in annex 20, item 6-10, every six months.


(5). Where significant changes in the information supplied by the establishments covered by article 1, paragraph 1, no. 1 and 2, to be published under section 60, paragraph 5 of the basic regulation. section 60 (1), the company must immediately publish these changes, see. However, section 62, paragraph 4.

section 65. The company chooses medium for publication. Disclosure of the information to be presented by a single durable medium.

(2). In the event of the publication of information for the completion of accounting, listing or other requirements shall be deemed to be complied with the obligation to provide information in this way. Information, as evidenced by the annual report, but which are not subject to the notice on the financial reports of credit institutions and stockbroking companies, must be clearly marked in the annual report as being non-audited information. If the information is not contained in the annual report in the annual report, the company must specify where the information can be found.

(3). The Danish financial supervisory authority may require that a company using another special media for publication of information than the annual report.

§ 66. The company must ensure that there is sufficient control of the information that is not subject to the review of the annual report.

Chapter 9

Reporting form

section 67. Capital adequacy and loss are reported to the FSA on CS-forms no later than 20 working days after expiration of 1.-3. on a quarterly basis. CS-forms are available on the FSA website. For stockbroking firms and investment management companies within the scope of § 125 (2) nr. 2-3, in the financial business Act to capital adequacy and loss of the company shall be reported at the latest 20 working days after the expiry of the 1-11. month. Reporting of capital adequacy statement for year-end shall be made within 30 working days after the end of the year.

(2). Groups, where the parent undertaking is a fondsmæglerholdingvirksomhed of the basic regulation. § 5 (1) (8). 13 of the law on financial business, a investeringsforvaltningsholdingvirksomhed of the basic regulation. § 5 (1) (8). 14, in the financial business Act, a stockbroking firm or an investment management company, shall only report capital adequacy statement after the end of each 6. month.

(3). For groups, where the parent undertaking is a financial holding company whose business consists wholly or mainly in owning subsidiaries which are insurance companies, is the deadline for reporting for the Group and the financial holding company the end of February.

(4). Capital adequacy the statement must be approved by the company's Executive Board.

(5). The reporting must be done on machine readable durable medium.

(6). The consolidated reports from companies mentioned in § 1, paragraph 1, no. 1-4 and 6, shall be made only on the top corporate level, see. However, paragraph 7.

(7). The Danish financial supervisory authority may require the reporting of delkoncern statements for other subgroups than those referred to in article 1 (1) (8). 8, specified in annex IX. section 171, paragraph 3, article 172, paragraph 3, and § 174, paragraph 3 of the law on financial business.

(8). Establishments covered by article 1, paragraph 1, no. 1 and 2, shall submit the documentation referred to in annex 1, paragraphs 97 and 98 on paper or other durable medium to the FSA within 45 working days after the end of the year, unless a different time is agreed with the FSA.

section 68. Financial institutions, which by the end of fiscal year recently had a working capital of less than 250 million. DKK, must only report capital adequacy and loss account at the end of each semester.

(2). In groups, where the parent undertaking is a financial holding company whose business consists wholly or mainly in owning subsidiaries which are insurance companies, which for the Group and the financial holding company alone reported capital adequacy statement after the end of a calendar year.

(3). For financial holding firms covered by paragraph 2 must, in so far as the financial holding company does not have other subsidiaries than brand-owned insurance companies, only be reporting for the financial holding company, see. section 177 (1) 1. point, in the financial business Act.

(4). The Danish financial supervisory authority may exempt from the reporting requirements for parent companies and groups of companies subject to section 170 (1) of the financial business Act.

Chapter 10

Criminal provisions

section 69. Violation of section 67 can be punished by a fine.

(2). That can be imposed on companies, etc. (legal persons) criminal liability in accordance with the provisions of the criminal code 5. Chapter.

Chapter 11

Entry into force and transitional provisions etc.

section 70. The notice shall enter into force on the 1. January 2010.

(2). Executive Order No. 10302 of 21. December 2007 on capital coverage are repealed.

(3). Establishments covered by article 1, paragraph 1, no. 1 and 2, at the latest in connection with the publication of the annual report for 2009 publish in annex 20, PT. 5-10, the information referred to. section 65 shall mutatis mutandis in connection therewith.

(4). Regardless of annex 3, paragraph 18, the entire exposure with a mortgage in the said property categories, where the loan has been granted before 1 January 2002. January 2004, weighted in accordance with the provisions of annex 3, paragraph 17 (c) and (d), and with weight 100% of that part of the exposures secured by mortgages on real estate, which does not fall within Annex 3, paragraph 17 (c) and (d).

(5). Companies that use the default indicator method for operational risk, see. Annex 18, paragraph 10-17 May until 31. December 2012, where the basic indicator for the business area "trading and sales" is at least 50 per cent of the sum of basic indicators for all business areas, apply a percentage of 15% of the business area "trading and sales".

(6). Companies using the IRB approach for credit risk, and who do not have permission to use own estimates of LGDS for business, institution and Government exposures, may, notwithstanding the provisions of Annex 8, paragraph 53 (d), until December 31. December 2010 for covered bonds as defined in annex 3, paragraph 27, point (e), apply a LGD of 11.25% if they covered bonds meets either no. 1-3 or nr. 4:

1) referred to in annex VI, part 1, points 68, (a) to (c), to Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) assets pledged as security in order to qualify for covered bonds, can all be attributed to credit quality step 1 as set out in annex 3 of the standardised approach for credit risk.

2) When assets as specified in annex VI, part 1, points 68, (d) and (e) to Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) used for safety in order to qualify for covered bonds, the respective upper limits are to be determined in the individual case, 10% of the nominal value of the outstanding amount.

3) referred to in annex VI, part 1, paragraph 68, subparagraph (f), to Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) the said assets shall not be used as collateral in order to qualify for covered bonds.

4) The covered bonds have a credit assessment from a recognised ECAI which is the most favourable credit rating category, which this credit-rating agency has with regard to covered bonds.

(7). For companies that use the IRB approach for credit risk, the exposure weighted average LGD for all retail exposures, the company where security in immovable property shall be included when calculating the LGD, and which are not guaranteed by a State, until 31 March 2006. December 2010 shall be at least 10 per cent regardless of the provision in annex 8, paragraph 57.

(8). In annex 9, paragraph 32, stated value for LGD * at 30 per cent for non-subordinated exposures shall be valid until 31. December 2012. On 1 January 2006. January 2013 replaced the value of LGD * on 30 per cent for non-subordinated exposures with a value of 35 per cent on LGD *.

(9). Annex 9, paragraph 51 shall apply until 31 December 2006. December 2012.

Paragraph 10. Regardless of annex 3, paragraph 1, subparagraphs (a) and (c), the exposures against central Governments and central banks in countries within the European Union or in a country with which the community has entered into an agreement on financial matters until 31. December 2012 a weighting of 0%, irrespective of the fact that the exposures are nominees in a currency from another country within the European Union or a country with which the community has entered into an agreement on financial matters, which is different from the central Government or the central bank's national currency.
The Danish financial supervisory authority, the 17. December 2009 Ulrik Nødgaard/Kristian Vie Madsen Annex











Table of contents





 

 





Chapter 1





Scope and definitions





 

 





Chapter 2





Adequate capital and solvency requirements





 

 





Chapter 3





The definition of records in the non-trading book and





 

 






Chapter 4





Credit risk





 



The standardised approach for credit risk





 



The internal ratings based approach to credit risk (IRB approach)





 

 





Chapter 5





Market risk





 



Standard methods for market risk





 



Internal models for market risk (VaR-models)





 

 





Chapter 6





Counterparty, settlement and delivery risk





 

 





Chapter 7





Operational risk





 

 





Chapter 8





The company's disclosure obligations





 

 





Chapter 9





Reporting form





 

 





Chapter 10





Criminal provisions





 

 





Chapter 11





Entry into force and transitional provisions etc.





 

 



 



List of annexes





 

 





Annex 1





Sufficient capital base and solvency needs





 

 





Annex 2





Requirements for the inclusion of items in the trading book





 

 





Annex 3





The standardised approach for credit risk





 

 





Annex 4





Classification of off-balance-sheet items





 

 





Annex 5





Use of ECAIs ' credit assessments for the determination of risk weights





 

 





Annex 6





Approval of credit rating agencies





 

 





Annex 7





Credit risk mitigation techniques under the standardised approach for credit risk





 

 





Annex 8





The internal ratings based approach to credit risk (IRB approach)





 

 





Annex 9





Credit risk mitigation techniques under the internal ratings based approach to credit risk





 

 





Annex 10





Statement by exposure size for securities financing instruments, etc. in netting





 

 





Annex 11





Securitization





 

 





Annex 12





Position risk in the trading book





 

 





Annex 13





Commodities risk





 

 





Annex 14





Exchange rate risk





 

 





Annex 15





Internal models for market risk (VaR-models)





 

 





Annex 16





Counterparty risk





 

 





Annex 17





Types of derivative financial instruments





 

 





Annex 18





Basic indicator and default indicator methods for operational risk





 

 





Annex 19





The advanced measurement approach for operational risk (AMA-models)





 

 





Annex 20





The company's disclosure obligations





 

 





Annex 21





Application for the internal ratings based approach to credit risk (IRB approach)





 

 





Annex 22





Application for internal models for market risk (VaR-models)





 

 





Annex 23





Application for the internal model method (EPE-models) for counterparty risk





 

 





Annex 24





Application of the advanced measurement approach for operational risk (AMA-models)





 

 







Annex 1

Sufficient capital base and solvency needs











Table of contents





PT.





 

 





Background





1-4





 

 





General conditions





5-13





 

 





Internal process





14-18





 

 





Methods





19-27





 

 





Conditions to be included in evaluating the adequate capital base and

solvency requirement



 





General





28-31







Earnings





32-34







Growth






35-37







Credit risks





38-45







Market risks





46-53







Concentration risk





54-55







Corporate risks





56







Liquidity risks





57







Operational risks





58







Control risks





59-68







The size of the company





69







Settlement risks





70







Strategic risks





71







Reputation risks





72







Non-trading book interest rate risk





73-80







External risks





81







Other conditions





82-83





 

 





Stockbroking firms and investment management companies





84-85





 

 





Reassessment and surveillance





86-88





 

 





Reporting





89-96





 

 





Documentation





97-99











Background




1) rules on adequate capital base and individual solvency requirement found in section 124 (1) and (4) and section 125 (1) and (7) of the financial business Act. The Danish financial supervisory authority may, in accordance with article 3. section 124, paragraph 5, article 125, paragraph 8, and § 350 (1) of the financial business Act, setting a higher individual solvency requirement than that contained in section 124, (2). 1, and section 125 (2) nr. 1 of the law on financial business.

2) according to section 171, paragraph 1, article 172, paragraph 1, article 173, paragraph 1, and section 174 (1) of the financial business Act, that the rules also applies on a consolidated basis.

3) Solvency need is measured in relation to risk-weighted items, and it is therefore a percentage of the basic regulation. section 124, paragraph 4, and section 125, paragraph 7, of the financial business Act. In the calculation of the solvency requirement can, however, both conclude the percentage amounts and actual Crown amount.

4) Sufficient capital base is the capital required to cover the solvency requirements, see. section 124, paragraph 4, and section 125, paragraph 7, of the financial business Act. The sufficient capital base is calculated as the amount is adequate to cover the company's risks, see. section 124 (1) and section 125 (1) of the financial business Act. The sufficient capital base is thus the numerator of a fraction, when the solvency requirement shall be calculated.



General conditions




5) Board and management is required to ensure that the undertaking concerned has a sufficient capital base and has internal procedures for risk measurement and risk management. This applies to all companies, even though the company at the same time is part of a group. However, there is nothing to prevent that the same principles as the basis for determining the adequate capital base for all companies in a group, if it can be documented that it is appropriate to apply these principles to all companies within the group.

6) there should be a corresponding statement on consolidated basis.

7) in determining a sufficient capital base, the company must not only look at the current risks, but also on future risks as well as opportunities to raise capital.

8) the considerations that the Board of Directors and group management to do it in this regard, should translate into an individual solvency need, see. section 124, paragraph 4, and section 125, paragraph 7, of the financial business Act.

9) for the purposes of assessing adequate capital base the company's Board of Directors and the Management Board must only take into account the company's individual risk profile and the social conditions in which the company operates its stores under. It is not in itself decisive where high risks the company has compared to other companies. A company can therefore not fail to uncover significant risks with capital, because other companies have similar risks.

10) A sufficient capital base must not only be seen in the light of the risks to which the company is sensitive to. There must also be included an assessment of the capital, as the company has available, whether it's equity or borrowed capital (hybrid core capital and equity loan). By borrowed capital, the assessment also included consideration of the length of this.

11) for the purposes of assessing adequate capital base, regard shall be had to the nature and size of the company's businesses, and how complex these businesses are. The same applies to the scope of the process, which is the basis for the assessment.

12) in addition, the company must have effective procedures to identify, manage, monitor and report on the risks to which the company is or may be exposed, as well as appropriate control mechanisms, including a sound administrative and accounting procedures and adequate internal control mechanisms. It's all relative, which also forms part of the general provision in the financial business Act § 71. Statement by the insufficient capital must therefore be seen in conjunction with the General rules on risk management etc. in section 71 of the financial business Act and issued instructions to that effect.

13) reflection on a sufficient capital base must be forward-looking. This means that changes in corporate strategy, business plans, social conditions and other conditions that may affect the assumptions and methods that have been concluded in the reflection, should give rise to new considerations about the sufficient capital base. It also implies that the company by estimating the sufficient capital base to put the emphasis on the future expectations and less on the historical experience.



Internal process




14) Board of Directors and the Executive Board should ensure that the company has a sufficient capital base and has internal procedures for risk measurement and risk management for ongoing assessment and maintenance of a capital base of a size, type, and distribution, as is appropriate to cover the company's risks.

15) Board of Directors and the Executive Board is responsible for deciding on the company to determine the sufficient capital base, which serves as the basis for the company's solvency requirements.

16) the Board must, as a minimum, approve the broad methods, which the company will apply in determining the adequate capital base and solvency requirements.

17) Board of Directors and Executive Board must satisfy itself that the decisions on the determination of adequate capital base is an integral part of the senior management of the company. In this context, they must ensure that capital planning and the General principles and procedures for doing so are communicated at the appropriate way in the company, so that the management of the devices, which can take decisions that can affect the size of the sufficient capital base, have knowledge of it. The Board must also ensure that there are sufficient resources to carry out the inventory of the sufficient capital base in accordance with the provisions of the financial business Act, section 5 of this Ordinance and this annex.


18) the company must have a special, by the Board of Directors approved, plan for the provision of capital and a time frame for doing so. The plan must include general principles for capital planning, and who is responsible for this process. The plan must also consider how the company expects to be able to comply with the capital requirements in the future. The plan shall also include a comprehensive contingency plan for deviations in the established expectations and take a position on what should happen if there occur unexpected events. The emergency plan can URf.eks. include plans for obtaining fresh capital, limitation of activity areas or the use of risk-reducing methods.



Methods




19) The adequate capital base must be calculated on the basis of the company's risk profile. The solvency requirements laid down shall be in accordance with the company's risk profile and the social conditions in which the company operates its stores under. The company may, however, take other factors into account as URf.eks. a desire to achieve a certain rating, the company's reputation in the market and strategic goals. If these conditions are included in the statement, the company must be able to document how these conditions have influenced the establishment of the adequate capital base. These conditions may not result in the company gets a lower solvency requirements, than a statement based on the basis of the company's risk profile would suggest.

20) in determining the adequate capital base is largely method freedom. The company can take its starting point in more or less advanced methods. There is no requirement that the statement must be made by means of advanced economic methods. It is expected, however, that the methods will be proportionally more advanced in larger companies than in less. This applies particularly to companies that want to use internal methods for the calculation of risk-weighted items.

21) Furthermore, it is important that the Board and management relates to the extent to which risks and potential risks should be covered by capital. Some risks are better suited to be unearthed by better business processes and better control.

22) Methods can be based on a minimum requirement of 8 per cent, which the Board and management decides what risks there hereby is covered before they take a position on any adjustments.

23) Other methods of economic capital URf.eks. based on a mathematical/statistical treatment of loss experience, takes as its starting point in the capital, which is necessary in order to cope with unforeseen losses within a time scale of typically 1 year. The starting point for models based on economic capital is, notwithstanding the statutory minimum requirement of 8 per cent, to calculate the capital necessary for the depositors and others. with a high degree of probability will not suffer losses. There shall be made to the appropriate validation of the model. The company can proceed on the basis of the requirements for validation, applicable to IRB models, see. Annex 8: The internal ratings based approach to credit risk (IRB approach), or Value-at-Risk models, see. Annex 15: internal models for market risk (VaR-models).

24) For those companies who do not want to develop a genuine economic capital model, it will also be possible to use more simple models based on the same thoughts. This can be done by taking as a starting point in the (negative) financial results that a stress test of the company's accounting will entail. A stress test is an attempt to stress the company based on a number of assumptions. The choice of stress level have influence on the probability that the depositors and others. not will suffer losses. Stress test measures how the individual company reacts opposite implausible, but not quite unimaginable conditions. It is up to the individual company to define this out from the risks to which the company has. Examples of events that may be included are large increases in provisions and write-downs, large interest rate changes, big changes in stock prices, major changes in real estate prices and large changes in exchange rates.

25) in addition to the stress test, it will be necessary to make adjustments for conditions that are not covered by the stress test.

26) regardless of which method is used, the company must continuously carry out stress tests that are relevant for the company where the individual prerequisites stressed leader lead. In assessing what conditions to be included in such a stress test, the company must decide what changes in the assumptions that must be included in the stress test. By fixing thereof shall take account of the improbable, but not quite unimaginable conditions. The company can also take into account the specific characteristics of the areas in which the company operates its activities, in particular where in the cycle you are. Conditions such as new legislation affecting the company's business area and competitive situation, can also be included in these considerations. The purpose of the stress tests is to determine what changes in the assumptions the company can survive. If the company has been building its model in such a way that the stress test is an integral part of the model, taking into account the above-mentioned facts, the entity shall not take any further.

27) regardless of which method is used, the Board and management in assessing whether the method gives a reasonable result.



Conditions to be included in the assessment of the sufficient capital base and solvency need

General




28) in assessing adequate capital base should all material risks, which the company is exposed to, the contract. The company must therefore carry out an assessment of the significant risks the company is exposed to.

29) there are some risks that can be difficult to quantify. For such risks the company may choose to limit the risks by means of measures within the scope of the financial business Act § 71. But a company cannot fail to include significant risks by determining the adequate capital base simply because it is necessary to estimate of the influence that the risk has on the sufficient capital base. It will thus be necessary in some areas that the Board and the Executive Board, which shall determine the estimated amount/percentage to be devoted to risks that cannot be specifically quantified.

30) By estimating the sufficient capital base can be taken as a starting point in the individual business areas. Business areas can thus be assessed separately for the purposes of the scale (and thus the importance of the area), as well as an assessment of how risky it each business area is. In addition, the governance and organization of the individual business areas could be of major importance in the evaluation.

31) the company's strategic plans, and how these relate to the general economic conditions to be included in the consideration of the adequate capital base.



Earnings




32) the company's ability to make profits will naturally be included in the company's assessment of the sufficient capital base. The expected earnings should be measured carefully. If the company has a high earnings, all else being equal, the company will more easily absorb future losses. If the company has a low income, it must be considered whether this gives rise to an increase in the adequate capital base.

33) Even stability will also have a say in how the company must evaluate the adequate capital base. Application of simple sensitivity analysis (stress test) can contribute to the quantification of even level and stability.

34) the company's earning capacity must also be assessed in relation to the company's dividend policy and the ability to raise capital. In this connection it should be borne in mind that in a situation where the company out. loss need more capital, it will likely be harder to inject capital than it has been.



Growth




35) The expected future growth must be included for the purposes of assessing adequate capital base. The company must therefore assess whether consolidation is correspondingly increasing. If this is not the case, there will by statement by the insufficient capital base had to be taken into account for the expected growth in addition to the "normal consolidation", including the possibility of funding.

36) increase in risk-weighted items gives itself a capital needs. In addition, it will be natural to assess whether there is an increased risk of later emergence of losses as a result of the extent of the growth. Growth may also require capital as a result of the direct resources (URf.eks. new hires, etc.) that are needed to generate growth. When this is assessed, there may, however, also take account of the increased earnings, as the expected growth.

37) Historically, it has been shown that strong loan growth may be an indication that companies have relaxed the requirements for credit quality. It is therefore natural that the company increases the sufficient capital base, if the institution has had and continues to expect a high loan growth. In addition, loan growth, in itself, result in an increased capital requirements. The company must therefore consider growth expectations and possibly make an addendum in the sufficient capital base, depending on the growth expectation and size.



Credit risks





38) company's credit risks are to be included in the consideration of the adequate capital base.

39) in cash and mortgage lenders will usually be the main credit shortage area. To assess this area, an overall assessment of the asset quality is essential.

40) the company's focus in assessing quality in particular must be in the proportion of exposures, showing signs of weakness. In particular, on risky lending, loans and guarantees, which are not made write-downs or reserves set aside in the accounts, or where there is only made partial write-offs or reserves. If the quality of loans, credits and guarantees are degraded or are deemed to be on the road against degradation, must be taken into account when estimating the sufficient capital base.

41) where the company has internal rating and scoring systems or looked like, these could be used. Other key figures will also be used for the evaluation of quality in particular of assets with credit risk. If your company has a relatively large portfolio with little expected losses, the company may consider making a smaller deduction in the adequate capital base for the portion of the portfolio. Conversely, companies can consider whether the sufficient capital base should be increased for the weak exposures, which are not written down. Similarly, it would be natural to consider whether there should be set aside extra capital to the exposures, which made write-downs or reserves on, but where a further negative development could lead to further write-downs or reserves.

42) uses the company an internal method of rating of the customers, as the Department has loans to, the statement of the credit risks associated with customers, the happen an underestimation of the risk if that rating is based on a short time scale. Such a relationship, the Institute shall take into account in assessing the adequate capital base. There must therefore be taken of the pro-cyclical effects of the solvency requirement for companies using an internal method for the estimation of credit risk.

43) in addition, there may be so-called residual risks not covered by the method. By residual risks understood risks for losses incurred as a result of the fact that securities and other forms of identification are shown to be less effective than expected. It may be due to legal risks, or that the asset or instrument used to credit reduction, not liquid.

44) companies using an internal method for calculation of credit risk, should regularly conduct stress tests of credit risk in order to assess how specific conditions affecting the company's overall solvency cover of the credit risk. The used test must be selected by the company. The used test must be meaningful and relatively prudent and should include as a minimum the effects of mild recession scenarios. The company must analyze the migration between ratingklasser as a result of stress test scenarios. The portfolios, which are subjected to stress tests, total constitute the vast majority of the company's total portfolio.

45) the company Uses the method described in annex 8, paragraphs 80-81 concerning recognition of "double default effect" of guarantees, it must, as part of its stress tests examine the impact of a deterioration in the credit quality, attributed to providers of credit protection, including, in particular, assess the effect of that providers of credit protection no longer complies with the criteria to be recognized as providers of credit protection in relation to the method.



Market risks




46) as regards market risks must be assessed, understood as the extent of the area which product types, etc., the company is engaged in. In addition, it must be an assessment of the risks associated with each of the assets, liabilities and off-balance-sheet items.

47) Items with market risks shall be assessed, with a view in particular equity, interest rate and currency risks.

48) must be taken into account to determine the extent to which the policy is consistent with the fact that there is adequate capital to cater for possible future risks. URF.eks. would it be appropriate for almost all banking institutions to involve interest rate risk size, since the large interest rate changes are a risk to the risk-weighted capital requirements for posters is not large enough. Specifically for financial institutions subject to section 68, paragraph 1, which do not encounter the risk-weighted items within the trading book interest rate risk size will be relevant.

49) Furthermore, it should be relevant for all undertakings to assess the scope of the specific risks in the area, including locations in bonds with conversion risk or other option elements. In the case of large interest rate changes can these particular risks be large.

50) companies have often also part of their fund holdings located in shares. In relation to the statement by the insufficient capital base, it is therefore also appropriate to look at this risk area. Share the risk can URf.eks. is calculated as the percentage, as the shareholding of own funds. Share the risk related to the holding of shares, typically purchased for liquidity planning.

51) in line with interest rate risk it is for financial institutions subject to section 68, paragraph 1, particularly relevant to include the size of the stock risk by assessing the adequate capital base, with position risk of shares as a result of the non-trading book capital treatment shall be covered with lower weights than for financial institutions in the Group 1-3.

52) corporate currency risks are to be included in the assessment of the sufficient capital base. The risk of currency can be measured by currency indicator 1. This is calculated as the higher of the sum of all the short currency positions and the sum of all the long currency positions. The indicator expresses thereby a simplified measure of the company's positions in foreign currency.

53) a company that uses an internal model for market risk (VaR-model), must take into account the impact of risks not covered by the internal model, the assessment of solvency requirements. If the model is used to calculate risk-weighted items for specific risk, the company must ensure that the effects of unforeseen events (event risk), which Was not part of the century, because it is outside a 10-day holding period and 99 percent confidence interval (i.e., an event with small probability, and serious consequences), be taken into account in the assessment of solvency requirements.



Concentration risk




54) in assessing adequate capital base must take a position on the concentration of the risks to which the company has undertaken and expect to undertake in the future. Concerning the evaluation of how the concentration risk is included by estimating the sufficient capital base, can request is a discretionary assessment. Thus, it is not a requirement that there be made accurate calculations of risk. Sensitivity analysis/simple stress testing shall be included in the assessment of these risks. The volume of the issue must be proportional to the size of the company and the concentration risk by the company.

55) examples of concentration risk:

(a)) If a money-or mortgage lender has many large exposures, this concentration in itself-regardless of the exposure quality furthermore give rise to considerations of whether concentration requires additional capital. Conversely, a huge dispersion in the exposures lead to considerations about whether the company can reduce the sufficient capital base.

(b)) If a money-or mortgage lender has a large proportion of its lending exposures of concentrated in a small or small geographic area, there is talk about a geographic concentration risk. Such concentration should give rise to considerations of whether the concentration increases the requirement for adequate capital base.

c) Concentration of risk on lending to private and lending, respectively, to the profession must also be considered in the banks and mortgage-credit institution. Historically, the greatest loss was to find on commercial customers. If your company has a relatively large concentration on the business segment, the Board and management to consider whether such a concentration risk giving rise to an increase in the adequate capital base. A low proportion of business customers may also give rise to a deduction in the adequate capital base.

(d)) For many loans and credits have been certainties. If the safety authority southwards is concentrated on individual types, it must give the company rise to considerations of whether the safe concentration (regardless of their value, incidentally) is a concentration of risk that must be addressed. The assessment shall be included, where the fluctuating prices of securities are. It is company policy to base a large part of the loans at URf.eks. mortgages on commercial real estate or shares and similar, it may be that the company has a large concentration on a single security type. The concentration of securities must be substantial before the company should consider making allowances for the adequate capital base.


e) Concentration of lending to risky sectors must be included in the assessment of the sufficient capital base. Whether an industry is risky will be subject to a continuous assessment. The risk profile of the individual sectors will be able to change over time. Furthermore, the individual branches cyclical sensitivity is an essential element. In addition, the company must assess whether there should be additional capital to withstand losses as a result of ' bubble-formation ".

f) concentration of market risks is also relevant to consider in determining the adequate capital base. If URf.eks. the Fund policy is relatively unified, it can give rise to considerations of such a risk should result in an increase in the concentration of the sufficient capital base. In addition, it may be appropriate to assess whether the stock portfolio is concentrated in a few companies or industries, including whether the companies or industries are particularly risky. It may be appropriate to assess whether the foreign currency risk is concentrated in few and possibly particularly risky currencies. A particularly high concentration of foreign-exchange risk is likely to be covered by the company's assessment of concentration risk.



Corporate risks




56) it is necessary to take account of the risks associated with that company owns one or more subsidiaries. This applies particularly for the subsidiaries, which are not part of the consolidated statement after financial business Act §§ 171-174, in particular insurance companies. The weight to be given to subsidiaries, depends on the number and size of the daughter companies. If the subsidiaries constitutes a significant risk factor, must be taken into account.



Liquidity risks




57) the company must consider whether liquidity risks are to be included in determining the adequate capital base. By liquidity risks understood risks due to temporal differences between the incoming and outgoing cash flows. These risks, however, will often be identified by other measures than to increase their capital. A little capital may, however, complicate the possibility of borrowing money in the money market.



Operational risks




58) the company must consider whether there is a set of adequate capital to cover operational risks. How the company will allocate capital by estimating the sufficient capital base to cover operational risks must be based on a specific assessment of the individual company. It must in particular consider whether the capital, set aside as a result of the rules in Chapter 7 and annex 18 and 19 is sufficient to cover the operational risk.



Control risks




59) control environment is a collective term for the resources that the company uses to minimize the risks by exercising financial business. The company should make a qualitative assessment of its control environment.

60) control environment will naturally vary from business to business. Control the quality of the environment is the result of active management choices. By the Board of Directors ' and management's acceptance of that which may be incurred losses as a result of more or less limited management and control tools, it should be considered whether there are allocated the necessary capital to withstand these potential losses.

61) the management of the company is crucial to the company's future action. When assessing the adequate capital base, it would be natural that the Board of Directors and the Executive Management shall evaluate the interaction between administrative, managerial and other levels of management, including the General organisation of the company. If the company does not possess sufficient knowledge and expertise in selected risk areas, this will provide the backdrop for an increase in the adequate capital base.

62) Furthermore there will be an emphasis on management skills and overview, the professional knowledge of the Organization, dependence on key personnel, the extent of instructions and written procedures, the scope of risk management, functional separation, internal controls and independent reporting, etc.

63) where written procedures, segregation, internal controls and management reporting on the company's risks are not used actively as part of risk management, it should be considered whether it should provide a supplement to the sufficient capital base.

64) it should be assessed, how the credit area is controlled. If it is the company's credit-related business profile, that there is no close ongoing monitoring of exposures, it must be assessed whether there is sufficient capital at the statement by the insufficient capital base.

65) for the assessment must also be addressed, the integration of market risks are managed within the company. If the Board and management have chosen, that there are no resources for a close and continuous follow-up on the corporate market risks, Board of Directors and Executive Board to assess whether there is sufficient capital for this purpose.

66) a full fledged organization where risk management is supported by business processes, functional separation, internal controls, management reporting, etc., will not give rise to a company can deduct in the adequate capital base. A less extended organization, all else being equal, where there is greater risk that errors occur, etc., should lead us to consider to increase the sufficient capital base.

67) small businesses will most often limited to have a comprehensive and specialized organization can mitigate potential losses as a result of operational and managerial risks. Smaller businesses should, of course, compare the need for a comprehensive and specialized organization with the types of business that the company carries out.

68) it must be assumed that the solvency demand in some of the smallest companies would be greater than in other companies, as a result of a less extended organization. However, it must be added, always make an individual assessment where the complexity of the company's businesses will be included as a natural element.



The size of the company




69) It must be assessed whether the company's complexity and size in itself necessitate consideration of correction of the sufficient capital base, among other things. having regard to the resources that the company has at its disposal. These considerations should be included, whether the company is otherwise sought to cover these risks, URf.eks. by strengthening or supplement for the control environment or supplement for a possible enhanced concentration risk.



Settlement risks




70) companies that have large settlement risks, to consider how this shall be included in the adequate capital base. By settlement risks means the risk that the company delivered a sold asset or cash to the counterparty without at the same time to receive money or the purchased asset, as expected.



Strategic risks




71) the company must consider the strategic risks, which the company has. At strategic risks understood risks that may affect earnings or capital as a result of changes in the competitive situation, wrong decisions, inadequate implementation of adopted decisions or lack of ability to adapt to the competitive situation.



Reputation risks




72) the company must consider whether to be set aside capital against reputation risks. By reputation risks means the risk of loss of earnings and capital as a result of the company's poor reputation among customers, investors, suppliers and public authorities.



Non-trading book interest rate risk




73) the company must in particular take account of the interest rate risk on transactions outside the trading book.

74) interest rate risk is the risk that the company incur losses as a result of changes in interest rates. Interest rate risk for the non-trading book are entries, unlike interest rate risk for entries within the trading book, not included in the calculation of risk-weighted items and the inventory of the solvency requirement.

75) the company must explicitly and specifically quantify the interest rate risk on transactions outside the trading book, unless it can be demonstrated that the interest rate risk is modest and insignificant. The company must compare the result of the risk and loss to the entity's actual capital adequacy.

76) the company must be especially aware if corporate risk inventory shows that the company's capital base is changing 10%, if a default interest rate shock occurs.

77) interest rate risk can be measured in many different ways.

78) Statement can proceed on the basis of the standard methods used to quantify the interest rate risk, based on positions both inside and outside the trading book referred to in article 6. Annex 3 to the FSA guidance for reporting of information from financial reports, etc. for credit institutions and stockbroking companies and others. This statement takes as its starting point, the interest rate risk is calculated for a general interest rate change at 1 percentage point. Specifically for financial institutions subject to section 68, paragraph 1, which do not report regularly about this risk statement to the financial supervisory authority, it is a requirement that the undertaking must be able to make the calculations at the request of the Danish FSA.


79) Statement can also proceed on the basis of a different method. In the event that the company uses a different method for estimation of non-trading book interest rate risk, this method must meet a number of qualitative requirements; the method must be in writing and documented, the method must form the basis for reporting of risks to company management, the method must be able to calculate the risk with reasonable accuracy, the method must be subject to independent control. Furthermore, this method must meet a set of quantitative criteria; the assumed interest rate change must be equivalent to an allocation 1. and 99. percentile of the daily observed rate changes where bearer period corresponds to 10 days (the period must be considered) based on an effective historical observation period of at least 5 years.

80) it is expected that larger companies or more complex enterprises complements the standard inventory with other risk statements of interest rate risk on transactions outside the trading book, where these, for example, takes account of changes in the interest rate structure, changes in the yield spread between the different interest rate markets and other changes in conditions (e.g. on consumer behavior).



External risks




81) an entity shall assess whether there are exogenous factors which could affect the adequate capital base. This can URf.eks. be risks arising as a result of changes in legislation or economic and business conditions, and which are not covered by the above mentioned risks.



Other conditions




82) there may be other requirements of the Act, which could have an effect on the Board's and management's assessment of the sufficient capital base. An example is section 145 of the financial business Act, under which the company's largest commitment to maximum must be 25 percent of the basic capital. Board of Directors and the Management Board must assess the impact of the biggest exposures have the sufficient capital base. If the company has shareholdings in other companies, see. section 146 of the Act on financial business, such an inventory should also taken into consideration. The company has real estate and shares in property companies, see. § 147 of the financial business Act, such exposure also taken into consideration, if the company wants to maintain this exposure.

83) whether other legal requirements shall be decisive for the Board's and management's assessment of the size of the sufficient capital base will depend on a specific assessment of whether it is an investment that the company wants to keep, and about the Department is able to dispose of the investment. URF.eks. will a financial institution's involvement with another credit institution does not usually affect the adequate capital base, as it will be seamlessly moving the exposure.



Stockbroking firms and investment management companies




84) stockbroking companies and investment management companies shall not make a loan, and the companies are unable to act on their own behalf, have limited options for placing the company's funds. For these companies, especially the operational risk will be crucial when the company must determine the adequate capital base.

85) For stockbroking companies and investment management firms will usually have the greatest importance of minimum capital requirements. This has the following implications:

(a) the solvency requirement of the stockbroking companies) who want to become a member of a stock exchange, a central securities depository or Clearinghouse, in which the company participates in clearing and settlement, or want to perform one or more of those in annex 4, section A, point 1. 2, 4 and 5, and section B, nr. 2, of the law on the financial undertaking mentioned services, the minimum amount to 1 million. euro.

(b)) the solvency needs of investment management companies that want to become a member of a stock exchange, or who want to store and manage the in annex 5, nr. 4, of the law on the financial undertaking mentioned instruments, including being a member of a central securities depository or Clearinghouse, in which the company participates in clearing and settlement, must at a minimum provide minimum capital requirement calculated according to § 125 (2) nr. 3, in the financial business Act, as a percentage of risk-weighted items.

c) Solvency need other stockbroking companies and investment management firms should be minimum constitute minimum capital requirement calculated according to § 125 (2) nr. 4, in the financial business Act, as a percentage of risk-weighted items.

d) Solvency needs of stockbroking companies and investment management firms should be minimum constitute a quarter of the preceding year's fixed costs, see. § 125, paragraph 5, of the financial business Act, as a percentage of risk-weighted items.



Reassessment and surveillance




86) Statement by the insufficient capital base should be reviewed as often as necessary to ensure that all risks are covered adequately, and that the adequate capital base is an expression of the current risk profile. All changes in the company's strategy, business areas, the economic or business conditions or other conditions which have a significant influence on the assumptions or methods used for the establishment of the adequate capital must lead to adjustments in the sufficient capital. If acquiring or taking on new risks, these must be identified and included in the inventory of the sufficient capital base.

87) Re-evaluation shall always take place at least once a year.

88) Statement by the insufficient capital base must be the subject of an independent assessment. The unit responsible for carrying out the assessment, may not take part in the ongoing business operations of the company. Results of the assessment should be reported to the Board of Directors. In companies that do not have authorization to use the internal ratings based approach to credit risk or internal models for market risk, it can control, as the Board of Directors shall be deemed to satisfy the requirement for independent assessment.



Reporting




89) the Management Board shall be informed about the company's inventory of the sufficient capital base and solvency requirements to the same extent as the Board of Directors informed about compliance with the solvency requirement. It appears ahead of section 75, paragraph 3, of the law on the financial undertaking to: "If a member of a financial company's administrative or management body, the external audit or the responsible actuary must assume that the financial company does not meet the capital requirement for financial business Act §§ 124-126 or solvency requirements pursuant to section 124, paragraph 4, and section 125, paragraph 7, that person must immediately notify the FSA."

90) according to section 75 (1) of the financial business Act, that: "The financial business operator shall immediately inform the FSA information about matters that are of vital importance to the financial enterprise continued operation."

91) Persons covered by that provision has a duty to immediately inform the financial supervisory authority, if the company's capital ratio comes under the solvency requirements. The obligation differs in this way from the obligation, if the capital adequacy ratio falls below 8 per cent requirement or a higher solvency requirements set out by the FSA.

92) The adequate capital base and solvency requirements shall be calculated on an ongoing basis by the individual company, but reported only to the Danish financial supervisory authority with regular intervals, see. § 5. Changes in solvency requirement, which a company decides, as a starting point need not be reported to the FSA.

93) If the circumstances giving rise to the amendment of the solvency requirement, is of such a nature that there should be reporting under section 75 (1) of the financial business Act, the matters referred to, of course, are reported. At the same time, the company must report it increased solvency needs.

94) the requirement to give notice immediately, see. section 75 (3) of the financial business Act, applies only if the capital adequacy ratio falls below that of the company ascertained the solvency requirements or the solvency requirement.

95) if the company's interest rate risk non-trading book in excess of the limit in paragraph 76, must always be carried out reporting to the FSA in accordance with article 75, paragraph 1, of the financial business Act.

96) There is no requirement that the company, with the exception of establishments covered by article 1, paragraph 1, no. 1 and 2, shall publish the ascertained solvency needs. However, there is no ban on publishing the solvency requirements.



Documentation




97) Statement by the insufficient capital base and solvency requirement must be documented in writing. Documentation shall include a description of the methods, assumptions and procedures that are used in the calculation of the sufficient capital base and solvency requirements. The instrument's scope will typically be growing with the company's size and complexity in business areas.

98) The precise design of documentation must be carried out by the individual company. The following should be able to be documented:

(a)) That the statement by the insufficient capital base and solvency requirements are approved by the Board of Directors, see. paragraph 14.

(b)) the Board's plan for obtaining capital and contingency plans, see. paragraph 18.

c) which stress test the company uses, see. paragraph 26.

d) A description of the internal process for the estimation of the sufficient capital base and solvency requirements, see. paragraph 14-18.


e) A description of the method for estimating the sufficient capital base and solvency need that your company uses, see. item 19-27.

f) A description of what conditions are included in the inventory referred to in article 6. section 28-83.

g) Procedure and business processes for the review of the inventory of the sufficient capital base and solvency requirements, see. item 86-88.

h) who perform the independent assessment, see. paragraph 88.

I) How the internal reporting takes place.

99) Documentation must be designed in such a way that it can be submitted to the Danish financial supervisory authority on request on paper or another durable medium.

Annex 2

Requirements for the inclusion of items in the trading book

The scope of the




1) this annex contains, see. § 7, provisions on the requirements of positions and portfolios held with trading intent shall comply.



Trading intent











2)





Positions/portfolios held with trading intent shall comply with the following requirements:





 



(a))





There must be a clearly documented trading strategy for the position/instrument or portfolio, which has been approved by the Executive Board or one or more senior executives.





 



(b))





There must be clearly defined policies and procedures for the active portfolio management, which shall include the following:





 

 



in





Positions are reached by a commercial entity.





 

 



(ii)





Fixed frames of positions, and it is monitored whether they are appropriate.





 

 



(iii)





Dealers have the autonomy to enter into/manage the position within agreed limits and according to the approved strategy.





 

 



(iv)





Positions are reported to the Executive Board as part of the company's risk management.





 

 



(v)





Positions are actively monitored in the context of market resources for information and an assessment of the possibility of made to close or hedge a position or the individual risks that are associated with the position. Including the assessment must be carried out by the quality and frequency of the input from the market to the valuation process, level of market turnover and the size of the positions traded in the market.





 



(c))





There must be clearly defined policies and procedures for the monitoring of the position in relation to the company's trading strategy including the monitoring of turnover and positions that no longer meets the requirements for trading intent.











Systems and controls




3) the company shall establish and maintain systems and controls sufficient to ensure careful and reliable valuation estimates.

4) the systems and controls shall include at least the following elements:

a) documented policies and procedures for the valuation process. This includes clearly defined responsibilities of the various areas involved in the determination of the valuation, market information and the review of their appropriateness, frequency of independent valuation, timing of closing rates, procedures for adjustments to the valuation, verification at month end and ad-hoc verification procedures.

b) Clear reporting paths for the business unit that is responsible for the valuation process. Reporting the roads must be independent of the predisposing units and should end with a member of the Executive Board.



Valuation methods




5) marking to market is the at least daily valuation of positions in accordance with the accounting rules.

6) implies the statement use of model value ("marking two model"), the following requirements must be met:

a) Executive Board or senior staff must be aware of the elements of the trading book which are subject to mark to model and shall understand the extent to which this creates uncertainty in the reporting of the risk/performance.

b) market inputs shall, if possible, be used as the source in accordance with the market rate, and appropriateness for the specific position of market inputs that are valued, and the model's parameters should be evaluated frequently.

(c)) if it is possible, used valuation methods are part of accepted market practices for those financial instruments or commodity derivatives.

d) If the company itself has developed the model, it must be based on appropriate assumptions, which have been assessed and verified by suitably qualified parties independent of the development process.

e) there shall be formal change control procedures, and there shall be kept a secured copy of the model, which periodically used to check valuations.

f) those responsible for risk management shall be aware of the weaknesses of the models used and on how these weaknesses can best be reflected in valuations.

g) model should be reviewed regularly to assess whether its results are sufficiently precise (URf.eks. assessment of whether the conditions are still appropriate, analysis of gains and losses in relation to risk factors, comparison of actual measurement values and model results).



As regards subparagraph (d), the model must be developed or approved independently of the operative units. It must be tested at an independent show. This includes validating the mathematical basis, assumptions and software implementation.




7) in addition to daily valuation must be carried out independent price verification. Thus checked market prices or model inputs are regularly with regard to accuracy and independence. Where the daily marking to market can be performed by dealers, monitoring of market prices and model inputs is performed by a device that is independent of the dealers, at least once a month (or more often, depending on the nature of the market or trade).



Valuation adjustments or reserves




8) the company shall establish and maintain business procedures with a view to considering valuation adjustments/reserves to be used for capital adequacy and loss.

9) the company must consider the following valuation adjustments/reserves: unearned credit spreads, costs of closing positions, operational risks, decay before the agreed time, investment and funding costs, future administrative costs and model risk, where this might be appropriate.

10) the company must consider several factors when determining whether a valuation reserve is necessary for less liquid positions as URf.eks. concentrated positions and/or positions that no longer meets the requirements for trading intent. Among these factors are included, how long it takes to uncover the position/risks within the position, the volatility and the difference between the bid/offer spreads, the availability of market quotes (number and identity of market makers) and the volatility and turnover average size, market concentrations, positions of the aging, the extent to which the valuation is done by marking to model and the importance of other model risks.

11) If using valuations from third parties, or marking to model is made, the company must consider whether to carry out a valuation adjustment. In addition, the company must consider the need to create capital dækningsmæssige reserves for less liquid positions and on an ongoing basis to examine whether they are still appropriate.

12) when valuation adjustments/reserves give rise to material losses of the current financial year, they should be included in the calculation of the year continuously deficits, see. § 131 (2). 1 of the law on financial business.

13) value adjustments and reserves which exceeds the adjustments and reserves carried out in accordance with the accounting rules, dealt with after item 12, if they result in significant losses.



Internal hedges





14) an internal hedge is a position that materially or completely offsets the risks of one or more positions outside the trading book. Positions arising from internal hedges may be subjected to rules for the trading book, if they are held with trading intent, and the general criteria on trading intent and valuation in paragraphs 2 to 13 are complied with. In particular, to:

a) internal hedges shall not be primarily intended to avoid or reduce the risk-weighted items.

b) internal hedges shall be documented adequately and subjected to special internal approval and audit procedures.

(c)) the intercompany transaction must take place under market conditions.

(d)) the bulk of the market risk that is generated by the internal hedge shall be dynamically managed in the trading book within the permitted limits.

e) internal transactions must be monitored closely.



Monitoring must be ensured by appropriate procedures.




15) The treatment referred to in paragraph 14, shall apply without prejudice to the requirements for risk-weighted items, that applies to the part of the internal hedge, that is the non-trading book.

16) If the company uncovers a credit risk exposure, there is a non-trading book, with a credit derivative included in the trading book (using internal hedging), it is considered that the exposure, there is a non-trading book, regardless of paragraph 14 and 15 not to be uncovered with regard to the calculation of risk-weighted items, unless the company by a recognised external provider of credit protection buyer a credit derivative meeting the requirements of annex 7 , paragraph 33, of the exposure, there is a non-trading book. In connection with the purchase of such external credit protection that meets the requirements for the identification of a non-trading book exposure with regard to the calculation of risk-weighted items, included neither the internal nor external credit protection using credit derivatives in the trading book for the purposes of calculating risk-weighted items.



Inclusion in the trading book











17)





The company must follow clearly defined policies and procedures by determining which positions should be included in the trading book in accordance with the criteria set out in Chapter 3, and taking into account the company's risk management capacity and practices. It must be documented that these policies and procedures are complied with, and to be made regular internal audit thereof.







18)





The company must follow clearly defined policies and procedures for the General management of the trading book. These policies and procedures must include as a minimum:





 



(a))





The activities, which the company considers to be trading, and as included in the trading book regarding the calculation of risk-weighted items.





 



(b))





The extent to which a position can be measured on a daily basis to market value on the basis of an active, liquid market for both buying and selling.





 



(c))





For positions that are assessed at the model value ("mark to model"), the extent to which the company can:





 

 



in





Identify all the significant risks associated with the position.





 

 



(ii)





Uncover all material risks in connection with the position with instruments for which there is an active, liquid market for both buying and selling.





 

 



(iii)





Reliable estimates of key assumptions and parameters used in the model.





 



(d))





The extent to which the company can and should make a valuation of the position, which can be validated externally in a consistent way.





 



(e))





The extent to which legal restrictions or other operational requirements would be able to put obstacles in the way of the company's ability to liquidate or hedge a risk position in the short term.





 



(f))





The extent to which the company can or should undertake active risk management position as part of its commercial activities.





 



(g))





The extent to which the company may transfer risk or positions outside the trading book for the trading book and vice versa, as well as the criteria for such transfers.







19)



 



Repurchase transactions, which are not covered by a firm's trading book, can be included in the trading book, in so far as any such repurchase transactions are included. Trade-related repurchase transactions is defined for this purpose as transactions that meet the requirements of Chapter 3 and section 2 of this annex, and where the repurchase transaction legs must be either cash deposits or securities which may be included in the trading book. Regardless, to repurchase transactions are included in the trading book shall be calculated risk-weighted items for credit risk pursuant to Chapter 4 for repurchase transactions.









Annex 3

The standardised approach for credit risk











Table of contents





PT.





 

 





Exposures against central Governments or central banks





1





 

 





Exposures to regional or local authorities





2





 

 





Exposures against public entities





3-4





 

 





Exposures against multilateral development banks





5





 

 





Exposures against international organizations





6





 

 





Exposures against institutions





7-11





 

 





Exposures against businesses, etc.





12-13





 

 





Exposures against retail customers





14-15





 

 





Exposures secured by mortgages on real estate





16-19





 

 





Exposures which are delinquent, or overdraft





20-26





 

 





Covered bonds





27-28





 

 





Exposures against securitiseringer





29






 

 





Exposures against business enterprises, etc. with a short-term credit rating





30-31





 

 





Exposures against collective investment schemes





32-35





 

 





Exposures in other entries, including assets without counterparts





36-37











Exposures against central Governments or central banks




1) the undertaking must weights exposures against central Governments or central banks with at least the following weights:

a) 0% weight for exposures against central Governments or central banks in a country within the European Union or in a country with which the community has entered into an agreement on the financial area, in their national currency.

b) 0% weight for exposures against The European Central bank (ECB).

c) A weight resulting from the application of the latest country risk classification drawn up by the Organisation for Economic Cooperation and development (OECD) – "Country Risk Classifications" or by an export credit agency, see. in the table below.









Countries classification





0-1





2





3





4-6





7







Weight





0 per cent.





20 per cent.





50 per cent.





100 per cent.





150 per cent.





 



(d))





A weight resulting from the application of the credit quality step out from approved rating agencies credit ratings, see. section 13 and the table below.







Credit quality step





1





2





3





4-5





6







Weight





0 per cent.





20 per cent.





50 per cent.





100 per cent.





150 per cent.





 



(e))





The Danish people's Church can be assigned the same weight as the Danish State.





 



(f))





Exposures against central Governments or central banks, which can not be weighted in accordance with subparagraphs (a) to (e) are weighted with 100 per cent.











Exposures to regional or local authorities




2) the company must weights exposures to regional or local authorities with at least the following weights:

a) Exposures against Danish municipalities and regions can be assigned the same weight as the Danish State. The same is true of Greenland, the Faroe Islands, and Greenland and Faroese municipalities.

b) Exposures to regional or local authorities in other countries can be assigned the same weight as exposures to its central Government, see. paragraph 1, in the absence of an elevated risk, and the regional or local authority emerges from a published list from that country's regulatory authority.

c) Exposures to regional or local authorities, which can not be weighted in accordance with (a) and (b) are weighted as institutions, see. section 10.



Exposures against public entities




3) By public entities shall mean entities that are

(a)) non-commercial administrative bodies responsible to the State, a county or a municipality, or

b) authorities, which shall exercise the same responsibilities as a region or municipality, or

c) non-commercial entities, owned by the State, with special guarantee arrangements, including autonomous entities created by statute under official supervision, or

d) devices, which are considered to be public bodies in accordance with article 4, paragraph 1, no. 18 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) in a country within the European Union or in a country with which the community has entered into an agreement on the financial area.

4) company can weights exposures against public entities with at least the following weights:

a) Exposures against public entities can be assigned the same weight as institutions in the country in question, see. section 10.

b) Exposures against churches and religious communities, which have the following status under public law legal persons with authority to levy taxes, can be assigned the same weight as institutions in the country in question, see. section 10.

c) Exposures against public entities not be weighted in accordance with subparagraph (a)) and (b)), are weighted with 100 per cent.



Exposures against multilateral development banks




5) company can weights exposures against multilateral development banks with at least the following weights:

a) 0% weight for The International Bank for reconstruction and development, The international financial institution, the Inter-American development bank, the Asian development bank, the African development bank, the Council of Europe development bank, the Nordic investment bank, The Caribbean development bank, the European Bank for reconstruction and Development, The European investment bank, the European Investment Fund, the Organization for multilateral investment guarantees, The International financing facility for Immunization, the Islamic Development bank.

b) 20 per cent weight for subscribed but not paid-up capital of the European Investment Fund.

c) Exposures against The Inter-american Investment Corporation, the Black Sea Trade and Development Bank and The Central American Bank for Economic Integration can be weighted as institutions, see. section 10.

d) Exposures from other multilateral development banks, there is no weight defined in (a) to (c), a weighting of 50% if they do not have a credit assessment by a recognised ECAI, and in accordance with the table below, if they have a credit assessment by a recognised rating agency.









Credit quality step





1





2-3





4-5





6







Weight





20 per cent.





50 per cent.





100 per cent.





150 per cent.











Exposures against international organizations




6) company can weights exposures against international organizations with at least the following weights:

a) 0% weight for the European Community.

b) 0% weight for The International Monetary Fund (IMF).

c) 0% weight of the bank for International Settlements (BIS).

d) Exposures against international organizations that do not are weighted in accordance with points (a) to (c), must be weighted 100%.



Exposures against institutions




7) Exposures against institutions, see. section 4, paragraph 1, may not be weighted less than the weight of the concerned central government regulation. point 1. With the relevant central Government means the country in which it is established and has received permission to engage in activity.

8) Exposures towards institutions having an original maturity up to three months may be weighted by 20 per cent.

9) shares and subordinated capital in the institutions are weighted with 100 percent, unless they be deducted from the capital base, see. section 10, paragraph 1, last sentence.

10) the company must weights exposures against institutions in accordance with the following methods:


(a) A weight) is determined by the application of credit quality step based on approved rating agencies assessments of the central Government of the country in which the institution is resident, or latest country risk classification drawn up by the OECD – "Country Risk Classifications" or by an export credit agency of the central Government of the country in which the institution is resident, without prejudice. paragraph 1, point (c), in accordance with the table below.









Home country's credit quality step





1





2-3





4-5





6







The home Member State countries classification





0-1





2





3-5





6-7







Weight





20 per cent.





50 per cent.





100 per cent.





150 per cent.





 



(b))





10 per cent weight for exposures against credit institutions in a country within the European Union or in a country with which the community has entered into an agreement on financial matters, and where the institutions are specialized in inter-bank markets and markets for government debt in the home country (discount houses).





 



(c))





Exposures against institutions that are established in countries where there is no established credit quality, see. (a) are weighted with 100 per cent.














11) Exposures from regulated markets or equivalent foreign markets for securities are weighted as exposures against institutions.



Exposures against businesses, etc.




12) Exposures against businesses, etc., that have a short-term credit rating, can be weighted in accordance with the provisions of paragraphs 30-31.

13) company can weights exposures against business enterprises, etc., by one of the following methods:

(a)) A weight resulting from the application of the credit quality step out from approved rating agencies ratings, see. section 13 and the table below, for exposures for which there is an assessment of an approved credit-rating agency.









Credit quality step





1





2





3-4





5-6







Weight





20 per cent.





50 per cent.





100 per cent.





150 per cent.





 



(b))





The biggest weight of 100% and a weight that corresponds to that central Government, see. paragraph 1, for exposures for which the absence of an assessment of an approved credit-rating agency, including a short-term credit rating, see. item 12.





 



(c))





Shares not included in the trading book are weighted with the largest weight of 100% and a weight that corresponds either to the central Government, see. paragraph 1, for exposures for which the absence of an assessment of an approved credit-rating agency, or equivalent to credit quality step for the company, see. (a) for exposures for which there is an assessment of an approved credit-rating agency, unless they be deducted from the capital base.











Exposures against retail customers




14) the following conditions must be met in order for the exposures can be placed in the exposures against retail customers:

(a)) the company, the company's parent company and their subsidiaries total exposures shall not exceed an amount equal to the equivalent of 1 million. euro. In determining the total exposure is part of the opposing party or a group of connected counterparties amount due, but not the share of a loan, where there are mortgages on residential properties. The proportion of a loan that is not secured by mortgages on residential properties, to be included in the total.

b) Exposure is part of a portfolio consisting of a large number of exposures that are handled in a consistent way.

(c)) the exposure must be against private clients or small business ventures.

d) exposure may not include securities.

15) the company can weights exposures against retail customers with a minimum of 75 per cent.



Exposures secured by mortgages on real estate




16) the following conditions must be fulfilled in order that security in immovable property can be taken into account in determining exposures secured by mortgages on real estate:

a) safety must be legally valid and enforceable in all relevant jurisdictions at the time of conclusion of the credit agreement, and safety must be registered correctly and in a timely manner. The agreement on guarantees and the underlying legal procedure should give the company the opportunity to realize the value of the collateral within a reasonable period of time.

(b)) the value of the property shall be monitored regularly and at least once a year, when it comes to commercial real estate, and at least every three years, when it comes to residential buildings. There should be a more frequent monitoring, when the market situation is characterised by significant changes. Statistical methods may be used to monitor the value of the property and to identify which properties to be reviewed. Real estate assessment must be reviewed by an independent expert assessment when there is information showing that the property's value can be decreased significantly in relation to General market prices. By loans that exceed the equivalent of EUR 3 million. the euro, or 5 percent of the company's capital base, property assessment reviewed by an independent person at least every three years. The person responsible for auditing the valuation, must have the necessary qualifications, skills and experience to carry out a valuation and shall be independent of the credit allocation process.

(c)) it should be clearly documented, what types of residential and commercial real estate company accepts, including the separate documentation for the property categories the company considers as safe by the estimation of risk-weighted items, as well as what the company's lending policy is for secured loan in these types of properties.

(d)) the company must have in place procedures to monitor that the property used as collateral, is adequately insured against damage.

e) valuation of real estate:







 



in





The property must be assessed at market value or less of a person with the necessary qualifications, skills and experience to carry out a valuation, and which is independent of the credit allocation process.





 



(ii)





Market value means the estimated amount for which the property can be traded for at the valuation date between an interested buyer and an interested seller, there are independent of each other, after proper marketing, where each party has acted on an informed basis, prudently and without compulsion. The market value shall be documented in a transparent and clear manner.





 



(iii)





The value of the collateral's market value, which has made appropriate write-downs that reflect the results of the monitoring required in accordance with point (b), as well as to take account of any preceding claim on the property.














17) the company can weights exposures secured by mortgages on real estate by one of the following methods:


a) 35 per cent weight for exposures secured by mortgages on residential property for every season, there is or will be occupied or let by the owner, including farmhouses for farm properties in 80 per cent of the applicable at any time property value determined according to sections 10-17 of the law on mortgages and mortgage bonds, etc., or 80 percent of the latest public property valuation or mortgage properties located outside Denmark by a similarly cautious assessment. Security in shares in Finnish housing companies, operating in accordance with the Finnish housing company Act of 1991 or subsequent equivalent legislation, in respect of housing, there is or will be occupied or let by the owner, be equated in this section with mortgages on residential properties. It is a condition that the value of the property does not significantly depend on the borrower's credit quality.

b) 35 per cent weight for exposures secured by mortgages on second homes, there is or will be occupied or let by the owner, within 60 per cent of the applicable at any time property value determined according to sections 10-17 of the law on mortgages and mortgage bonds, etc., or 60 per cent of recent public property valuation or by mortgages on second homes located outside Denmark by a similarly cautious assessment. It is a condition that the value of the property does not significantly depend on the borrower's credit quality.

c) 50 per cent weight for exposures secured by mortgages on Office and commercial premises located in Denmark with the portion of the exposure which is covered by the mortgage within 50 percent of the latest public property valuation or to any applicable property value determined according to sections 10-17 of the law on mortgages and mortgage bonds, etc. It is a condition that the value of the property does not significantly depend on the borrower's credit quality. It is furthermore a condition that the risk of the borrower's case does not significantly depend on the underlying property value, but rather the borrower's basic ability to repay in some other way.

d) 50 per cent weight for exposures secured by mortgages on offices and other commercial premises situated in those Member States that allow nedvægtning of Office and commercial premises, with the share of receivable covered by the mortgage within 50% of the applicable at any time property value determined according to sections 10-17 of the law on mortgages and mortgage bonds, etc. or similar cautious assessment or a 50 per cent weighting of Office and commercial premises under condition of that the conditions for nedvægtning in the Member States in question have been met.

e) 50 per cent weight for exposures secured by mortgages on agricultural and forestry property, nurseries, etc. located in Denmark with the portion of the exposure which is covered by the mortgage within 50 percent of the latest public property valuation or to any applicable property value determined according to sections 10-17 of the law on mortgages and mortgage bonds, etc. It is a condition that the value of the property does not significantly depend on the borrower's credit quality. It is furthermore a condition that the risk of the borrower's case does not significantly depend on the underlying property value, but rather the borrower's basic ability to repay in some other way.

f) Other exposures secured by mortgages on real estate than in (a) – (e) shall be weighted in accordance with paragraphs 13 and 15.

18) mortgage-credit institutes must however weights exposures secured by mortgages on other properties with at least the following weights:

a) 125 per cent weight for exposures secured by mortgages on industrial and craft properties as well as collective security of energy installations with the portion of the receivable, which lies in the range of 60-90 per cent of the market value of the property determined in accordance with the Ordinance on mortgage ' valuation and loan measure.

b) 125 per cent weight for exposures secured by mortgages on property for social, cultural and educational purposes with the portion of the receivable, which lies in the range of 60-90 per cent of the market value of the property determined in accordance with the Ordinance on mortgage ' valuation and loan measure.

c) 125 per cent weight for exposures secured by mortgages on Office and commercial premises leased to tenants who are independent from the property's owners, and valued on the basis of a higher rent than the market rent, with the portion of the receivable in excess of 60 per cent of the value of the property based on market rents.

d) 200 per cent weight for exposures secured by mortgages on industrial and craft properties as well as collective security of energy installations with the portion of the receivable in excess of 90 per cent of the market value of the property determined in accordance with the Ordinance on mortgage ' valuation and loan measure.

e) 200 per cent weight for exposures secured by mortgages on property for social, cultural and educational purposes with the portion of the exposure which exceeds 90 per cent of the market value of the property determined in accordance with the Ordinance on mortgage ' valuation and loan measure.

19) Exposures secured by mortgages on real estate, which consists of several property categories are weighted separately for each property categories. If a real estate category accounts for at least 80 per cent of the property's total gross area, the entire exposure shall be weighted by risk weight for this real estate category.



Exposures which are delinquent, or overdraft




20) By arrears means that a counterparty for over 90 days have been in arrears or overdraft with an amount, which is seen as being significant. In the case of arrears, when the other party does not pay benefits as they fall due, honour its debt at an agreed time, or when a granted credit limit for cash credits and the like are exceeded.

21) By material, see. paragraph 20 shall be taken to mean that the total amount of arrears on the other party's commitment, see. § 5 (1) (8). 16, in the financial business Act, constitute 1,000 USD or more in the case of retail exposures, and 10,000 DKK for all other exposures, to the company, the company's parent company and their subsidiaries.

22) If another party is in arrears pursuant to clause 20-21, it is all the other party's exposures to the company that needs to be dealt with and be weighted after item 23-26.

23) By securing recognised the same types of securities and guarantees, which shall apply to the credit risk mitigation, see. § 11 and annex 7.

24) the company must weights the unsecured part of the exposure with counterparts in arrears after one of the following methods:

a) 150 per cent weight for exposures, in which less than 20% of the unsecured part of the exposure is recorded, measured in relation to the exposure value before impairment or other revaluation.

(b)) 100%. weight for exposures, in which at least 20% of the unsecured part is recorded, measured in relation to the exposure value before impairment or other revaluation.

25) The secured portion of the exposure shall be weighted in accordance with section 23. In other words, the insured share risk weighted equally regardless of whether the exposure is in arrears or not, unless the fuse is made up of a mortgage.

26) the company must at least weights exposures secured by mortgages on real property owned by counterparties in arrears after one of the following methods:

a) 100 per cent weight for exposures secured by mortgages on residential property for all year use, see. item 17 (a), in which less than 20% of the exposure is recorded, measured in relation to the exposure value before impairment or other revaluation.

b) 50 per cent weight for exposures secured by mortgages on residential property for all year use, see. item 17 (a), in which at least 20 percent are recorded, measured in relation to the exposure value before impairment or other revaluation.

(c)) 100%. weight for exposures secured by mortgages on other immovable property, see. item 17 (b)-(e).



Covered bonds




27) In covered bonds issued by credit institutions shall mean the following:

a) Special covered bonds, see. section 16 (a), paragraph 1 of the law on financial business.

(b)) Special covered bonds, see. section 2 (c) of the law on a ship's financial.

c) mortgage bonds issued no later than 31. December 2007.

d) Cash bonds issued by Danish ship credit a/s no later than 31 December 2006. December 2007.

e) Other covered bonds, see. Annex VI, part 1, points 68 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).

28) the company can weights covered bonds with at least the following weights:

(a)) 10 per cent weight for exposures in covered bonds, issued by a credit institution, provided that the credit institution's non-subordinated and unsecured debt a weighting of 20% of the basic regulation. section 10.

b) 20 per cent weight for exposures in covered bonds, issued by a credit institution, provided that the credit institution's non-subordinated and unsecured debt a weighting of 50% of the basic regulation. section 10.

c) 50 per cent weight for exposures in covered bonds, issued by a credit institution, provided that the credit institution's non-subordinated and unsecured debt a weighting of 100 per cent of the basic regulation. section 10.

d) 100%. weight for exposures in covered bonds, issued by a credit institution, provided that the credit institution's non-subordinated and unsecured debt a weighting of 150 per cent of the basic regulation. section 10.



Exposures against securitiseringer





29) the company must weights exposures against securitiseringer in accordance with the provisions of annex 11.



Exposures against business enterprises, etc. with a short-term credit rating




30) By short-term credit assessments shall mean credit ratings of approved rating agencies pursuant to the provisions relating to credit rating agencies and the credit ratings in section 13, as well as annex 5.

31) the company can weights exposures against business enterprises, etc., where there is a short-term credit rating, with a weight that resulting from the application of the credit quality step out from approved rating agencies short-term credit assessments in accordance with the table below.









Credit quality step





1





2





3





4-6







Weight





20 per cent.





50 per cent.





100 per cent.





150 per cent.











Exposures against collective investment schemes




32) the company must weights exposures against collective investment schemes referred to in article 6. § 1 the Act on investment associations and special associations and other collective investment schemes and art. 1 of Directive 85/611/EEC of 20. December 1985 on the coordination of laws and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) with at least the following weights:

(a)) A weight resulting from the application of the credit quality step out from approved rating agencies ratings, see. section 13 and the table below.









Credit quality step





1





2





3-4





5-6







Weight





20 per cent.





50 per cent.





100 per cent.





150 per cent.





 



(b))





Have a firm knowledge of all of the underlying investments in a collective investment scheme, these investments can be regarded as if they were the company's direct exposures, which are weighted according to § 9 and this annex.





 



(c))





A company does not have knowledge of all of the underlying investments in a collective investment scheme, it can calculate the risk weights for the scheme's possible investment, where it is assumed that the collective investment scheme first invests so much that it has permission to do, in the exposure categories, where the solvency requirement is highest, and then invest in the lower categories, until the entire investment is weighted.





 



(d))





Exposures against collective investment schemes which are not weighted according to points (a) to (c), a weighting of 100 per cent.














33) With a view to the application of the methods set out in paragraph 32 (b) and (c) the collective investment scheme must meet the following criteria:

(a)) The collective investment scheme is administered by an entity subject to supervision in a country within the European Union or in a country with which the community has entered into an agreement on the financial area.

(b)) The collective investment scheme has established an investment instructions.

(c)) The collective investment scheme shall submit a yearly report, which enables an assessment of its assets and liabilities, income and movements in asset holdings.

34) for the purposes of paragraph 32 (b) and (c) the company may make use of an investment management company/management company to calculate and report weights for investments in collective investment scheme.

35) If other countries ' competent authorities have authorised collective investment schemes from third countries, see. Annex IV, part 1, points 77 and 78 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), FSA can put this as the basis for its assessment of the collective investment scheme.



Exposures in other entries, including assets without counterparts




36) Other items include property, equipment, other tangible assets, and prepayments, where the company is unable to determine the counterparty. In addition, all exposures that are not covered by section 9 (1) (8). 1 – 14, covered.

37) the company must weights exposures in other entries with at least the following weights:

a) 0% weight for cash situation, including gold coins.

b) 20 per cent weight for cash and cash equivalents during the transfer.

c) Exposures in other entries, there is no weight defined in (a), a weighting of 100 per cent.

Annex 4

Classification of off-balance-sheet items

Full risk




1) the following records kept under this item:

a) Financial guarantees. This is the URf.eks. guarantees for udlandslån, forhåndslån and other guarantees for loans in mortgage or commercial mortgage deed finansieringsinstitutter, guarantees, warranties relating to the provision of loans to clients (markedslån) and guarantees for deposits with other credit institutions.

(b) any securities or loan guarantees). Sureties or loan guarantees, which represent credit substitutes and which are fully secured by mortgage on immovable property, which meet the requirements of annex 3, paragraph 16-17, conditions laid down, with a weighting of 35%. This includes URf.eks. guarantees faced with mortgage companies, where the guarantor has indtrædelsesret in mortgage institution's mortgage. In cases where the guarantee takes place in connection with equity real estate in a mortgage Department, can the percentages in annex 3, paragraphs 16-17 will be related to property value assessed by the mortgage institution, without prejudice. notice of mortgage ' valuation and loan measure.

(c) Accept and endossements obligations, etc.) this refers to the obligations under off-balance-sheet items.

d) Assets purchased under outright forward.

e) Forward forward deposits. This refers to agreements on deposits in a credit institution at a fixed future time in a fixed period with a fixed interest rate, URf.eks. deposits of 1 million. DKK about three months in six months to 5 per cent per annum in interest. Deposits in lieu of the time of conclusion of the contract.

f) Other records that have full risk. This refers to guarantees other than those referred to in (a)), and in lieu of a credit to the customer, URf.eks. Customs, tax and tax bonds.

g) credit derivatives.

h) Businesses that accounting is posted under other liabilities.



Intermediate risk




2) the following records kept under this item:

(a)) other warranties and representation. This refers to other guarantees than those referred to in paragraph 1.a, 1.b, 2. c, 2. d, 3. (a) and 3 (b) referred to, URf.eks. labour guarantees, guarantees in connection with foreclosures, the conversion guarantees and other warranties and representation as to, not in lieu of a credit to the customer (guarantee applicant), including the guarantees placed across from the guarantee fund for depositors and investors and account-holding institutions guarantees opposite error in other custodian departments in connection with registration in the central securities depository. The record also includes import and export letters of credit confirmed letters of credit.

b) irrevocable credit commitments. This refers to credit commitments, which may not be revoked with under one year's notice. All credit commitments have been posted under the other contingent liabilities, should be included. Cash credits, which can be terminated by shorter notice than 1 year should not be included here, notwithstanding that there are agreed a longer maturity than 1 year.

c) Long underwriting, etc. i.e. all obligations, which the company has to purchase securities (issued by the company's customers) where the original maturity is more than one year, regardless of whether the securities will be included in the trading book.

d) NIF's and Ruf, etc. This is the Note Issuance Facilities and Revolving Underwriting Facilities (NIF's) (Ruf) and the like, which implies an obligation for the company to buy securities. Facilities included regardless of maturity.

e) Other records with intermediate risk. This includes all other items than those mentioned above with intermediate risk.




Medium/low risk




3) the following records kept under this item:

a) underwriting. This refers to all obligations, which the company has to purchase securities, regardless of whether the papers will be included in the trading book, apart from those referred to in paragraph 2 (c) and 2 (d), those obligations.

(b)) Other records with medium/low risk. This includes guarantees faced with Danmarks Nationalbank in connection with settlements in the central securities depository. Also be eligible guarantees faced Securities Centre capital bases.

c) undrawn credit commitments cannot be terminated without notice, and who have an agreed maturity of up to one year.



Low risk




4) the following records kept under this item:

a) undrawn credit facilities, which necessarily may be terminated without notice, or that effectively guaranteed automatic termination in the event of a deterioration of the creditworthiness of the borrower. Cash credits to retail customers can be considered undrawn credit facilities that can be terminated without warning, if they can be terminated to the extent permitted under consumer protection laws and related legislation.

Annex 5

Use of ECAIs ' credit assessments for the determination of risk weights

General




1) an undertaking may nominate one or more approved rating agencies for the determination of risk weights for exposures.

2) a company that decides to use the credit assessments produced by an approved credit-rating agency for a given exposure category of records, use these credit assessments consistently for all exposures in this exposure category.

3) a company that decides to use the credit assessments produced by an approved credit rating institution must apply them persistent and consistent over time.

4) the company may use credit ratings from a recognized rating agency whose ratings cover the total debt obligations, IE. both the principal and any interest accrued.

5) If for an exposure only in the absence of a credit assessment from the one nominated ECAI, this rating is used for determining the risk weight of exposures.

6) if there are two credit assessments by nominated rating agencies, and these credit ratings sets out two different risk weights for an assessed exposure, the higher risk weight shall be used.

7) If for an exposure in the absence of more than two credit assessments by nominated rating agencies, the two assessments, resulting in the lowest risk weights shall be added to the base. If the two lowest risk weights differ from each other, the higher risk weight shall be used.



Special requirements for the use of credit ratings by securitiseringspositioner




8) the provisions of paragraphs 1 to 7 shall apply accordingly for the purposes of rating agencies credit assessments for the determination of risk weights for securitiseringspositioner.

9) A position in a tranche, which have a credit assessment by a nominated ECAI, single should be regarded as non-filtrate, if one or more other tranches in the securitisation has a credit rating from another or several other nominees rating agencies.

10) in the absence of recognized credit protection, see. Annex 7 or, where appropriate, annex 9, be granted directly to the transfer the recipient (SSPE'en), see. Annex 11, and included the credit protection in the credit assessment of a position by a nominated ECAI, the risk weight associated with the credit assessment may be used. If the credit protection is not recognized in accordance with Annex 7 and, where applicable, annex 9, the credit assessment is not used. In cases where the credit protection shall not apply to the transfer the recipient (SSPE'en), but directly relates to a securitiseringsposition credit assessment not be approved.

11) the provisions of section 12-20 does not apply for the purposes of rating agencies credit assessments for the determination of risk weights for securitiseringspositioner.



The credit assessment of issuers and emissions




12) in the absence of a credit assessment of an emissions program or emission facility, this credit assessment used for the exposure relating to this application or this emission emission facility.

13) in the absence of a readily available credit assessment of a particular record, but there is for the issuer a credit assessment of an emissions program or emission facility, as the entry that represents the exposure, not part of, or in the absence of a general credit assessment of the issuer, this rating is used. This credit assessment must, however, be applied only if it results in a higher risk weight than would otherwise be obtained, or if it results in a lower risk weight, and that exposure will be covered at the same level or better in the ranking of claims in relation to emission or emission facility program.

14) credit ratings of issuers belonging to a group, cannot be used as credit ratings of other issuers within the same group.



Long-term and short-term credit ratings




15) credit ratings, as the Institute of rating is defined as short-term credit ratings can only be used in determining the risk weights for similar short-term exposures.

16) credit ratings, as the Institute of rating is defined as short-term credit ratings should only be applied to exposures, as the short-term credit assessment relates, and shall not be used for the calculation of risk weights for other exposures.

17) Notwithstanding the provisions of section 15, if a facility short-term credit assessment shall be assigned a risk weight of 150%, cause all non credit-rated unsecured exposures with the concerned borrower also be assigned a risk weight of 150% without regard to whether these exposures are short term or long term.

18) Notwithstanding the provisions of paragraph 16 will no non-credit assessed short-term exposure could achieve a risk weight less than 100 per cent, if a facility short-term credit assessment shall be assigned a risk weight of 150%.



Records in national and foreign currency




19) A credit rating, which relates to an exposure which is denominated in the national currency, the debtor may not be used for the calculation of risk weights for another exposure with the same borrower, when this exposure is denominated in foreign currency.

20) the Danish financial supervisory authority may authorize when an exposure concerns a credit institution's involvement in a loan granted by a multinational development bank, which has the status of privileged creditor, credit assessment of the borrower's exposure in national currency shall be used for determining the risk weight.

Annex 6

Approval of credit rating agencies

Technical criteria




1) credit rating institution must meet the following technical criteria in order to be approved:



Objectivity




2) Method, which is the basis for the credit rating institution's credit assessments is rigorous, systematic, temporally coherent and should be based on historical experience.

3) credit rating institution's credit ratings should be based on all information deemed relevant and available at the time, the credit assessment shall be carried out.

4) credit rating institution must be able to demonstrate that the method includes all conditions, which usually is relevant to the assessment of a company's creditworthiness. The documentation shall be supported by evidence that the method has previously resulted in correct credit ratings.

5) Rating, the Department has administrative procedures and business processes to ensure that the rating method is applied consistently in the preparation of all credit ratings within the same classes. Two identical enterprises must, if the method is applied correctly, achieve the same credit assessment regardless of who has made the credit assessment.

6) credit rating institution can apply for additional credit rating methods, as long as each method covers all entities belonging to the same market segment. Within each market segment to the same factors identified as being essential for the determination of credit assessment. However, the individual factors are weighted differently within different segments, delmarkeds URf.eks. due to industry or geographical differences.



Independence




7) credit rating institution's credit ratings must be independent of political influences and limitations or economic pressure, which may have an impact on credit ratings.

8) credit rating institution must ensure that there are no conflicts of interest arise as a result of external political or economic pressure, including:

(a)) to credit rating Institute is owned either by the State, trade unions or political bodies, which have an interest in ensuring favourable credit assessments for their members/constituents,

b) to credit rating Institute is owned by a private company, who can use his position to ensure favourable credit ratings


c) to credit rating institution's economic position depends on revenue from individual customers, which could take advantage of their position to secure a favorable credit rating,

(d)) to credit rating Institute provides additional service for a credit rated company, or the company has other business relationships with credit-rating institution, which may undermine their objectivity in rating of the company,

(e)) that an employee of the credit rating, the Department has a senior position in a company, as are credit rated by credit rating institution, or

f) credit rating institution's employees are remunerated in such a way, or they have business relationships with the credit rated companies, which could lead to credit reviews were not objective.

9) credit rating institution must be able to demonstrate:

(a) the Department has drawn up that credit rating) and uses appropriate security measures to ensure that no conflicts of interest arise as a result of external political or economic pressure,

(b)) to the Organization of credit rating institution's credit rating activity is separate from other business areas, which may undermine their objectivity of credit ratings, such as additional service,

c) to credit rating institution's financial position is good enough, and that credit-rating institution has appropriate administrative guidelines to ensure independence from individual clients and issuers,

(d)) to credit rating institution's employees have skills and experience that are necessary for carrying out the tasks expected of the individual employees. At a minimum, at least one person who is involved in the rating process, have at least 3 years of experience as a ratinganalytiker or in a comparable feature in a credit institution,

e) to credit rating, the Department has sufficient resources to carry out consistent credit ratings and have regular contact with the credit assessed companies, where this is necessary in relation to the method,

f) credit-rating institution has an independent internal audit function,

g) to credit rating process shall be based on appropriate written internal procedures and business processes, rules for good corporate governance, internal rules for determining payment/fees and internal code of conduct

(h)) to credit rating Institute publishes situations where conflicts of interest could arise or has arisen, and

in) to credit rating institution has rules and procedures to identify, prevent, control and eliminate potential conflicts of interest.



Continuous control/review




10) credit rating institution shall keep under review the credit ratings and adapt them to changes in the credit-rated entity's financial situation. Reviews be reviewed after all important events and at least once a year.

11) credit rating institution shall conduct a verification (backtesting) of the methods of the individual market segments at least once a year.

12) credit rating institution shall immediately notify the financial supervisory authority, if there occurs significant events that can change the fulfillment of the criteria on which the original authorization was given. At major events is believed changes in methods, which can change a substantial share of the credit reviews in a given market segment.

13) credit rating institution must have administrative procedures and business processes, which ensure:

a) to material changes in the conditions of a credit rated company, which can potentially change the company's credit rating, with reasonable certainty are detected, and

(b)) to the credit assessment shall be revised when changes in circumstances warrant a review.

14) credit rating institution must be able to document that it undergoes the individual credit assessments at least once a year, regardless of whether a reassessment of credit assessment has already been carried out due to substantial change in the economic conditions. Credit rating institution shall draw up a summary of how the reassessments were made, including the extent of contact with the management of the credit assessed companies.

15) credit rating institution must be able to document that the verification (backtesting) is made for a minimum of 1 year prior to the application for approval. The verification shall be carried out on all market segments where credit rating institution applying for approval.



Transparency and disclosure




16) credit rating institution must publish the principles in the methods used. The publication must contain an overall description of rating method so that the method is easily comprehensible for potential future users.

17) credit rating institution must also disclose if significant changes in the method, see. item 13.



Individual credit assessments-credibility and market acceptance




18) credit rating institution's credit ratings should be perceived as credible and reliable by the users of such credit assessments. Credit assessments of credibility judged by a number of factors, including:

a) credit rating institution's market share,

(b)) the earnings credit rating Institute generates, and credit-rating institution's general financial position,

(c) whether the obtained credit assessment) is used for the calculation of the price of the exported credit assessment, and

d) whether at least two credit institutions making use of credit rating institution's credit ratings from issuance of bonds and/or assessment of credit risks.



Individual credit ratings-transparency and disclosure




19) credit rating institution must ensure that individual credit assessments are accessible at equivalent terms to all credit institutions, who wish to use credit ratings from the rating agency.

20) credit rating institution must ensure that individual credit assessments are available for foreign credit institutions under the same conditions as for corresponding domestic credit institutions, see. paragraph 19. The same conditions must be understood as that under the same economic conditions may not be unreasonable price discrimination.

21) credit rating agencies, which do not require payment for access to their credit ratings, must ensure that a complete list of their published credit ratings is available and updated as soon as a new credit assessment is made or an existing credit rating is reviewed. The list shall be published on the public accessible part of credit rating institution's website.

22) rating agencies, which requires payment for access to credit ratings, must ensure that a complete list of their published credit ratings are a potential available for all subscriptions, and that list will be updated as soon as a new credit assessment is made or an existing credit rating is reviewed.



Special requirements to the credit ratings of securitiseringspositioner




In addition to the provisions of paragraph 23) 1-22, the following provisions must be complied with, if the credit rating institution's credit ratings to be used for the calculation of risk-weighted items for securitiseringspositioner.

a) there must be no difference between the types of payments that are reflected in the rating, and the types of payments that the company is entitled to under the contract that is the basis for that securitiseringsposition.

b) credit rating institution must demonstrate that it has a strong market acceptance in the field.

(c)) credit rating institution's credit assessments of securitiseringspositioner shall be made publicly available for the market. Credit ratings are considered here as being publicly available to market, if they are available in a publicly accessible forum, URf.eks. on the publicly available portion of the credit-rating institution's website, and that they are also covered in the Foundation's credit rating transition matrices. Credit ratings that are only made available to a small number of companies, cannot be considered as being publicly available.



Procedure for application




24) rating agencies that will offer credit assessments for the determination of risk weights in Denmark, see eksponeringers. § 16, must apply to the FSA for approval as kreditvurderingsinsitut.

25) the application shall contain information equivalent to the "Common Basic Application Pack" set out in the CEBS guidelines "guidelines on the recognition of External Credit Assessment Institutions". The Danish financial supervisory authority may require additional information.



Conversion of credit ratings to the credit quality step




26) Of approved rating agencies FSA publishes on its website, how each of the Department's rating of the rating classes are converted to the credit quality step. Each credit quality steps attached to a weight, as the exposures of the individual credit quality step are weighted with by the estimation of the risk-weighted items.

27) Approved rating agencies must annually inform the Danish financial supervisory authority on the progress of the 3-year-old default frequency and the 10-year average default rate for each approved market segments.



Export credit agencies





28) An export credit agency credit assessments may be used if one of the following conditions are met:

(a)) the credit assessment is a consensus risk score from an export credit agency participating in the OECD "Arrangement on guidelines for Officially Supported Export Credits", or

b) export credit agency publishes its credit assessments, the export credit agency uses the OECD methodology, as well as to the credit assessment is associated with one of the eight minimum export insurance premiums (MEIP) that the OECD methodology prescribes.

29) export credit agencies must not be approved separately by the FSA. Credit institutions, who wish to use export credit agency credit assessments shall demonstrate that the requirements set out in paragraph 28 is complied with. Approved credit ratings are then either:

a) Consensus risk score from the OECD "Arrangement on guidelines for Officially Supported Export Credits", or

(b)) Credit ratings from export credit agencies, which use the OECD methodology, but where it is not established consensus risk score, regardless of whether the respective country has been associated with a consensus risk score.

30) export credit fund credit assessments meet the requirements set out in paragraph 28.

Annex 7

Credit risk mitigation techniques under the standardised approach for credit risk











Table of contents



 



PT.





 

 

 





The scope of the



 



1





 

 

 





Guarantees



 



2-28







Recognised guarantors



 



2







Minimum requirements for guarantees



 



3-9







Statement of guarantees coverage



 



10-13







Calculation of risk-weighted items for exposures covered by a warranty



 



14-17







Adjustment of guarantees coverage for currency-mismatch



 



18-20







Adjustment of guarantees coverage at run time-mismatch



 



21-28







Definition of residual maturity



 



22-25







Run time-mismatch



 



26-28





 

 

 





Credit derivatives



 



29-42







Credit derivatives that can be counted



 



29-31







Minimum requirements for credit derivatives



 



32-34







Statement of credit derivatives coverage



 



35-40







Calculation of risk-weighted items for exposures covered by a credit derivative



 



41-42





 

 

 





Financial securities



 



43-97







The simple method for financial securities



 



45-57







Financial securities, which can be taken into account (the simple method)



 



45-49







Minimum requirements for inclusion of financial securities (the simple method)



 



50-51







Calculation of risk-weighted items for exposures covered by financial securities (the simple method)



 



52-57







Repurchase transactions as well as lending or borrowing transactions in securities (the simple method)



 



54-56







Transactions in derivative financial instruments, which are carried out daily valuations for market value (the simple method)



 



57







The financial collateral comprehensive method



 



58-97







Financial securities, which can be taken into account (the comprehensive method)



 



58-61







Minimum requirements for inclusion of financial securities (the comprehensive method)



 



62







Statement of financial security of coverage (the comprehensive method)



 



63-96





 

 

 





Volatility adjustments after table method 74-80







The use of own estimates of volatility adjustments (the comprehensive method)



 



81-96







Calculation of risk-weighted items for exposures covered by financial securities (the comprehensive method)



 



97





 

 

 





Other credit protection



 



98-105







Cash deposits with third party



 



98-100







Non-rated debt instruments repurchased on request



 



101-102







Life insurance policies



 



103-105





 

 

 





Netting agreements relating to on-balance-sheet debts



 



106





 

 

 





Application of several types of credit risk hedging



 



107











The scope of the





1) this annex provides for the inclusion of the effect of guarantees, credit derivatives and collateral as well as netting of mutual deposits and loans by the estimation of the risk-weighted items, when a company uses the standardised approach for credit risk, see. § 12.



Guarantees

Recognised guarantors




2) Only guarantees from the following warranty manufacturers can be taken into account in the estimation of risk-weighted items:

a) Central governments and Central banks.

(b) Regional and local authorities).

c) multilateral development banks.

d) International organisations, which is allocated a risk weight of 0% for the standardised approach for credit risk.

e) public entities which are treated as exposures to central Governments or Institute for the standardised approach for credit risk.

f) Institutions, see. section 4, paragraph 1.

g) companies, which have a credit assessment by a recognised ECAI, and where the credit assessment equivalent to credit quality step 2 or better in accordance with the rules for the risk weighting of occupational exposures in accordance with the standardised approach for credit risk.



Minimum requirements for guarantees




3) the following requirements must be met in order for a warranty can be taken into account in the estimation of risk-weighted items:

(a)) the guarantee shall be directly, IE. to the company in the event of loss of the exposure can make the warranty applicable directly across from the guarantor.

(b)) the extent of the warranty must be clearly defined and indisputable.

(c)) the guarantee shall not contain clauses whose fulfilment is outside the company's direct control, and as







 

 



in





will give the guarantor the opportunity to unilaterally remove the credit protection,





 

 



(ii)





will increase the effective cost of the guarantee as a result of the deterioration in credit quality of the protected exposure,





 

 



(iii)





can prevent the guarantor are required to make a withdrawal without undue delay if the original borrower fail to pay the amount due, or as





 

 



(iv)





can give the guarantor the opportunity to shorten the duration of the guarantee.





 



(d))





The guarantee shall be legally valid and enforceable in all relevant jurisdictions.














4) to a regaranti, IE. a warranty that guarantees a second guarantee, can be taken into account, the following requirements must be met:

(a)) Regaranti manufacturer shall be one of the following counterparties:







 

 



in





Central Government or central bank.





 

 



(ii)





Regional authority, local authority or public entity, which are treated as exposures to central Governments in accordance with the standardised approach for credit risk.





 

 



(iii)





Multilateral development bank, are assigned a risk weight of 0% for the standardised approach for credit risk.





 

 



(iv)





Public entity that is treated as a Department standard method for credit risk after exposures.





 

 



(v)





International organisations which are assigned a 0% weight under the standardised approach for credit risk.





 



(b))





Regarantien covers all elements of credit risk exposure.





 



(c))





Both the original warranty and regarantien meets the requirements for guarantees in accordance with paragraph 3, except that the regarantien do not have to be direct.





 



(d))





The cover is credible, and there is no information that indicates that the regarantiens coverage is lower than an equivalent direct warranty from the relevant issuer of regarantien.














5) paragraph 4 shall also apply to exposures, which have a regaranti from an issuer that is not covered by paragraph 4 (a), if the exposure is directly guaranteed by an regaranti of the test specified in paragraph 4, point (a), referred to by issuers, and if the conditions laid down in paragraph 4 are fulfilled.

6) the company shall have in place systems to control a possible concentration of risks due to the company's use of guarantees. The company must be able to demonstrate how its strategy regarding the use of guarantees is linked with its management of the overall risk profile.

7) By default in accordance with the warranty or failure of payment from the borrower's side, the company must have the right to, without undue delay to make claims against the guarantor for payment of all charges made during the exposure, for which there is guaranteed. Guarantor payment must not be subject to the condition that the company first makes claims against the borrower. In the case of guarantees for loans secured by residential properties, the requirements in paragraph 3 (c), no. III, and the first two sentences in this article just be met within a total period of 24 months.

8) the guarantee shall be an explicitly documented obligation as guarantor has undertaken.

9) For guarantees granted in the context of mutual guarantee schemes recognised as such by the Danish financial supervisory authority, or issued by, or regaranteres referred to in paragraph 4, point (a), referred to in paragraph shall be regarded as issuers requirements 7 complied with when one of the following conditions are met:

a) company has the right to without undue delay an initial payment from the guarantor, which corresponds to an informed assessment of the amount that represents the guaranteed share of the company's expected economic losses, including losses due to non-payment of interest and other types of payment which the borrower is obliged to make.

(b)) the company can demonstrate that the protective effects, including the loss of the guarantee against losses as a result of the lack of payments which the borrower is obliged to make, justify such treatment.



Statement of guarantees coverage




10) Where warranty applies throughout the duration of exposure, and where the amount paid in the event of loss is in the same currency as the exposure, as are stated coverage as the amount by which the guarantor has undertaken that would pay out if the borrower defaults, not paying, or if other specified credit events occur.

11) If the warranty does not cover all of the borrower's payment obligations related to the exposure, and loss of coverage is reduced, so that it reflects the limited coverage.

12) If the amount paid in the event of loss is in a currency other than the exposure (currency mismatch), the adjustment of coverage contained in paragraphs 18-20.

If the warranty does not cover) 13 throughout the duration of exposure (running time-mismatch), the adjustment of coverage contained in paragraphs 21-28.



Calculation of risk-weighted items for exposures covered by a warranty




14) the portion of the exposure covered by the warranty, including the part covered, adjusted for currency mismatch (G *) or run time-mismatch (GA), see. paragraph 18 and 28, are weighted with guarantor weight according to the standardised approach for credit risk.

15) Exposures or portions of exposures guaranteed by central Governments or central banks, and where the guarantee is entered in the national currency of the borrower and the exposure is funded in the same currency, can be dealt with in accordance with the method set out in annex 3, paragraph 1.


16) When the guarantee do not cover the entire exposure, and they covered and non-covered shares are treated as such, IE. guarantee losses pro rata, the portion of the exposure which is not covered by the warranty, are weighted with the uninsured exposure original weighting according to the standardised approach for credit risk. This also applies where the covered part is leading the non-covered part, IE. where the guarantor rather cover losses up to a given amount, and the company itself covers any further loss in excess of this amount.

17) When the warranty does not cover the entire exposure and the conditions set out in paragraph 16 are not met, URf.eks. when payment from the guarantee first triggered when loss exceeds a threshold value (excess), the exposure shall be weighted in accordance with the provisions concerning the weighting of securitiseringspositioner under the standardised approach for credit risk, see. Annex 11, paragraph 26-50.



Adjustment of guarantees coverage for currency-mismatch




18) If the warranty is expressed in a currency other than the currency in which the exposure is set (currency mismatch), the size of the coverage is reduced through the use of a volatility adjustment (HFX) according to the following formula:







 



G * = G x (1-HFX), where





 



(G) is the amount paid in the event of loss,





 



G * is G adjusted for currency risk, and





 



HFX is the volatility adjustment.














19) HFX set at 11.4%.

20) the company may, in place of the value provided for in section 19, the use of own estimates of volatility adjustment HFX, in accordance with the method specified in that paragraph 81-96.



Adjustment of guarantees coverage at run time-mismatch




21) By the estimation of the risk-weighted exposure amounts for exposures with guarantees rennet time mismatch when the remaining maturity of the guarantee is shorter than the residual maturity of the protected exposure.



Definition of residual maturity




22) an exposure residual maturity is the longest possible remaining time before the borrower under the agreement must meet its obligations, however, a maximum of 5 years. Subject to section 23 shall through a guarantee residual maturity means the time to the earliest date on which the warranty expires or can be terminated by guarantor.

23) When the company has the option to terminate the warranty, and the terms of the agreement, provided the basis for the guarantee, provides an incentive for the company terminates the agreement prior to the expiration date specified in the agreement, the residual maturity of the guarantee shall be considered as being the time to the earliest date on which this option may be used.

24) For guarantees, where there are no provisions to ensure against that warranty expires before the expiration of any grace period, which is required before a breach of the underlying debt obligation can be considered to have occurred as a result of non-payment, the duration of the guarantee is reduced by the length of the grace period.

25) when the guarantees made by a single protection gives have various maturities, used a method similar to that described in paragraph 107.



Run time-mismatch




26) Guarantees that have a residual maturity shorter than that of the underlying exposure and at the same time have a residual maturity of less than three months may not be counted.

27) when running time-mismatch, account shall be taken of the guarantee do not, when:

a) the original term of warranty is less than one year, or

b) exposure is a short term exposure as defined in annex 8, paragraphs 65-67.

28) If a guarantee is available run time-mismatch, should coverage be adjusted according to the following formula:







 



GA = G * x (t t *)/(T t *), where:





 



G * is coverage adjusted for currency mismatch, possibly





 



GA is G * adjusted for serial time-mismatch,





 



t is either the remaining number of years up to the expiry date of the guarantee of a fixed amount in accordance with paragraphs 22-24 or the value of T, whichever of the two is used,





 



T is either the remaining number of years up to the expiry date of exposure calculated in accordance with paragraphs 22-24 or 5 years, whichever of the two is chosen, and





 



t * is 0.25.





 



GA is used hereafter as coverage.











Credit derivatives

Credit derivatives that can be counted




29) When the requirements of paragraphs 32-40 are satisfied, credit protection from one of the following types of credit derivatives be included in connection with the calculation of risk-weighted items:

(a) "credit default swaps")

b) "total return swaps"

(c)) credit linked notes "

30) Instruments, which are composed of, or as the economic equivalent of the types of credit derivatives, as referred to in paragraph 29, can also be taken into account in calculating the risk-weighted items.

31) Credit risk hedging of credit derivatives in the form of "credit default swaps" and "total return swaps" and similar instruments, see. paragraph 30, can only be taken into account in the estimation of risk-weighted items, when protection provides is evidenced by the list of accepted guarantors in paragraph 2.



Minimum requirements for credit derivatives




32) requirements for guarantees contained in paragraphs 3 to 6 shall apply, mutatis mutandis, to credit derivatives.

33) the credit protection may also only be taken into account in calculating the risk-weighted items, when credit derivative satisfies the following conditions:

(a)) The credit events, which leads to the credit derivative triggers payment shall as a minimum include:







 



in





Non-payment of sums due under the terms of the underlying debt obligation which is in force at the time of the non-payment. If the borrower according to the underlying debt obligation has the possibility to postpone payment of overdue amounts in a defined grace period, this must be reflected in the specification of the credit event, and this must not involve a longer grace period than the grace period applicable to the underlying debt obligation.





 



(ii)





Borrower's bankruptcy, insolvency or inability to pay his debts or the borrower's written admission of inability generally to pay its debts as and when this becomes chargeable.





 



(iii)





Restructuring of the underlying debt obligation, including the cancellation or deferral of the payment of the principal, interest or fees, which lead to credit losses.














(b) where the credit events) does not include restructuring of the underlying debt obligation as described in (a) (ii). (iii), the credit protection may nonetheless be included, provided there is a reduction of the inventory of the credit derivative coverage as indicated in paragraph 37.

(c)) For credit derivatives, with the possibility of cash settlement, the company must have a well-functioning valuation procedure, so that the company can determine reliable estimates for the loss. Must be specified in a clearly specified period within which the company has the ability to carry out assessment of the value of the underlying debt obligation, after credit event has occurred.

(d)) Whose conduct is subject to the condition that the company shall transfer the underlying debt obligation to the protection entity, should it of the terms of the underlying debt obligation shall state that any required consent to such a transfer should not be withheld unnecessarily.

e) identity of the parties have the responsibility to determine whether or not a credit event has occurred, must be clearly defined. The definition of their identity must not be the sole responsibility of the originator's protection. The company must have both the right and the opportunity to inform the entity of protection that a credit event has occurred.

34) allowed only mismatch between the underlying obligation and the reference obligation debt under the credit derivative (i.e. the obligation used to determine cash settlement value, or the obligation that can be transferred) or between the underlying debt obligation and the obligation used for determining whether a credit event has occurred, if the following conditions are met:


(a)) the Reference obligation or obligation that is used to determine whether a credit event has occurred, must be assimilated to or trailing the underlying debt obligation.

(b)) the underlying obligation and the reference obligation or debt obligation that is used to determine whether a credit event has occurred, have the same borrower (i.e. the same legal person). In addition, there shall be legally valid transversal clauses between the reference obligation and the underlying debt obligation, which means that if the borrower defaults on other loans, such as this have busy, so this leads to the fact that the reference obligation also considered defaulted. Similarly, due to one of the borrower's loans ahead of time, so that causes the reference obligation also falls due before the time.



Statement of credit derivatives coverage




35) having regard to paragraph 36 below, the provisions of paragraphs 10 and 12-13, concerning the statement of guarantees cover the equivalent of credit derivatives, including also applies the provisions of paragraphs 18-20 on currency mismatch and PT. 21-28 on run time mismatch.

36) the provisions of section 21-28 on run time-mismatch does not apply in respect of credit linked notes ". Run time-mismatch of credit linked notes "will be treated in accordance with the provisions of paragraph 43-97.

37) For credit derivatives, which according to the contract do not consider a credit event as having occurred, if the borrower has been revamping the underlying debt obligation, including have been forgiven or deferred repayment of principal, interest or fees, the credit protection shall be adjusted as follows:

(a)) credit derivative coverage, as measured in accordance with paragraph 10, shall be reduced by 40 per cent, if the amount of protection it has undertaken that would pay, not higher than the level size.

b) If the amount of protection it has undertaken to pay is higher than would exposure size, credit derivative coverage must not be higher than 60 per cent of the size of exposure.

38) when a company obtains credit protection for a number of exposures on conditions that the first default among the exposures shall trigger payment and that this credit provides protection from incident leads to termination, the company may take account of credit protection from the credit derivative in determining the risk weight for the exposure, as by the absence of credit protection would pose the lowest risk-weighted exposure amounts are calculated according to the standardised approach for credit risk.

39) when a company obtains credit protection for a number of exposures on terms that the nth default among the exposures triggers payment of protection provides, the company must only take into account hedging by statement of eksponeringernes risk-weighted items, if the first to the n-1'te default is also subject to credit protection, or if already has occurred n-1 defaults. In such cases, the entity shall apply the method specified in section 38, adapted to the type of credit derivatives in this section.

40) If the company carries out an internal hedge using a credit derivative – IE. uncovers the credit risk of an exposure that is outside the trading book with a credit derivative included in the trading book – to the credit risk transferred to the trading book shall be transferred to one or more third parties for credit protection can be taken into account in calculating the risk-weighted items outside the trading book.



Calculation of risk-weighted items for exposures covered by a credit derivative




41) the provisions of paragraphs 14-17 concerning the calculation of risk-weighted items at guarantees apply accordingly for exposures covered by credit protection through the application of credit derivatives in the form of "total return swaps" and "credit default swaps".

42) For credit linked notes "and similar instruments, see. paragraph 30, as the company issuing the deposit amount from investors will be treated in the relevant instruments as collateral in the form of a cash deposit or cash-like instrument, in accordance with the provisions of paragraph 43-97, however, so as to guarantee coverage is calculated in accordance with the provisions of section 35-40. By a similar instrument shall mean cash a certificate of deposit or similar instrument issued by the lending company.



Financial securities




43) By the estimation of the risk-weighted items, companies can take account of financial securities by using either: the simple method for financial securities regulation. section 45-57, or the financial collateral comprehensive method, see. section 58-97. The company must not, therefore, apply both the one and the other method.

44) the simple method for financial securities can not be used for the calculation of risk-weighted items for credit risk for exposures in the trading book.



The simple method for financial securities

Financial securities, which can be taken into account (the simple method)




45) credit protection from the following financial certainties can be taken into account in the estimation of risk-weighted items, if the minimum requirements set out in paragraphs 50-51 is complied with:

(a)) cash deposits in the company or cash-like instruments in the company's possession.

b) debt instruments issued by central Governments or central banks, and which have a credit assessment by a recognised ECAI or export credit agency approved under the standardised approach for credit risk. Credit assessment shall be equivalent to credit quality step 4 or better exposures against businesses and central Governments and central banks according to the Danish FSA website or home-country classification 4 countries or better according to the rules for the risk weighting of exposures to central Governments in accordance with the standardised approach for credit risk.







 

 



With regard to this sub-item to "debt instruments issued by central Governments or central banks" also include:





 

 



in





Debt instruments issued by regional or local authorities, and as for the standardised approach for credit risk shall be treated as exposures to central Government in whose jurisdiction they are located.





 

 



(ii)





Debt instruments issued by public bodies, and which are treated as exposures to central Governments in accordance with the standardised approach for credit risk.





 

 



(iii)





Debt securities issued by multilateral development banks, and which are assigned a risk weight of 0% for the standardised approach for credit risk.





 

 



(iv)





Debt instruments issued by international organisations, and which are assigned a risk weight of 0% for the standardised approach for credit risk.





 



(c))





Debt instruments issued by institutions, see. section 4, paragraph 1, and which have a credit assessment, drawn up by an approved credit-rating agency, which is equivalent to credit quality step 3 or better for exposures against businesses and central Governments and central banks according to the FSA website.





 



With regard to this sub-item to "debt instruments issued by institutions, see. § 4 (1) "also include:





 



in





Debt instruments issued by regional or local authorities, but as for the standardised approach for credit risk is not treated as exposures against the central Government in whose jurisdiction they are located.





 



(ii)





Debt instruments issued by public bodies, and which are treated as exposures in accordance with the standard method for Institute credit risk.





 



(iii)





Debt securities issued by multilateral development banks, and which are not assigned a risk weight of 0% for the standardised approach for credit risk.





 



(d))






Debt instruments issued by other entities, and which have a credit assessment, drawn up by an approved credit-rating agency, equivalent to credit quality step 3 or better for exposures against businesses and central Governments and central banks according to the FSA website.





 



(e))





Debt instruments which have a credit rating with short term horizons, drawn up by an approved credit-rating agency, equivalent to credit quality step 3 or better for exposures against businesses and central Governments and central banks according to the FSA website.





 



(f))





Shares or debt instruments convertible into shares, in which the shares are included in a main index, URf.eks. The Copenhagen Stock Exchange's OMXC20.





 



(g))





Gold.














46) debt instruments issued by institutions, see. section 4, paragraph 1, and that do not have a credit assessment by a recognised rating agency, can be taken into account in the estimation of risk-weighted items, if they meet the following criteria:

(a)) they are listed on a regulated market or an equivalent foreign market for securities.

(b)) they constitute non-subordinated debt.

(c)) All other rated debt instruments issued by the same institution, without prejudice. section 4, paragraph 1, which is equivalent to the respective debt instrument, and that, if they have a credit assessment by a recognised rating agency, has a credit rating, which is equivalent to credit quality step 3 or better for exposures against businesses and central Governments and central banks according to the FSA website.

(d)) The lending business is not in possession of information which suggests that debt instruments should be assigned a lower credit rating than that specified in subparagraph (c).

(e)) the company can demonstrate to the FSA, that the debt instrument market liquidity is adequate for this treatment.

47) if in relation to paragraph 46 (c) of the existence of two or more credit ratings from approved rating agencies, the entity shall apply the same method as set out in annex 5, paragraph 6-7.

48) units in collective investment schemes referred to in article 6. section 1 of the Act on investment associations and special associations and other collective investment schemes and art. 1 of Directive 85/11/EEC of 20. December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), can be taken into account as a guarantee in respect of the calculation of risk-weighted items, if the following conditions are met:

a) they are subject to daily public price quotations.

(b)) The collective investment scheme is limited to investing in the instruments covered by paragraphs 45 and 46.






 



(B) shall not preclude the shares in collective investment schemes, which use or may use derivative instruments for hedging of positions, can be taken into account as a guarantee in respect of the calculation of risk-weighted items.












49) If a collective investment scheme does not restrict itself to invest in the instruments covered by paragraphs 45 and 46, the shares of collective investment schemes can be counted as collateral with the value of the instruments covered by paragraphs 45 and 46, as they would be if the collective investment scheme had invested in instruments that are not covered by paragraphs 45 and 46 of the widest possible extent permitted in accordance with its mandate. In cases where instruments not covered by paragraphs 45 and 46, can have a negative value because of commitments or contingent liabilities as a result of the ownership, the shares of collective investment schemes can be counted as collateral with the total value of the instruments covered by paragraphs 45 and 46 were deducted from the total value of the instruments, which are not covered by section 45 and 46 If this total is negative.



Minimum requirements for inclusion of financial securities (the simple method)




50) The financial security remaining maturity must be at least as long as the exposure duration, rest-see. the definition in paragraph 22, for it to be taken into account in the estimation of risk-weighted items. However, this does not apply if the agreement on security means that the proceeds from the redemption or maturity are included directly in a security account with the company, as the opposing party cannot dispose of without the company's permission, and that too is as security for the exposure throughout the remaining maturity.

51) the following minimum requirements must also be met before financial certainties can be taken into account in the estimation of risk-weighted items:

a) borrower's credit quality and the value of the security must not have any significant positive correlation. Securities issued by the borrower or by a unit within the same group as the borrower may not be counted. Covered bonds, as the borrower himself has issued, and which fall under the provisions of annex 3, paragraph 27, may, however, be taken into account when they made as security in relation to repurchase transactions, provided that there is no significant positive correlation between the borrower's credit quality and the value of the collateral.

(b)) the company must comply with all contractual and regulatory requirements with regard to the enforcement of the collateral in accordance with the legislation applicable to its interest in safety, and must take all necessary steps to ensure this enforcement access. The company should have made a sufficient legal review confirming the right to enforce the security in all relevant jurisdictions. This review must be carried out on new, when it is necessary to ensure the continued enforcement access.

(c)) the security shall be documented in an appropriate manner, and there must be a clear course of business in order to be able to implement security within a reasonable period of time. The company should establish procedures for the control of risks arising because of the application of security, including risks resulting from inadequate or reduced credit protection, valuation risks, risks related to the termination of the credit protection, concentration risk, caused by the use of safety and the impact on the company's overall risk profile. The company must have a documented policy and practices regarding the types and sizes of securities that are accepted. The company shall calculate the market value of the collateral and make an assessment of the safety of value at least once every six months, and each time the company has reason to believe that its market value has declined significantly. When security kept by third parties, the company must take reasonable precautions to ensure that the third party separates safety from its own assets.



Calculation of risk-weighted items for exposures covered by financial securities (the simple method)




52) For exposures covered by a financial guarantee company can replace counterparty risk weight with the risk weight, according to the standardised approach for credit risk that would be applicable if the company were directly exposed to security. The company can only replace the risk weight on the part of the exposure, which is covered in the security market value. However, the risk weight shall be at least 20 per cent, with the exception of those referred to in paragraphs 53-57-publicized cases, on the part of the exposure, that is covered by the security. The remainder of the exposure must have a corresponding to the risk weight to be applied in accordance with the standardised approach for credit risk to a non-protected exposure against the opposing party.

53) the company can apply a risk weight of 0% on the portion of the exposure which is covered by security when the exposure and the collateral are specified in the same currency, and one of the following conditions are met:

a) safety is a cash deposits or cash-like instrument.

b) safety is made up of debt instruments issued by central Governments or central banks which are assigned a risk weight of 0% for the standardised approach for credit risk and market value of the security is reduced by 20 per cent.






 



In connection with subparagraph (b), the term "debt instruments issued by central Governments or central banks" also the debt instruments listed in paragraph 57 (a) – (c).









Repurchase transactions and lending or borrowing transactions in securities (the simple method)




54) repurchase transactions, as well as lending or borrowing transactions in securities non-trading book may only be included in accordance with the simple method for financial securities, when such events include securities, which can be taken into account in accordance with the provisions of articles 45-48.


55) For transactions that meet all the criteria set out in paragraph 72, the entity shall apply a risk weight of 0% on the portion of the exposure which is covered by the security.

56) For transactions that meet the criteria set out in paragraph 72, except for the fact that the opposing party is not a key market player, see. section 72, paragraph (h), the entity shall apply a risk weight of 10 per cent on the portion of the exposure which is covered by the security.



Transactions in derivative financial instruments, which are carried out daily valuations for market value (the simple method)




57) For derivative financial instruments which are set out in annex 17, which daily are valued at market value, which is secured with cash deposits or cash equivalent instruments, and where there is no currency mismatch, the entity shall apply a risk weight of 0% on the portion of the exposure which is covered by the security. The exposure is calculated according to the rules for the estimation of counterparty risk in annex 16. If the collateral consists of debt securities issued by central Governments or central banks, which have a risk weight of 0% for the standardised approach for credit risk shall apply a risk weight of 10 per cent on the portion of the exposure which is covered by the security.







 



As regards this point to debt instruments issued by central Governments or central banks, also include:





 



(a))





Debt instruments issued by regional or local authorities, and as for the standardised approach for credit risk shall be treated as exposures to central Government in whose jurisdiction they are located.





 



(b))





Debt securities issued by multilateral development banks, and as for the standardised approach for credit risk will be assigned a risk weight of 0%.





 



(c))





Debt instruments issued by international organisations, and as for the standardised approach for credit risk will be assigned a risk weight of 0%.











The financial collateral comprehensive method

Financial securities, which can be taken into account (the comprehensive method)




58) through the use of the financial collateral comprehensive method the company may, by statement of the risk-weighted items include financial securities specified in clause 45-48.

59), in addition to securities described in paragraphs 45-48, the following financial securities shall be included when estimating the risk-weighted items:

a) Shares or debt instruments convertible into shares, and which are not included in a main index but traded on a regulated market or an equivalent foreign market for securities.

b) units in collective investment schemes, which meets the requirements of section 48, but which also can invest in the instruments referred to in point (a) of this paragraph.

c) If a collective investment scheme does not restrict itself to invest in the instruments covered by paragraphs 45, 46 and point (a) of this section, the shares of collective investment schemes can be counted as collateral with the value of the instruments covered by paragraphs 45, 46 and point (a) of this paragraph, as they would be if the collective investment scheme had invested in instruments not covered by paragraphs 45, 46 and point (a) of this section, in the maximum extent permitted in accordance with its mandate. In cases where instruments are not covered by section 45, 46 and point (a) of this paragraph, may have a negative value because of commitments or contingent liabilities as a result of the ownership, the shares of collective investment schemes can be counted as collateral with the total value of the instruments covered by paragraphs 45, 46 and point (a) of this paragraph, minus the total value of the instruments not covered by paragraphs 45, 46 and point (a) of this section, if this total is negative.

60) repurchase transactions, as well as lending or borrowing transactions in securities non-trading book may be included under the financial collateral comprehensive method, when such events include securities, which can be taken into account in accordance with the provisions of articles 58 and 59.

61) repurchase transactions and lending or borrowing transactions in securities in the trading book may be included under the comprehensive method, when such events include securities in the form of assets that may be included in the trading book.



Minimum requirements for inclusion of financial securities (the comprehensive method)




62) the requirements of paragraph 51 shall apply accordingly for the purposes of the financial collateral comprehensive method. Paragraphs 26 and 27, which relates to the guarantees that can not be taken into account in the case of the serial time-mismatch, apply mutatis mutandis to financial securities for the purposes of the comprehensive method of financial securities. Exposure and guarantee expiration date is calculated in accordance with the same principles as for the guarantees prescribed in paragraphs 22-24.



Statement of financial security of coverage (the comprehensive method)




63) in determining the safety of financial cover under the financial collateral comprehensive method, the company must, in order to take account of price volatility, make volatility adjustments of security market value in accordance with paragraphs 73-96.

64) where the security is expressed in a currency other than that of the underlying exposure, made an additional adjustment of safety, reflecting valutakursvolatiliteten in addition to the adjustment for price volatility by virtue of paragraph 63.

65) the company can either apply the values of volatility adjustments set out in the tables in paragraph 76, or to use own estimates of volatility adjustments in accordance with the provisions of paragraph 81-85. The final option assumes that the requirements of section 86-96 is met.

66) If your company uses own estimates of volatility adjustments, it must do so for all instruments. Any instruments that are only included in the unimportant portfolios, however, can be exempted. For such instruments, the volatility adjustments shown in table 1-4, see. section 76, be used.

67) The volatilitetsjusterede size of safety is calculated as indicated below:







 



CVA = C x (1-HC-HFX), where





 



CVA is the volatilitetsjusterede size of safety,





 



C is the market value of the security,





 



HC is the volatility adjustment to be applied to the question security (C), and





 



HFX is the volatility adjustment to be made in the event of currency mismatch between the exposure and the collateral.














68) If the financial security remaining maturity shorter than by exposure to residual maturity, or if there are agreed that the security is withdrawn, before the exposure is due to expire, the credit maturity size is adjusted according to the following formula:







 



CVAM = CVA x (t t *)/(T t *), where:





 



CVA is the volatilitetsjusterede size of the collateral as specified in section 66 or exposure size, whichever of the two is to be used,





 



t is the number of years remaining until expiration date of the credit protection calculated in accordance with the same principles as for guarantees and credit derivatives in point 22-24 or the value of T, whichever of the two is to be used,





 



T is the number of years remaining until expiration date of the exposure measured in the same principles as for guarantees and credit derivatives in point 22-24 or 5 years, whichever of the two is to be used, and





 



t * is 0.25





 



No adjustment for run time-mismatch, if agreement on security means that the proceeds from the redemption or maturity are included directly in a security account with the company, as the opposing party cannot dispose of without the company's permission, and that too is as security for the exposure throughout the remaining maturity.














69) The volatilitetsjusterede size of the exposure is calculated as follows:







 



EVA = E x (1 + HE), where






 



EVA is the volatilitetsjusterede size of the exposure,





 



(E) is calculated according to the standard size of exposure method for credit risk, if the exposure is not guaranteed, see. section 10, paragraph 1, since the off-balance-sheet items included before the use of weights in section 10, paragraph 5 of the basic regulation. Article 12, paragraph 2, and





 



HE is the volatility adjustment to be applied for that exposure (s).





 



For ordinary lending in cash can HE set to 0%, regardless of whether the company uses table method, see. paragraphs 74-80 or own estimates, see. paragraphs 81-96.





 



For transactions in derivative financial instruments be HE to 0 per cent.














70) The fully adjusted size of the exposure, taking into account both the level and the price volatility as safe for security risk-reducing effects, E * shall be determined as follows:







 



E * = max {0, [EVA-CVAM]}, where





 



CVAM is CVA further adjusted for maturity mismatch in accordance with the provisions of paragraph 68.














71) When the total security consists of several financial securities, the volatility adjustment, HC, included in the formula in paragraph 67, is calculated as follows:







 

 





 



AI is the I-th security share of total security, and





 



Hi is the I-th security volatility adjustment.














72) For repurchase transactions and lending or borrowing transactions in securities, the company may instead of using the volatility adjustments are stated in accordance with paragraphs 74-80 and paragraph 81-96, using a volatility adjustment of 0 percent, provided that the following conditions are met. This option does not apply if the company is using the internal models approach, see. Annex 10, paragraph 14-23:

(a)), as well as the security exposure is represented by cash deposits or debt instruments issued by central Governments or central banks in the test specified in paragraph 45 (a), meaning, and they qualify to receive a risk weight of 0% for the standardised approach for credit risk.

(b)) the exposure and the collateral are in the same currency.

(c)) is either the transaction duration no longer than one day, or both the exposure and the collateral are subject to daily valuation at market value.

d) Liquidation of safety must take place within four working days after the lack of margin deposit is found.

(e)) the transaction is executed using a for the type of transaction concerned, established and proven settlement system.

f) Documentation for the agreement is a standard market documentation for repurchase transactions or lending or borrowing transactions in securities, with regard to the securities in question.

g) transaction covered by documentation stating that the transaction may be terminated with immediate effect if the other party fails to fulfil an obligation to deliver cash, securities, or margin, or otherwise fails to perform.

h) the counterparty is a key market player. The main market players include the following:







 



in





The test specified in paragraph 45 (a) of the said units which are assigned a 0% risk weight under the standardised approach for credit risk.





 



(ii)





Banks, building societies, stockbroking firms and investment management companies, as well as similar foreign companies.





 



(iii)





Other financial companies (including insurance companies), if exposures are assigned a risk weight of 20% under the standardised approach for credit risk.





 



(iv)





Regulated collective investment schemes that are subject to the capital requirements or requirements for leverage.





 



(v)





Clearing houses under supervision.














73) company can quantify the volatility adjustments after the table method, see. paragraphs 74-80, or on the basis of its own estimates, see. paragraphs 81-96. The company may not at the same time, use the table method for some certainties and own estimates for other securities.



Volatility adjustments after table method




74) the volatility adjustments to be applied, when your company uses table method of volatility adjustments, is shown in table 1-4 in section 76. The values in table 1-4 provides volatility adjustments for securities and exposures, as the value of employees on a daily basis. Valuation is carried out less frequently than on a daily basis, the values statement as indicated in paragraph 80.

75) in table 1-4 and in paragraphs 77-79, the credit quality step with which the paper attributed to value, be it credit quality step corresponding to the external credit assessment in accordance with the standardised approach for credit risk. In this connection, see paragraph 47 also apply.

76) in table 1-4 split transactions into categories based on the settlement period length. Lending transactions without agreement on ongoing margin payments are included in the tables as transactions with 20-day settlement period. Repurchase transactions as well as lending or borrowing transactions in securities are included as transactions with 5-day settlement period. All other lending transactions, which includes agreement on ongoing margin payments, included transactions with 10-day settlement period.







 

 



 



Table 1:





 



Credit quality step





Residual maturity in years





Volatility adjustments for debt instruments issued by the test specified in paragraph 45 (b), the described units (%)





Volatility adjustments for debt instruments issued by the test specified in paragraph 45 (c) and (d) described units (%)





 

 

 



20-day settlement period





10-day settlement period





5-day settlement period





20-day settlement period





10-day settlement period





5-day settlement period





 



1






1, 5





5.657





4





2.828





11.314





8





5.657





 



2-3






1, 5





8.485





6





4.243





16.971





12





8.485





 



4





All





21.213





15





10.607






-





-





-





 

 

 

 



 



Table 2:





 



Credit quality step for debt securities with a credit rating over a short time horizon





Volatility adjustments for debt instruments issued by the test specified in paragraph 45 (b), the described devices with credit ratings over a short time horizon (per cent)





Volatility adjustments for debt instruments issued by the test specified in paragraph 45 (c) and (d) described devices with credit ratings over a short time horizon (per cent)





 

 



20 day liquidation period





10 day liquidation period





5 day liquidation period





20 day liquidation period





10 day liquidation period





5 day liquidation period





 



1





0.707





0.5





0.354





1.414





1





0.707





 



2-3





1.414





1





0.707





2.828





2





1.414





 

 

 

 

 





Table 3:



 





Volatility adjustments for other types of securities or exposures (%)





20-day settlement period





10-day settlement period





5-day settlement period



 





Stocks in the main index, debt instruments convertible into shares in a main index





21.213





15





10.607



 





Other equity or debt instruments convertible into shares, quoted on a regulated market or an equivalent foreign market for securities





35.355





25





17.678



 





Cash deposits and cash loans





0





0





0



 





Gold





21.213





15





10.607



 



 

 



 



Table 4:





 



Volatility adjustment for currency mismatch (%)





 



20-day settlement period





10-day settlement period





5-day settlement period





 



11.314





8





5.657














77) For shares in collective investment schemes volatility adjustment is the weighted average of the volatility adjustments, taking into account the liquidation period of the transaction pursuant to clause 76 would be applicable to the assets invested in the scheme. If the company is not aware of the assets invested in the scheme, is the volatility adjustment the highest volatility adjustment that would be applicable to any asset that scheme can invest in.

78) For securities which are not covered by paragraphs 58 and 59 of the basic regulation. paragraph 61, and which is borrowed or sold in relation to repurchase transactions or lending or borrowing transactions in securities and derivative financial instruments included in annex 17 within the trading book be volatility adjustment to the same as for shares listed on a regulated market or an equivalent foreign market for securities, but not in a master index.

79) For unrated debt instruments issued by institutions, see. section 4, paragraph 1, and which satisfy the criteria in paragraph 46, the volatility adjustments are the same as for debt instruments issued by institutions, see. section 4, paragraph 1, or of business enterprises with an external credit assessment equivalent to credit quality step 2 or 3 for exposures against businesses and central Governments and central banks according to the FSA website.

80) If a company value hires its certainties and exposures less often than on a daily basis, use larger volatility adjustments than specified in point 74-79. These will be summed up by upscale the volatility adjustments must be used for the daily valuation of collateral and exposures, using the following formula:







 

 





where





 



H is the volatility adjustment to be applied,





 



HM is the volatility adjustment when used daily valuation,





 



N R is the actual number of working days between valuations and





 



TM is the settlement period for that type of transaction.





 



Opskaleringer must be made at the volatility adjustments for both safety, exposure and for currency mismatch, where appropriate.











The use of own estimates of volatility adjustments




81) When debt securities have a credit assessment from a recognised ECAI equivalent to investment grade ", the company may calculate a volatility estimate for each category of debt instruments.

82) in the definition of the relevant categories, the company must take account of debt instruments, the external credit assessment of issuers of debt instruments, residual maturity and their modified duration. Volatility estimates must be representative of the debt instruments, which the company has included within that category.

83) For debt instruments that have a credit assessment from a recognised ECAI equivalent to below "investment grade", as well as for other securities that can be taken into account in calculating the risk-weighted items, see. paragraphs 45-48 and paragraph 58-61, where appropriate, the volatility adjustments are stated for each security.

84) the company must calculate the HFX by currency mismatch for each currency pair.


85) an entity shall estimate the volatility or currency mismatch without taking into account any correlations between the unsecured exposure, safety and/or exchange rates.

86) in the calculation of volatility adjustments, the company must apply a one-sided 99% confidence interval.

87) The historical observation period for calculating volatility adjustments shall, as a minimum, be in one year. For companies that use a weighting method or other methods on the historical observation period, the effective observation period must be of at least one year, IE. the weighted average time interval for individual observations must not be less than six months.

88) the Danish financial supervisory authority may require that a company computes its volatility adjustments on the basis of a shorter observation period than specified in section 86, if the Danish financial supervisory authority in the event of a significant increase in price volatility estimates that this will result in a more accurate estimate.

89) as a starting point, the company can apply the same processing periods as determined for the respective transaction types in paragraph 76.

90) the company can use numbers for the volatility adjustment that is calculated in accordance with shorter or longer settlement periods, and which scaled up or down to the settlement period, which is indicated in paragraph 76 of that type of transaction, by using the following formula:







 

 





 



HM is the volatility adjustment calculated under the relevant settlement period





 



TM is the shorter or longer phase-out period, and





 



HN is the volatility adjustment specified in paragraph 76, based on settlement period specified in paragraph 76 TN.














91) the company must take account of the fact that assets of lower quality can be illiquid. The settlement period will be adjusted upward, when there is doubt as to the safe's liquidity. The company must also identify cases where historical data may lead to an underestimation of the potential volatility, URf.eks. a currency that is pegged to another currency (fixed exchange rate regime). Such cases must be handled using stress scenarios.

92) the company's own estimates of volatility adjustments must be calculated on the basis of the base daily valuation. If a company value hires its certainties and exposures less often than on a daily basis, use a scale factor as indicated in paragraph 80.

93) the company shall update its dataset, at least once every three months, and it should also carry out a review when there is substantial changes in market prices. This implies that volatility adjustments must be calculated at least every three months.

94) volatility estimates must be used in the company's daily risk management, including in relation to its internal limits for exposures.

95) the company should have procedures for monitoring compliance, a document set of guidelines and controls used for the estimation of volatility adjustments, as well as through the integration of such estimates in the company's risk management process.

96) to be regularly carried out an independent review of the company's system for the estimation of volatility adjustments in connection with the company's own internal audit process. There should be a review of the overall system for the estimation of volatility adjustments and for the integration of these adjustments in the company's risk management process at least once a year, and this must include as a minimum:

(a)) the integration of the estimated volatility adjustments into daily risk management.

b) Validation of any significant changes in the procedure for the estimation of volatility adjustments.

c) Control of the consistency, timeliness and reliability of data sources used within the system for the estimation of volatility adjustments, including such data sources by their independence.

(d)) the accuracy and relevance of volatilitetsantagelserne.



Calculation of risk-weighted items for exposures covered by financial securities (the comprehensive method)




97) For exposures subject to financial securities should the non-covered portion of the exposure (E *), as defined in accordance with paragraph 70, is used as the size of exposure in connection with the statement of the risk-weighted items in annex 3. For off-balance-sheet items listed in annex 4 is used E * as the value referred to in article 10, paragraph 5, specified percentages to be applied in order to reach the size of exposure in connection with the statement of the risk-weighted items in annex 3.



Other credit protection

Cash deposits with third party




98) Security in the form of a cash deposit with, or cash equivalent instruments held by a third-party institution, without the existence of a custody agreement, and which is pledged to the lending business, may, when the condition specified in paragraph 100 is met, considered as a guarantee made by third-party institution.

99) By a third-party institution means an institution, without prejudice. section 4, paragraph 1, which is different from the company.

100) in order to be covered by the method in accordance with paragraph 98 should the credit protection shall comply with the following conditions:

(a)) the borrower's claim against the third party institution is pledged in favor of or transferred to the lending business, and this pledge or transfer is legally valid and enforceable in all relevant jurisdictions.

(b)) the third party institution is notified of the pledge or transfer.

(c)) as a result of this notification enables third-party institution only make payments to the lending company or to other parties with the lending company's consent.

d) Pledge or transfer is unconditional and irrevocable.



Non-rated debt instruments repurchased on request




101) debt instruments issued by a third-party institution, without prejudice. paragraph 99, which do not have a credit assessment by a recognised ECAI which do not comply with the criteria set out in section 46, can be counted as a guarantee made by the issuing institution, if the issuing institution is obliged, upon request, to buy back the debt instrument.

102) the coverage of the credit protection by virtue of section 101 is calculated as follows:

(a)) When the debt instrument will be repurchased at face value, ascertained the coverage to this amount.

(b)) When the debt instrument will be repurchased at the market price shall be determined coverage for debt instrument's value assessed in the same way as the debt instruments specified in paragraph 46.



Life insurance policies




103) life insurance policies pledged to the lending business, may, if the conditions in paragraph 105 are fulfilled, be counted as a guarantee made by the company providing the life insurance.

104) coverage of the credit protection pursuant to section 103 are assessed at the life assurance policy buyback value.

105) the following conditions must be fulfilled in order that life insurance policies pledged to the lending company, can be covered by the method prescribed in paragraph 103:

a Company that provides life insurance) may be recognised as issuing of guarantees and credit derivatives, in accordance with paragraph 2.

b) life insurance policy is pledged in favor of or transferred to the lending business.

c) Company that provides life insurance, is informed of a mortgage statement or transfer and must consequently not pay the amount due under the contract without the consent of the lending business.

d) Insurance has a measured withdrawal value that cannot be reduced.

(e)) The lending company has the right to repeal the policy and receive tilbagekøbsværdien appropriately in the event of default by the borrower's side.

f) The lending company informed police of the holder of any missing deposits in accordance with the policy.

g) the credit protection is recognised throughout the loan term. If this is not possible, because the insurance relationship ends before the exposure is due to expire, the company must ensure that the agreement arising from the insurance amount serves as a security for the company until the end of the credit agreement.

h) the pledge or transfer is legally valid and enforceable in all relevant jurisdictions at the time of conclusion of the credit agreement.



Netting agreements relating to on-balance-sheet debts




106) cash deposits in the company that is the subject of a nettingaftale with a counterparty, can be counted as cash collateral for the company's lending to the opposing party in accordance with the provisions of articles 50 and 52-57 or, where appropriate, paragraphs 63-96, when the following conditions are met:

a) Agreement must be legally valid and enforceable in all relevant jurisdictions, including in the event of a counterparty's insolvency or bankruptcy.

(b)) the company shall at all times be able to identify the assets and liabilities covered by nettingaftalen.


(c)) the company must monitor and control the risks associated with that possibility of netting shall lapse.

(d)) the company must monitor and control the relevant exposures on a net basis.



Application of several types of credit risk hedging




107) the company Uses several types of credit protection on a single exposure, the entity shall divide the exposure in those parts, which are covered by the respective types of credit protection (URf.eks. part covered by financial securities, and a part that is covered by a warranty). Risk-weighted items must be calculated separately for each part.

Annex 8

The internal ratings based approach to credit risk (IRB approach)











Table of contents



 



PT.





 

 

 





The scope of the



 



1-2





 

 

 





Calculation of risk-weighted items



 



3-112







Grouping of exposures



 



3-24







State exposures



 



6







Institute exposures



 



7







Occupational exposures



 



8-10







Retail exposures



 



11-19







Equity exposures



 



20







Securitiseringspositioner



 



21-23







Assets without counterparts



 



24





 

 

 





Risk parameters



 



25-67







Probability of default (PD)



 



26-48







Definition of counterparty



 



29-30







Definition of default



 



31-38







PD for business, institution and Government exposures



 



39-43







PD for retail exposures



 



44-46







PD for equity exposures under the PD/LGD method



 



47-48







Conversion Factor (CF)



 



49







Loss given default (LGD)



 



50-60







LGD for business, institution and Government exposures



 



53-56







LGD for retail exposures



 



57-59







LGD for equity exposures under the PD/LGD method



 



60







Maturity (M)



 



61-67







Prescribed values for M



 



62-63







Own calculations of M



 



64-67





 

 

 





Risk weights and formulas



 



68-112







Risk weights for the Commerce Department and State exposures



 



73-85







Risk weights for already defaulted exposures



 



78-79







The risk weight by recognition of "double default effect" of guarantees and credit derivatives



 



80-81







Specialized lending (table method)



 



82-85







Risk weights for retail exposures



 



86-90







Risk weights for equity exposures



 



91-103







The simple risk weight method



 



94-96







PD/LGD method



 



97-100







The var method



 



101-103







Risk-weighted items for assets without counterparts



 



104-105







Risk-weighted items for dilution risk of purchased receivables



 



106-107







Risk-weighted items for collective investment schemes



 



108-112





 

 

 





Minimum requirements for the use of the IRB approach



 



113-242







Management and risk control



 



116-124







The Board of Directors ' and management's tasks



 



116-119







Credit risk control unit



 



120-123







Internal audit



 



124







Rating systems



 



125-165








Ratingsystemets structure



 



128-143







Business, institution and Government exposures



 



133-139







Retail exposures



 



140-143







Tracking of ratingklasser or pools



 



144-155







Business, institution and Government exposures



 



146-152







Retail exposures



 



153-154







Overrides



 



155







The use of models



 



156







Documentation of a rating system



 



157-160







Maintenance of data



 



161-164







Business, institution and Government exposures



 



162-163







Retail exposures



 



164







Stress test



 



165







Estimation of risk parameters



 



166-222







General requirements for estimation of risk parameters



 



166-167







Purchased receivables



 



176







Specific requirements for the estimation of risk parameter PD



 



177-191







Business, institution and Government exposures



 



177-181







Acquired business claims



 



182-183







Retail exposures



 



184-185







Purchased retail receivables



 



186-187







Data length (business, institution and Government exposures and acquired

business claims)



 



188-189







Data length (Retail exposures and purchased retail receivables)



 



190-191







Specific requirements for the estimation of risk parameter LGD



 



192-205







Special provisions for retail exposures



 



201-203







Data length (business, institution and Government exposures)



 



204







Data length (retail exposures)



 



205







Specific requirements for the estimation of risk parameter CF



 



206-212







Minimum requirements relating to guarantees and credit derivatives



 



213-222







Recognised guarantees and guarantors



 



216-220







Credit derivatives



 



221-222







The validation process



 



223-242







Minimum requirements for specific exposure categories



 



228-242







Minimum requirements for purchased receivables



 



228-233







Legal security



 



229







The effectiveness of monitoring systems



 



230







Efficiency in the handling of problematic purchased receivables



 



231







Effectiveness of systems for the management of purchased receivables, credit availability and deposits



 



232







Compliance with the company's internal policies and business procedures



 



233







Minimum requirements for use of own models for the estimation of risk-adjusted equity exposures



 



234-242







Risk quantification



 



234







Risk management and controls



 



235







Validation and documentation



 



236-242





 

 

 





Calculation and treatment of expected losses



 



243-256







Calculation of expected loss amounts



 



243-255







Treatment of expected losses (EL)



 



256











The scope of the





1) this annex provides for the calculation of risk-weighted items for credit risk through the use of the internal ratings based approach (paragraph 3-112), see. section 19 (1), the minimum requirements for the use of the internal ratings based approach (paragraphs 113-242), see. section 20, as well as the estimation of expected loss and the difference between the expected loss and the accounting value adjustments and provisions (paragraph 243-256), see. section 28.

2) annex 21 contains a description of the requirements for applications for use of the IRB approach.



Calculation of risk-weighted items

Grouping of exposures




3) Each exposure shall be placed in one of the following exposure categories:

a) State exposures

(b)) Department exposures

c) Occupational exposures

d) Retail exposures

e) Equity exposures

f) Securitiseringspositioner

g) Assets without counterparts

4) By an exposure means an asset or off-balance-sheet entry.

5) the company shall apply a consistent method for classification of exposures in the respective exposure categories.



State exposures




6) By State exposures shall mean:

a) Exposures against central Governments and central banks.

b) Exposures to regional authorities, local authorities or public sector entities which are treated as exposures to central Governments and central banks according to the standardised approach for credit risk.

c) Exposures on multilateral development banks and international organisations shall be assigned a risk weight of 0% for the standardised approach for credit risk.



Institute exposures




7) at the Institute exposures shall mean:

a) Exposures against credit institutions, stockbroking companies, investment management firms and similar foreign companies.

b) Exposures to regional and local authorities, which are not treated as exposures against central Governments and central banks according to the standardised approach for credit risk.

c) Exposures against public entities which are treated as exposures in accordance with the standard method for Institute credit risk.

d) Exposures against multilateral development banks which not shall be assigned a risk weight of 0% for the standardised approach for credit risk.

e) Exposures from regulated markets or equivalent foreign markets for securities.



Occupational exposures




8) By occupational exposures shall be taken to mean exposures that cannot be placed in any of the other exposure categories.

9) in the field of occupational exposures to the company in its portfolio to identify exposures that constitute specialized lending.

10) By specialized lending means business exposures with the following characteristics:

a) exposure is against a unit that has been specifically created to finance and/or manage physical assets.

(b)) the contractual terms giving the lender a significant degree of control over assets and the return from the operation of the assets.

(c)) the primary source of repayment of the loan, the return from the operation of the funded assets rather than one of the assets independent ability to repay from professional activities with a broader aim than operation of the funded assets.



Retail exposures




11) By retail exposures shall be taken to mean exposures against private customers as well as small commercial enterprises, where exposures are part of a portfolio consisting of a large number of exposures that are handled in a consistent way.

12) For exposures to smaller businesses, which is placed under the retail exposures, applies to the total amount that the opposing party or a group of connected counterparties owed the company and the company's parent company, and their subsidiaries, may not exceed an amount at the equivalent of 1 million. euro. The company must have taken reasonable steps to ensure that this is the case. The total amount included in the amount drawn, but not the counterparty's share of lending, where there is safety in residential buildings. The share of lending, where there is no safety in residential properties, to be included in the total.

13) small business enterprises are placed in retail exposure category, in the company's credit risk management are handled separately from commercial entities, which are placed in vocational exposure category.

14) the company must have a business times for cases where the exposure limit at the equivalent of 1 million. the euro is exceeded. In this situation, the company must distinguish between temporary and permanent exceedances of the limit:

a) Temporary exceedances: at the temporary exceedance means situations where the limit is exceeded only temporarily due to short-term variations in exposure, and where the breach is not significant. Essential refers in this regard to the number and size of the individual excesses in relation to border on the equivalent of 1 million. euro. The company must have clearly defined internal rules, which sets out the circumstances under which a small commercial enterprise may remain in retail exposure category, despite the fact that the exposure has exceeded the limit on the equivalent of 1 million. euro. This limit shall be monitored by the company. By temporary exceedances can be in rating systems for retail exposures exposure and continue to be handled separately from the occupational exposures in credit risk management. By the estimation of the risk-weighted items, the risk weight formula for occupational exposures are used.

b) Permanent exceedances: By permanent exposure must be moved over into the commercial excesses of exposure category and handled as an occupational exposure in the company's credit risk management. If the rating systems are used for retail exposure category, meet the requirements for rating systems in occupational exposure category, it is not necessary to make changes to the rating systems. If this is not the case, the rating systems for occupational exposure category is used. By the estimation of the risk-weighted items, the risk weight formula for occupational exposures are used.

15) Retail exposures should be divided in the following three subcategories:

a) Retail exposures secured by real estate

b) Qualifying revolving retail exposures

c) Other retail exposures

16) By retail exposures secured by real estate means retail exposures, which are secured by real estate, and where the property taken into account as collateral in estimates of loss given default (LGD) or the expected loss (EL), where this is relevant.

17) By qualified revolving retail exposures shall be taken to mean retail exposures that fulfil the following requirements:

(a)) the exposures are against private customers.

(b)) the exposures are revolving and unsecured, and they may immediately be terminated by the company without conditions, in respect of the unused part of the facility. Revolving exposures are defined in this context as exposures, where debts owed by private customers varies, depending on how much these private clients choose to borrow or pay back, up to the limit, the company has provided. The unused part of the facility is assumed to be free without conditions if the terms puts the company in a position to terminate the facility to the extent that it is permitted under consumer protection laws and related legislation. The company may waive the requirement that the exposure must be unsecured, when it comes to revolving credit facilities in connection with a lønkonto. In this case the amount derived from the security or guarantee, etc., not included in the LGD or EL-the estimate, where relevant.

(c)) the exposures across from each private customer in sub-category shall be a maximum of an amount equivalent to EUR 100,000.

(d)) the company is able to in each PD-intervals to demonstrate that casualty rates exhibit low volatility compared with tabs on the box average volatilitetsniveau for other exposures.

(e)) the company can demonstrate that the fundamental risk characteristics of the portfolio of exposures, which are treated as qualifying revolving retail exposures, equivalent to the risk characteristics of such exposures, including the expected losses are likely to be covered by the current profit on facilities in the portfolio.

18) By other retail exposures shall be taken to mean exposures which are not placed in the categories of retail exposures secured by real estate and qualifying revolving retail exposures. Amounts derived from any security in the form of real property, shall not be included in the LGD or, where appropriate, EL-estimate for exposures within this subcategory.

19) Acquired the business claims can be placed in the retail exposure category under other retail exposures if the company meets the minimum requirements set out in paragraphs 228-233, and if it would be unduly burdensome for the company to take advantage of provisions for occupational exposures, and if the following requirements are also met:

(a)) the company has acquired the claims by independent third-party sellers, and no exposures, which directly or indirectly shall be deleted from the company, included in the claims.


(b)) The purchased receivables is established between the seller and the customer in accordance with the principle of independent parties. Intragroup receivables and receivables where there is a set-off between units, as both buyer and seller to one another, do not meet the requirements.

(c)) the company has a claim on the entire yield from the purchased receivables or on a proportional share of the return.

d) Portfolio of purchased receivables is veldiversificeret.



Equity exposures




20) for equity exposures shall be taken to mean the following:

(a)) non-debt-based exposures constituting a trailing residual claim on the issuer's assets or income.

b) Debt-based exposures, which in terms of economic content corresponds to the exposures referred to in point (a).



Securitiseringspositioner




21) By securitiseringspositioner securitiseringer, cf. purposes exposures against § 4, paragraph 10 and to annex 11, paragraph 3, subparagraph (a).

22) For purchased receivables can purchase discounts, collateral and guarantees that provide first-loss protection across from losses as a result of default and dilution, or both, are treated as "first-loss positions in the securitisation transactions.

23) risk-weighted items for securitiseringspositioner is calculated in accordance with the provisions of annex 11, paragraph 51-89 of the basic regulation. section 30.



Assets without counterparts




24) by assets without counterparts means assets that do not involve that required a performance of a counterparty. This includes, among other things, tangible assets and the residual value of leased assets.



Risk parameters




25) in item 26-67 is defined risk parameters used for the calculation of risk-weighted items, respectively, probability of default (PD), conversion factor (CF) and loss given default (LGD) and maturity (M).



Probability of default (PD)




26) By the probability of default (PD) means the likelihood that a counterparty defaults on an exposure within a year.

27) an entity shall estimate PDS for enterprise, Institute, retail and Government exposures, as well as for equity exposures under the PD/LGD approach, see. paragraphs 97-100.

28) PD for defaulted exposures must be 100 per cent.



Definition of counterparty




29) each natural or legal person to whom the company is exposed against, is considered a counterpart to the company.

30) depends on the rating of the counterparty, which forms part of a group of connected counterparties, to a considerable extent by the membership of the group, and consider the company that one counterparty defaults implies that all counterparties in the group will fail to keep, the company must consider the Group of connected counterparties as one counterparty.



Definition of default




31) It must be regarded as default by the counterparty's page, if at least one of the following conditions are met:

(a)), the company believes it is unlikely that the opposing party fully meet all its debt obligations to the company, the company's parent company or their affiliates without the company resorts to measures, so as to realize any indemnities, warranties or similar.

(b)) the opposing party have been in arrears for more than 90 days with a significant amount of the basic regulation. paragraph 34, against the company, the company's parent company or their affiliates.

32) By overdraft shall be deemed to be in arrears, the other party when a granted credit limit has been exceeded, or the opposing party has been granted a credit limit that is lower than the current receivables, or has withdrawn an amount without permission.

33) as far as the credit card shall be deemed to be in arrears, the other party when the due date for an agreed minimum deposit is exceeded.

34) an amount in arrears may be regarded as essential if it exceeds the following limits:

a) 1,000 DKK for retail exposures

b) 10,000 DKK for all other exposures.

35) in the case of retail exposures can the company apply the definition of default at the facility level.

36) the following factors may indicate that it is unlikely that the counterparty will redeem the debt obligation referred to in article 6. paragraph 31 (a):

(a)) the company ceases to lead revenue accrued interest on the debt obligation.

(b)) the company carries out a write-down of debt obligation against the background of a significant deterioration in credit quality, which has taken place after the company has gotten the exposure.

(c)) the company sells debt obligation with a significant credit-related economic losses.

(d)) the company agrees a reorganisation of the counterparty's distressed debt obligation, and this is expected to lead to a reduction of debt obligation as a result of a substantial remission of the debt or postponement of installments, interest or fees. By using PD/LGD method, see. paragraphs 97-100, this includes equity exposures in distressed companies, where the company participates in a revamp of the distressed corporate equity.

e) company has filed for bankruptcy against the opposing party or requested a similar measure against the other party's liability to the company, the company's parent company or their affiliates.

f) the opposing party has filed for bankruptcy, has been declared bankrupt or has obtained similar protection, which means that the other party may waive or delay the repayment of the debt obligation to the company, the company's parent company or their affiliates.

37) the company Uses external data that is not in accordance with the definition of default, it must be able to demonstrate to the FSA, that appropriate adjustments have been made to obtain a general conformity with the definition of default.

38) where company believes that another party no longer meets any of the criteria set out in the definition of default, the company must make a new rating. If the company later determines that the definition of a breach are met, it shall be deemed to be a new default.



PD for business, institution and Government exposures




39) the company must use own PD estimates for business, institution and Government exposures in accordance with the methods specified in paragraphs 177-183 and paragraph 188-189.

40) Notwithstanding paragraph 39 should be PD for enterprise and Institute exposures at least 0.03%.

41) For acquired business claims, which the company cannot demonstrate that its PD estimates meet the minimum requirements set out in paragraphs 166-222, but where the minimum requirements set out in paragraph business acquired claims to 228-233 is fulfilled, used the following methods:

(a)) For non-subordinated acquired business claims are assessed PD as the company's estimate of EL divided by LGD for these claims.

(b)) For subordinated purchased corporate receivables PD shall be set to the company's estimate of EL.

c) if the entity has authorisation to use own estimates of LGDS for occupational exposures, and if it can split its estimates for purchased corporate receivables in electricity respectively Pds and Lgds with integrity, can estimate for PD is used.

42) With respect to dilution risk of purchased corporate receivables PD shall be at the rate of the estimate for EL for dilution risk. The company has authorization to use own estimates of LGDS for occupational exposures, and if it can split its EL estimates for dilution risk of purchased corporate receivables for respectively in Pds and Lgds with integrity, can estimate for PD is used.

43) By dilution of purchased receivables shall be the fact that claims value is reduced as a result of errors or omissions relating to the product supplied or the service provided performance or as a result of claims from the buyer across the street sells, which may be invoked in relation to the claim.



PD for retail exposures




44) the company must use own PD estimates for retail exposures in accordance with the methods specified in paragraphs 184-187 and paragraph 190-191.

45) Notwithstanding paragraph 44 should be PD for retail exposures at least 0.03%.

46) For dilution risk of purchased receivables PD shall be at the rate of the estimate for EL for dilution risk. If the company can split the company's estimate for dilution risk of purchased electricity debts in Pds and Lgds respectively with integrity, can estimate for PD is used.



PD for equity exposures under the PD/LGD method




47) the company must use own PD estimates for equity exposures under the PD/LGD approach in accordance with the method prescribed in paragraph 97-100.

48) Notwithstanding paragraph 47 to be PD for equity exposures under the PD/LGD approach must be at least:

a) 0.09% for exposures in equities quoted on a regulated market or an equivalent foreign market for securities, and where the investment is part of a longer-lasting customer relationships.

b) 0.09% for exposures in unlisted shares, where ROI is based on regular and periodic cash flows that are not due to exchange rate gains.

c) 0.40% for other exposures in equities quoted on a regulated market or an equivalent foreign market for securities than referred to in (a), including other short positions in listed shares, see. paragraph 95.


d) 1.25% for all other equity exposures including other short positions, see. paragraph 95.



Conversion Factor (CF)




49) By conversion factor (CF) means the proportion of the current non-drawn amount on an obligation, which is expected to be drawn by default. The commitment must be measured with the communication planned amount, unless it appropriated but not communication planned amounts on existing facilities is higher. CF is included in determining exposure size, see. § 27, paragraph 8, which is included in the risk weight formulas in paragraph 68-112.



Loss given default (LGD)




50) By economic loss means the total losses on exposures, including the effect of all the significant factors that could affect the net present value of payment flows and including significant direct and indirect recovery costs.

51) At present value calculation of payment flows must take account of the uncertainty in the recovery, URf.eks. the uncertainty associated with realization of securities and guarantees. In the NPV calculation should such risks is reflected in the value of securities and guarantees in the discount factor or in the timing of revenue and expenditure.

52) at the loss given default (LGD) means the economic loss on an exposure in relation to the size of exposure after application of conversion factors, see. paragraph 49:






 

 









LGD for business, institution and Government exposures




53) the company has not permitted to use own estimates of LGDS for business, institution and Government exposures, it shall apply the following LGD values for these exposures:

(a)) For non-subordinated exposures without recognised collateral used a 45% LGD.

b) subordinated exposures without recognition Of collateral used a 75% LGD.

(c)) the company can take into account the effect of credit protection on LGD in accordance with Annex 9.

d) covered bonds as defined in annex 3, paragraph 27, used a LGD of 12.5% of the basic regulation. However, section 70, paragraph 6.

e) of purchased non-subordinated business claims, which the company cannot demonstrate that estimates of PD meets the minimum requirements of paragraph 166-222, but where the minimum requirements set out in paragraph 228 of acquired feedings-233 is fulfilled, used a LGD on 45 per cent.

f) For purchased corporate receivables, which subordinated the company cannot demonstrate that estimates of PD meets the minimum requirements of paragraph 166-222, but where the minimum requirements set out in paragraph 228 of acquired feedings-233 is fulfilled, used an LGD of 100 per cent.

g) For dilution risk at the acquired business claims used a 75% LGD.

54) If the company is permitted to use own estimates of LGDS for occupational exposures, and if it can split time estimates for purchased corporate receivables ELECTRICITY respectively in Pds and Lgds with integrity, the company may use own estimates of LGDS for purchased corporate receivables in respect of dilution risk and default risk.

55) the company has permission to use own estimates of LGDS for business, institution and Government exposures, it can take into account the effect of guarantees and credit derivatives by adjusting PD and/or LGD subject to minimum requirements as specified in section 213-222 are met. The company may not, however, apply an adjusted PD or LGD, so that the adjusted risk weight would be lower than the equivalent of a comparable direct exposure against protection entity.

56) By use of the formula of double default effect, see. paragraph 80, an LGD of a comparable direct exposure against protection entity be either an LGD corresponding to an uncovered exposure against protection entity or an uncovered exposure against the opposing party, depending on the amount recovered in the event of default on the part of both the counterparty and protection entity, in the warranty duration depends on the financial situation of the adjudicating entity or the counterparty protection respectively.



LGD for retail exposures




57) the company must use own estimates of lgds, taking into account the minimum requirements set out in paragraphs 166-176 and paragraph 192-205, see. However, section 70, paragraph 7. For dilution risk of purchased receivables an LGD shall be used on 75%. The company may split time estimates for dilution risk of purchased ELECTRICITY debts in Pds and Lgds with integrity, the company may use own estimates of LGDS for purchased receivables.

58) the effect of guarantees and credit derivatives, which covers a single exposure or a pool of exposures, can be taken into account by either adapting PD and/or LGD subject to minimum requirements as specified in section 213-222 are met. The company may not, however, apply an adjusted PD or LGD, so that the adjusted risk weight would be lower than the equivalent of a comparable direct exposure against protection entity.

59) Notwithstanding paragraph 58, an LGD of a comparable direct exposure against protection entity for the purposes of the formula of double default effect, see. paragraph 80, either be an LGD corresponding to an uncovered exposure against protection entity or an uncovered exposure against the opposing party, depending on whether the amount recovered in the event of default on the part of both the counterparty and protection entity, in the warranty duration depends on the financial situation of the adjudicating entity or the counterparty protection respectively.



LGD for equity exposures under the PD/LGD method




60) For all equity exposures used an LGD of 90 per cent.



Maturity (M)




61) maturity (M) is included in the calculation of risk-weighted items for business, institution and Government exposures and for equity exposures under the PD/LGD method.



Prescribed values of M




62) For business, institution and Government exposures, where the company is not permitted to use own estimates of LGDS and CF, used the following maturities (M):

(a) 0.5 year) for exposures in relation to repurchase transactions and associated with the lending or borrowing of securities or commodities.

b) 2.5 years for all other exposures.

63) For all equity exposures under the PD/LGD approach used a maturity (M) at 5 years.



Own calculations of M




64), the company has permitted to use own estimates of LGDS and CF for business, institution and Government exposures, it shall calculate the effective maturity of each exposure within these categories as listed in point (a) – (g) below, see. However, paragraph 65. In all cases, the annuity may not exceed 5 years.

a) maturity (M) for instruments, where the future payment flows are known, must be calculated using the following formula:







 

 

 





 

 



where BSt indicates the payments (installments, interest and fees), the counterparty is obliged to pay in period t. For instruments with a variable interest rate, payment flows are assumed to be under the given assumptions about future interest in the instrument's maturity, as the company must be able to specify in the face of the Danish financial supervisory authority.





 



(b))





Maturity (M) for derivative financial instruments, which are subject to a nettingaftale, is determined as the weighted average remaining maturity of the exposures. The maturity weighted in proportion to the nominal value of each exposure, is included in the nettingaftalen. The length must be at least 1 year.





 



(c))





Maturity (M) for exposures covered by a nettingaftale, and which occurs on the basis of transactions with fully secured or almost fully hedged derivative financial instruments referred to in article 6. Annex 17, and transactions with fully or almost fully hedged margin lending transactions, must be calculated on the basis of weighted average remaining maturity. The maturity weighted in proportion to the nominal value of each transaction. The length must be at least 10 days.





 



(d))





The company has authorization to use own PD estimates for purchased corporate receivables in accordance with the method described in paragraph 41, the maturity of the drawn amount is fixed at the weighted average maturity of the purchased receivables, where the annuity shall be weighted by the size of the claim, subject to a minimum of 90 days. The same maturity is also used for undrawn amount included in facilities with purchase commitments, provided that the agreed facility provides for early redemption or other elements that protect the purchasing company against significant deterioration of the quality of future claims, it has committed itself to buying in the facility's maturity. In the absence of such effective protection for unused amount maturity is calculated as the sum of the longest duration for a potential claim, which forms part of the contract, and the purchase of the facility, subject to a minimum of 90 days remaining maturity.





 



(e))






For instruments other than those referred to in paragraph 64 here, or if the company is unable to calculate the annuity as provided for in paragraph (a), the annuity shall be increased to the maximum residual maturity (measured in years), as the other party has the opportunity to exploit to meet all its contractual obligations. Run time must be at least 1 year.





 



(f))





Use the internal model method in annex 16 to the calculation of the size of the exposure, and exceeds the length of the longest contract in nettinggruppen of the basic regulation. section 47, paragraph 2, 1 year, the annuity for exposures covered by the internal model method is calculated according to the following formula:





 

 

 





 

 



When DFC is the risk-free discount factor for future time tk. The remaining symbols are defined in annex 16, paragraph 43-54. Notwithstanding the foregoing, a company that uses an internal model for the calculation of a one-sided credit value adjustment, apply for FSA authorisation to use the effective duration is estimated using such a model, the maturity (M). The formula in subparagraph (a) shall apply to netting sets with a where the original maturity for all contracts is less than one year, with the exception of transactions referred to in paragraph 65. By a one-sided credit value adjustment means an adjustment of the value of the credit risk to "mid-market"-valuation of the portfolio of transactions with a counterparty. The adjustment reflects the market's assessment of the value of the credit risk of the counterparty.





 



(g))





Maturity (M), which is included in the formula for risk-weighted items in paragraph 73, fixed at the maturity of the credit protection, subject to a minimum of 1 year.














65) regardless of the formula in paragraph 64 (a), and the provisions of paragraph 64 (a), (b), (d) and (e) is the shortest allowable maturity of at least one day for the following:

a) Fully or almost fully hedged derivative financial instruments specified in annex 17.

(b)) Fully or almost fully hedged margin lending transactions and repurchase agreements, as well as transactions relating to lending or borrowing securities or commodities.

(c)) It is assumed that the documentation requires daily margin lending and refinancing of valuation as well as provisions that make it possible to launch immediate liquidation or setoff of collateral in case of default or lack of refinancing of margin lending.

66) the shortest allowable maturity (M) is at least one day for other short-term exposures, such as:

(a)) of short-term credits and deposits.

(b) payment claims and prepaid expenses).

67) section 66 requires that those exposures are not part of the company's ongoing funding of the counterparty. The specific circumstances must be examined in each individual case and could be documented against the FSA.



Risk weights and formulas




68) risk-weighted items on credit risk for exposures belonging to one of the exposure categories of State Department exposures, exposures, occupational exposures, retail exposures, equity exposures and assets without counterparts, must be calculated in accordance with paragraph 69-112. This is true unless the exposures shall be deducted from the capital base.

69) risk-weighted items for exposures that have been securitised, and for exposures against securitiseringer is calculated in accordance with Annex 11.

70) risk-weighted items for dilution risk of purchased receivables shall be calculated in accordance with paragraphs 106 and 107. If a company has full recourse against the seller in the event of loss of the purchased receivables as a result of default or watering-down, can the company fail to comply with the specific provisions governing purchased receivables in articles 106 and 107 and the calculation of expected loss amounts in accordance with section 255. The exposure can in this case be treated as an exposure against the seller with a security interest in receivables.

71) Statement of the risk-weighted items for credit risk and dilution risk shall be based on the relevant risk parameters, see. item 25-67, which is associated with that exposure, see. However, paragraph 82.

72) in the formulas below denotes N (∙) the cumulative normal distribution function for a standard normal random variable distributed IE. the likelihood that a normal distributed random variable with mean 0 and variance 1 is less than or equal to (∙). N-1 (∙) denotes the inverse of this function.



Risk weights for the Commerce Department and State exposures




73) risk-weighted items for business, institution and Government exposures is calculated as the risk weight (RW) multiplied by the size of exposure. Risk weight (RW) is calculated according to the following formulas:







 

 





 



where





 



The maturity factor (b) = (0,11852-0,05478 * ln (PD)) 2 and





 

 














74) If PD for the counterparty is zero, see. However, paragraph 40, the risk weight (RW) for the exposure also be zero.

75) For occupational exposures, where the other party's total annual turnover is less than the equivalent of 50 million. the euro, the company may choose to apply the following correlation formula for the estimation of the risk weight:







 

 





 



where S is the total annual turnover in million. euro, if S lies between 5 and 50 million. euro. For exposures against counterparties that are part of a group of companies, is the S Group's total consolidated annual turnover.














76) If the annual turnover is less than the equivalent of 5 million. the euro, the S in the formula in paragraph 75 to 5 million. euro. For purchased receivables the aggregate annual turnover is calculated as the weighted average of the turnover of the individual counterparties in the pool, where they shall be weighted in accordance with the individual eksponeringers size.

77) the company must in the formula in paragraph 75 replace total turnover with the counterpart's total assets, if the total amount of the turnover is not a meaningful indicator of counterparty's size, and if the total assets is a more meaningful indicator than total revenue.



Risk weights for already defaulted exposures




78), the risk weight (RW) for already defaulted exposures (PD = 1) must be zero if the company uses the prescribed values of LGD, see. paragraph 53.

79) If your company uses its own values of LGD, the risk weight (RW) for defaulted exposures are stated as follows:







 



RW = max {0, (LGD-ELBE) * 12.5},





 



where ELBE indicates the company's best estimate for an expected loss (EL) on a defaulted exposure and where LGD is calculated in accordance with paragraph 199.











The risk weight by recognition of "double default effect" of guarantees and credit derivatives




80) the risk weight of exposures that comply with the requirements of Annex 9, paragraph 14-16, (RWDD) can be adjusted by the company in accordance with the following formula:







 



RWDD = RW * (0,15 + 160 * PDpp),





 



where





 



PDpp = PD employer protection














81) RW to be calculated using the relevant risk weight formulas for the exposure, the counterparty's PD and LGD of a comparable direct exposure against protection entity. The maturity factor (b) shall be calculated using the minimum of either the employer's or counterparty's PD PD protection.



Specialized lending (table method)




82) if the entity in connection with specialized lending cannot demonstrate that its PD estimates meet the minimum requirements set out in paragraphs 166-222, the risk weights in the table must be used for these exposures (table method).







 



Residual maturity





Category 1





Category 2






Category 3





Category 4





Category 5





 



During the 2 ½ years





50 per cent.





70 per cent.





115 per cent.





250 per cent.





0 per cent.





 



2 ½ years or above





70 per cent.





90 per cent.





115 per cent.





250 per cent.





0 per cent.














83) FSA can regardless of residual maturity allow the company apply a risk weight of 50% to exposures in category 1 and a risk weight of 70% to exposures in category 2, provided that the company's credit policy and credit risk management tools are conditional on the fact that the counterparties are very solid in these categories.

84) Category 1-4, see. the table in paragraph 82, includes exposures that have not defaulted, and category 5, see. the table in paragraph 82, includes defaulted exposures. Location of exposures in category 1-4 must be done according to the risk associated with those exposures where category 1 is for the exposures that have the lowest risk, and category 4 is for the exposures that have the highest risk. The company must have drawn up guidelines, systems and procedures, so that the placement of exposures in the respective categories is done on a consistent basis. The Danish financial supervisory authority must approve the company's guidelines.

85) the company's criteria for determining the location of exposures in category 1-4 must take into account the following five factors:

(a)) The financial strength

(b)) The political and legislative environment

c) transactions and/or the nature of such

(d) enterprises involved Any strength)

(e)) any revenue from partnerships and securities portfolios.



Risk weights for retail exposures




86) risk-weighted items for retail exposures is calculated as the risk weight (RW) multiplied by the size of exposure.






 

 












87) For retail exposures secured by real estate using a correlation (R) of 0.15.

88) For qualifying revolving retail exposures using a correlation (R) of 0.04.

89) risk-weighted items for exposures against smaller enterprises may, provided that they fulfil the requirements of Annex 9, paragraph 14-16 shall be determined in accordance with paragraphs 80-81 in this annex.

90) Risk weight (RW) for already defaulted exposures (PD = 1) shall be calculated as follows:







 



RW = max {0, (LGD-ELBE) * 12.5},





 



where ELBE indicates the company's best estimate for an expected loss (EL) on a defaulted exposure and where LGD is calculated in accordance with paragraph 199.





 



RW = max {0, (LGD-ELBE) * 12.5},











Risk weights for equity exposures




91) company can quantify the risk-weighted items for credit risk for equity exposures in accordance with three methods, respectively, the simple risk weight method, PD/LGD approach and the VaR method (Value-at-Risk method). The undertaking must be authorised by the FSA if it wants to use PD/LGD method or the VaR method. The company can only apply, if the company Were method meets the minimum requirements set out in paragraphs 234-242.

92) the company may use different methods to calculate the risk-weighted items for different segments of the stock portfolio, if the company itself uses different approaches internally. The company can even choose which of the three methods set out in paragraph 91, it will apply. If an entity uses different methods, it must be able to demonstrate opposite the Danish financial supervisory authority that these methods are selected on a consistent basis and are not due to a desire to reduce risk-weighted items.

93) Notwithstanding the provisions of section 92, the company can determine the risk-weighted items for equity exposures against ancillary services undertakings according to the rules on the treatment of assets without counterparts, see. section 104-105.



The simple risk weight method




94) By the simple risk weight method is calculated risk-weighted items for stock non-trading book exposures as a risk weight (RW) multiplied by the size of exposure.

(a)) For exposures in equities that are quoted on a regulated market or an equivalent foreign market for securities, determined the risk weight (RW) to 290 per cent.

b) For all other equity exposures shall be determined the risk weight (RW) to 370 percent.

95) By estimating exposure size can short spot positions in shares and short positions in derivative instruments outside the trading book set off with long positions in the same individual shares, provided that these instruments expressly intended for the hedging of specific equity exposures, and that protection applies for at least a year. Other short positions are treated as if they were on long positions and the relevant risk weight applied to each position numeric value. There is a mismatch between the maturity of the positions, used the method described in annex 7, paragraph 68, see. Annex 9, paragraph 17 and 18.

96) when calculating the risk-weighted items can the company take into account the effect of guarantees and credit derivatives, which are obtained on an equity exposure, in accordance with the methods laid down in annex 9.



PD/LGD method




97) By PD/LGD method is calculated risk-weighted items after the formulas for business, institution and Government exposures in point 73-85. This report shall be based on the PD-values, which are calculated according to the definition of default, see. section 31-38, see. However, paragraph 47. LGD set at 90 per cent of the basic regulation. paragraph 60, and M be 5 years, see. paragraph 63.

98) if the company does not have sufficient information to be able to apply the definition of default set out in paragraphs 31-38, risk weights shall be adjusted by a factor of 1.5.

99) For individual exposures must be the sum of the value of the expected loss amounts multiplied by 12.5 and the risk-weighted exposure not exceed exposure size, see. paragraph 49, multiplied by 12.5.

100) the company may take into account the effect of guarantees and credit derivatives, which are obtained on an equity exposure, in accordance with the methods laid down in annex 9. In such cases, used an LGD of 90 per cent of the exposure against the, which provides credit protection. For the exposure against the, which provides credit protection, used a maturity (M) at 5 years.



The var method




101) By the VaR method is calculated risk-weighted items as the potential loss on the company's stock exposures, measured using internal Value-at-Risk models based on a one-sided 99% confidence interval, showing the difference between quarterly returns and an appropriate risk-free interest rate, which is calculated over a longer analysis period, multiplied by 12.5.

102) The risk-weighted exposure amount for each exposure shall not be less than the sum of the risk-weighted amount calculated according to the PD/LGD method, and the expected loss on exposure multiplied by 12.5. This report shall be based on PD-value contained in paragraph 48 (a), as well as the corresponding LGD value calculated in accordance with section 60.

103) when calculating the risk-weighted items for equity exposures the company may take into account the effect of guarantees and credit derivatives.



Risk-weighted items for assets without counterparts




104) Assets without counterparties is included with a risk weight of 100%.

105) If exposure is a residual value in a leasing exposure, constitute risk weight:







 



RW = 100%/t





 



where t is the residual maturity in accordance with contractual conditions of exposure measured in years leasing, however, a minimum of one year.











Risk-weighted items for dilution risk of purchased receivables




106) the risk weights for dilution risk of purchased corporate receivables and retail claims is calculated according to the formula for the risk weight for business, institution and Government exposures in point 73-79. The input parameters PD, LGD and CF is determined as set out in paragraphs 25-67. The running time is set to 1 year.


107) if the entity can demonstrate opposite the FSA that dilution risk is minor, the company may fail to calculate the risk-weighted items for dilution risk.



Risk-weighted items for collective investment schemes




108) Investment shares in collective investment schemes shall be processed in accordance with one of the methods described in paragraphs 109-112. Other non-trading book exposures against collective investment schemes referred to in article 6. section 1 of the Act on investment associations and special associations and other collective investment schemes, etc., are classified and treated as occupational exposures.

109) When investment units in collective investment schemes fulfilling the criteria set out in annex 3, paragraph 33, and the company knows all of the collective investment scheme underlying exposures, the company must, in order to calculate risk-weighted items and expected loss amounts in accordance with the methods set out in this annex, treat the underlying exposures, as if they were the company's direct exposures.

110) When investment units in collective investment schemes fulfilling the criteria set out in annex 3, paragraph 33, and the company knows all of the collective investment scheme underlying exposures, but the company does not meet the conditions laid down in this annex for the use of the IRB approach for the treatment of the underlying exposures, it shall calculate the risk-weighted items and expected loss amounts in accordance with the following methods:

(a)) For the underlying stock exposures to be used the simple risk weight method, see. paragraph 94. If the company, for this purpose, is not able to distinguish between exposures in quoted shares and other equity exposures, it shall treat the exposures concerned as other equity exposures.

b) For all other underlying exposures to the standardised approach for credit risk, with the following adjustments are possible:







 



in





The exposures are placed in the correct exposure categories, but assign the risk weights, belonging to the credit quality step immediately above (worse than) the credit quality step that would normally be assigned to the exposure.





 



(ii)





Exposures that are placed in the credit quality step that would normally be assigned a risk weight of 150%, are assigned a risk weight of 200%.














111) When investment units in collective investment schemes do not meet the criteria set out in annex 3, paragraph 33, or the company does not know all the collective investment scheme underlying exposures, it shall treat the underlying exposures, as if they were the company's direct investment, and calculate the risk-weighted items and expected loss amounts in accordance with the simple risk weight method for equity exposures, see. paragraph 94. If the company, for this purpose, is not able to distinguish between exposures in quoted shares and other equity exposures, it shall treat the exposures concerned as other equity exposures. For this purpose are placed exposures that are not stock exposures, in one of the categories set out in item 94, and did not know the exposures are placed in the category of other equity exposures.

112) as an alternative to the method prescribed in paragraph 111 can your company through the use of a third party to calculate the average risk weighted items based on the collective investment scheme underlying exposures measured in accordance with the following method, provided that the company shall make an appropriate control of the calculation:

(a)) For the underlying stock exposures to be used the simple risk weight method, see. paragraph 94. If the company, for this purpose, is not able to distinguish between exposures in quoted shares and other equity exposures, it shall treat the exposures concerned as other equity exposures.

b) For all other underlying exposures to the standardised approach for credit risk, with the following adjustments are possible:







 



in





The exposures are placed in the correct exposure categories, but assign the risk weights, belonging to the credit quality step immediately above (worse than) the credit quality step that would normally be assigned to the exposure.





 



(ii)





Exposures that are placed in the credit quality step that would normally be assigned a risk weight of 150%, are assigned a risk weight of 200%.











Minimum requirements for the use of the IRB approach




section 114-113) 242 sets out the minimum requirements a company must meet in order to be authorised by the FSA to use the IRB approach. Minimum requirements must be met, both when permission is granted and during the entire period in which the IRB approach is used.

114) company's IRB-method for the calculation of risk-weighted items must comply with the requirements set out in paragraphs 115-242, regardless of whether the company itself has developed a rating system, or it is bought from a third party. It is the company's responsibility to demonstrate to the FSA that the minimum requirements have been met.

115) The internal ratings and default of loans and loss estimates used in the calculation of risk-weighted items, as well as the related systems and business processes must play a central role in the company's risk management and decision-making process, credit authorizations, internal capital allocation and managerial functions.



Management and risk control

The Board of Directors ' and management's tasks




116) All essential elements of the rating and estimation processes shall be approved by the company's Board and management. The Board must have an overall understanding of the company's rating systems and a detailed understanding of the management reports, attached thereto.

117) the Executive Board shall inform the Management Board about significant changes or exceptions to the established policy, in so far as these will have a significant impact on the rating systems function.

118) Executive Board must have a good knowledge of the rating systems structure and function. The Executive Board shall regularly check that the rating systems are functioning properly. The Executive Board shall be regularly informed about ratingprocessens results, about areas where there is room for improvement, and on the status of previously identified areas where there was room for improvement.

119) an internal ratingbaseret analysis of the company's credit risk profile should form a key element in management reports. The reports shall contain at least the risk profiles of individual ratingklasser, the migration between ratingklasser, the relevant risk parameters for each rating class and a comparison of realised default rates and realized losses on defaults with estimates of PD, LGD and CF and results of stress tests. Reporting frequency should depend on what information the reports contain, how important this is, and the recipient's organizational location.



Credit risk control unit




120) the company must have established a credit risk control unit that is independent of the staff and management functions, which are responsible for granting or renewing exposures. Credit risk control unit must report directly to the Executive Board. Credit risk control unit shall be responsible for building or selection, implementation and monitoring of rating systems and rating systems work. Credit risk control unit shall also regularly prepare and analyze reports on the rating systems output.

121) credit risk control unit's responsibilities shall include:

(a)) testing and monitoring of ratingklasser and pools.

(b)) the preparation and analysis of summary reports on the company's rating systems.

(c)) implementation of business processes in order to verify that the definitions of ratingklasser and pools are used consistently in all departments and geographic areas.

d) review and documentation of all changes in the rating process, including the reasons for these changes.

e) review of rating criteria in order to assess whether they are still appropriate for the prediction of risks. Changes to the rating process, assignment and of individual ratingparametre must be documented, and the documentation must be preserved.

f) active participation in building or selection, implementation and validation of the models used in the rating process.

g) Control and supervision of the models used in the rating process.

h) on an ongoing basis through the times and changes of the models used in the rating process.

122) Notwithstanding paragraph 121, the company may, if it uses common data with other companies, see. item 173-174 outsource the following tasks to external suppliers:

(a)) the provision of information, which is relevant in the context of testing and monitoring of ratingklasser and pools.


(b)) preparation of summary reports on the company's rating systems.

(c)) the provision of information, that is relevant in the context of the review of the rating criteria in order to assess whether the criteria are still appropriate for the prediction of risks.

d) documentation of changes in the rating process, criteria or individual ratingparametre.

(e)) the provision of information, which is relevant in the context of the ongoing review and modification of the models used in the rating process.

123) If the company outsource tasks in accordance with Articles 122, it must ensure that the FSA has access to all relevant information from the external suppliers, which is necessary in order to examine whether minimum requirements have been met. The company must also ensure that the FSA can make the same studies as at the company.



Internal audit




124) internal audit or a similar independent audit unit shall review at least annually the company's rating systems and their applications, including credit function's business processes in relation to suggestions and the estimation of PDS, LGDS, EL and CF. The review should include the company's compliance with all the relevant minimum requirements.



Rating systems




125) a rating system shall include all the methods, procedures, controls and data collection and information technology systems, which are related to the assessment of the credit risk, the distribution of exposures in ratingklasser or pools (ratings) and quantification of estimates of PD, LGD and the CF, for the individual types of exposures (estimation of risk parameters).

126) If a company applies several rating systems, the origins of which rating system used for the individual counterparty or exposure, documented, and suggestions should be able to reflect the risk.

127) rating criteria and procedures must be reviewed regularly to assess whether they are still appropriate in relation to the current portfolio and external conditions.



Ratingsystemets structure




128) Quantification of risk parameters can be done directly or in two steps. When quantification is done in two steps, divided the exposures in the first step in a number of discretionary ratingklasser. In the second step is estimated risk parameters for each class on the basis of the characteristics of the exposures, belonging to the respective rating class.

129) by direct quantification of risk parameters implemented quantification in one step using statistical models based on the individual exposure characteristics.

130) uses a company direct estimates of risk parameters, these may be regarded as ratings on a continuous scale.

131) use of direct estimation does not exclude that the company can operate with a discretionarily rating system in parts of credit management and reporting, see. also paragraph 181.

132) whether your company uses direct estimation of risk parameters, it must demonstrate that a rating system meets all the relevant minimum requirements laid down in paragraphs 113-242.



Business, institution and Government exposures




133) a rating system shall include a rating scale which exclusively reflects-counterparty the counterparty's default risk. This rating scale must consist of at least 7 ratingklasser for counterparties that have not defaulted, and at least one rating class for counterparties that have defaulted.

134) A counterparty-rating class is a risk category within a rating scale which counterparties ratingsystemets counterpart-are placed on the basis of a number of specified rating criteria, as the company's own PD estimates derived from. Each counterparty-ratingklasser must be defined and documented both by a description of how the counterparties are placed in counterparty-ratingklassen, and by a description of the criteria used to distinguish counterpart-ratingklassens level of risk from the risk level in the other counterparty-ratingklasser.

135) companies with portfolios concentrated within a particular market segment and a certain interval in terms of PD, must have a sufficient number of ratingklasser within this range to avoid excessive concentration of counterparties within a single rating class. There are significant concentrations within a given counterparty-rating class, the company must be able to demonstrate empirically, that counterparty-ratingklassen covers a relatively narrow PD band, and that the risk associated with all counterparties in ratingklassen, located within this band.

136) If the company is using own estimates of lgds at exposures against professions, institutions and States, suggestions include a special facility-rating scale, consisting of facility-ratingklasser, which exclusively reflects conditions that affect LGDS-value.

137) A facility-rating class is a category of risk within the ratingsystemets facility-rating scale, where exposures are placed on the basis of a number of specified rating criteria, as the company's own LGD estimates derived from. Each facility-ratingklasser must be defined and documented both by a description of how the exposures are placed in the facility-ratingklassen, and by a description of the criteria used to distinguish facility-ratingklassens risk-level from the level of risk in the other facility-ratingklasser.

138) there are significant concentrations within a given facility-rating class, the company must be able to demonstrate empirically, that facility-ratingklassen covers a relatively narrow LGD band, and that the risk associated with all exposures in ratingklassen, located within this band.

139) Exposures that fulfil the criteria for specialized lending, contained in paragraph 10, may be exempted from the requirements of section 133 on a particular counterparty-rating scale as well as, where appropriate, from the requirements of paragraph 136 whether a special facility-rating scale for LGD. When this exception is used, the exposures are divided into 5 categories according to the criteria given in paragraph 82-85 (table method).



Retail exposures




140) For the retail exposure category, companies can use a rating system with separate counterpart-ratingskalaer and facility-ratingskalaer, in accordance with the same principle as for business, institution and Government exposures, or alternatively a rating system based on a segmentation of retail exposures in pools, which both reflect counterparty-specific risks and facility-specific risks, including product and/or security type. Regardless of which system the company uses, the provisions below must be met.

141) By differentiation of risk, it must be ensured that the number of exposures of a given rating class or pool is sufficient to permit a meaningful modeling and validation of loss characteristics for that rating class or pool. Location of exposures and counterparties in ratingklasser or pools shall be carried out in such a way that large concentrations can be avoided.

142) the company must be able to demonstrate that the way in which exposures are placed in ratingklasser or pools, gives a meaningful differentiation of risk. The company must also be able to demonstrate that the way in which exposures are placed in ratingklasser or pools, ensure that exposures which are sufficiently homogeneous, co-located and provides an accurate and consistent estimation of loss characteristics of each ratingklasser or pools. For purchased retail receivables to the location in ratingklasser or pools reflect the seller's credit policy and debtors ' diversity.

143) the company must take account of the following risk factors, when exposures are placed in ratingklasser or pools:

(a) the Risk characteristics of the counterparty).

(b)) the facility's risk characteristics, including product and/or security type. The company must explicitly take account of cases where multiple exposure is covered by the same collateral.

(c)) Violation of contract terms, unless the company can demonstrate opposite the FSA that the violation did not constitute a significant risk factor for exposure.



Tracking of ratingklasser or pools




144) the company must have specific definitions, procedures and criteria for determining the location of exposures in ratingklasser or pools.

a) Definitions and criteria for ratingklasser or pools must be so detailed that they that assigns ratings, is able to consistently placing counterparties or exposures with the same risk in the same rating class or pool. This consistency must be the same across business areas, departments and geographic areas.

b) Documentation of rating process should make it possible for third parties to understand how exposures are placed in ratingklasser or pools. Furthermore, it should be possible to verify this subdivision and judge whether the position in a rating class or pool is appropriate.

c) Criteria must be in accordance with the company's internal credit policies and the company's policy for handling distressed counterparties and exposures.


145) the company must take into account all relevant information, when counterparties and exposures are placed in ratingklasser or pools. The information must be current and make the company capable to predict future development of exposure. The less information the company has, the more caution to the Division in ratingklasser or pools be. A company that primarily uses external ratings to fix the internal rating, must ensure that it also takes into account other relevant information.



Business, institution and Government exposures




146) Each counterparty shall be placed in a counterpart-rating class as part of the credit allocation process.

147) companies that are permitted to use own estimates of lgds and the CF must also set each exposure in a facility-rating class as part of the credit allocation process.

148) each legal unit, which the company is exposed against, must have a separate rating. The company must be able to demonstrate to the FSA that it has sound policies for dealing with individual counterparties and groups of connected clients.

149) Separate exposures from the same counterparty shall be placed in the same counterparty-rating class regardless of that there is a difference between individual eksponeringers art. In the following cases, the different exposures against the same adversary, however, assigns different ratings:

(a)) where there is a risk that payments associated with exposure hindered as a result of restrictions on cross-border payments.

(b)) When the treatment of guarantees related to the exposure, that exposure gives rise to be transferred to another counterparty-rating class.

(c)) where consumer protection rules on secrecy or other legislation prevents the exchange of customer information.

150) location in ratingklasser and regular review of the assigned ratings to be made or approved by an independent entity, which do not obtain some direct benefits of credit decision.

151) the company shall update the assigned ratings at least once a year. For counterparties and exposures in trouble, or who are considered particularly risky, the assigned ratings are reviewed more often. The company must also make a new assignment of ratings, if the resulting new significant information about the counterparty or exposure.

152) the company must have effective methods to collect and update relevant information on the characteristics of the defendant, that affect PD, and on the characteristics of the exposures that affect LGDS and CF.



Retail exposures




153) Each exposure shall be placed in a rating class or a pool as part of the credit allocation process.

154) the company shall, at least once a year, either update the ratings of counterparties and exposures or review the loss characteristics and status with respect to a breach of the individual pools. In addition, the company must, at least once a year, review the status of a representative selection of individual exposures within each pool, in order to ensure that exposures continue to be classified correctly.



Overrides




155) the company shall document, in which case individual assessments may give rise to deviate from the input or output that derives from the rating process, as well as specify which employees are responsible for approving such deviations. The individual deviations must be documented, and it must appear in the documentation, who has made approval of these. The company must analyze the development of the exposures, where the individual assessment has meant that the exposure will be placed in another rating class.



The use of models




156) a company that uses statistical models and other similar methods for assigning ratings to counterparties, exposures or pools shall comply with the following requirements:

(a)) the company must be able to demonstrate, to the satisfaction of the Danish financial supervisory authority that the model has a good prediction capability, and the capital requirement does not become misleading as a result of the model's use. Input variables must represent a reasonable and effective basis for forecasts. The model must not have significant biases.

(b) the company shall establish rules of operation) for control of the model's data input. Control procedure must include an assessment of whether the data are correct, complete and appropriate.

(c)) the company must be able to demonstrate that the data included in the model, are representative of the company's actual population of counterparties or exposures.

(d)) the company must regularly validate the model, including the monitor model stability and function, the model's specifications and compare model estimates with the actual outcome.

(e)) the company must complement the statistical model with qualitative assessments, review the model-based ratings and ensure that the model is correctly applied. Business transitions for this review should aim at identifying and reducing errors due to the model's weaknesses. The qualitative assessments must take into account all relevant information that is not processed by the model. The company shall document the manner in which the quantitative assessments and model results are combined.



Documentation of a rating system




157) the company shall document the structure and function of the ratingsystemets. The documentation must indicate that the minimum requirements laid down in this annex have been met, and include topics such as criteria for segregation of the portfolio and division into pools, assignment, responsible for the rating of counterparties and exposures, the frequency of review of the assigned ratings, as well as the Board of Directors and the Executive Board's review of the rating process.

158) the company shall document the rationale as well as the analyses underlying its choice of rating criteria. The company must document all significant changes in the rating process and be able to identify what changes have been made after recent FSA study. The company must also document the procedures for the award of ratings, including the rating process and the internal control framework.

159) the company shall document the definitions of default and loss used internally, and be able to demonstrate that they are in line with the definition of default respectively in paragraphs 26-48 and the definition of economic loss, see. paragraph 50.

160) If your company uses statistical models in the rating process, it must demonstrate his method of choice. The documentation should include:

(a)) an overall description of the theory, assumptions and/or mathematical and empirical basis for the allocation of estimates to ratingklasser, individual counterparties, exposures or pools and the data sources that are used for the estimation of the model.

(b)) A rigorous statistical process for the validation of the model, including the test of the model outside the population and time period used for the calibration (out-of-hours and out-of-sample tests).

c) an explanation of the conditions under which the model does not work effectively.



Maintenance of data




161) the company must collect and store data relating to its internal ratings as required in accordance with annex 20.



Business, institution and Government exposures




162) the company must collect and store the following:

a) Full ratinghistorik for counterparties and recognised guarantors.

(b)) the dates when the respective ratings were assigned.

c) Key data and methodology that has formed the basis for the ratings.

d) information about who is responsible for the allocation of those ratings.

e) identity of counterparties and exposures that have been registered as in default.

f) the time and circumstances of these defaults, including the default criteria that has been dominant for non-compliance.

g) Data about PD-ratingklassernes value and actual default frequencies as well as migration between ratingklasser.

h) Data concerning comparisons of actual LGD values with the values laid down in section 50-60 and comparisons of actual CF values with the values laid down in § 27, paragraph 8, if the company is not permitted to use own LGD and CF estimates.

163) If the company is permitted to use own estimates of lgds and CF on exposures against professions, institutions and States, the company must collect and store the following:

(a)) A full data history of facility ratings and LGD and CF-estimates for the respective facility-ratingklasser.

(b)) the dates when the respective ratings were made and when estimates were derived.

c) Key data and methodology that has been used by ratings and by estimation of LGD and CF.

d) information about who has made the rating, and who have provided estimates of LGD and CF.

e) Data relating to estimated and realised Lgds and CF'er on each defaulted exposure.

f) Data on eksponeringernes LGD before and after assessment of the effects of guarantees or credit derivatives, if the company takes into account the guarantees or credit derivatives credit risk-reducing effects in the estimate of LGD.

g) Data relating to the economic loss components for each defaulted exposure.



Retail exposures




164) the company must collect and store the following:

(a)) the data used as a basis for classification of exposures in ratingklasser or pools.


b) Data relating to the estimated PD, LGD and CF values for the respective ratingklasser or pools.

(c)) the identity of the counterparties and exposures that have been registered as in default.

d) Data relating to, which ratingklasser or pools as defaulted exposures were placed for one year prior to the non-compliance, as well as the actual LGD and CF values.

e) Data for use in assessing the volatility of loss rates for qualifying revolving retail exposures, see. paragraph 17, subparagraph (d).



Stress test




165) the company must have reliable stress testing methodologies to be used for the assessment of its capital adequacy in accordance with the provisions of annex 1, paragraphs 44 and 45.



Estimation of risk parameters

General requirements for estimation of risk parameters




166) own estimates of risk parameters shall be based on all relevant data, information and methodologies. The estimates shall be plausible and intuitive and should be based on the factors that have the greatest impact on the respective risk parameters. The estimates shall be based on historical experience as well as empirical data and cannot only be based on estimates. The fewer the data a company has, the more cautious estimates must be.

167) the company must be able to unbundle its loss experience expressed by the PD, LGD, CF or loss, if your company uses estimates of the expected loss (EL), in the factors which, according to the company's opinion is decisive for the respective risk parameters. The company must be able to demonstrate that its estimates represent long-term experience.

168) the undertaking shall take account of any changes in lending practices and procedures for recovery of debt during the observation periods. The company's estimates shall reflect the impact of technical progress, new data and other information, as these become available. The company should review its estimates, as new information is obtained. The estimates, however, must at least be reviewed once a year.

169) population of exposures represented in the data used for estimation, credit policy, since the data was generated, and other relevant circumstances should be comparable with the company's current exposures and credit policy. The company must also be able to demonstrate that the economic or market conditions, which is located behind the used data is relevant for the current and foreseeable conditions. The number of exposures in the population, which was used for the estimation of parameters, and the data length must be sufficient to permit the company has confidence in estimaternes accuracy and stability.

170) the undertaking shall confer upon its estimates a precautionary margin, which relate to the expected margin of error associated with the estimation. When the company's methodologies used and data is less reassuring, and expected a greater margin of error, the company must establish a greater prudential margin.

171) If an entity uses various estimates for the calculation of risk weights and for internal purposes, it should be documented, and the company must be able to demonstrate opposite the FSA that the estimates are appropriate.

172) If the company proves across from the Danish financial supervisory authority that the data collected before 1. January 2007 has made appropriate adjustments in order to create it is generally consistent with the definitions of default or loss, can the FSA allow the company some flexibility with regard to compliance with the data standards required in paragraph 166-222.

173) uses company data from a pool that is common to several enterprises, the company must be able to demonstrate that:

(a)) the other companies use rating systems and criteria that corresponds to the company's own.

(b)) the pool is representative of the portfolio, as the common data used at.

(c)) the company uses the common data into its estimates in a consistent manner over time.

174) despite the fact that the company uses data that is common to several enterprises, the company must be able to demonstrate opposite the FSA that it has the requisite knowledge of own rating systems, including the fact that it is in a position to carry out an effective monitoring and review of the rating process.

175) the company must identify and analyze possible systematic changes of risk parameters over the duration of the eksponeringernes.



Purchased receivables




176) For purchased receivables the estimates shall reflect all relevant information concerning the quality of the underlying claims, which are available to the company. This includes data on similar pools provided by the seller, with the company itself or from external sources. The acquiring company should consider all data from the seller, as used.



Specific requirements for the estimation of risk parameter PD

Business, institution and Government exposures




177) For each counterparty-rating class, the entity shall estimate the PD based on a long-term average annual default rates. The company may, however, choose to estimate an individual PD for each counterparty on the basis of the specific conditions that affect PD for that counterparty.

178) the company's methods for estimation of PD must be supported by analyses. The company must be aware of the importance of making individual assessments, estimation methods when results are combined and by adjustments as a result of the limitations of the methods used and information.

179) where the company by estimation of PD uses data for internal default experience, the company must in its analyses show that the estimates both reflect the company's current lending policy and any discrepancies between the company's current rating system and a rating system that generated the data used. If the lending policy or a rating system has been modified, the entity shall confer upon its estimates of PDS greater prudential margin.

180) a company can connect or make a conversion of own ratingklasser to a rating scale used by a credit rating agency or another similar organization, and use the external organization observed default rate on the company's own ratingklasser. The conversion must be based on a comparison between the company's internal and external organizational assignment criteria used. The company shall make a comparison of internal and external ratings, respectively, for any common counterparts. Systematic bias (bias) or inconsistencies associated with the conversion or the underlying data must be avoided. The criteria, as the external organisation put at the root of the data used, should only focus on the risk of default and may not reflect facility characteristics. The company's analysis shall include a comparison of the definitions used by default and the requirements of paragraphs 31-38. The company shall document the basis for the conversion.

181) irrespective of the fact that the company makes estimates of the PD directly on counterparty level, see. paragraph 129, PD-the value contained by the estimation of the risk-weighted items, is calculated as an average of the estimates of PD for individual counterparties in a given rating class. Businesses, which for this purpose using models to prediction of default, shall meet the requirements set out in paragraph 156.



Acquired business claims




182) For purchased corporate receivables company can estimate the EL for each modpartratingklasse out from the long-term average of annual default rates.

183) If a company sets long-term average estimates of PDS and LGDS for purchased corporate receivables on the basis of an estimate for electricity and an appropriate estimate of PD or LGD, the methodology for estimating total losses shall meet the General guidelines for estimation of PD and LGD set out in paragraphs 113-242, and the result shall be in accordance with the method prescribed in paragraph by LGD 192.



Retail exposures




184) For each counterparty-rating class or pool, the entity shall estimate the PD on the basis of either (a) or (b):

a) long-term average annual default rates.

b) actual losses and appropriate estimates of lgds.

185) the company should know estimation of loss characteristics primarily using internal data, which is used to place the exposures in counterparty-ratingklasser or pools. The company can also use external data, including data that are common to several financial firms, or external statistical models by estimation, provided that company can demonstrate that there exists a close relationship between the following:

a) company's business processes for placement of exposures in counterparty-ratingklasser or pools and the external data source, business times.

(b)) the company's risk profile and the composition of the external data.



Purchased retail receivables




186) For purchased retail receivables company can use external and internal reference data. The company must, as a basis for comparison use all relevant data sources.


187) If a company sets long-term average estimates of PDS and LGDS for purchased retail receivables on the basis of an estimate of the total losses and an appropriate estimate of PD or LGD, the methodology for estimating total losses shall meet the General guidelines for estimation of PD and LGD set out in paragraphs 113-232, and the result shall be in accordance with the method prescribed in paragraph by LGD 192.



Data length (business, institution and Government exposures and acquired business claims)




188) regardless of whether the company is using external, internal, or pooled data sources, or a combination of these at the estimation of PD, must the underlying historical observation period used shall extend over at least five years for at least one of the data sources. If the observation period spans a longer period for one of the sources, and those data are relevant, this longer period shall be used. This provision also applies to the PD/LGD approach to equity exposures.

189) FSA can at portfolio level give an undertaking which is not permitted to use own LGD and CF estimates, permission to use the relevant data only extends two years back, when the implement the IRB approach. In these cases, data period increases by one year each year until relevant data covering a period of five years. By a portfolio shall mean all exposures, which are covered by a single rating system.



Data length (Retail exposures and purchased retail receivables)




190) regardless of whether the company is using external, internal, or pooled data sources, or a combination of these at the estimation of loss characteristics, must the underlying historical observation period used shall extend over at least five years for at least one of the data sources. If the observation period spans a longer period for one of the sources, and those data are relevant, this longer period shall be used. The company need not necessarily attributing all the equal importance to historic data if it can demonstrate to the Danish financial supervisory authority that more recent data is a better predicting loss rates.

191) FSA can at portfolio level give the company permission to use the relevant data only extends two years back, when the implement the IRB approach. In these cases, data period increases by one year each year until relevant data covering a period of five years. By a portfolio shall mean all exposures, which are covered by a single rating system.



Specific requirements for the estimation of risk parameter LGD




192) For each facility-rating class or pool, the entity shall estimate the loss given default (LGD), on the basis of the average realised lgds for that facility-rating class or pool. The company may, however, choose to estimate an individual LGD for each facility in the light of the specific conditions that affect LGDS for that facility. By estimation, all observed defaults within the data set used.

193) the company shall use LGD estimates, reflecting an economic slowdown, if these are more cautious than the long-term average. If a rating system is expected to deliver realised lgds constant over time for a rating class or pool, the entity shall adjust its estimates of risk parameters to limit the impact of an economic downturn on the company's capital.

194) the company must consider the coherence between the risk associated with the opposing party and the risk associated with the collateral or collateral provider. Cases where there is a significant context, needs to be treated gently.

195) currency mismatch between the exposure and the collateral must be treated gently by the inventory of LGD.

196) where estimates of lgds takes into account collateral, these estimates cannot be based solely on the estimated market value of the collateral. Estimates of LGD shall take account of the effect of that it is not always possible for the company to immediately take control of the posted collateral and liquidate it.

197) where estimates of lgds take account of collateral, the company must draw up internal guidelines for the surveillance of the security, legal security and risk management, which overall is in accordance with the requirements laid down in annex 7 and 9 respectively, financial securities, jf. Annex 7, paragraph 51, immovable property, see. Annex 9, paragraph 27, claims, see. Annex 9, paragraph 38, other non-financial securities regulation. Annex 9, paragraph 44, leased assets, see. Annex 9, paragraphs 50 and 51, and other credit protection, see. Annex 9, paragraph 52, see. Annex 7, paragraphs 98-105.

198) If an entity recognises collateral in determining the exposure value for counterparty risk in accordance with Annex 16, paragraph 18-38 or paragraph 39-82, may the amount of the collateral is expected to bring, not be taken into account in the LGD estimates.

199) in those cases where exposures have already defaulted, the entity shall apply the sum of expected loss for each exposure given current economic conditions, exposure status and the possible additional unexpected losses during the recovery period.

200) where the company has capitalized unpaid overdue fees in its trading account, these fees are included in the company's inventory of exposures and losses.



Special provisions for retail exposures




201) regardless of the provisions of section 192 of LGD estimates may be derived from realised losses and appropriate estimates of PD.

202) regardless of the provision in paragraph 208, companies can take account of counterparts from future drag on credit facilities in either its CF-or LGD estimates.

203) For purchased retail receivables company can use external and internal reference data by estimation of LGD.



Data length (business, institution and Government exposures)




204) By implementation of the IRB approach shall be based on estimates of lgds minimum five years of data for at least one data source. Data period, following completion of each year shall be increased by one year, until the data period stretches over seven years. If the observation period spans a longer period for one of the data sources, and those data are relevant, this longer period shall be used.



Data length (retail exposures)




205) For estimates of LGD for retail exposures shall apply the same requirements for the respective periods of time as the data for the estimation of PDS, see. paragraphs 190 and 191.



Specific requirements for the estimation of risk parameter CF




206) For each facility-rating class or pool, the entity shall estimate the CF based on the average expected CF values for that facility-rating class or pool. The company may, however, choose to estimate an individual CF for each obligation in the light of the specific conditions that affect CF for the obligation in question. By estimation, all observed defaults within the data set used.

207) the company must use the CF estimates, reflecting an economic slowdown, if these are more cautious than the long-term average. If a rating system is expected to deliver constant realized CF values over time for a rating class or pool, the entity shall adjust its estimates in order to limit the impact of an economic downturn on the company's capital.

208) the company's estimates of the CF must reflect the possibility that the counterparty makes a further drag on the credit facility, both before and after default. In those cases where it can be expected that there is a strong positive correlation between PD and CF's size, the entity shall recognise a larger precautionary margin in the estimate of the CF.

209) in connection with estimation of the CF, the company must take its policies and strategies, in terms of account management and payment processes into account. The company must also take a stand on its ability and willingness to prevent further drag on credit facilities in situations where there is no breach of payments but about breach of clauses or other technical reasons to default.

210) the company must have the appropriate systems and procedures for monitoring of current receivables, also in relationship to the appropriated exposures and changes in receivables per counterparty and by rating class. The company must be able to monitor the daily claims.

211) For CF applies the same requirements to data length as for LGD, see. paragraphs 204 and 205.

212) For retail exposures can the company regardless of the provision in paragraph 208 cater to counterparts from future drag on credit facilities in either its CF-or LGD estimates.



Minimum requirements relating to guarantees and credit derivatives




213) the requirements set out in paragraphs 216-222 applies for business, institution and Government exposures, which own LGD estimates are used, as well as for retail exposures.

214) the requirements set out in paragraphs 216-222 shall not apply for guarantees provided by institutions and States, if the company has been granted permission to use the standardised approach for credit risk for these exposures. In this case the requirements of annex 7.


215) For guarantees for retail exposures shall apply the requirements set out in paragraphs 216-222 also for the distribution of exposures in ratingklasser or pools and for estimation of PD.



Recognised guarantees and guarantors




216) the company must have clear criteria for the types of guarantors the company acknowledges in the calculation of risk-weighted items.

217) recognised guarantors to rates in accordance with the minimum requirements laid down for counterparties in accordance with paragraph 144-155.

218) guarantees shall be made in writing, the guarantor shall not be possible to terminate them, and guarantees to be applied until the obligation has been fully achieved in relation to the guaranteed amount and the wording of the guarantees. Guarantees shall also be legally binding on the guarantor in a place where it is possible to make the attachment of guarantor assets and execute a judgment. Guarantees, which contains conditions that the guarantor can be relieved of its obligations (conditional guarantees) may be used after FSA approval. The company must be able to demonstrate that the criteria for the distribution of exposures in ratingklasser takes sufficient account of any restrictions on the risk-reducing effect.

219) the company should have provided clear criteria for adjusting ratingklasser, pools or LGD estimates, in order to reflect the impact of guarantees for the calculation of risk-weighted items. For retail exposures and purchased receivables, which complies with the requirements prescribed in paragraphs 228-233, the company must also establish criteria for the alignment of the guidelines for the placement of exposures in ratingklasser or pools. These criteria shall comply with the minimum requirements set out in paragraphs 144-155.

220) Adjustment criteria, see. section 219, must contain a description of the guarantor's ability and willingness to fulfil the obligations, the guarantee shall require, as well as reflect, when the guarantor rather expected to make any payments. The criteria should also include a description of the extent to which the guarantor's ability to meet its obligations, the guarantee shall prescribe, is correlated with the counterparty's ability to repay, and the extent to which there is still a residual risk of the counterparty.



Credit derivatives




221) Minimum requirements for guarantees in paragraph 213-220 also applies to "single-name" credit derivatives. In the event of a mismatch between the underlying asset and the reference asset for that credit derivatives or the asset used to determine whether a credit event has occurred, find the requirements in annex 7, paragraph 34 shall apply. For retail exposures and purchased receivables includes this provision further guidelines for placement of exposures in ratingklasser or pools.

222) the criteria shall take into account the credit derivative payout structure and on the basis of a careful assessment to take into account the possible consequences of this structure has for the timing and the size of the repayment. The company must assess the extent to which other forms of residual risk remains.



The validation process




223) the company must have well-developed and stable systems to validate the accuracy and consistency of rating systems, business corridors and estimation of all relevant risk parameters. The company must be able to demonstrate to the FSA by using its internal validation process may implement a consistent and meaningful assessment of the internal rating and risk estimation systems performance.

224) the company must regularly compare realised default rates for each rating class with the destination PD (backtests). Provided the realized default shares is outside of the expected range for a rating class, the company must carry out a detailed analysis of the reasons for the deviation. Using the company's own estimates of LGD or CF, it must carry out a similar analysis for these estimates. These comparisons should be based on historical data, covering as long a period as possible. The company shall document the methodologies used and data for such comparisons. The analysis and the documentation shall be updated at least once a year.

225) the company must also use other quantitative validation tools and comparisons with relevant external data sources (benchmarking). The analyses should be based on data that is relevant for the portfolio, which is updated regularly, and covering a relevant observation period. The company's internal assessments of its performance rating should be based on as long a time period as possible.

226) The methods and data, the company uses in connection with quantitative validation shall be consistent over time. The company shall document changes in estimation and validation methods and data as well as data sources relevant periods.

227) the company must have sound internal guidelines for situations in which the realized values of PD, LGD and the CF differs so significantly from the expected values that it creates uncertainty about the validity of the estimates. The same applies for the total loss, if your company uses estimates of the expected loss (EL). These guidelines shall take account of cyclical conditions and similar systematic variations included in the company's experience with breach of contract. If the realized values sustained is higher than the expected values, the company adjusted upward the estimates in accordance with his experience with defaults and losses.



Minimum requirements for specific exposure categories

Minimum requirements for purchased receivables




228) if the entity of its purchased receivables using the method for estimation of PD in item 41 or LGD in paragraph 53 (e) and (f), or place these in retail exposure category under other retail exposures, see. paragraph 38, it must meet the requirements set out in paragraphs 229-233. If your company does not meet the requirements, it must treat the claims as against the counterparty exposures and quantify the risk-weighted items for credit risk and dilution risk on receivables in accordance with the provisions of the commercial and retail exposures, including compliance with the minimum requirements for rating systems and quantitative estimation of item 125-222.



Legal security




229) the company must ensure that the under all foreseeable circumstances has the real ownership of and control over all funds paid in connection with the claims. If the customer pays directly to a seller (the original issuer of the claim) or a management company, the company must regularly check that all payments are forwarded and that the contractual conditions are complied with. By a management company shall mean an entity related to the purchased receivables, which assume the day-to-day management of a pool of purchased receivables or the underlying credits, which claims include. The company should have procedures in place to ensure that ownership of the receivables and the received payments are protected from seizure in bankruptcy and other legal objections that could involve significant delays for the company's opportunity to realize or dispose of the receivables or retain control of the payments received.



The effectiveness of monitoring systems




230) the company must monitor both the quality of the purchased receivables and the seller's or the management company's financial situation, including in particular:

(a)) company to assess the correlation between the quality of the purchased receivables and the financial situation of both the seller and the management company. In addition, the company must have policies and procedures that provide adequate protection against the risk of such contexts, including allocation of internal ratings for each salesperson and management company.

(b)) the company must have clear and effective policies and procedures for the approval of salespeople and management companies. The company or, as the company has authorised, shall be required to keep periodic supervision of salespeople and management companies to verify the seller's or the management company's reports, detect fraud or operational weaknesses and check the quality of the seller's credit policy and the management company's additional policies and business procedures. The company or its agent shall document this supervision.

(c) the company must evaluate the characteristics of) pools of purchased receivables, including overdrafts, history of the seller's arrears, bad debts and write-downs on bad debts, as well as payment terms and any offset accounts.

(d)) the company must have effective policies and business procedures for monitoring of concentrations on individual counterparties, both within and across pools of purchased receivables.

e) the company shall ensure that the management company delivers current and sufficiently detailed information on the trend in age distribution and dilution of the claims in order to ensure compliance with the company's lending policies and criteria of acceptability of purchased receivables and in order to provide an effective basis for the monitoring and control of seller's terms of sale and dilution of the receivables.



Efficiency in the handling of problematic purchased receivables





231) the company must have the systems and business processes too early to detect deterioration in seller's financial situation and the quality of the purchased receivables and to deal with problems encountered at an early stage. The company must particularly have clear and effective policies, business processes and information systems for the monitoring of clauses (the Covenant) and clear and effective policies and business procedures for launching legal action and for handling problematic purchased receivables.



Effectiveness of systems for the management of purchased receivables, credit availability and deposits




232) the company must have clear and effective systems and business processes for the management of purchased receivables, credit facilities and cash receipts. Specially written internal policies must specify all essential elements in connection with the acquisition of financial assets, including the lending interest rates, recognized securities, necessary documentation, concentration limits and handling of deposits. These elements must take due account of all relevant and material facts, including the seller's and the management company's economic situation, concentration risks and trends in the quality of the purchased receivables and the seller's customer base. Internal systems to ensure that disbursements of loans only takes place when there is specification certainties and documentation.



Compliance with the company's internal policies and business procedures




233) company shall have effective procedures in order to ensure compliance with its internal policies and business procedures. The procedures shall include regular review of all critical stages in connection with the company's acquisition of claims. In addition, procedures should include verification of functional separation on two areas: firstly, between, on the one hand, the assessment of the seller and the management company and, on the other hand, the assessment of the customer. Secondly, between, on the one hand, the assessment of the seller and the management company and, on the other hand, on-the-spot audit of the seller and the management company. The company shall also assess seller and the management company's back-office functions, with particular focus on qualifications, experience, staffing and supporting automatic systems.



Minimum requirements for use of own models for the estimation of risk-adjusted equity exposures

Risk quantification




234) companies using their own models for the estimation of risk-adjusted equity exposures shall meet the following requirements:

a) Estimate of potential losses must have incorporated the effects of adverse market movements, as is appropriate in the light of the long-term risk profile for the company's specific shareholdings. Data used to represent the distribution of return to reflect the longest period for which data is available and meaningful in relation to represent the risk profile of the company's specific equity exposures. Data should be sufficient to give careful, statistically reliable and stable estimates of losses which are not solely be based on subjective or discretionary assumptions.

(b)) the company must be able to demonstrate to the FSA, opposite the market events that are used in connection with the development of the model, resulting in a conservative estimate of the potential losses in the course of a relevant long-term market-or cycle. The company shall combine empirical analysis of available data with adjustments based on several different factors in order to achieve sufficiently realistic and prudent model results. When the Value-at-Risk models (VaR-models) are developed in order to calculate potential quarterly losses, the company may use quarterly data or convert data with a shorter time horizon to the corresponding quarterly data by using analytic tools, supported by empirical evidence and through well-developed and documented qualitative analyses. This procedure should be used cautiously and consistent over time. If the amount of data is limited, the entity shall attach an appropriate prudential margin.

c) model should be able to capture adequately all the significant risks associated with equity returns, including both the General market risk and specific risk attached to the company's stock portfolio. The internal model shall adequately explain historical price volatility, capturing both the size and changes in the composition of potential concentrations and be stable in relation to adverse market conditions. The population of risk exposures represented in the data used for estimation, must match or at least be comparable to the risk exposures related to the company's equity exposures.

(d)) the internal model shall be adapted to the company's risk profile and complexity of the company's stock portfolio. If the company has significant holdings, which is very much based on instruments whose risks are non-linear, the internal model shall be designed so that it takes sufficient account of these risks. If your company as an approximation to the own positions using comparable securities (proxies), index and risk factors, they must be credible, intuitively understandable and theoretically well-founded.

(e)) the company must through empirical analyses show that risk factors are well-chosen, including with regard to their ability to cover both General and specific risk.

f) estimate for the volatility of the stock eksponeringernes return must include relevant and available data and methods as well as appropriate and accessible information in General. To be used independently revised internal data or data from external sources (including pools of data from different companies).

(g)) the company must have implemented a rigorous and comprehensive program for stress tests.



Risk management and controls




235) in connection with the development and use of internal models for the determination of risk weights shall establish policies, procedures and controls, which shall include the following areas:

a) Full integration of internal models in the company's overall management information systems and in the management of the stock portfolio outside the trading book. Internal models must be fully integrated into the company's risk-management systems, when they are specifically used for measuring and assessing equity portfolio results-including risk-adjusted performance, allocating economic capital to equity exposures as well as evaluation of the overall capital adequacy and management of stock investment.

b) established management systems, business processes and controls to ensure periodic and independent review of all elements of the internal model development process, including the approval of changes to models, control of model input and review of model results, URf.eks. verification of risk calculations. These reviews shall assess the accuracy, completeness and appropriateness of model input and model results and focus on both to find and to limit potential error arising from known vulnerabilities, as well as identify potential weaknesses in the model. Such reviews can be conducted by an internal independent unit or by an independent external third party.

c) Adequate systems and procedures for monitoring limits and risk on equity exposures.

d) entities that are responsible for the design and use of the model, must be functionally independent of the entities responsible for the management of the individual investments.

e) All with responsibility for any part of the model development process must have the appropriate skills. The Executive Board shall allocate sufficient trained and competent personnel for the model udviklingsarbejdet.



Validation and documentation




236) company shall have furnished a well-developed and stable system for validation of the internal models and model udviklingsprocessers accuracy and consistency. The company shall document all essential elements of the internal models and model development and validation.

237) the company must use the internal validation to a consistent and meaningful evaluation of the results of its internal models and processes.

238) The methods and data used for quantitative validation shall be consistent over time. Changes in estimation and validation methods and in data-both the data sources and the periods covered-must be documented.

239) the company must regularly compare actual equity returns-calculated on the basis of realized and unrealized gains and losses-with the modelled estimates. These comparisons should be based on historical data that goes so far back in time as possible. The company shall document the methods and data used by such comparisons. This analysis and the documentation shall be updated at least once a year.

240) the company must make use of other quantitative validation tools and comparisons with external data sources. The analysis must be based on data that is relevant for the portfolio, which is regularly updated, and covering a relevant observation period. The company's internal assessment of its model's results should be based on such a long period of time as possible.


241) the company must have clear internal guidelines for situations in which the comparison of the actual equity returns with model estimates give rise to doubts as to the validity of the estimates or of the models. These guidelines shall take account of cyclical conditions and similar systematic variability in equity returns. All changes of the internal models that are made as a result of reviews of models, should be documented and be in accordance with the company's guidelines for model changes.

242) The internal models and model development process must be documented, including with regard to the responsibility of the involved participants in the model development process, the model approval process and in the context of model changes.



Calculation and treatment of expected losses

Calculation of expected loss amounts




243) The expected loss (EL) for State Department exposures, exposures, occupational exposures, retail exposures and equity exposures shall be calculated in accordance with the methods set out in paragraph 244-255.

244) The expected loss on securitiseringspositioner shall be calculated in accordance with Annex 11.

245) The expected loss of assets without counterparts will be set to zero.

246) the calculation of expected loss amounts shall be based on the same input parameters PD, LGD and the CF, which is used for the calculation of risk-weighted items, eksponeringernes where CF is included in determining the size of exposure in the formula in paragraph 247.

247) The expected loss (EL) concerning, respectively, the Department of State, commercial and retail exposures shall be calculated as follows:







 



Expected loss (EL) = PD × LGD





 



The value of the expected loss = EL × exposure size














248) For defaulted exposures (PD = 1), where the company is using own estimates of LGDS, expected loss be ELBE, see. paragraph 79.

249) For exposures that fall under paragraph 80 and 81 (double default effect), the expected loss (EL) will be set to zero.

250) For specialized lending, where the company uses table method specified in paragraphs 82-85, the expected loss (EL) is calculated according to the table below.



Table 2:









 



Residual maturity





Category 1





Category 2





Category 3





Category 4





Category 5





 



During the 2 ½ years





0 per cent.





0.4%.





2.8 per cent.





8 per cent.





50 per cent.





 



2 ½ years or above





0.4%.





0.8%.





2.8 per cent.





8 per cent.





50 per cent.














251) if the company has been authorised by the FSA to apply the risk weights of 50% to exposures in category 1, and 70% for exposures in category 2 regardless of the maturity, the expected loss is set to 0% for exposures in category 1 and 0.4% to exposures in category 2 regardless of maturity.

252) the value of the expected loss (EL) relating to equity exposures where the risk weighted entries of these exposures are stated after the simple risk weight-method, is calculated as follows:







 



The value of the expected loss = EL × exposure size using the following EL-values:





 



(a))





Exposures of listed shares: 0.8%.





 



(b))





All other equity exposures: 2.4 per cent.














253) the expected loss on equity exposures where the risk weighted entries of these exposures are stated in accordance with PD/LGD method, is calculated as follows:







 



Expected loss (EL) = PD × LGD





 



The value of the expected loss = EL × exposure size














254) the expected loss (EL) relating to equity exposures where the risk weighted exposure amounts for such exposures are assessed through the use of the VaR method, set to 0 per cent.

255) the expected loss (EL) for dilution risk of purchased receivables shall be calculated as follows:







 



Expected loss (EL) = PD × LGD





 



The value of the expected loss = EL × exposure size











Treatment of expected losses (EL)




256) value of the expected loss calculated in accordance with the methods set out in paragraphs 243 to 251 and 255, to be deducted from the sum of value adjustments and provisions related to exposures in the respective exposure categories. Value adjustments in the form of group show impairment, which includes multiple exposure categories shall be allocated on a flat-rate on the respective exposure categories. Price reduction on balance sheet items acquired while they are non-performing, see. § 27, paragraph l shall be treated as value adjustments. The expected loss on securitiseringspositioner and the value adjustments and provisions related to these exposures, are not included in this calculation.

Annex 9

Credit risk mitigation techniques under the internal ratings based approach to credit risk











Table of contents





PT.





 

 





The scope of the





1-5





 

 





Guarantees and credit derivatives without recognition of double default effect





6-13







Recognised protection entities





6-8







Minimum requirements and estimation of credit risk hedging





9







Calculation of risk-weighted items for exposures covered by guarantees and credit derivatives





10-13





 

 





Guarantees and credit derivatives with recognition of double default effect





14-16







Requirements concerning the provider of credit risk hedging





15







Other requirements for credit risk hedging





16





 

 





Financial securities





17-18





 

 





Non-financial securities





19-51







Real estate





19-36







Real estate categories





19-22








Security in immovable property that can be included





23-26







Minimum requirements for the inclusion of safety in real estate





27







Valuation of real estate





28-30







Calculation of risk-weighted items and expected loss amounts for exposures secured by real estate





31-36







Claims





37-42







Security in receivables, which can be taken into account





37







Minimum requirements for inclusion of a security interest in Receivables





38







Valuation of receivables





39







Calculation of risk-weighted items and expected loss amounts for exposures secured by receivables





40-42







Other non-financial securities





43-49







Other non-financial securities, which can be taken into account





43







Minimum requirements for inclusion of other non-financial securities





44







The valuation of other non-financial securities





45







Calculation of risk-weighted items and expected loss amounts for exposures with other non-financial securities





46-49







Special provisions concerning leased assets





50-51





 

 





Other credit protection





52





 

 





Netting agreements relating to on-balance-sheet debts





53





 

 





Mixed pools of securities





54-55











The scope of the




1) this annex provides for the inclusion of the effect of guarantees, credit derivatives and collateral as well as netting of mutual deposits and loans by the estimation of the risk-weighted items and the expected losses for business, institution and Government exposures for companies using the internal ratings based approach to credit risk, and who do not have permission to use own estimates of lgds and CF for those exposures without prejudice to article. Article 29, paragraph 1.

2) the provisions of paragraph 6-13 apply also for equity exposures outside the trading book for companies using the internal ratings based approach to credit risk, and which either uses the simple risk weight method or the PD/LGD approach to equity exposures, see. section 29, paragraph 4.

3) Notwithstanding paragraph 1, the provisions of paragraphs 14-16 on the conditions for the application of the risk weight formula for recognition of "double default effect" of guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps" in annex 8, paragraphs 80-81, also for companies using the internal ratings based approach, and who has authorization to use own estimates of lgds and CF for business Department-and Government exposures, see. section 29, paragraph 2.

4) the provisions concerning the inclusion of the effect of collateral, respectively the effect of guarantees and credit derivatives in connection with the use of own estimates of lgds for business, institution and Government exposures as well as retail exposures as set out in annex 8, paragraphs 192-205 and 209-222.

5) without prejudice to paragraph 1, companies that use own estimates of lgds for business, institution and Government exposures as well as retail exposures, draw up internal guidelines for monitoring, legal security and risk management for securities that are included in their LGD estimates, which overall is in accordance with the requirements laid down in annex 7, paragraphs 51 and paragraph 27, 38, 44 and 50-51 in this annex, without prejudice to article. Annex 8, paragraph 197.



Guarantees and credit derivatives without recognition of double default effect

Recognised protection entities




6) the company may, by statement of the risk-weighted items, when the provisions of paragraph 7 are met, include guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps" with the following warranty manufacturers and providers of credit protection (protection entities):

a) Protective entities specified in annex 7, paragraph 2.

b) businesses that do not have a credit rating from a recognized credit-rating agency, but which, according to the internal rating has a probability of default, which is equivalent to credit quality step 2 or above under the rules for the risk weighting of occupational exposures in accordance with the standardised approach for credit risk.

7) the company will only take into account guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps" with protective entities which is assigned an internal rating in accordance with the minimum requirements set out in annex 8, paragraphs 113-242, see. However, paragraph 8 of this annex.

8) credit protection from guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps" from protection entities which do not comply with the provisions of paragraph 7, can be included if exposures against these are covered by a permanent or temporary derogation from the IRB approach, and if the provisions of annex 7, point 2-9, in the case of guarantees or provisions in annex 7, paragraphs 29-34 as far as credit derivatives, are met. The company shall, in respect of the secured portion of the exposure apply the provisions of annex 7, paragraph 14-28, in the case of guarantees, and the provisions of annex 7, paragraph 35-42, in the case of credit derivatives



Minimum requirements and estimation of credit risk hedging




9) Minimum requirements for guarantees and credit derivatives as well as the provisions relating to credit protection, including also the provisions concerning currency mismatch and run time mismatch in annex 7, paragraph 3-13, 18-28 and 32-40, apply also by taking account of the effect of guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps" in accordance with the provisions of this section.



Calculation of risk-weighted items for exposures covered by guarantees and credit derivatives




10) it covered part of the exposure can be treated as an exposure against protection provides with its PD, but where the original facility LGD retained. If the company determines that there has not been a full risk transfer, must be to a carefully selected value PD, which lies between the original PD and exposure protection's PD. If exposure is trailing, but warranty is not, the LGD for non-subordinated exposures used for the covered portion of the exposure. For equity exposures under the simple risk weight method used an LGD of 90 per cent of the covered portion of the exposure.

11) any non-covered parts of the exposure will be treated as an exposure against the original counterpart, see. However, paragraph 12.

12) When the guarantee do not cover the entire exposure, and it covered part is subordinated the non-covered part, URf.eks. when payment from the guarantee first triggered when loss exceeds a threshold value (excess), the exposure shall be weighted in accordance with the provisions of securitiseringspositioner of the basic regulation. Annex 11, paragraph 64-84.

13) paragraphs 10-12 apply mutatis mutandis to the credit derivatives in the form of "total return swaps" and "credit default swaps". For credit linked notes "and similar instruments, which the company will issue, dealt with sums from investors in the instruments concerned as cash collateral in accordance with the corresponding provisions as specified in annex 7, paragraph 42.



Guarantees and credit derivatives with recognition of double default effect





14) where the provisions of paragraph 15-16 are satisfied, companies using the IRB approach to credit risk, apply the risk weight by recognition of "double default effect" in connection with credit protection from guarantees and credit derivatives in the form of "total return swaps" and "credit default swaps" in accordance with Annex 8, paragraphs 80-81.



Requirements concerning the provider of credit risk hedging




15) Provider of credit protection (protection gives) must be an institution, without prejudice. § 4 (1) of the insurance or reinsurance undertaking, an export credit agency or a corresponding foreign entity that satisfies the following conditions:

a) Protection gives has great expertise in the provision of credit risk protection.

b) Protection provides are subject to rules equivalent to those laid down in Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), or had at the time, where the credit protection was provided, a credit assessment of an approved credit-rating agency, equivalent to credit quality step 3 or better according to the rules for the risk weighting of occupational exposures in accordance with the standardised approach for credit risk.

(c)) had at the time, provides Protection where the credit protection was provided, or at a different time then an internal rating with a probability of default, equivalent to credit quality step 2 or better in accordance with the rules for the risk weighting of occupational exposures in accordance with the standardised approach for credit risk.

d) Protection provides has an internal rating with a probability of default, equivalent to credit quality step 3 or better according to the rules for the risk weighting of occupational exposures in accordance with the standardised approach for credit risk.

– With regard to this point can the company in connection with credit protection from export credit agencies do not make use of an explicit regaranti from a central Government.



Other requirements for credit risk hedging




16) the credit protection must also meet the following conditions:

(a)) the underlying debt obligation must be:







 

 



in





An occupational exposure as defined in annex 8, paragraphs 8-10, however, is not an exposure for an insurance or reinsurance undertaking,





 

 



(ii)





an exposure from a regional authority, local authority or public entity, which is not treated as an exposure against the central Government or central bank securities in accordance with Annex 8, or





 

 



(iii)





an exposure for a small business enterprise, which is classified as a retail exposure according to annex 8, paragraph 11-19.





 



(b))





The underlying counterparties may not be part of the same group as protection provides.





 



(c))





The exposure must be ensured by any of the following instruments:





 

 



in





"single-name" credit derivatives or guarantees,





 

 



(ii)





"first-to-default"-basket-products-double default effect applied to the asset in the basket with the lowest risk-weighted value,





 

 



(iii)





"nth-to-default"-curve products – which can only be taken into account for the protection, if the (n-1) th default protection also is obtained, or (n-1) of assets in the basket is already defaulted. If this is the case, the program uses the double default effect on the asset in the basket with the lowest risk-adjusted value.





 



(d))





Credit protection meets the requirements for guarantees in annex 7, paragraph 3, 6 to 8 and 11 or the requirements for credit derivatives in annex 7, paragraphs 3, 6, 33 and 34.





 



(e))





The company shall have the right and expectation to receive payment from the protection entity, without the need to bring a lawsuit against this in order to obtain payment. The company must, as far as possible, ensure that the protection entity is willing to pay immediately if a credit event occurs.





 



(f))





The purchased credit protection to cover all credit losses on the secured portion of the exposure which is due the credit events specified in the contract.





 



(g))





If the payout structure involves the ability for physical settlement, there must be legal certainty with regard to the transfer option of loans, bonds or contingent liabilities. If the company intends to entrust another debt obligation than the underlying exposure, it must ensure that the debt obligation is to be transferred, is sufficiently liquid, so that the company has the option to purchase it in order to transfer it in accordance with the contract.





 



(h))





There shall be concluded a binding written agreement between protection and gives the company about credit risk hedging arrangement.





 



in)





The company must have drawn up guidelines in order to identify possible high correlation between creditworthiness with protection provides the underlying exposure and customer as a result of the fact that their results are dependent on the common factors in addition to the systematic risk factor.





 



(j))





If carried out protection against dilution risk, the seller of the purchased receivables shall not be included in the same group as protection provides.











Financial securities




17) companies using the IRB approach, and who do not have permission to use own estimates of lgds and CF for business, institution and Government exposures, can include financial securities for risk-weighted items and calculation of expected loss amounts for these exposure classes after the financial collateral comprehensive method, described in annex 7, paragraphs 58-97, however, with the following adjustments :

(a) the size of exposure), (E), which is part of the formula in annex 7, paragraph 69 shall be determined in accordance with section 27, paragraph 1. Off-balance-sheet items included before the use of conversion factors (CF) in § 27, paragraph 8, of the basic regulation. section 29, paragraph 4.

(b) section 72, paragraph (h)), nr. III, in annex 7 shall be replaced by the following: Other financial companies (including insurance companies) that do not have a credit assessment from a recognised ECAI and are internally rated with a probability of default, which corresponds to a credit assessment by a credit-rating agency associated with credit quality step 2 or better for exposures against businesses and central Governments and central banks according to the FSA website.

(c)) paragraph 97 of annex 7, which deals with the calculation of risk-weighted items for exposures covered by financial certainties are replaced by paragraph 18 of this annex.

18) statement of the risk-weighted items and expected loss amounts for exposures, can the company covered by the financial certainties, apply an adjusted LGD value (LGD *) instead of the LGD value that would otherwise be used. The adjusted LGD-value is calculated from the following formula:







 



LGD * = LGD (*/E E) where





 



LGD is the loss given default, that would apply to the exposure, if the exposure were not covered by collateral.





 




E is exposure, size, see. item 17 (a).





 



Statement of the portion of the exposure which is not covered by the financial certainties, IE. the fully adjusted size of the exposure, taking into account both the level and secure the price volatility as safe ' risk-reducing effects, E *, must be done in a similar way as specified in annex 7, paragraph 63-96, see. However, paragraph 17 of this annex.











Non-financial securities

Real estate

Real estate categories




19) real estate includes land with residential properties or commercial properties as well as matrikulerede land zoned for residential use or commercial purposes. By residential buildings for the purposes of this annex, the following categories, provided that the property is or will be occupied or let by the owner: home ownership for all year use, including residential buildings associated with commercial properties, second homes, private cooperative housing, private residential property for rent, general housing, youth homes, older household and All other property, including real estate categories above, there is not or will be occupied or let by the owner, be categorized as commercial real estate.

20) Security in shares in Finnish housing companies, operating in accordance with the Finnish housing company Act of 1991 or subsequent equivalent legislation, in respect of housing, there is or will be occupied or let by the owner, be equated in this section with safety in residential buildings.

21) Exposures secured by real estate, which consists of several property categories, are to be broken down on the basis of the individual categories of ownership share of the total gross area and processed separately in accordance with the provisions of point 22-36 for exposures secured by the respective property categories. If one real estate category accounts for at least 80 per cent of the property's total gross area, the entire exposure will be treated in accordance with the rules for this real estate category.

22) Exposures secured by real estate, which consists of several property categories that cannot be broken down on the basis of the individual categories of ownership share of the total gross floor area shall be treated as exposures secured by commercial properties.



Security in immovable property that can be included




23) the company may, by statement of the risk-weighted items include security in immovable property, if the following conditions are met:

(a)) the value of the property does not depend to a significant extent by counterparty credit quality. This requirement does not apply to cases where purely macroeconomic conditions affect both the value of the property as the counterparty's ability to repay.

(b) risk of counterparty) does not depend to a significant degree by the return of the underlying property or project, but rather the underlying of the counterparty's basic ability to repay in some other way. The fulfilment of the relevant facility depends, thus not substantially by which money flows the underlying property that is pledged as security, might generate.

24) companies, which include the effect of security in immovable property by the estimation of risk-weighted items, must have clear business processes in order to ensure that the item 23 (a) and (b) are met.

25) paragraph 23, point (b) shall not apply to exposures secured by residential buildings in Denmark. For exposures secured by residential properties located in a country within the European Union or in a country with which the community has entered into an agreement on the financial area, where that country's authorities do not allow to disregard the condition set out in paragraph 23, point (b), the company must satisfy themselves as to the condition set out in paragraph 23, point (b) is satisfied if the security of such property be taken into account in the estimation of risk-weighted items.

26) the company may take into account securities in commercial real estate is located in a country within the European Union or in a country with which the community has entered into an agreement on financial matters, by the estimation of the risk-weighted items, regardless of the condition in paragraph 23, point (b) is not fulfilled, where the competent authorities of the Member State concerned have recognized those commercial properties on the basis of an exception from the requirement of paragraph 23 (b).



Minimum requirements for the inclusion of safety in real estate




27) the following conditions must be fulfilled in order that security in immovable property can be taken into account in the estimation of risk-weighted items:

(a)) legal security: safety must be legally valid and enforceable in all relevant jurisdictions at the time of conclusion of the credit agreement, and safety must be registered correctly and in a timely manner. The agreement on guarantees and the underlying legal procedure should give the company the opportunity to realize the value of the collateral within a reasonable period of time.

b) surveillance of the property's value: the value of the property shall be monitored on a regular basis and at least once a year, when it comes to commercial real estate, and at least every three years, when it comes to residential buildings. There should be a more frequent monitoring, when the market situation is characterised by significant changes. Statistical methods may be used to monitor the value of the property and to identify which properties to be reviewed. Real estate assessment must be reviewed by an independent person, when there is information showing that the property's value can be decreased significantly in relation to General market prices. By loans that exceed the equivalent of EUR 3 million. the euro, or 5 percent of the company's capital base, property assessment reviewed by an independent person at least every three years. The person who carries out the review of the valuation, must have the necessary qualifications, skills and experience to carry out a valuation and shall be independent of the credit allocation process.

c) Documentation: It must be clearly documented, what types of residential and commercial real estate company accepts, including the separate documentation for the property categories the company considers as safe by the estimation of risk-weighted items, as well as what the company's lending policy is for secured loan in these types of properties.

d) Insurance: the company must have in place procedures to monitor that the property used as collateral, is adequately insured against damage.



Valuation of real estate




28) Property must be valued at market value or less of a person with the necessary qualifications, skills and experience to carry out a valuation, and which is independent of the credit allocation process.

29) By market value means the estimated amount for which the property can be traded for at the valuation date between an interested buyer and an interested seller, there are independent of each other, after proper marketing, where each party has acted on an informed basis, prudently and without compulsion. The market value shall be documented in a transparent and clear manner.

30) the value of the collateral's market value, which has made appropriate write-downs, which partly reflects the results of the monitoring required in accordance with paragraph 27 (b), on the other hand, takes account of any preceding claim on the property.



Calculation of risk-weighted items and expected loss amounts for exposures secured by real estate




31) for the purposes of calculating risk-weighted items and expected loss the company may, in accordance with the provisions of articles 32-36, for exposures, who has a security interest in real property, use an adjusted LGD value (LGD *) instead of the LGD value that would otherwise be used.

32) For exposures, where the value of security make up 140 per cent or more of exposure size, see. item 17 (a), corresponding to an equity at 71.4 per cent or less, the LGD * for 30 per cent of the basic regulation. However, section 70, paragraph 8.

33) If exposure is trailing all the other ordinary creditors, however, to 65% LGD * be. A distinction is made in the determination of LGD * not between securities in residential real estate and securities in commercial real estate.

34) For exposures, where the value of securities represent less than 30 percent of the size of the basic regulation. item 17 (a), no adjustment shall be made by LGD.

35) For exposures, where the value of the collateral accounts for more than 30 percent of the size of the basic regulation. item 17 (a), but less than 140 percent of exposure size, fixed LGD * as a weighted average of LGD * pursuant to clause 32-33 and the unadjusted LGD, where the weights are determined on the basis of the proportion of the exposure size within 71.4% of the value of the collateral, see. paragraphs 32-33, and the proportion of the size of exposure beyond 71.4% of the value of the collateral.


36) undertakings which have exposures secured by residential or commercial properties located in a country within the European Union or in a country with which the community has entered into an agreement in the financial field, where the competent authorities allow a treatment in accordance with Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), annex VIII: 3:73, may apply the risk weight for these exposures, which is allowed under this provision. A prerequisite for this is that the company complies with the terms and conditions as that country apply.



Claims

Security in receivables, which can be taken into account




37) the company can incorporate a security in the form of claims related to one or more commercial transactions with an original maturity of one year or less by the estimation of the risk-weighted items. Claims relating to securitiseringer, indirect participation or credit derivatives or amounts owed by related parties may not be counted as certainties.



Minimum requirements for inclusion of a security interest in Receivables




38) the following conditions must be met in order for the security of claims can be taken into account in the estimation of risk-weighted items:

(a)) legal security:







 

 



in





The legal basis of the security must be securely and efficiently and ensure that the lender has clear title to deposits from the receivables.





 

 



(ii)





The company must take all measures necessary in order to meet local requirements relating to enforcement of collateral agreements. There shall be provided for the legal framework, which ensures that the lender has first priority security, however, having regard to any legislative provisions on preferred creditors.





 

 



(iii)





The company must have made sufficient legal studies to confirm the enforcement of agreements on guarantees in all relevant jurisdictions.





 

 



(iv)





Collateral agreements must be duly documented with a unique business time for recovery of safety within a reasonably short period of time. The company's business processes must ensure compliance with the legal conditions required to declare the defendant in default and ensure that safety can be realized within a reasonably short period of time. If the opposing party have economic problems or breaches, the company must have the legal authority to sell or transfer the receivables to a third party without the consent of claims counterparts.





 



(b))





Risk management:





 

 



in





The company must have a business time for the estimation of credit risk associated with receivables. Business transition should include analyses of the other party's business and industry as well as an assessment of the types of customers who make transactions with the counterparty. When company uses the counterpart's assessment to determine the credit risk of customers, the company must review the counterparty's credit practices in order to assess whether or not it is reliable and trustworthy.





 

 



(ii)





Claims value must reflect all relevant factors, including the cost of collection, concentration within the overall pool of claims which have been made to the security of a single counterparty, as well as the potential concentration risk within the company's total exposures beyond the part that is controlled by means of the company's general management tools. The company must have business processes for continuous monitoring, which is relevant to the claims. In addition, the company must periodically review compliance with clauses, environmental restrictions and other legal requirements.





 

 



(iii)





The claims, made to the security of a counterparty must be diversified and not be significantly correlated with the counterparty. When there is a significant, positive correlation, must take account of the associated risks in determining the value of the total pool of claims as a whole.





 

 



(iv)





Receivables from entities that are associated with the opposing party, including affiliates and employees, can not be taken into account in the estimation of risk-weighted items.





 

 



(v)





The company must have a business time for recovery of payments from debt-claims under bankruptcy and similar difficult situations. The business-required time to recovery should be available even where the company usually will entrust the recovery to the counterparty.











Valuation of receivables




39) the value of the claims made for the outstanding amount, adjusted in accordance with paragraph 38, subparagraph (b), no. II and iii.



Calculation of risk-weighted items and expected loss amounts for exposures secured by receivables




40) for the purposes of calculating risk-weighted items and expected loss amounts for exposures that the company may have a security interest in receivables, apply an adjusted LGD value (LGD *) in accordance with the provisions of section 41-42 below, instead of the LGD value that would otherwise be used.

41) For exposures, where the value of the collateral represents 125% or more of exposure size, see. item 17 (a), corresponding to an equity at 80% or less, the LGD * for 35 per cent If the exposure is trailing all the other ordinary creditors, however, to 65% LGD * shall be laid.

42) For exposures, where the value of the collateral is less than 125 percent of exposure size, see. item 17 (a), be fixed LGD * as a weighted average of LGD * in accordance with paragraph 41 and the unadjusted LGD, where the weights are determined on the basis of the proportion of the exposure size, which lies within 80 percent of the value of the collateral, see. paragraph 41, and the proportion of the exposure size beyond 80 per cent of the value of the collateral.



Other non-financial securities

Other non-financial securities, which can be taken into account




43) the company may, by statement of the risk-weighted items include security in physical objects in addition to those listed in paragraphs 23-26, if it is satisfied:

(a)) the existence of liquid markets, where it is quickly and cheaply to dispose of the security in question, and

(b)) the existence of well-established, publicly available market prices for the collateral. The company must be able to demonstrate that there is no reason to assume that the net prices, the benefit on the realization of safety, differ significantly from these market prices.



Minimum requirements for inclusion of other non-financial securities




44) the following conditions must be fulfilled in order that other non-financial securities can be taken into account in the estimation of risk-weighted items:

(a)) the agreement on the security must be legally valid, be enforceable in all relevant jurisdictions and give the company the opportunity to realize the value within a reasonable time frame.

(b)) With the limit of the preceding requirements pursuant to clause 38 (a) (ii). (ii), as the only exception, only the primary security. Thus, the entity shall have priority to the proceeds from safety above all other lenders.

c) security value must be monitored frequently and at least once a year. More frequent monitoring is required when there is significant changes in market conditions.

(d)) the agreement on the security must contain detailed descriptions of security as well as the detailed specifications of the manner in which valuations must be carried out and their frequency.

e) the types of non-financial securities, which the company accepts, as well as policies and practices concerning the appropriate amount for each type of securities in proportion to the size of exposure must be clearly documented.


f) company's business processes should include appropriate security requirements in relation to the size of the exposure, the ability to quickly realize the security and the ability to establish objectively a price or market value. In addition, the company must establish a framework for the frequency of valuation can be carried out, including the possibility and time frames for a professional appraisal or valuation, as well as establish a framework for the volatility or an estimate of the volatility in the value of the collateral.

g) By both the original valuation as at renewed valuations must be taken into account that security may be deteriorated or obsolete.

h) the company shall have the right to carry out physical inspections of safety. It must have policies and procedures regarding the exercise of the right to physically examine safety.

in) the company should have procedures to monitor that the security used is adequately insured against damage.



The valuation of other non-financial securities




45) value of other non-financial securities are stated at market value, which is the estimated amount that the asset can be traded for at the valuation date between an interested buyer and an interested seller, there are independent of each other.



Calculation of risk-weighted items and expected loss amounts for exposures with other non-financial securities




46) for the calculation of risk-weighted items and expected loss the company may, in accordance with the provisions of paragraphs 47-49, for exposures that have security in other non-financial securities, use an adjusted LGD value (LGD *) instead of the LGD value that would otherwise be used.

47) For exposures, where the value of security make up 140 per cent or more of exposure size, see. item 17 (a), corresponding to an equity at 71.4 per cent or less, the LGD * to 40 percent If the exposure is trailing all the other ordinary creditors, LGD * shall be 70 per cent.

48) For exposures, where the value of the collateral is less than 30 percent of the size of the basic regulation. item 17 (a), no adjustment shall be made by LGD.

49) For exposures, where the value of the collateral accounts for more than 30 percent of the size of the basic regulation. item 17 (a), but less than 140 percent of exposure size, fixed LGD * as a weighted average of LGD * in accordance with paragraph 47 and the unadjusted LGD, where the weights are determined on the basis of the proportion of the size of exposure within 71.4% of the value of the security referred to in article 6. paragraph 47, and the proportion of the size of exposure beyond 71.4% of the value of the collateral.



Special provisions concerning leased assets




50) Exposures resulting from transactions in which the company leases an asset to a third party, shall be treated as a secured loan in the type of asset that will be leased, in accordance with the provisions of section 19-36 and 43-49, see. However, paragraph 51, when the following conditions are met:

a) depending on the type of the leased asset, the minimum requirements for consideration of safety in section 27 or paragraph 44 be fulfilled.

(b)) the lessor shall regulate and monitor the leased asset use and period of application as well as conducting a planned monitoring of the leased asset.

c) There shall be established a legal basis which defines the lessor's ownership of the asset and its ability to exercise its rights as owner appropriately.

(d)) in determining LGD must take account of the risks, owing to possible differences between the value of the uamortiserede amount and market value of the collateral.

51) the company may, in respect of non-subordinated claims in the form of leasing of equipment use a LGD on 35 per cent of the basic regulation. However, section 70 (9).



Other credit protection




52) the provisions of annex 7, paragraphs 98-105, shall apply mutatis mutandis to the credit risk mitigation techniques under the IRB approach for credit risk.



Netting agreements relating to on-balance-sheet debts




53) the provisions of annex 7, paragraph 106 shall apply mutatis mutandis to the credit derivatives for credit risk mitigation techniques under the IRB approach for credit risk.



Mixed pools of securities




54) in the calculation of risk-weighted items and expected loss should the company use an adjusted LGD value (LGD *) in accordance with paragraph 55, when the exposure is secured with both a financial collateral and other securities.

55) the company must divide the exposure volatilitetsjusterede value-IE. the value after the application of volatility adjustment as specified in annex 7, paragraph 67, 69 and 70-in parts, each of which will be covered by only one type of security. This means that the company must divide the exposure in a part that is covered by a financial guarantee, a part that is covered by the claims, parts, covered by a security in the form of commercial real estate and/or residential buildings, a part that is covered by other non-financial securities, as well as the unsecured share. LGD * for each part of the exposure shall be calculated separately in accordance with the relevant provisions of this annex.

Annex 10

Statement by exposure size for securities financing instruments, etc. in netting

The scope of the




1) this annex provides for the calculation of the size of exposure of financial instruments and securities forward transactions, which are subject to a nettingaftale of the basic regulation. section 10, paragraphs 2-3, and section 27, paragraph 7. Furthermore, the annex includes provisions relating to the application and authorisation for the use of internal models to calculate the size of exposure by netting for securities financing instruments and forward transactions, see. section 10, paragraph 4, and article 27, paragraph 7.



Minimum requirements for netting agreements, which can be taken into account




2) the following conditions must be fulfilled in order to netting agreements can be used for the calculation of risk-weighted items:

(a)) they must be legally valid and enforceable in all relevant jurisdictions, including in the event of counterparty default or insolvency.

(b)) they must give the party breaches the agreement, the right to adequate to exit and close all transactions under the agreement in the event of default, including in the event of counterparty default or insolvency.

(c)) they should allow for netting of gains and losses on transactions concluded under a nettingaftale, so that one party owes the other a single net amount.

3) If nettingaftalen includes financial instruments and securities forward transactions outside the trading book, the only assets that can be taken into account under the financial collateral comprehensive method, see. Annex 7, paragraph 58-61, be included among the assets that can be borrowed, purchased, received or made security in connection with nettingaftalen.

4) If nettingaftalen exclusively includes securities financing instruments and forward transactions included in the trading book, all assets that may be included in the trading book, be included among the assets that can be borrowed, purchased, received or made security in connection with nettingaftalen.

5) the requirements set out in annex 7, paragraph 51, must be fulfilled for assets that can be borrowed, purchased, received or made security in connection with nettingaftalen.



The size of exposure under the netting agreements determined by the application of volatility adjustments




6) Method in item 7-13 is not available for netting agreements, that include margenlån, which does not include ongoing margin payments and forward transactions.

7) a company can take into account the effect of netting agreements, covering securities financing instrumenterer, apart from margenlån without ongoing margin deposit, see. item 6, and meet the requirements laid down in paragraphs 2 to 5. This will be achieved by replacing the size of the exposures, to which individual instruments under nettingaftalen give rise to separate, with a net position for each currency, there is covered by nettingaftalen, of a fixed amount in accordance with paragraph 8-10, attributed volatility adjustments for the securities included in statement of net position, and currency. The company can either apply the volatility adjustments are prescribed for the financial collateral comprehensive method as set out in annex 7, paragraphs 71-80, or to use own estimates of volatility adjustments in accordance with the provisions of annex 7, paragraph 81-85. The latter option assumes that the requirements in annex 7, paragraphs 86-96 is met.

8) net position for each type of securities covered by nettingaftalen, is calculated by subtracting the total value of the securities of that type borrowed, purchased or received under the nettingaftalen, from the total value of the securities of that type lent, sold or made available in accordance with the agreement.

9) By "type of securities" for the purposes of this annex, securities issued by the same entity, have the same date, same maturity, are subject to the same conditions and regulations and is subject to the same liquidation periods as specified in annex 7, paragraphs 71-96.


10) the net position in each currency is calculated by measuring the total value of securities issued in this currency, and which are lent, sold or provided under the agreement. Shall be added the cash amount in that currency, which is loaned or transferred pursuant to the agreement. This sum is deducted from the total value of securities issued in the currency in question, and which is borrowed, purchased or received in accordance with nettingaftalen. In addition, be deducted from the cash amount in that currency borrowed or received under the agreement.

11) volatility adjustment for a given type of securities or a cash position shall be carried out for the numerical value of the positive or negative net position of securities of that type.

12) volatility adjustment for currency shall be carried out for the positive or negative net position for each currency other than the settlement currency nettingaftalens.

13) Exposure size under nettingaftalen, E * shall be calculated using the following formula:







 



E * = max {0, [(∑ (E)-∑ (C)) + ∑ (| net position in each securities | x Hsec) + (∑ | EFX | x Hfx)]}, where





 



E is the value of the securities or commodities that are lent, sold or provided, or cash amount which is lent or supplied in accordance with the individual securities financing instruments under nettingaftalen,





 



∑ (E) is the sum of all Es under the agreement,





 



C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received in accordance with the individual securities financing instruments under nettingaftalen,





 



∑ (C) is the sum of all Cs under the agreement,





 



Hsec is the volatility adjustment for a given type of securities regulation. paragraph 11,





 



EFX is the net position (positive or negative) in a given currency other than the settlement currency of the agreement, as calculated pursuant to clause 10, and





 



HFX is the volatility adjustment for currency regulation. item 12.











The size of exposure under the netting agreements established at the use of internal models (VaR-models)




14) as an alternative to using volatility adjustments in connection with the statement of eksponeringers size under a nettingaftale (E *), see. item 6-13, the company may search the FSA for authorization to use an internal models approach, see. However, paragraph 17. This method takes into account correlation effects between securities positions covered by the concerned nettingaftale as well as the terms of those instruments, liquidity. The internal models used by this method, should include estimates of the potential change in the size of the unsecured exposure (∑ (E)-∑ (C)).

15) in addition to the instruments, which can be taken into account in estimating the size of exposure during a nettingaftale pursuant to clause 6-13, the company may search the FSA for authorization to incorporate margenlån without ongoing margin deposit as well as forward transactions by the estimation of the size of exposure during a nettingaftale through the use of internal models, see. section 10, paragraph 4. When margenlån without ongoing margin deposit as well as forward transactions are included under nettingaftalen, this agreement must meet the requirements for netting agreements covering the counterparty risk, see. Annex 16, paragraph 83-92.

16) if the company uses a method of internal models, it must do so for all counterparties and securities, excluding immaterial portfolios where it can use one of the methods with the application of volatility adjustments, see. item 6-13.

17) companies that have been approved an internal model for market risk (VaR-model) pursuant to §§ 40 and 41, can use the method described in this section without separate approval thereof.

18) approval under paragraph 14 shall be granted only if the FSA believes that it is satisfied that the company's risk management system for managing the risks arising in connection with the transactions covered by the nettingaftalen, is theoretically well founded and implemented carefully, and in particular, the following qualitative standards are met:

(a)) The internal risk-measurement model used for calculating transaction potential price volatility, should form an integral part of the company's daily risk management processes and provide the basis for reporting on risk exposure to the Corporate Executive Board.

(b)) the company has a risk control unit that is independent from commercial departments, and which reports directly to the Executive Board. The unit shall be responsible for formulating and implementing the company's risk management system. It must draw up and analyse daily reports on the results of the risk-measurement model and on the appropriate measures concerning the size of the allowable positions.

(c)) The daily reports from the risk-control unit must be reviewed on a level of management with sufficient authority to carry out reductions of positions and of the overall risk exposure.

d) the company shall have a sufficient number of employees in the risk-control unit with experience in the use of the most advanced models.

(e)) the company must have in place the procedures for monitoring and ensuring compliance with written guidelines and controls relating to the operation of the risk-measurement system.

f) on the basis of backtesting to be the company's models have proven to be fit exact to the measurement of risks. This backtesting must rely on at least one year of data.

g) company shall regularly conduct a thorough programme of stress testing and the results of these tests must be reviewed by the Executive Board and reflected in the policies and limits, as this sets.

h) the company shall as part of its internal audit procedure carry out an independent review of its risk-measurement system. This review must include both the Trade Department and the independent risk control unit activities.

in) the company must, at least once annually conduct a review of its risk management system.

j) the internal model shall meet the requirements set out in annex 16, paragraph 81 and 82.

19) the calculation of the potential changes of the value of the size of the unsecured exposure






 



((E)-∑ ∑ (C)) shall be performed in accordance with the following minimum standards:












(a)) That must be made at least a daily calculation of the potential change in value.

(b)) to be used for a 99% confidence interval unilaterally.

(c)) to be used a 5-day equivalent liquidation period, except in the case of margenlån and Futures businesses, how to use a 10-day equivalent liquidation period.

(d)) to be used for an effective historical observation period of at least one year except where a significant increase in price volatility can justify a shorter observation period.

e) Data sets need to be updated at least every three months.

20) The internal risk-measurement model shall include a sufficient number of risk factors in order to detect any significant price risks.

21) the company can use empirical correlations within risk categories and across the (interest rate, equity, commodity and foreign exchange risk), if the company's system for measuring correlations is theoretically justified and implemented carefully.

22) Exposure size under nettingaftalen (E *), through the use of internal models approach shall be calculated using the following formula:







 



E * = max {0, [(∑ (E)-∑ (C)) + (Was-the results of the internal model)], where





 



E is the value of the securities or commodities that are lent, sold or provided, or cash amount which is lent or supplied pursuant to the individual securities financing instruments under nettingaftalen,





 



∑ (E) is the sum of all Es under the agreement,





 



C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received in pursuance of the individual securities financing instruments under nettingaftalen,





 



∑ (C) is the sum of all Cs under the agreement, and





 




where was-the results of the internal model is the result of the calculation of the potential changes of the value of the size of the unsecured exposure (∑ (E)-∑ (C)) in accordance with the provisions of paragraphs 19-21.














23) for the purposes of calculating risk-weighted items size using internal models, the company must use the results of the model from the previous business day.

Annex 11

Securitization











Table of contents





PT.





 

 





The scope of the





1-2





 

 





Definitions





3





 

 





The treatment of securitised exposures





4-14







Traditional securitiseringer





4-8







Synthetic securitiseringer





9-14





 

 





Treatment of securitiseringspositioner for standard institutes





15-50







Exposure size (standard banks)





18-25







General (default, institutions)





18-21







Liquidity facilities (standard banks)





22-25







Risk weights (standard banks)





26-33







General (default, institutions)





26-29







Securitiseringspositioner in an ABCP programme (standard banks)





30-31







Unrated liquidity facilities (standard banks)





32







Credit protection for securitiseringspositioner (standard banks)





33







Additional provisions by securitisation of revolving exposures with early amortisation (standard banks)





34-50





 

 





Treatment of securitiseringspositioner for IRB institutions





51-89







The size of exposure (IRB-institutions)





57-63







General (IRB-institutions)





57-59







Liquidity facilities (IRB-institutions)





60-63







Risk weights (IRB-institutions)





64-84







Choice of method (IRB-institutions)





64-70







Secondary external ratings





68







Migrated external ratings for positions in ABCP programmes





69-70







The ratings based approach (IRB-institutions)





71-75







Supervisory formula method (IRB-institutions)





76-77







Application of simplified inputs





76







Particular requirements for liquidity facilities where Kirb cannot be calculated





77







Credit protection for securitiseringspositioner (IRB-institutions)





78-84







The ratings based method





79







Supervisory formula method — full credit risk hedging





80-82







Supervisory formula method — partial credit risk hedging





83-84







Additional provisions by securitisation of revolving exposures with early amortisation (IRB-institutions)





85-89











The scope of the




1) this annex provides for the inclusion of the effect of securitisation of corporate exposures in determining risk-weighted items, as well as provisions on the materiality of the risk-weighted items for the non-trading book, see securitiseringspositioner. sections 11 and 30.

2) provisions relating to the calculation of risk-weighted items for securitiseringspositioner within the trading book are set out in annex 12.



Definitions




3) for the purposes of this annex the following concepts are defined as follows:

a) Securitisation: a transaction or arrangement, whereby the risk associated with an exposure or a pool of exposures is divided into tranches, and which is characterized by the following, see. the definition of "securitisation" in article 129, paragraph 5, of the financial business Act:







 

 



in





Payments in connection with the transaction or scheme depends on the evolution of the exposure or a pool of exposures, and





 

 



(ii)





ranking of tranches determines the allocation of losses in the transaction or scheme's life span.





 



(b))





Traditional securitization: A securitisation, which implies that the exposures securitised, which transferred financially to a securitiseringsenhed with a special purpose (SSPE), which issued the securities. This is done by transferring ownership of the securitised exposures from the supplying company exposure or through indirect participation. The securities shall not result in the payment obligations of the originator company exposure.





 



(c))





Synthetic securitization: A securitisation, where the Division into instalments is achieved by the use of credit derivatives or guarantees, and where the securitised exposures is not removed from the supplying enterprise balance sheet exposure.





 



(d))






Tranche: A contractually defined segment of the credit risk associated with an exposure or number of exposures, where a position in the segment contains a risk of loss that is greater than or less than the risk of loss in a position with the same amount in the second such segment, when there is no recognised credit protection provided by a third party directly to holders of positions in the segment or in other segments.





 



(e))





Exposure originator company: one of the following companies:





 

 



in





A company that either themselves or through affiliated companies directly or indirectly involved in the original agreement which created the borrower's or a potential borrower's obligations or potential obligations, which are the basis for the exposure that was securitized, or





 

 



(ii)





a company that takes over the third party's exposures and then securitises them.





 



(f))





Organizing business: an establishment other than the originator, who shall establish exposure and manages an ABCP programme or another securitiseringsordning, which bought exposures from third parties.





 



(g))





ABCP-program (asset-backed commercial paper programme): Securitiseringsprogram, where the securities are mainly debt securities with a maturity of one year or less.





 



(h))





SSPE (securitisation special purpose entity – securitiseringsenhed special purpose): a management company or another entity which is established for the purpose of making one or more securitiseringer. Securitiseringsenheden must not be a company, as defined in article 1, paragraph 2, and its activities must not include anything other than what is required to implement securitiseringer. Its structure must be designed with a view to separating its obligations from the supplying company exposure. Holders of the right to profits in securitiseringsenheden must have unlimited right to pawn or sell this right.





 



in)





Securitiseringsposition: Exposures against securitiseringer, jf. § 4, paragraph 10. If the exposure includes different tranches in a securitisation, the exposure against each tranche shall be considered as a separate securitiseringsposition. At a traditional securitisation will securitiseringspositioner among other things. include exposures to a securitiseringsenhed with a special purpose, SSPE. By a synthetic securitisation will often be in the form of securitiseringspositioner trancheopdelte guarantees and credit derivatives with the supplying company as counterparty exposure, and where the securitisation does not necessarily include an SSPE. Securitiseringspositioner also includes exposures from a securitisation arising through the use of interest rate or exchange rate derivative contracts.





 



(j))





Credit enhancement: A by agreement concluded arrangement, whereby the position of credit quality in the context of a securitisation is improved compared to what it would have been if there had not been a credit enhancement, including improvements through several lower-ranking tranches in connection with securitisation or other types of credit protection.





 



k)





MER-spread: Charged finance charges and other fees received in respect of the securitised exposures deducted from costs and expenses.





 



l)





Clean-up call option: A contractual option, which gives the originator company exposure opportunity to re-purchase or cancel securitiseringspositionerne, before all of the underlying exposures are repaid when the size of the outstanding exposures when under a certain level.





 



m)





Liquidity facility: Securitiseringsposition arising out of a contractual agreement to provide finance to ensure timely payments to investors.





 



n)





Unrated position: A securitiseringsposition, which does not have a rating carried out by an approved credit-rating agency.





 



o)





Rated position: A securitiseringsposition, which has a rating carried out by an approved credit-rating agency.





 



p)





Kirb: 8 per cent of the size of the risk-weighted items, which should be calculated for the securitised exposures under IRB approach, if they had not been securitised, plus the size of the expected losses associated with those exposures.





 



q)





The ratings based method: method for the calculation of risk-weighted items for securitiseringspositioner, see. paragraphs 71-75.





 



r)





Supervisory formula method: method for the calculation of risk-weighted items for securitiseringspositioner, see. section 76-77.











The treatment of securitised exposures

Traditional securitiseringer




4) of a traditional securitisation may exclude securitised exposures by business supplying exposure calculation of risk-weighted items and, where appropriate, by calculation of expected losses, if a significant part of the credit risk of the securitised exposures has been transferred to a third party, and the transfer meets the following conditions:

(a) the securitisation documentation reflects) the transaction's economic substance.

(b)) the securitised exposures are brought outside the originator company's exposure and his creditors ' reach, including in the case of bankruptcy and liquidation. This must be supported by the opinion of a qualified lawyer.

(c)) the securities shall not constitute payment obligations of the originator company exposure.

d) recipient of credit risk is a securitiseringsenhed with a special purpose (SSPE).

(e)) The originator company does not retain a real exposure or indirect control over the transferred exposures. An exposure originator company deemed to have retained the real control over the transferred exposures if it has the right to buy back the previously transferred exposures from the beneficiary of the credit risk in order to realize the benefits of these, or if it is obliged to once again assume the transferred risk. If the exposure originator company retains its rights or obligations relating to the management of the exposures, this does not in itself constitute any indirect control over exposures.

f) Documentation for the securitisation does not contain provisions which:







 

 



in





requires securitiseringspositionen to be improved by the originator company exposure, URf.eks. through the changes of the underlying exposures or increasing the benefits that are paid to investors in the event of a deterioration of the securitised credit quality – eksponeringers however, this does not apply to any provisions on early amortisation – or





 

 



(ii)





increases benefits to be paid to holders of securitiseringspositioner, in the event of a deterioration of the credit quality of the underlying exposures.





 




(g))





When there is a "clean-up call option", the following conditions must also be met:





 

 



in





The concerned "clean-up call option" can be exploited when the originator company want the exposure.





 

 



(ii)





The concerned "clean-up call option" can only be exploited when 10 percent or less of the original value of the securitised exposures are still unpaid.





 

 



(iii)





The concerned "clean-up call option" must not be designed in order to avoid breakdown of loss on securitiseringspositioner held by investors, including securitiseringspositioner in the form of credit enhancement events, or otherwise be designed in order to provide credit enhancement.














5) If the originator company exclude the securitised exposures exposure by calculation of risk-weighted items, as well as, where appropriate, by calculation of expected losses in accordance with paragraph 4, it shall calculate the risk-weighted items for any own securitiseringspositioner in accordance with the relevant provisions of paragraph 15-50, or where relevant paragraphs 51-89.

6) If the originator company cannot exclude exposure the securitised exposures in accordance with paragraph 4, the entity shall not calculate risk-weighted items for any own securitiseringspositioner, as well as, where appropriate, risk-weighted items for the securitised exposures in accordance with paragraph 34-50 and 85-89.

7) an exposure originator company that uses the provision in paragraph 4 when calculating the risk-weighted items, or a sponsor company shall not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations

8) Meet the exposure business originator or the organizing company not pkt 7, it shall calculate the risk-weighted items for all of the securitised exposures as if they had not been securitised. The company must disclose that it has granted non-contract based support, and what the effect on the solvent as a result of this has been.



Synthetic securitiseringer




9) By a synthetic securitisation exposure the originator company can quantify the risk-weighted items and, where applicable, the expected loss amounts for the securitised exposures in accordance with articles 10-14, if a significant part of the credit risk of the securitised exposures has been transferred to a third party, and the transfer meets the following conditions:

(a) the securitisation documentation reflects) the transaction's economic substance.

(b)) The credit risk mitigation techniques, through which the credit risk has been transferred, complies with Annex 7 and, where applicable, annex 9 on the recognition of and minimum requirements for warranties, credit derivatives and guarantees. As regards this point recognized the SSPE is not issuing of guarantees or credit derivatives.

(c)) the instruments used for the transfer of credit risk, does not contain terms or conditions, such as:







 

 



in





contains high thresholds for when the credit protection can be triggered if a credit event occurs,





 

 



(ii)





provides the ability to remove the credit protection as a result of a deterioration in the underlying credit quality, eksponeringers





 

 



(iii)





requires securitiseringspositionen to be improved by the originator company exposure – this does not apply to any provisions on early amortisation – or





 

 



(iv)





increase the company's cost of credit protection or benefits to be paid to holders of securitiseringspositioner in the event of a deterioration of the credit quality of the underlying eksponeringers.





 



(d))





The company must obtain an opinion from a qualified lawyer, confirming that the credit protection enforceable in all relevant jurisdictions.














10) when calculating the risk-weighted items for the securitised exposures that comply with the requirements of paragraph 9, should the originator company exposure using the appropriate methods of calculation, contained in paragraph 15-89, and not with the method set out in annex 3 and 7, or, where appropriate, Annexes 8 and 9. The company uses the IRB approach for credit risk, see. § § 19-33, the expected loss amounts for securitised exposures that comply with the requirements of paragraph 9, will be set to zero.

11) the provisions of articles 6 to 8 shall apply accordingly in relation to synthetic securitiseringer.

12) the company must take into account the possible running time mismatch between the credit protection used for the breakdown of the securitised exposures in tranches, and the securitised exposures in accordance with articles 13 and 14.

13) the maturity of the securitised exposures used the longest maturity for these exposures subject to a maximum of five years. The maturity of the credit protection shall be determined in accordance with Annex 7.

14) The originator company must by exposure and loss of risk-weighted items for tranches shall be assigned a risk weight of 1,250 percent, does not take account of the running of time mismatch. For all other tranches to the originator company apply the exposure treatment of serial time-mismatch, as specified in annex 7, in accordance with the following formula:







 

 





 



RW * is risk-weighted items to be included in the inventory of the company's solvency,





 



RW (Ass) are risk-weighted items for the exposures if they had not been securitised, calculated on a pro rata basis,





 



RW (SP) are the risk-weighted items calculated in accordance with paragraph 15-89, if there was no question about running time-mismatch,





 



T is the maturity of the underlying exposures expressed in years,





 



t is the maturity of the credit protection expressed in years, and





 



t * is 0.25.











Treatment of securitiseringspositioner for standard institutes




15) If your company uses the standardised approach for credit risk (standard banks), see. § 9-18, it shall calculate the risk-weighted items for securitiseringspositioner in accordance with the provisions of section 16-50.

16) The risk-weighted amount for a securitiseringsposition shall be calculated by multiplying the exposure size, see. item 18-25, with a risk weight based on the credit quality, as can be determined from a rating from a recognized rating agency or otherwise, see. paragraphs 26-33.

17) an exposure originator company or a sponsor company that lets revolving exposures included in the securitisation, which includes an option for early redemption, shall also quantify the risk-weighted items respectively for the originator company's capital interest exposure and investors ' capital interest in accordance with the provisions of paragraph 34-50.



Exposure size (standard banks)

General (default, institutions)




18) Exposure size for an on-balance sheet securitiseringsposition are stated at its value calculated in accordance with accounting regulations.

19) Exposure size for an off-balance-sheet securitiseringsposition are stated at nominal value, with the exception of its securitiseringspositioner in the form of certain liquidity facilities, see. paragraphs 22-25.


20) Exposure size for a securitiseringsposition that have arisen through the use of derivative financial instruments, which appears in annex 17 shall be determined in accordance with section 42 or, where appropriate, §§ 45 and 46.

21) Have a company two or more overlapping positions in a securitisation, it shall, with respect to the overlapping positions, by the statement of the risk-weighted entries include only the position or part of a position that provides the highest risk-weighted items. For the purposes of this paragraph refers to "overlapping", to positions, in whole or in part, represents an exposure to the same risk, so that in the overlapping part is talking about one and the same exposure.



Liquidity facilities (standard banks)




22) Of unrated liquidity facilities, which satisfies the conditions laid down in subparagraphs (a) to (f) may be used a conversion figure of 20% on the nominal amount of the liquidity facility if the initial duration is of one year or less, and a conversion figure of 50% on the nominal amount of the liquidity facility if the original maturity is over one year.

a) Documentation for the liquidity facility must uniquely identify and delineate the circumstances in which the facility can be utilized.

(b)) It must not be possible to draw on the facility to provide credit support by covering losses that have already occurred at the time the facility is utilized-URf.eks. by providing liquidity available to them for dealing with defaulted exposures at the time of utilisation of the facility or by acquiring assets for more than their fair value.

(c)) the facility shall not be used to provide permanent or regular funding available for securitisation.

d) repayment of draws on the facility shall not be subordinated investors ' claims, other than claims arising from derivative contracts on interest rates or currency, fees or other similar payments, and it must not be subject to cancellation or postponement.

e) it shall not be possible to draw on the facility, after all opportunities for credit improvement, as the liquidity facility may be subject to, is exhausted.

f) Facility shall include a provision that results in an automatic reduction of the amount that can be utilized, equivalent to the amount of defaulted exposures, or where the pool of the securitised exposures consists of rated instruments, a provision that results in that facility shall be repealed if the average quality of the pool falls below "investment grade".

23) Of unrated liquidity facilities, which satisfies the conditions laid down in paragraph 22, and which can only be utilized in the event of a general market disruption, can be used a conversion figure of 0% over the liquidity facility's nominal value. A general market disruption occurs when more than one SSPE across several different transactions are unable to renew promissory notes, which is approaching maturity, and where this failure is not due to a deterioration of the creditworthiness of SSPE's or question the creditworthiness of the securitised exposures.

24) Of unrated liquidity facilities, which can be lifted unconditionally, and who satisfies the conditions laid down in paragraph 22, a conversion factor of 0% on the nominal amount of the liquidity facility, provided that the repayment of an advance on the facility has precedence over other claims on the payments from the securitised exposures.

25) For liquidity facilities that do not meet the conditions laid down in paragraph 22, as well as for unrated liquidity facilities shall be used a conversion factor of 100%.



Risk weights (standard banks)

General (default, institutions)




26) the company must calculate the risk-weighted amount for a securitiseringsposition with a rating from a recognized credit-rating agency, see. Annex 6, by applying a risk weight in accordance with table 1 for positions with a rating which is not short-term, or table 2 for positions with a short-term rating.







 





Table 1. Positions with a rating that is not short-sighted







Credit quality step





1





2





3





4





Øvrigekvalitetstrin







Risk weight





20%





50%





100%





350%





1,250%





 

 

 

 

 





Table 2. Positions with a short-term rating







Credit quality step





1





2





3





Øvrigekvalitetstrin







Risk weight





20%





50%





100%





1,250%














27) the company shall apply a risk weight of 1,250 per cent for non-rated securitiseringspositioner of the basic regulation. However, paragraphs 28-32.

28) Notwithstanding the provisions of articles 26 and 27 can risk-weighted items for securitiseringspositionerne with an exposure originator or a sponsor company is limited to the size of the risk-weighted items for the securitised exposures would assume, if they had not been securitised. In this context, it is assumed to be applying a risk weight of 150% of the securitised exposures in arrears.

29) regardless of the provisions of section 27 can the company, for an unrated securitiseringsposition, provided that the composition of the securitised exposures is known at all times, apply the following risk weights: The weighted average risk weight for the securitised exposures if they had not been securitised, multiplied by a concentration factor. Concentration factor is fixed at the sum of the nominal values of all tranches divided by the sum of the nominal values of the tranches in the securitisation, which is trailing or assimilated with the tranche in which securitiseringspositionen held, including the tranche. The resulting risk weight shall not be higher than 1,250 per cent or lower than any risk weight applicable to a preceding tranche with rating.



Securitiseringspositioner in an ABCP programme (standard banks)




30) company may for securitiseringspositioner in an ABCP-program, which satisfies the conditions laid down in paragraph 31, use the highest value of respectively 100 per cent and the highest risk weight that would be applied to any of the securitised exposures in accordance with the provisions of annex 3.

31) If the treatment prescribed in paragraph 30 should apply, must meet the following conditions: securitiseringspositionen

a) Position must be in a tranche, which economically are placed in a second loss position or better in the field of securitisation, and first loss tranche must provide an appropriate credit enhancement of second loss tranche.

(b)) The credit quality must correspond to "investment grade".

(c)) the company may not hold a position in the first loss tranche.



Unrated liquidity facilities (standard banks)




32) risk weight for a position in an unrated liquidity facility, which satisfies the conditions laid down in paragraph 22, must be set to the highest risk weight that would be applied to any of the securitised exposures in accordance with annex 3.



Credit protection for securitiseringspositioner (standard banks)




33) By the estimation of the risk-weighted items for a securitiseringsposition can the company take into account the effect of the credit risk hedging in accordance with the provisions of annex 7 and 10.



Additional provisions by securitisation of revolving exposures with early amortisation (standard banks)




34) an exposure originator company and a sponsor undertaking subject to paragraph 17, to quantify the risk-weighted items respectively for the originator company's capital interest exposure and investors ' capital interest in accordance with the provisions of section 35-50.


35) By a revolving exposure shall mean an exposure, where the customer's outstanding can vary as a result of that the customer can choose to borrow and repay, up to an agreed limit. By a possibility of early redemption is a contract provision shall require that investors securitiseringspositioner liquidated or is terminated prior to the stated expiration date originally, if specified events occur.

36) By securitiseringer, where the securitised exposures include both revolving and non-revolving exposures, the exposure originator company apply the treatment described in paragraphs 37-50, on the part of the underlying pool of exposures that includes revolving exposures.

37) The originator company are exempt from exposure to quantify the risk-weighted exposure records for the originator company's equity interest and the investors ' capital interest by the following types of securitiseringer:

(a)) Securitiseringer of revolving exposures, where investors remain fully exposed against future drawings made by borrowers, so that the risk of the underlying exposures does not return to the originator company exposure, even if there is an early redemption.

(b)) Securitiseringer, where an option for early redemption solely triggered by events that do not have any correlation with how the securitised exposures or the originator company exposure is doing, URf.eks. significant changes in tax laws or other legislation.

38) By the originator company's capital interest exposure means the nominal amount of the share of the pool of drawn amounts of revolving exposures subject to securitisation, in which the share determines the portion of the payment flow from the principal, interest and other associated amounts which are not available for payment to holders of securitiseringspositioner, and which are not subordinated investors ' capital interest.

39) at the investors ' capital interest "means the nominal size of the remaining share of the pool of drawn amounts on the securitised exposures covered by securitisation, IE. the share, which gives rise to cash flows that are available to holders of securitiseringspositioner.

40) the pool of drawn amounts in the revolving exposures in points 38 and 39 are stated in accordance with the provisions of paragraphs 18-21.

41) Exposures related to the originator company's capital interest exposure, shall not be treated as a securitiseringsposition, but as a pro rata exposure to the securitised exposures as if these were not covered by the securitisation of the basic regulation. Annex 3.

42) risk-weighted items for investors ' capital interest shall be determined by the fact that investors ' capital interest multiplied by the product of the appropriate conversion factor, which is determined by the provisions of articles 43 to 48, and the weighted average risk weight that would be applied to the securitised exposures if these had not been securitised.

43) For securitiseringer of retail exposures, the company can terminate at any time, without conditions and without prior notice, and where the securitisation is covered by an option for early redemption, which is triggered if mer-rate spread falls to a specified level, the entity shall apply the conversion factors given in table 3.







 

 

 





Table 3





 



Securitisations subject to a controlled early amortisation treatment, see opportunity. paragraph 46





Securitisations subject to a non-controlled option for early redemption







Three-month average mer-spread





Conversion factor (%)





Conversion factor (%)







Over level A





0





0







Level A





1





5







Level B





2





15







Level C





10





50







Level D





20





100







Level E





40





100














44) table 3 denotes level A levels for a three-month average mer-spread, which is lower than 133.33% of the level at which the mer-rate spread is retained (retention time), see. paragraph 45, but not less than 100 per cent of that level. Level B refers to levels of a three-month average mer-spread, which is lower than 100 per cent of the level at which the mer-rate spread is retained, but not less than 75 per cent of that level. Level C denotes levels for a three-month average mer-spread, which is lower than 75% of the level at which the mer-rate spread is retained, but not less than 50 per cent of that level. Level D denotes levels for a three-month average mer-spread, which is lower than 50% of the level at which the mer-rate spread is retained, but not less than 25 per cent of that level. Level E denotes levels for a three-month average mer-spread, which is lower than 25% of the level at which the mer-rate spread is retained.

45) Tilbageholdelsestids point, which form the basis for determining the levels of mer-spread in table 3 means the level for mer-spread, where according to the contract required that the mer-rate spread is retained. If the terms of the contract does not require the mer-exchange rate margin held, fixed tilbageholdelsestids point to 4.5 percentage points higher than the level for mer-spread, where the early amortisation is triggered according to the contract.

46) an option for early redemption is considered controlled when the following conditions are met:

(a)) The originator company exposure have prepared a capital plan and liquidity plan in order to ensure that it has adequate capital and liquidity in the event of early redemption.

b) throughout the duration of the transaction shall be allocated interest payments, mortgage payments, expenses, losses and recoveries on a pro rata basis between the result of exposure supplying enterprise capital interest and investor participation on the basis of outstanding claims on one or more reference points in each month.

c) refund period is considered sufficient to 90 per cent of the total drawn amounts in the securitised exposures (the originator company's exposure and investors ' capital interest) at the beginning of the period of the early amortisation treatment either repaid or recognized as being defaulted.

d) repayment does not happen more quickly than it would be for a straight-line repayment during the period laid down in (c).

47) For all other securitiseringer of revolving exposures covered by a checked option for early redemption, shall apply a conversion factor of 90%.

48) For all other securitiseringer of revolving exposures, which are subject to a non-controlled option for early redemption, will be applied a conversion factor of 100%.

49) For an originator company to quantify exposure risk-weighted items for the securitised exposures included in the securitisation of revolving exposures with early amortisation treatment option, the total risk-weighted items respectively for its positions in the investors ' interest and the risk-weighted capital records cannot be greater than the higher of the following values:

a) risk-weighted items calculated in terms of its positions in the investors ' capital interest, or

(b)) the risk-weighted items, should be measured for the securitised exposures as if they had not been securitised in an amount equivalent to the investors ' capital interest.

50) net gains arising from capitalisation of future income, which can be subtracted from the base capital pursuant to § 129, paragraph 5, of the financial business Act shall not be taken into account in determining the maximum amount of risk-weighted items specified in paragraph 49.



Treatment of securitiseringspositioner for IRB institutions





51) If the company is using the IRB approach for credit risk (the IRB institutions), see. § § 19-33, it shall calculate the risk-weighted items for securitiseringspositioner in accordance with the provisions of paragraph 52-89.

52) The risk-weighted exposure amount of a securitiseringsposition shall be calculated by multiplying the exposure size, see. paragraphs 57-63, with a risk weight based on the credit quality, as can be determined from a rating from a recognized rating agency or otherwise, see. paragraph 64-84.

53) an exposure originator company or a sponsor company that lets revolving exposures included in the securitisation, which includes an option for early redemption, shall also quantify the risk-weighted items respectively for the originator company's capital interest exposure and investors ' capital interest in accordance with the provisions of section 85-89.

54) risk-weighted items for a securitiseringsposition, there shall be assigned a risk weight of 1,250 percent, can be reduced by 12.5 times the amount of any impairment or other revaluation, as the company has made with regard to the securitised exposures. To the extent take account of write-downs or other value adjustment in this respect, should not be taken into account for these in the context of the calculation, as indicated in annex 8, paragraph 256.

55) risk-weighted items for a securitiseringsposition can be reduced by 12.5 times the amount of any impairment or other revaluation, as the company has made with regard to securitiseringspositionen.

56) an exposure originator company, a sponsor company or other companies who may calculate Kirb, can reduce the risk-weighted items, which is calculated for its positions in a securitisation, to the size that will result in a capital requirement equal to 8% of risk-weighted items, which would need to be ascertained if the securitised exposures had not been securitised and placed on the company's balance sheet plus the expected losses for those exposures.



The size of exposure (IRB-institutions)

General (IRB-institutions)




57) size for an on-balance sheet Exposure securitiseringsposition are stated at its value before impairment or other revaluation.

58) Exposure size for an off-balance-sheet securitiseringsposition are stated at nominal value, with the exception of its securitiseringspositioner in the form of certain liquidity facilities, see. section 60-63.

59) the provisions of articles 20 and 21 shall apply mutatis mutandis to the companies that use the IRB approach.



Liquidity facilities (IRB-institutions)




60) Of unrated liquidity facilities, which satisfies the conditions laid down in paragraph 22, and which can only be utilized in the event of a general market disruption, see. paragraph 23, can be used a conversion figure of 20 per cent on liquidity facility's nominal value.

61) Of unrated liquidity facilities, which satisfies the conditions laid down in paragraph 24, can be used a conversion figure of 0% over the liquidity facility's nominal value.

62) Of unrated liquidity facilities, are assigned a risk weight according to the provision in paragraph 77, used a conversion figure of 50% on the nominal amount of the liquidity facility if the original maturity is one year or less. If the liquidity facility complies with the conditions laid down in paragraph 60, can be used a conversion figure of 20%.

63) For all other liquidity facilities than those referred to in paragraphs 60-62, used a conversion factor of 100%.



Risk weights (IRB-institutions)

Choice of method (IRB-institutions)




64) A securitiseringsposition with rating from a recognized credit-rating agency, see. Annex 6, or with a secondary external rating, see. section 68, or a downloaded external rating see. paragraphs 69 and 70 shall be assigned a risk weight in accordance with "the ratings based method", as described in paragraphs 71-75.

65) positions without a rating from a recognized credit-rating agency and without a secondary external rating, see. section 68, or a downloaded external rating see. paragraphs 69 and 70, may be assigned a risk weight in accordance with the "supervisory formula method" as described in paragraphs 76 and 77.

66) a company which is neither that of the originator company an exposure or a sponsor company, must search the FSA for authorization to use the supervisory formula method.

67) positions without a rating from a recognized credit-rating agency and without a secondary external rating, see. section 68, or a downloaded external rating see. paragraphs 69 and 70 shall be assigned a risk weight of 1,250 percent. in the following cases:

a) company is an originator or a sponsor company exposure, but is not able to calculate Kirb under the supervisory formula method.

(b)) the company is not an exposure originator or a sponsor company and have not have been allowed to use the supervisory formula method.



Secondary external ratings




68) When the following minimum operational requirements are met, an unrated position is assigned a rating that corresponds to the best rating assigned to positions in the securitisation with an external rating from a recognized credit rating Institute (reference positions), where these positions in all respects is trailing the concerned non-rated securitiseringsposition:

a) Reference positions are maturity must be equal to or longer than that of the non-rated position.

(b)) All derivative ratings must be updated continuously to reflect any changes in ratingen in reference positions.



Migrated external ratings for positions in ABCP programmes




69) the company may apply for FSA authorisation to use a downloaded rating, derived from an internal assessment of the credit quality in accordance with the provisions of section 70, for positions without a rating from a recognized credit rating institution in connection with ABCP programs. Permission requires that the following conditions are met:

(a)) All debt instruments issued under the ABCP programme must be rated by an approved credit-rating agency.

(b) the company must be able to demonstrate) across from the Danish financial supervisory authority that the its internal assessments of the credit quality reflects the publicly available assessment method used by one or more approved rating agencies in connection with the rating of securities with security in exposures of the type securitised. The requirement that credit rating institution's assessment methodology shall be publicly available, can be waived after permission from the Danish financial supervisory authority, if as a result of specific features of securitisation-URf.eks. a unique structure-even in the absence of any publicly available rating method.

(c)) The rating agencies, which have drawn up an external rating for the debt instruments issued in connection with the ABCP programme shall be included among the rating agencies, which are mentioned in subparagraph (b). The quantitative factors-such as stress factors – which are used in determining whether a position corresponding to a particular credit quality, must be at least as cautious as they are used within the relevant assessment methodology of the credit-rating agency.

(d)) in the development of the method for internal assessments, the company must take into account relevant published (AMAs) from approved rating agencies that assess debt instruments in the ABCP programme. The company shall document the manner in which this is done, and regularly updating the comparison with relevant published (AMAs) as described in subparagraph (g).

e) Method for internal assessments should include ratingklasser. There must be coherence between these ratingklasser and the approved rating agencies ratings. This context must be documented.

f) Method for internal assessments to be used in the company's internal risk management processes, including in decision-making, management information, and allocation of capital.

(g)) The internal or external auditors, a credit-rating agency or a company's internal credit risk control unit or risk management unit should be periodically undertake a review of method for internal assessments and the quality of the internal assessments of the credit quality of the company's exposures at an ABCP programme. If the company's credit risk control unit or risk management unit shall carry out the review, these must be independent of the business area of ABCP program as well as customer relations.

h) the company shall record the results of its internal ratings over time to evaluate the method for internal assessments. The need to make adjustments to the method when eksponeringernes credit bonitet regularly differs from quality in particular pursuant to the internal rating.


in ABCP-program) to be covered by the guidelines for lending and investment. When deciding on the acquisition of an asset, the ABCP programme administrator must assess what type of asset that is acquired, the type and the economic value of the exposures which arise from access to liquidity facilities and credit enhancements, loss distribution as well as the legal and economic isolation of the assets derived from the entity selling the assets. An analysis to be made by the seller of the asset's credit risk profile, which will include analyses of past and expected economic performance, the current market position, expected future competitiveness, leverage, cash flows, interest coverage and gældsrating. In addition, there must be a review of the seller's credit policy, capacity to service its loan portfolio and business procedures for recovery of debt and other payments related to the securitised assets.

j) the ABCP programme credit policy must include minimum criteria for the approval of assets, which, in particular:







 

 



in





Excludes the acquisition of assets which are in significant arrears, or which is in breach of.





 

 



(ii)





Limiting disproportionate concentration on individual customers or geographical areas.





 

 



(iii)





Limit the maturity of the assets that can be acquired.





 



k)





The ABCP programme shall include procedures for recovery of debt and other payments related to the securitised assets, taking into account the management company's operational capability and credit quality. The ABCP programme should reduce the risk of the seller and/or the management company through various methods, URf.eks. provisions related to the current credit quality, according to which measures can be implemented with a view to ensuring that funds are not allocated to the wrong legal persons.





 



l)





The aggregate loss estimate for a pool of assets, as the ABCP programme is considering acquiring, must take into account all potential risk sources, such as credit risk and dilution risk. If the amount of credit enhancement, which sells stands for, based solely on credit-related losses, create a separate reserve for dilution risk, if dilution risk is significant for that pool of exposures. When fixing the required level of credit enhancement program must also undergo several years of historical information, including losses, delinquencies, udvandinger, as well as claims turnover rate.





 



m)





The ABCP programme shall make provision in connection with the acquisition of exposures in order to limit the consequences of a potential deterioration of the credit quality of the underlying portfolio, URf.eks. about liquidation, if given conditions are not met.














70) the company must place the unrated position in one of the ratingklasser that is described in paragraph 69 (e). Position to assign a downloaded external rating, which is the same as the rating from a recognized credit-rating agency, similar to the rating grade as laid down in paragraph 69 (e). When this passed external rating at the beginning of securitisation corresponding to "investment grade" can the external rating is considered the same as a remote rating conducted by an approved credit rating institution in connection with the statement of the risk-weighted items using the method described in paragraphs 71-75.



The ratings based approach (IRB-institutions)




71) the company must calculate the risk-weighted amount for a securitiseringsposition with a rating, see. paragraph 64, by applying a risk weight according to table 4, for positions with a rating which is not short-term, or table 5, for positions with a short-term rating. The relevant risk weight shall be multiplied by a factor of 1.06.







 





Table 4: positions with a rating that is not short-sighted







Credit quality step



 



Risk weight



 



 



(A)





(B)





(C)







1





7%





12%





20%







2





8%





15%





25%







3





10%





18%





35%







4





12%





20%





35%







5





20%





35%





35%







6





35%





50%





50%







7





60%





75%





75%







8





100%





100%





100%







9





250%





250%





250%







10





425%





425%





425%







11





650%





650%





650%







Other quality steps





1,250%





1,250%





1,250%





 

 

 

 





Table 5: Positions with a short-term rating







Credit quality step



 



Risk weight



 



 



(A)





(B)





(C)







1





7%





12%






20%







2





12%





20%





35%







3





60%





75%





75%







Other quality steps





1,250%





1,250%





1,250%














72) Risk weight in column A in the two tables should be used when securitiseringspositionen is in securitiseringens best asked tranche, see. However, paragraphs 73 and 74. For the purpose of determining whether a tranche is the best asked, except for amounts due under contracts relating to interest rate and currency derivatives, overdue fees or similar payments.

73) that can be used a risk weight of 6 per cent of positions in the best asked tranche in a securitisation, if this installment in all respects is preceded by a second tranche in the same securitization, which have a risk weight of 7% under item 71, provided that:

(a)) the FSA considers this as justified by the trailing tranchers ability to absorb losses within securitisation, and

b) position either have an external rating or a downloaded external rating, which is equivalent to credit quality step 1 in table 4 or 5, or if it is for a position with a derived rating, provided that "the reference position" may be considered for a position in a subordinate tranche which would receive a risk weight of 7% under item 71.

the risk weights in column C 74) in table 4 and 5 should be used when the position is in a securitization, in which the "actual" number of securitised exposures are lower than six. In the calculation of the "actual" number of exposures securitised multiple exposures from the same borrower must be treated as a single exposure. The "actual" number of exposures is calculated as:







 

 





 

 

where





 



EADI represents the sum of eksponeringernes sizes for all exposures to the ith obligor. In the case of resecuritisering (securitization of securitiseringspositioner), the company must take into account the number of securitiseringspositioner in the pot and not the number of underlying exposures in the original pot, from which the underlying securitiseringspositioner tribes. If the largest share of the portfolio exposure are known, can the company calculate N as 1/C1, where C1 indicates the largest share of the portfolio exposure.














75 the risk weights in column B) in table 4 and 5 must be applied to all other positions than the positions under paragraphs 72-74.



Supervisory formula method (IRB-institutions)




76) When the risk weight for a securitiseringsposition shall be determined in accordance with the supervisory formula method, the risk weight shall be the greater of 7 per cent or the risk weight of the items, which is calculated in accordance with the following, see. However, paragraph 77:







 




Risk weight = 12.5 * (S [L + T]-S [L])/T which





 

 



 




T (the thickness of the tranche in which the position is held) is measured as the ratio of tranchens nominal amount and the sum of the eksponeringernes size of the securitised exposures. In connection with the calculation of T to be exposure size for a derivative, as set out in annex 17, when the current replacement value is not positive, resolved to the potential future credit exposure calculated in accordance with section 42 or, where appropriate, §§ 45 and 46.





 




L (credit enhancement level) is measured as the ratio between the nominal amount of all tranches that are trailing the tranche in which the position is held, and the sum of the eksponeringernes size of the securitised exposures. Capitalised future income should not be included in the calculation of l. amounts due from counterparties in relation to those set out in annex 17 referred to derivative financial instruments, which represent tranches, which is trailing the tranche can be measured with their current replacement value (without the potential future credit exposures) in the calculation of the credit enhancement level, and where





 

 





 

 



 




Beta [x; a, b] refers to the cumulative beta distribution with parameters a and b evaluated at x.





 




Kirbr is the ratio of (a) Kirb and (b) the sum of the eksponeringernes size of the securitised exposures. Kirbr is expressed as a decimal number (URf.eks. will Kirb equal to 15 percent of the pool be expressed as Kirbr of 0,15).





 




N is the "actual" number of exposures, as calculated pursuant to clause 74.





 




ELGD, the exposure-weighted average loss in the event of default, is calculated as follows:





 

 





 

 



 



where LGDi represents the average LGD for all exposures to the ith obligor, as LGD shall be determined in accordance with the IRB approach for credit risk, see. Annex 8. In connection with resecuritisering used an LGD of 100 per cent of the securitised positions. When the risk of default and dilution of purchased receivables shall be treated collectively within a securitisation (where you can use a single reserve URf.eks. or over coverage of collateral to cover losses from both sources), the LGDi-the value must be a weighted average of respectively the value of the credit risk and LGD LGD value of 75 per cent for dilution risk. The weights must be risk-weighted items for credit risk and dilution risk respectively, as would apply if the respective types of risks were treated separately.





 

 



 



Application of simplified inputs





 



If the size of the largest securitised exposure is not greater than 3 per cent of the total of eksponeringernes size for all of the securitised exposures, can the company in connection with the supervisory formula method set LGD of 50% and N to either





 

 



 

 





 

 



 



or





 

 



 




N=1/C1





 

 



 



hvor





 

 



 




C1 indicates the largest share of the portfolio exposure, see. paragraph 74.





 




Cm is the ratio between the sum of eksponeringernes for the largest size'm ' exposures and the sum of eksponeringernes size for all of the securitised exposures. The level of'm ' can be determined by the company.





 



For securitiseringer, which includes retail exposures, the Danish financial supervisory authority may give authorization to use the supervisory formula method with the following simplifications: h = 0 and v = 0.











Particular requirements for liquidity facilities where Kirb cannot be calculated





77) When it is not practical for the company to calculate the risk-weighted items for the securitised exposures as if they had not been securitised, the company may, by statement of the risk-weighted items for a non-rated securitiseringsposition in the form of a liquidity facility that meets the conditions laid down in paragraph 22, on an exceptional basis and with the FSA authorisation temporarily use the highest risk weight under annex 3 would have to be applied to any of the securitised exposures If not they were securitized. The size must be measured using the method described in paragraph 62.



Credit protection for securitiseringspositioner (IRB-institutions)




78) when calculating the risk-weighted items for securitiseringspositioner can the company take into account the effect of the following forms of credit protection under the ratings based method and the supervisory formula method:

a) Guarantees and credit derivatives, see. Annex 7 or, where appropriate, annex 9.

(b)) Financial Securities Regulation. Annex 7

c) Other credit protection, see. Annex 7.



The ratings based method




79) When risk-weighted items be determined by means of the ratings based method, the size of exposure and/or risk-weighted items for a securitiseringsposition, which is covered by the credit protection shall be amended in accordance with the provisions of annex 7.



Supervisory formula method — full credit risk hedging




80) When risk-weighted items was assessed using the supervisory formula method, the company must determine the "actual" risk weight for the position. This is done by dividing the risk-weighted items for securitiseringspositionen with securitiseringspositionens size, see. paragraphs 57-59, and multiply the result by 100.

81) When a securitiseringsposition is covered by financial securities, credit linked notes or other credit protection, see. paragraph 78, the risk-weighted items for securitiseringspositionen is calculated by multiplying the value of the fully adjusted size of securitiseringspositionen E *, see. Annex 7, paragraph 70, (where E is the securitiseringspositionens size, see paragraphs 57-59), with the "actual" risk weight.

82) When a securitiseringsposition is covered by credit risk hedging in the form of a guarantee or a credit derivative, with the exception of a credit linked note, the risk-weighted items for securitiseringspositionen is calculated by multiplying GA (guarantee or credit derivative coverage adjusted for any currency mismatch and run time-mismatch, see annex 7, paragraph 28) with protection's risk weight. This amount must then be added to the amount obtained by multiplying the securitiseringspositionens size, see. paragraph 57 -59, minus the covered amount, GA, with the "actual" risk weight.



Supervisory formula method-partial credit risk hedging




83) If credit protection covers the "first loss" tranche or covers proportionately loss on securitiseringspositionen, the company may apply for full credit protection, see. paragraphs 80-82.

84) in other cases, the company must treat securitiseringspositionen as two or more positions, and the non-covered portion must be considered the position with the lowest credit quality. When calculating the risk-weighted items for the position, with the lowest credit quality, the provisions of section 76 shall apply, subject to the following modifications:

a) T must be changed to e * in the case of financial securities, credit linked notes or other credit protection, see. paragraph 78, and for T-g, case credit risk hedging in the form of a guarantee or a credit derivative, other than credit linked notes, which







 

 



in






e * denotes the relationship between E * and the total nominal amount in the underlying pool, where E * is the fully adjusted size of securitiseringspositionen, see. Annex 7, paragraph 70, (where E is the securitiseringspositionens size), and





 

 



(ii)






g is the ratio of the guarantee or credit derivative coverage, GA (adjusted for currency mismatch and run time-mismatch, see annex 7, paragraph 28), and the sum of the securitised eksponeringers size.





 



(b))





When there is talk about guarantees and credit derivatives, protection's risk weight applied to that part of the heading does not fall within the adjusted value for the T, see. (a).











Additional provisions by securitisation of revolving exposures with early amortisation (IRB-institutions)




85) the provisions of paragraph 34-50 shall apply mutatis mutandis to the securitization under the IRB approach for credit risk, however, should point 38-41 shall be replaced by paragraphs 86-89.

86) By the originator company's capital interest exposure means the sum of:

(a)) the nominal size of the share of the pool of drawn amounts of revolving exposures subject to securitisation, in which the share determines the portion of the payment flow from the principal, interest and other associated amounts which are not available for payment to holders of securitiseringspositioner, and which are not subordinated investors ' capital interest.

(b)) the nominal size of the share of the pot of utrukne amount of revolving exposures subject to securitisation, which is similar to the proportion that the nominal size of the share referred to in point (a) of the pool of drawn amounts, and which are not subordinated investors ' capital interest.

87) at the investors ' capital interest "means the nominal amount of the share of the pool of drawn amounts not falling within paragraph 86 (a) plus the size of the share of the pot of utrukne obligations, where the corresponding amount drawn is subject to securitisation, which do not fall under item 86 (b).

88) the pool of drawn amounts and utrukne obligations on the revolving exposures in points 86 and 87 are stated in accordance with the provisions of paragraphs 57-59.

89) Exposures related to the part of the originator company's capital interest exposure covered by paragraph 86 (a), shall not be treated as a securitiseringsposition, but as a pro rata exposure to the securitised exposures as if these were not covered by the securitisation of the basic regulation. Annex 8. Exposures related to the portion of the exposure originator company shareholding, which is covered by paragraph 86 (b) shall be determined as a pro rata exposure to the utrukne amount of the revolving exposures, if drawn amount is subject to the securitisation, see. Annex 8.

Annex 12

Position risk in the trading book











Table of contents





PT.





 

 





The scope of the





1-4





 

 





Net positions, etc.





5-8





 

 





Statement of delta and delta values for options and similar derivatives





9-10





 

 





Position risk of debt instruments





11-93







Positions covered





12







Statement of net positions





13-30







Treatment of credit derivatives by estimating position risk of debt instruments





31-41







Specific risk of debt instruments





42-57







Specific risk of debt instruments by hedging of credit derivatives





51-57







General risk of debt instruments





58-93







Modified duration





59







Calculation of modified duration





60-64








Calculation of modified duration for specific instruments, etc.





65-70







Weighting for provided interest rate change





71-75







Calculation of matched and unmatched positions





76-81







Matchningens first steps





82-83







Matchningens second step





84-86







Matchningens the third step





87







Weighting of matched and unmatched positions





88-93





 

 





Position risk for shares





94-113







Positions covered





95







Statement of net positions





96-111







Specific risk of shares





112







General risk of shares





113





 

 





Positions in collective investment schemes





114-122







General requirements for collective investment schemes





118







Specific methods for collective investment schemes





119-122











The scope of the




1) this annex contains, see. section 35, provisions on the default method for the estimation of risk-weighted items for position risk for debt instruments, shares and units in collective investment schemes.

2) the provisions of the annex does not cover items outside the trading book referred to in article 6. Chapter 3.

3) the provisions of the annex does not cover positions, where the company has permission to use internal models for market risk (VaR-models), see. sections 40 and 41.

4) risk-weighted items for position risk in the trading book consists of the following parts:

a) position risk for debt instruments.







 

 



in





Specific risk of debt instruments, without prejudice. paragraphs 42-57





 

 



(ii)





General risk of debt instruments, without prejudice. section 58-93





 



(b))





Position risk of shares, etc.





 

 



in





Specific risk of shares, see. item 112





 

 



(ii)





General risk of shares, see. item 113





 



(c))





Risk-weighted items for collective investment schemes referred to in article 6. paragraphs 114-122.











Net positions, etc.




5) in the case of a long position means a position that provides a gain at a rate increase/decrease an interest for the relevant securities or derivatives. Acquired call options and put options sold are covered by the definition of a long position.

6) By a short position means a position that gives a loss by a rate increase/decrease an interest for the relevant securities or derivatives. Sold call options and put options are included in the definition of a short position.

7) by means of a net position means the difference between the long and the short position in identical securities and derivatives.

8) By a synthetic short or long position means a short or long position that cannot be counted together with other positions in determining net positions.



Statement of delta and delta values for options and similar derivatives




9) For deltas and delta values for positions in options and similar derivatives based on interest rates, debt instruments, equities, commodities and currencies can the company apply the deltas, which are published by the stock exchange on which options are listed, or the clearing house, which clears the options contracts.

10) the company may, as an alternative to the method in section 9 apply own models for calculating the deltas for the respective options. The models must be able to be documented across from the Danish financial supervisory authority.



Position risk of debt instruments




11) position risk of debt instruments is included in the risk-weighted items with the sum of the risk-weighted items for specific risk for debt instruments, without prejudice. paragraphs 42-57, and risk-weighted items for general risk of debt instruments, without prejudice. section 58-93.



Positions covered




12) Statement of position risk for debt instruments include positions in variable and fixed rate debt securities. These positions include Government and mortgage bonds (including extracted bonds), Treasury bills, bills, corporate bonds, certificates of deposit, commercial paper notes, convertible debt securities and similar fixed-and variable-rate debt securities referred to in article 6. section 10 of the Ordinance on financial reports for credit institutions and stockbroking companies and others.



Statement of net positions




13) the individual debt instruments included with their net positions, see. paragraph 7, valued at the market value after the dispositive.

14) can only be calculated net positions between long and short positions in debt instruments identical. For publicly traded debt instruments means that positions must be in the same stock code. For other debt instruments means that debt instrument issuer, nominal interest rate, repayment profile and currency must be identical. That can not be measured net positions between extracted and non-extracted bonds in the same stock code.

15) By statement of net position included spot and forward transactions as well as the short and long positions, which occurs after the breakdown of derivatives based on debt instruments, without prejudice. item 17-30. Also be included when calculating the long and short positions, which occurs after the split of share-related instruments, see. item 100-111, and that is not equity positions, as well as the long and short positions, which occurs after the Division of the commodity-related instruments, see. Annex 13, paragraph 9, and which are not commodity positions.

16) net positions are allocated according to the currency in which positions are entered into and shall be converted into the Danish kroner per inventory day. The weighted sum of the specific risk, see. paragraph 42 and the General risk, see. paragraph 58, is calculated for each currency separately.

17) bond and interest rate futures, forward-rate agreements (FRAs), forward commitments to buy or sell debt instruments, repurchase transactions in debt instruments, options based on debt instruments, interest rate swaps and other financial instruments with similar characteristics can be divided into long and short positions, see. item 18-24. The calculation of the weighted sum of the specific risk on these positions and for positions in the currency referred to in section 26 stores is done in accordance with paragraph 43. Unsettled spot purchases or sales of debt instruments to be treated, in accordance with paragraph 25. Foreign exchange forward transactions, foreign exchange swaps, currency futures, currency options and similar currency transactions shall be handled in accordance with section 26.


18) A long bond futures or interest rate futures position shall be divided into a long position in the underlying instrument or the underlying position behind the relevant futures and a short position in a debt instrument, maturing on the delivery date for futuren. A short bond futures or interest rate futures position shall be divided into a short position in the underlying instrument or the underlying position behind the relevant futures and a long position in a debt instrument, maturing on the delivery date for futuren.

19) A sold FROM subdivided into a long position in a debt instrument with due date at the date of settlement, plus the contract period as well as a short position in a debt instrument that is due at the date of settlement. A purchased FROM be divided similarly into a short and a long position.

20) A forward purchases of a debt instrument is divided into a long position in the debt instrument and a short position in a debt instrument, maturing on the delivery date. A forward sale shall be divided accordingly into a short and a long position.

21) A repurchase agreement in the form of spot sales against forward purchases in lieu as a short position in a debt instrument that is due at the time of the contract's expiration. A reverse repurchase agreement in the form of spot purchases against the forward sale in lieu as a long position in a debt instrument that is due at the time of the contract's expiration. A repurchase agreement in the form of forward sales against forward purchases included as equivalent to a long position in a debt instrument that is due at the time of forward sales, and a short position in a debt instrument that is due at the time of Futures purchase. A reverse repurchase agreement in the form of forward purchases and forward sale in lieu as a short position in a debt instrument that is due at the time of purchase, and a long futures position that is due at the time of forward sales.

22) By repurchase agreements and by lending of securities included the withdrawn respectively lent securities in the calculation of risk-weighted items. By reverse repurchase agreements and securities loans included the back sold respectively borrowed securities not included in the statement of the risk-weighted items for position risk.

23) options on interest rates, debt instruments, bond futures, interest rate futures or swaps can be divided into two positions in the same way as futures, see. paragraph 17, since both positions also multiplied by the option's delta, calculated in accordance with paragraphs 9 and 10. Bought call options and sold put options can be divided into a long position in the underlying debt instrument and a short position in a debt instrument that is due on the option's udløbsdag. Sold call options and bought put options can be divided into a short position in the underlying debt instrument and a long position in a debt instrument that is due on the option's udløbsdag.

24) An interest rate swap under which the entity receives variable interest and pays fixed-rate interest shall be divided into a long position in a floating‐rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed-rate instrument with the same maturity as the swap. An interest rate swap under which the entity receives fixed rate and variable rate pay, be divided into a short position in a floating‐rate instrument of maturity equivalent to the period until the next interest fixing and a long position in a fixed-rate instrument with the same maturity as the swap.

25) By unsettled spot purchases included positions as long positions in those debt instruments, and by unsettled spot sales included positions as short positions in those debt instruments.

26) foreign exchange forward transactions, foreign exchange swaps, currency futures and currency similar businesses are divided into long and short positions equal to their payments. Currency options are divided in a similar way, with the resulting positions are multiplied by the option's delta, calculated in accordance with paragraphs 9 and 10.

27) positions in futures on a bond index of company can optionally be treated as future positions in each of the index included the single bonds or as future positions in the index.

28) If the paragraph 27 referred to futures is treated as future positions in each of the covered bonds, included these separately with the weight at which they are included in the index, multiplied by the future position in the total index. Positions are treated, incidentally, as future positions in the covered bonds.

29) If the paragraph 27 referred to futures is treated as future positions in the index included positions for the purposes of calculating the specific risk with the weight, which is attributed to the bond in the index, which has the highest weight pursuant to clause 42-57. In the calculation of general risk included positions with a duration equivalent to the weighted average of the included as regards the duration of the infringement.

30) at the futures based on several bonds, which applies a "cheapest two deliver"-principle, the company must, by the calculations of specific and general risk require that these futures are based on the bond at the time of the statement are cheapest to deliver in accordance with the contract.



Treatment of credit derivatives by estimating position risk of debt instruments




31) the company is selling of risk if it by credit derivatives reduces its risk, and the risk, if the buyer is in credit derivatives increase his risk.

32) If not otherwise specified, the calculation of risk-weighted items for specific and general risk based on credit derivative underlying principal.

33) when calculating risk-weighted items for specific risk the company may use credit derivative maturity instead of debt obligation maturity. However, this does not apply for "total return swaps".

34) For the buyer of risk leads to a total return swap "a long position in the reference obligation General and specific risk and a short position in a debt instrument without specific risk and with a maturity equivalent to the period until the next interest fixing. For the seller of risk leads to a total return swap "a short position in the reference obligation General and specific risk and a long position in a debt instrument without specific risk and with a maturity equivalent to the period until the next interest fixing.

35) For the buyer of risk leads to a "credit default swap" no general risk. With regard to the specific risks purchaser of risk has a synthetic long position in the reference obligation. However, this does not apply if the credit derivative has an external rating and meets the conditions laid down in section 44 or 45. In this case, the buyer of the risk a long position in the credit derivative. For the seller of risk leads to a "credit default swap" no general risk. With regard to the specific risk have the seller of risk a synthetic short position in the reference obligation. However, this does not apply if the credit derivative has an external rating and meets the conditions laid down in section 44 or 45. In this case, the seller of the risk a short position in the credit derivative. If a "credit default swap" involves the payment of interest or current premium, a buyer and a seller of risk take account of payments made, as if it were positions in government bonds.

36) For the buyer of risk leads to a "single name credit linked note a long position in credit derivative risk as a general interest product. With regard to the specific risks purchaser of risk has a synthetic long position in the reference obligation. In addition, the buyer of the risk a long position in the issuer of the credit derivative. If the credit derivative has an external rating and meets the conditions laid down in section 44 or 45, the buyer of the risk in determining specific risk only include a single long position with the specific risk derivative. For the seller of risk leads to a "single name credit linked note" a short position in credit derivative risk as a general interest product. With regard to the specific risk have the seller of risk a synthetic short position in the reference obligation.

37) For both buyer and seller of risk leads to a "multiple name credit linked note, providing proportional protection in relation to each reference commitment percentage of basket, a synthetic position in each reference obligation, where the credit derivative underlying principal is distributed to the reference obligations in relation to their share of the basket. If there is an opportunity to deliver more than one debt obligation in relation to a given reference obligation, is the debt obligation with the highest risk, to be included in the inventory of the specific risk. In addition, the buyer of the risk a long position in the specific risk of the issuer of the derivative. If a "multiple name credit linked note has an external rating and meets the conditions laid down in section 44 or 45, the buyer of the risk in determining specific risk only include a single long position with the specific risk derivative.


38) For the buyer and seller of risk leads to a first-asset-to-default "credit derivative to a synthetic position equivalent to credit derivative underlying principal in each of the reference obligations. If the highest payment in case of credit events is less than the thus ascertained risk-weighted items divided by the buyer and seller of 12.5, risk letting the risk-weighted items against specific risk to be the highest payment in case of credit events multiplied by 12.5. If the credit derivative has an external rating and meets the conditions laid down in section 44 or 45, the buyer and seller of risk only count one goal for the specific risk that reflects the credit derivative rating.

39) For the buyer and seller of risk leads to a second-asset-to-default "credit derivative, a position equivalent to the nominal value of each credit derivative of the reference obligations except the one in which the risk-weighted items for specific risk is lowest. If the highest payment in case of credit events is less than the thus ascertained risk-weighted items divided by the buyer and seller of 12.5, credit risk the risk-weighted items for credit risk be the highest payment in case of credit events multiplied by 12.5. If the credit derivative has an external rating and meets the conditions laid down in section 44 or 45, the buyer and seller of risk only count one goal for the specific risk that reflects the credit derivative rating.

40) if the seller has the option of a risk of early cessation of credit derivative, and this option is combined with an increase in the cost of derivative, derivative term of the seller of the risk set at the time of this option.

41) By an "nth to default" credit derivative can seller of risk make a net balance for the specific risk of the n-1 reference obligations with the lowest specific risk.



Specific risk of debt instruments




42) in determining specific risk of debt instruments, the company must allocate its net positions in the trading book of a fixed amount in accordance with paragraph 13-41 on the relevant categories in paragraphs 44-47 on the basis of the issuer/debtor, external or internal credit assessment, and residual maturity. Net positions shall be multiplied by the indicated weights. Risk-weighted items for specific risk is calculated as the sum of the risk-weighted net positions where both short and long net positions included with positive sign.

43) After the split, see. paragraphs 18, 19, 23 and 24, of forward rate agreements, interest rate swaps, interest rate futures and interest rate options based on underlying positions included both the new positions to reduce that in calculating the specific risk. The same applies to foreign exchange forward transactions, foreign exchange swaps, currency futures, currency options and similar currency businesses. By a forward commitment to buy a debt instrument and in a purchased futures or option based on a debt instrument included the short position after Division pursuant to clause 18, 20 and 23 to reduce that rate and the long position with the weight for that debt instrument, see. paragraphs 44-47. By a forward commitment for sale of a debt instrument and by a sold futures or option based on a debt instrument included the long position after the split with reduce that rate and the short position with the weight for that debt instrument, see. paragraphs 18, 20 and 23. In a repurchase agreement included the short position to reduce that. By a reverse repurchase agreement included the long position with reduce that. After the breakdown of derivatives based on stocks or commodities, see. item 100-111 and paragraph 9 of Annex 9, included the positions of the non-equity positions, with commodities positions, respectively, reduce that. Unsettled spot transactions are included with an emphasis in accordance with paragraphs 44-47 of the respective debt instrument.

44) the following entries are part of the risk-weighted items with a specific risk weight of 0%: debt instruments issued or guaranteed by central Governments, issued by central banks, international organisations, multilateral development banks, as well as regional and local authorities. For all, it is a prerequisite that the attributable to credit quality step 1 or shall be assigned a risk weight of 0% in accordance with the standardised approach for credit risk, see. Annex 3.

45) the following entries are part of the risk-weighted items with an emphasis for specific risk on







 









3.125 per cent, if they have a residual maturity of 6 months or less





 









12.5%, if they have a residual maturity of more than 6 months and up to and including 24 months





 









20 per cent, if they have a residual maturity exceeding 24 months:





 



(a))





Debt instruments issued or guaranteed by central Governments, issued by central banks, international organisations, multilateral development banks, as well as regional and local authorities. For all, it is a prerequisite that they can be assigned to the credit quality step 2 or 3, or to the countries classification 2 or 3 according to the standardised approach for credit risk, see. Annex 3.





 



(b))





Debt instruments issued or guaranteed by institutions which can be attributed to credit quality step 1 or 2, or to the home Member State countries classification 0, 1 or 2 in accordance with the standardised approach for credit risk, see. Annex 3, paragraph 10.





 



(c))





Debt instruments issued or guaranteed by institutions which are attributable to the credit quality step 3 in accordance with annex 3, paragraphs 30-31.





 



(d))





Debt instruments issued or guaranteed by businesses, etc., that can be attributed to credit quality step 1 or 2 in accordance with the standardised approach for credit risk, see. Annex 3.





 



(e))





Long and short positions in assets which, in accordance with annex 3 can be assigned to a credit quality step corresponding to "investment grade".





 



(f))





Long and short positions in assets as a result of the issuer's solvency has a probability of default (PD), which does not exceed the probability of default for the assets in (e).





 



(g))





Long and short positions in assets which, in the absence of a credit rating from a recognized credit rating institution and which fulfils the following conditions:





 

 



in





The company regards them as sufficiently liquid.





 

 



(ii)





Their investment quality is, according to the company's rating at least equal to the quality of the assets the investment in (e).





 

 



(iii)





They are listed on at least one regulated market or an equivalent foreign market for securities.





 



(h))





Long and short positions in assets issued by institutions subject to the capital requirements of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), which the company considered to be sufficiently liquid and which, in the company's view, an investment grade, which is at least equal to the quality of the assets the investment in (e).





 



in)





Securities issued by institutions, and which is considered to be of at least the same credit quality as assets attributable to the credit quality step 2 under the standardised approach for credit risk, and where the Foundation is subject to regulation and supervision equivalent to that provided for in Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).















46) the following entries are part of the risk-weighted items with an emphasis for specific risk at 100%:

(a)) debt instruments issued or guaranteed by central Governments, issued by central banks, international organisations, multilateral development banks, as well as regional and local authorities. For all, it is a prerequisite that they can be assigned to the credit quality step 4 or 5 under the standardised approach for credit risk, see. Annex 3.

b) debt instruments issued or guaranteed by institutions which are attributable to the credit quality step 3 under the standardised approach for credit risk, see. Annex 3, and which is not covered by paragraph 45 (c).

c) debt instruments issued by institutions which are attributable to the credit quality step 4 or 5 under the standardised approach for credit risk, see. Annex 3.

d) debt instruments issued or guaranteed by business enterprises, etc., are attributable to the credit quality step 3 or 4 according to the standardised approach for credit risk, see. Annex 3.

e) Exposures for which there is no credit rating from a recognized rating agency.

47) the following entries are part of the risk-weighted items with an emphasis for specific risk at 150%:

(a)) debt instruments issued or guaranteed by central Governments, issued by central banks, international organisations, multilateral development banks, as well as regional and local authorities. For all, it is a prerequisite that they can be assigned to the credit quality step 6 according to the standardised approach for credit risk, see. Annex 3.

b) debt instruments issued by institutions which are attributable to the credit quality step 6 according to the standardised approach for credit risk, see. Annex 3.

c) debt instruments issued or guaranteed by business enterprises, etc., are attributable to the credit quality step 5 or 6 under the standardised approach for credit risk, see. Annex 3.

48) For exposures covered by the internal ratings based approach to credit risk, see. § § 19-33, the following method, when a customer is attributed to a credit quality step prescribed in paragraphs 44-47. The customer must have an internal rating with a probability of default (PD), which does not exceed the probability of default, which is associated with the credit quality step under the standardised approach for credit risk, see. Annex 3.

49) covered bonds, see. Annex 3, paragraph 27, is part of the risk-weighted items with a weight of specific risk, which depends on the weight of the specific risk for other debt instruments with the same residual maturity issued by the same institution. For covered bonds reduced the weights as follows:

a) Weight at 3.125 per cent. in point 45 reduced to 1.5625%.

(b)) the weight on 12.5 per cent. in point 45 reduced to 6.25%.

c) Weight of 20 per cent in paragraph 45 should be reduced to 10 per cent.

d) Weight at 100 per cent. in paragraph 46 will be reduced to 50 per cent.

e) Weight at 150 per cent in paragraph 47 are reduced to 100 per cent.

50) with regard to securitiseringer, which would be included with a weight of 1,250 percent. in accordance with Annex 11 on securitisation, shall apply to those also in the trading book should conclude with a weight of 1,250 percent.



Specific risk of debt instruments by hedging of credit derivatives











51)





The company may, by statement of specific risk for debt instruments take into account hedging of credit derivatives, in accordance with paragraphs 52-57.







52)





Calculation of risk-weighted items is done for the company's net positions in credit derivatives. By net position means the difference between a long and a short position in the same credit derivatives.







53)





If your company has a position in a "total rate of return swap, it may make a net statement between a long/short position in the reference obligation and the uncovered short/long underlying debt obligation. This assumes that the reference obligation and the underlying debt obligation uncovered are identical. The maturity of the swap itself may, however, be different from the uncovered underlying debt commitment maturity.







54)





If the requirements set out in (a) to (e) below have been satisfied for a credit derivative uncovers another credit derivative or underlying debt obligation, the company need only to quantify the risk-weighted amount for specific risk for a position equivalent to 20 per cent of the market value of the of the two positions, giving rise to the highest risk-weighted amount for specific risk:





 



(a))





The two positioners market value must always move in opposite directions.





 



(b))





Credit derivative shall not be designed in such a way that the evolution of its market value will differ significantly from the development in the market value of the underlying hedged debt commitment.





 



(c))





The reference obligation and the underlying debt obligation uncovered or – in the case of two credit derivatives – reference obligations must be identical.





 



(d))





The credit derivative and the hedged position must be in the same currency.





 



(e))





The maturity of the reference obligation and the credit derivative must be identical.







55)





If your company has positions in a "total rate of return swap and an uncovered underlying debt obligation, it may suffice to include risk-weighted items for the specific risk of the of the two positions, which gives rise to the greatest risk-weighted amount for specific risk.







   This assumes that the requirements in (a) to (c) below are fulfilled:





 



(a))





The reference obligation and the underlying debt obligation must have uncovered the same issuer.





 



(b))





The reference obligation must be equivalent to or trailing the uncovered underlying debt obligation.





 



(c))





There must be legally valid transversal clauses between the reference obligation and the underlying debt obligation uncovered, which means that if the borrower defaults on other loans, such as this have busy, so this leads to the fact that the reference obligation also considered defaulted. Similarly, due to one of the borrower's loans ahead of time, so that causes the reference obligation also falls due before the time.







56)





If the requirements in points (a) and (b) in paragraph 54 is satisfied for a credit derivative uncovers another credit derivative or underlying debt obligation, the company may be content to include risk-weighted items for the specific risk of the of the two positions, giving rise to the highest risk-weighted amount for specific risk. This assumes that the requirement in subparagraph (a), or the requirement in paragraph (b) below are fulfilled:





 



(a))





The requirement in paragraph 54 (c) is met, but not the requirements of paragraph 54, subparagraph (d) and (e).





 



(b))





The requirements of paragraph 54, subparagraph (d) and (e) are met but not the requirement in paragraph 54 (c). This assumes that the uncovered underlying debt obligation are included among the debts that can be delivered pursuant to the credit derivative contract basis.







57)





If the company's positions do not meet the requirements of the above points in paragraphs 52-56, calculate a risk-weighted amount for the specific risk of both the involved positions.











General risk of debt instruments





58) Of paragraph 89 stated in the statement of the risk-weighted items for general risk of debt instruments. The calculation of which is clear from paragraphs 59-88.



Modified duration




59) in determining overall risk for debt instruments should net positions, see. item 13-30, among other things, are weighted with their modified duration. In addition, they shall be weighted in accordance with paragraph 73. The modified duration indicates the percentage change in a debt instrument and exchange rate in the case of a change in interest rates at 1 percentage point. The modified duration is measured in years. Of section 60-70 shows how modified duration shall be calculated.



Calculation of modified duration




60) the modified duration shall be calculated for all positions, including. the positions that arise after the breakdown of positions in derivatives.

61) the modified duration shall be calculated by dividing the length of the respective debt instrument with 1 + r, where r is the effective interest rate of the instrument.

62) duration and the modified duration is calculated based on the effective interest rate according to the following formula, see. However, paragraphs 65-70.







 

 





 



r = effective interest rate (implicit discount rate),





 



t = termin,





 



CT = installments and interest on time t,





 



M = total maturity














63) the effective interest in point 62 shall be calculated as follows:

a) For fixed income securities is calculated the effective interest rate on the basis of the Security's market value. For variable-rate debt instruments, the effective interest rate is calculated in the same way, but, assuming that the principal on the debt instrument is chargeable at the time when the interest rate can be determined next time.

(b)) For the positions arising from the breakdown of forward rate agreements and futures contracts based on interest rates and bonds, and which are not positions in securities, are stated as the effective interest rate on a deposit, lending or borrowing agreement with the same maturity.

(c)) For the positions, which occurs by Division of swaps, used the current swap rates on the statement date.

(d)) For the positions arising from the Division of positions in options, used the same method as with futures, since positions also multiplied by the option's delta.

64) company can instead calculate the modified duration of item 62 on the basis of a calculated zero coupon finance structure. The company shall in such a case, opposite the Danish financial supervisory authority on request, be able to demonstrate the calculation models, the company uses for this purpose.



Calculation of modified duration for specific instruments, etc.




65) For publicly traded debt instruments can the company apply the values for duration, modified duration, published by the relevant stock exchange or Clearinghouse.

66) For variable-rate debt instruments must be assumed, that the principal on the debt instrument is chargeable at the time when the rate of interest at the earliest can be changed the next time.

67) For bonds, who on the issuer's initiative can be redeemed at par in the Treasury Bill's maturity date (convertible bonds), or which has an interest rate cap (guarantee bonds), the modified duration is reduced by the factors published by the FSA. The company may, however, choose instead to use own calculation models for calculating the duration and modified duration on callable bonds and/or warranty bonds. The company must inform the FSA about what models the company uses for this purpose.

68) duration of extracted bonds and other debt instruments be set equal to the residual life until the time of redemption. For extracted bonds made no allowance for the conversion risk or interest rate cap.

69) For other debt instruments, which can be cashed at a fixed price before maturity, the company may reduce the duration by a factor that reflects the conversion risk, calculated in accordance with the company's own calculation models. The company must inform the FSA about what models the company uses for this purpose.

70) For the positions that arise after the breakdown of derivatives, which are not positions in securities or commodities, the modified duration be set equal to the residual maturity, if it is not possible to determine a market interest rate.



Weighting for provided interest rate change




71) Besides a weighting for interest rate sensitivity (modified duration) to net positions in determining overall risk of debt instruments is multiplied by a weight, that depends on the assumed interest rate change, IE. rentevolatiliteten. The greater the duration of the debt instrument has lower volatility it is assumed that, being on the instrument's effective interest rate, see. paragraph 72 and 73.

72) positions in debt instruments, Inc. the positions that have emerged after the breakdown of derivatives, can be divided into the following three duration zones:







 



Zone 1:





Positions in debt instruments with a modified duration of not more than 1 year.





 



Zone 2:





Positions in debt instruments with a modified duration of more than 1 year and a maximum of 3.6 years.





 



Zone 3:





Positions in debt instruments with a modified duration of over 3.6 years.














73) each net position in the three duration zones multiplied by one of the following weights, which expresses the assumed interest rate change in duration each zone:

a) positions in perpetuity zone 1: an emphasis on 12.5 per cent (equivalent to a provided interest rate change on 1 percentage point).

b) positions in perpetuity zone 2: an emphasis on 10.625 per cent (equivalent to a provided interest rate change on 0.85 percent points).

c) positions in perpetuity zone 3: a weight of 8.75% (equivalent to a provided interest rate change on 0.7 percentage points).

74) positions, which is multiplied by the modified duration and weight respectively for the assumed interest rate change, termed the duration-weighted positions.

75) For each duration zone is calculated the sum of the duration-weighted long positions and the sum of the duration-weighted short positions.



Calculation of matched and unmatched positions




76) By a matched position means the lesser of







 



(a))





the sum of the duration-weighted long positions in a given currency





 



and





 



(b))





the sum of the duration-weighted short positions in this currency (including unsigned).














77) a duration-weighted long position and a duration-weighted short position covers to some extent each other risikomæssigt as far as the matched position, depending on how large the difference is in positions duration.

78) By an unmatched duration-weighted position means the difference between (a) and (b) in paragraph 76.

79) The unmatched duration-position is long, if the sum of the duration-weighted long positions is greater than the sum of the duration-weighted short positions and short, if the opposite is true.

80) Matching is done step by step and partly within each duration zone partly in pairs between duration zones.

81) there can be no matching between two long or two short positions. In such a case, both positions are transferred to the next step in matching. There can also be no matching between a short position in a currency and a long position in a different currency. Matching must thus be carried out separately for each currency, as the company has positions in.



Matchningens first steps




82) Firstly, the sum of the matched duration-weighted long positions in zone 1 with the sum of duration the duration-weighted short positions within the same duration zone. Hereby obtained the matched duration-weighted position in zone 1 duration. The difference between the sum of the long and short positions represents the sum of the unmatched weighted position in zone 1 duration.

83) Then matched the sums in perpetuity zone 2 and 3 in the same way.



Matchningens second step




84) any unmatched position in perpetuity zone 1 is matched with the unmatched position in perpetuity any zone 2. Hereby obtained the matched duration-weighted position between zones 1 and 2 the duration.


85) If after matching between duration zone 1 and 2 remains an unmatched position in perpetuity zone 2, matched this with any unmatched weighted position in zone 3 in the same way as duration matching between duration zone 1 and 2. Hereby obtained the matched duration-weighted position between zones two and three the duration.

86) the company can choose to match positions in reverse order, IE. positions in perpetuity to zone 2 and 3 are matched first, after which the remaining positions in the zone 2 duration matched with positions in perpetuity zone 1.



Matchningens the third step




87) If after matchningerne between duration duration zones one and two and between zones two and three remaining unmatched positions in perpetuity zone 1 and 3, matched the latter in the same way as matching between duration zone 1 and 2. Hereby obtained the matched duration-weighted position between zones one and three; duration.



Weighting of matched and unmatched positions




88) The matched duration-weighted positions in each duration zone (matchningens the first step), duration between zones one and two and between zones two and three the duration (matchningens second step), duration between zone 1 and 3 (matchningens third step) as well as the residual unmatched duration-weighted positions are multiplied by the following weights in the calculation of general risk:

a) Weight 0.02: the sum of the matched duration-weighted positions in each duration zone.

(b) 0.4) weight: The matched duration-weighted positions between zones one and two and between duration duration zone 2 and 3.

(c) 1.5) weight: The matched duration-weighted position between zones one and three; duration.

d) Weight 1.0: The unmatched duration-weighted positions.

89) For each of the currencies in which the company has positions, added all the weighted amount in paragraph 88 together. The sum of all the amounts represent risk-weighted items for general risk of debt instruments.

90) in calculating the weights of the General risk, see. paragraph 88, the company may, after informing the FSA replace positions in debt instruments and derivatives, etc. with nettobetalings flows from the positions of the basic regulation. paragraphs 91-92. In that case, the method must be applied to all such positions in the trading book. After permission from the Danish financial supervisory authority can, however, use the company of using the method described in item 91-92 on the part of the trading book.

91) Nettobetalings flows are calculated by the debt instruments of payment flows out from an interpolation model to be distributed to the selected interest rate sensitivity points on the yield curve, with at least one interest rate sensitivity point in each of the following time intervals:







 



From 0





up to 1 month.





 



From 1 month





up to and including 3 months.





 



From 3 months





up to and including 6 months.





 



From 6 months





up to 12 months.





 



From 1 year





up to and including 2 years.





 



From 2 years





up to 3 years.





 



From 3 years





up to and including 4 years.





 



From 4 years





up to 5 years.





 



From 5 years





through 7 years.





 



From 7 years





up to and including 10 years.





 



From 10 years





up to and including 15 years.





 



From 15 years





up to 20 years.





 



More than 20 years.



 












92) For each interest rate sensitivity point nettobetalings is calculated by subtracting the sum of the flow of payments from the sum of the deposits. Interest rate sensitivity for each nettobetalings power must then be assessed by independent interest rate changes in the interest-rate sensitivity points. Hereafter included in each interest rate sensitivity point flow nettobetalings in the inventory in accordance with paragraph 88. Positive nettobetalings flows are included as long positions, and negative nettobetalings flows are included as short positions. Sensitivity as measured by the interest rate risk of the resulting nettobetalings flows should be the same as for the underlying cash flows. To be made separate calculations for each currency, as the company has positions in, Inc. Danish kroner. The model must be able to be documented across from the Danish financial supervisory authority.

93) a company that chooses to calculate the duration-weighted positions in debt instruments in accordance with the principles of paragraphs 91 and 92, may not, without the approval of the Danish FSA later cease to apply these principles.



Position risk for shares




94) position risk for shares included in the risk-weighted items with the sum of the risk-weighted items for specific risk for shares, see. paragraph 112, and risk-weighted items for general risk of shares, see. item 113.



Positions covered




95) Statement of position risk for shares include the following:

a) Positions in stocks and other equity securities, jf. § 5, paragraph 4, of the financial business Act.

b) positions in stocks and stock indexes, resulting from the breakdown of derivatives based on stocks and stock indexes.



Statement of net positions




96) the individual shares included with their net positions, see. paragraph 7, valued at the market value after the dispositive.

97) By statement included spot and forward transactions as well as the short and long stock positions that arise after the breakdown of derivative instruments based on shares, see. item 100-111.

98) in the calculation of net positions in equities, there should not be a net inventory between different classes of shares between shares listed on various stock exchanges or between convertible bonds, etc. and the shares, as bonds can be converted to.

99) net positions in foreign currency shall be converted into Danish kroner per statement day before calculation of the specific and general risk.

100) Bought and sold options and futures on single stocks, forward commitments to buy or sell shares, and other derivatives with similar characteristics can be divided into long and short positions, see. section 101-106.

101) a purchased futures on an individual stock is divided into a long position in the underlying stock and a short position in a debt instrument, maturing on the delivery date for futuren. The short position is included in the calculations according to paragraphs 42-93. A sold futures on a single stock be subdivided similarly into a short position in the underlying stock and a long position in a debt instrument, maturing on the delivery date for futuren. The long position is included in the calculations according to paragraphs 42-93.

102) A forward purchases of a stock split in a long position in the stock and a short position in a debt instrument, maturing on the delivery date for the share. The short position shall be included in the calculations according to paragraphs 42-93. A forward sale of a stock split in a corresponding short position in the stock and a long position in a debt instrument, maturing on the delivery date for the share. The long position shall be included in the calculations according to paragraphs 42-93.

103) repurchase agreements and reverse repurchase agreements, as well as loans and lending of shares will be treated according to the same principles as specified in paragraphs 21 and 22.


104) a swap under which the company pays fixed or variable interest rate and receive a return, that depends on the evolution of the price of a stock or a stock index, is divided into a short position in a debt instrument and a long position in the underlying stock or stock index. The short position must have a duration equal to the duration of swap'ens (at fixed interest rate) respectively for the period until the next interest fixing (by variable rate). A swap under which the company receives and pays a fixed or variable interest allowance that depends on the evolution of the price of a stock or a stock index, subdivided in a long position in a debt instrument and a short position in the underlying stock or stock index. The long position must have a duration equal to the duration of swap'ens (at fixed interest rate) respectively for the period until the next interest fixing (by variable rate).

105) options on stocks and stock index is divided into two positions in the same way as futures, see. paragraph 101, since both positions also multiplied by the option's delta, calculated in accordance with paragraphs 9 and 10.

106) Warrants, including warrants issued by someone other than the issuer of the underlying security (covered warrants), shall be treated in the same way as options.

107) By unsettled spot purchases included positions as long positions in the shares concerned, and by the unsettled spot sales included positions as short positions in the shares concerned.

108) positions in futures on a stock index of company can optionally be treated as future positions in each of the single the shares covered by the index or as future positions in the index.

109) If the test specified in paragraph 108 referred to futures is treated as future positions in each of the covered shares, included these separately with the weight at which they are included in the index, multiplied by the futures position in the total index. Positions are treated, incidentally, as future positions in the covered shares.

110) If the test specified in paragraph 108 referred to futures is treated as future positions in the index included positions under one of these conditions in the calculations of the overall risk of item 113, but not in the calculation of the specific risk in paragraph 112:

(a)) the shares in the index are liquid.

(b) the number of shares in the index) is at least 18.

(c)) the shares in the index represents at least 3 main branches.

(d)) the composition of the index is adjusted periodically to ensure that the index is kept liquid and diversified.

111) in all cases other than those referred to in paragraph 110 referred to included future positions in the index in the calculations of both the General and specific risk.



Specific risk of shares




112) The overall gross position in shares is calculated as the sum of the net long positions plus the numerical sum of the net short positions. For coverage of the specific risk included the overall gross position in risk-weighted items with a weight of 50%.



General risk of shares




113) Statement of the overall net position in shares includes the following steps:

(a)) For each Exchange – incl. Danish kroner — in which the company has equity positions, will be summed up the difference between the sum of the net long positions and the sum of the net short positions.

(b)) the numerical values of the incremental differences are summed.

(c)) to cover the General risk is part of the ascertained sum of the risk-weighted items with a weight of 100 per cent.



Positions in collective investment schemes




114) risk-weighted items for positions in collective investment schemes in the trading book shall be calculated in accordance with the methods set out in paragraphs 115-122.

115) Unless the company using the methods described in paragraphs 119-122, included positions in collective investment schemes in the risk-weighted items with a combined weight of specific and general risk on 400 percent Positions may not, however, conclude with a weight in excess of 500 per cent, for the sum of specific risk, risk and currency risk, see General. Annex 14, paragraph 10-17.

116) For positions in collective investment schemes, which meet the criteria set out in paragraph 118, the company can quantify the risk-weighted items in accordance with the methods set out in articles 119-122.

117) Unless it appears explicitly in paragraphs 118-122 can be made net balances between positions in collective investment schemes and other positions that the company has.



General requirements for collective investment schemes




118) there are the following general requirements for using the methods set out in articles 119-122:

(a) The collective investment scheme) prospectus or equivalent document shall contain the following:







 

 



in





The asset categories, as the scheme may invest in.





 

 



(ii)





The relative investment limits and methods to quantify them, if applicable investment limits.





 

 



(iii)





The highest level of leverage, if leverage is allowed.





 

 



(iv)





A policy to limit counterparty risk from financial derivatives traded OTC, and transactions by repo-type if investments in these is allowed.





 



(b))





There should be reporting about the collective investment scheme business in the half-yearly financial reports and annual reports, so that it is possible to assess the assets and liabilities, income and operations in the fiscal period.





 



(c))





The collective investment scheme shares, each day at the holder's request could be redeemed in cash of plan assets.





 



(d))





The collective investment scheme investment must be kept separate from the assets of the administrator of the scheme.





 



(e))





The company must conduct a comprehensive risk assessment of the collective investment scheme.











Specific methods for collective investment schemes




119) If your company on a daily basis has knowledge of the collective investment scheme underlying investments, the company may apply those underlying investments in order to calculate risk-weighted items for specific and general risk in accordance with this annex. NET declaration in accordance with paragraph 7 is permitted between positions in the collective investment scheme underlying investments and the company's other positions if the company has a sufficient quantity of shares to make redemption or for an exchange fund to receive the underlying investments.

120) If the collective investment scheme investment replicate an index or a basket of securities, the company may treat the positions in the system, as if the company had positions in the securities included in the index or basket. This presupposes, however, that the following are complied with:

(a) The collective investment scheme) purposes according to the articles of Association is to replicate the composition and performance of an external index or basket of equities or debt instruments.

(b)) the correlation coefficient between the daily prices of the collective investment scheme and the daily prices of the index or basket of securities must over a period of at least 6 months at least 0.9.

121) If the company is not on a daily basis has knowledge of the collective investment scheme underlying investments, your company can quantify the risk-weighted items for specific and general risk in accordance with the methods set out in this annex, provided that the following conditions are met:

(a)) the company must require the collective investment scheme has invested so much, it has the opportunity, in accordance with its statutes and other relevant provisions, of the asset categories, which gives the highest risk-weighted items for the sum of specific and general risk. The company will then have to presuppose that the scheme has invested as much as possible in other asset categories, and it is assumed that must be continuously invested in the remaining asset category, where the sum of the risk-weighted items for specific and general risk is greatest. The company shall require the so calculated positions are positions that the company directly.


(b)) the company shall, in its calculation of risk-weighted items for specific and general risk account for the highest risk, as it can get, indirectly, by the collective investment scheme leverages its risk. This will be done by proportionally increasing the position in the collective investment scheme similar to the largest positions, this can have in the underlying investments in accordance with its statutes and other relevant provisions.

(c)) if the sum of the risk-weighted items for specific and general risk calculated in accordance with this section in excess of the requirement in paragraph 115, the requirement in paragraph 115, that apply.

122) the company can rely on a calculation and reporting from third parties relating to risk-weighted items for specific and general risk for positions in collective investment schemes. This must be done in accordance with the methods set out in paragraph 119-121, and the company must adequately ensure that reporting is correct.

Annex 13

Commodities risk

The scope of the




1) this annex contains, see. § 38, provisions on the default method for the estimation of risk-weighted items for positions in commodity derivatives.

2) Both in and outside the trading book transactions are covered by the annex.

3) the provisions of the annex does not cover positions, where the company has permission to use internal models for market risk (VaR-models), see. sections 40 and 41.



Inventory of commodities risk




4) positions in commodity derivatives, included in the risk-weighted items with the sum of the amounts referred to in article 6. paragraphs 11 and 12, of a fixed amount for each commodity.

5) Spot prices for the individual raw materials is calculated in Danish kroner on the statement date.

6) By statement included short and long commodity positions that arise after the splitting up of commodity derivatives, see. section 9.

7) for the purpose of calculating net positions in raw materials may only be made a net inventory between positions in identical ingredients.

8) positions in gold-based derivatives are not included in the inventory of commodities risk, but in the inventory of the company's foreign exchange position, see. Annex 14.

9) Bought and sold options and futures on commodities and other derivatives with similar characteristics can be divided into long and short positions in accordance with the same principles, which are listed in annex 12, paragraph 18 and 23.

10) positions in commodity derivatives which are identical in terms of raw material, position size, expiration time and instrument, but is short and long positions respectively, watchman with zero.



The overall net position in each commodity




11) For each commodity is calculated a net position per expiration time and per instrument. The sum of the net long positions liquidated so minus the numerical sum of the thus ascertained NET short positions in a commodity is the overall net position in raw material. The overall net position in each commodity shall be weighted by 187.5 pct.



The overall gross position in each commodity




12) the sum of the net long positions per expiration time and per instrument plus the numerical sum of the net short positions per expiration time and per instrument in a commodity is the overall gross position in the commodity. The overall gross position in each commodity shall be weighted by 37.5%.

Annex 14

Exchange rate risk

The scope of the




1) this annex contains, see. § 39, provisions on the default method for the estimation of risk-weighted items for positions denominated in foreign currencies and gold.

2) Both in and outside the trading book transactions are covered by the annex.

3) the provisions of the annex does not cover positions, where the company has permission to use internal models for market risk (VaR-models), see. sections 40 and 41.



Estimation of currency risk




4) in the statement pursuant to this annex include positions in pt. 5-18. Positions is calculated as specified in paragraph 19-27. Risk-weighted items for positions denominated in foreign currencies and gold was assessed as indicator 1 in accordance with the method prescribed in paragraphs 28 and 29.



Foreign-exchange positions covered by the inventory

Currencies, etc., that are the subject of the statement




5) Inventory includes all foreign currencies.

6) positions in gold-based derivatives is included in the inventory of the company's foreign exchange position and also to calculate and are weighted in accordance with the method specified in this annex. Gold is perceived thus in this annex as a currency.



Positions covered by the inventory




7) in determining the position of each currency include balances in that currency, in which the company itself carries the exchange-rate risk. This applies to both entries in and the non-trading book.



The following positions are included:




(a)) the net spot position (i.e. all asset items less all liability items, including accrued equity exclusive but not yet overdue interest and unsettled spot transactions in the currency in question).

(b)) the net forward position (i.e. all amounts will be included, minus all amounts to be paid, in accordance with the foreign exchange forward transactions, currency futures and currency swaps for the underlying principal and which are not included in the spot position).

c) irrevocable guarantees (and similar instruments) that are certain to be effective.

d) Net delta value of the total amount of currency options calculated in accordance with the principles set out in annex 12, paragraph 9 and 10.

(e)) the market value of options that are made in foreign currency, but which is not currency options, and the market value of certain other financial instruments, see. paragraph 23, point (i).

8) the balances in foreign currency shall mean also the Crown balances, whose value will be adjusted to the price of a foreign currency.

9) All balances are stated net of write-downs.



Positions in collective investment schemes




10) statement pursuant to clause 7 included shares in collective investment schemes in accordance with the principles in paragraph 11-17.

11) know the company the collective investment scheme-exchange positions at the time of assessment, must be included in the statement pursuant to clause 7 conclude the share of these positions, which correspond to the company's share of the total investment scheme. The company may rely on a third party reporting of the foreign exchange positions of the scheme, if adequately secured, that reporting is correct.

12) know the company not the collective investment scheme-exchange positions at the time of the assessment, the by statement of the risk-weighted items for exchange rate risk require that the collective investment scheme has invested so much in foreign currency, as the scheme has the possibility, pursuant to its statutes and other relevant provisions. The company must in this connection take account for the highest indirect risk, the company can get by that the collective investment scheme make leveraged investments in foreign currency. This will be done by proportionally increasing the position in the collective investment scheme similar to the largest positions, this can have in the underlying investments in accordance with its statutes and other relevant provisions.

13) By Declaration in accordance with paragraph 12 of the assumed indirect currency position via the collective investment scheme is treated as a separate currency.

14) the company has knowledge that the collective investment scheme at the time of the statement has a long net position in foreign currency, it must separate foreign exchange regulation. paragraph 13 shall be aggregated with positions in the currencies in which the company has a long net position, see. paragraph 29, point (a).

15) the company has knowledge that the collective investment scheme at the time of the statement has a short net position in foreign currency, the numerical value of the separate currency, see. paragraph 13 shall be added together with the numerical values of the positions in the currencies in which the company has a net short position, see. paragraph 29, point (b).

16), the company has no knowledge of whether the collective investment scheme on inventory at the time have a long or a short net position in foreign currency, must both be an amalgamation in accordance with section 14 and an amalgamation in accordance with section 15.

17) in inventories pursuant to clause 12-16 must be made net balances between indirect currency positions through the collective investment scheme and the company's other currency positions.



Non-covered positions




18) following currency balances are not included:

a) Currency balances in connection with pool schemes where all the positive results accrue to the customers, and all the negative rates of return are borne by the customers.

(b)) Guarantee customers and provided guarantees, with the exception of guarantees of safety will be effective.

c) Future, well-known, non-financial result records, URf.eks. the salaries, fees and rent.

d) Derivatives with one or more foreign financial instruments as underlying asset (s) in which the principal and return is provided in Danish kroner.



Statement of positions

Statement of the net open positions in the individual currencies




19) The net open position in a currency is calculated as the difference between the sum of the long positions and the numerical sum of the short positions in the currency in question calculated in accordance with paragraph 7-17.


20) the net position in each currency shall be converted into Danish kroner at the market spot exchange rate at the time of the assessment.



Valuation of balances




21) at the valuation of balances denominated in foreign currencies, the company must use the present value, see. paragraph 23.

22) For certain balances, there is the option of an alternative statement, see. paragraphs 24-27.



Valuation for the purposes of the present value











23)





A present value statement implies that all future payments are discounted to the measurement time with market rate for that currency and maturity. Market rates are not known, the company may use an estimate value of market interest rates.







The consequences of the application of NPV is the following:





 



(a))





Stocks of listed securities admitted to exchange value with addition/deduction of any receivables/accrued interest (accrued interest per assessment date). Unlisted securities are recorded in accordance with the valuation rules for the quarterly and annual reports. Accounts receivable and accrued interest shall be included in the inventory.





 



(b))





Fixed-rate lending, deposits, correspondent balances and subordinated capital admitted to present value, calculated by discounting the future payments with market interest rates.





 



(c))





Variable-rate lending, deposits, correspondent balances and subordinated capital contributions shall be recorded in accordance with the valuation rules for the quarterly and annual reports. Accounts receivable and accrued interest shall be included in the inventory.





 



(d))





Foreign exchange forward transactions and foreign exchange spot transactions in a foreign currency against the Danish Krone is included with the traded amount discounted from the agreed settlement date to the time of the statement with the appropriate market rate for the relevant foreign currency. For currency exchange contracts and foreign exchange spot transactions in a foreign currency to another foreign currency statement must be made for each of the two currencies.





 



(e))





Currency futures based on a foreign currency against the Danish Krone is included with the underlying amount (principal contract) discounted from the appointment time (exercise date) to the inventory at the time with the market rates for the foreign currency. For currency futures in one foreign currency against another foreign currencies are inventory shall be carried out for each of the two currencies.





 



(f))





Currency options based on a foreign currency against the Danish Krone is included with option's spot-delta multiplied by the underlying amount (principal of the contract). For currency options in one foreign currency against another foreign currencies are inventory shall be carried out for each of the two currencies.





 



(g))





Payments in foreign currency in the foreign exchange swap operations involving actual or computational payments in Danish kroner and in a foreign currency, discounted with the market rate for the relevant currency. For foreign exchange swaps, involving actual or computational payments in multiple foreign currencies, the inventory shall be carried out for each of the different currencies.





 



(h))





Net payments in interest rate swaps (payments in the same foreign currency) are discounted with the market rates for the foreign currency.





 



in)





Forward contracts, futures and options, which are based on securities or commodities denominated in foreign currency, as well as forward rate agreements in a foreign currency and similar instruments is included with the instrument's market value.





 



(j))





Tangible and intangible assets and other assets and liabilities not provided by subparagraphs (a) and that are posted in foreign currencies is included in accordance with the valuation rules for the quarterly and annual reports.











Alternative valuation method




24) for the position in each currency is there for the following balances the opportunity to use the following alternatives to the valuation method set out in paragraph 23:

a) fixed-rate lending, deposits, correspondent balances and subordinated capital contributions may be included in accordance with the valuation rules for the quarterly and annual reports. The company may choose not to include accounts receivable and accrued interest.

(b)) For securities, foreign exchange forward transactions, the foreign exchange spot transactions, currency futures, currency options and foreign exchange swap operations the calculation of the present value based on market rates at the time of the statement be replaced by present value based on a historical market rate. This assumes that it remits are covered by a different between being that has the same present value using the relevant historical interest, and the second between being also included to present value at the historic rate. In addition, the company need not include accounts receivable and accrued interest.

25) the company shall as far as possible, apply the present value the principle of those balances.

26) Balances not covered by section 24, must always be included with the present value, see. paragraph 23.

27) balances are used to identify each other, should be included in accordance with the same principles.



Statement of the overall currency position











28)





Indicator 1 must be included in the risk-weighted items, if the company has positions in foreign currency, or if the company has positions in gold-based derivatives.







29)





The company's foreign exchange position is calculated as the indicator 1.







   Indicator 1 is calculated on the basis of the positions of all the currencies, which the company has positions in, according to the following guidelines:





 



(a))





Positions in the currencies in which the company has a long net position, merged (including included a possible long net position in gold). By a long net position is defined as a net position, which gives the company a loss on an increase in the price of that currency.





 



(b))





The numeric values of the positions in the currencies in which the company has a net short position, merged (including included a possible short net position in gold). By a short net position is defined as a net position, which gives the company a loss by an increase in the price of that currency.







   Indicator 1 is equal to the greater of the two resulting figures, and indicator 1 must be included in the risk-weighted items with a weight of 100 per cent.









Annex 15

Internal models for market risk (VaR-models)

The scope of the




1) this annex provides for the calculation of risk-weighted items for market risk through the use of internal models, see. § 40.

2) internal models, you can apply for permission to use, must be Value-at-Risk models (VaR-models), which on the basis of statistical assumptions specifies the amount (Was), the company with a given probability will lose maximum within a specified period. As a result of item 6 must-number for the models Were applied for, enter the amount the company with 99% probability will lose maximum within the next 10 days.

3) Annex 22 contains a description of the requirements for applications for the use of internal models for market risk (VaR-models).



Qualitative requirements





4) the company's internal models can only be used for the calculation of market risk, if the company's risk management and internal controls are adequate and implemented with integrity show. This implies, inter alia, to the following qualitative requirements must be met:

a) Models must be closely integrated in the company's daily management of risk and to serve as a basis for reporting of risks to the company's Board and management.

(b)) the company must have a risk control function, independent of trade functions, and which reports directly to the company's Executive Board. Risk control with the task of formulating, updating and implementing the company's risk-management systems, including internal models. The function must prepare and analyze daily reporting on models ' results, including elaborate reporting on compliance with the limits laid down in the instructions, etc. the risk control function must also carry out the initial and ongoing validation of the internal models.

(c)) the company's Board and management are actively involved in the risk-control process and the daily reports must be treated kontrolfunktionens risk at a level of management with sufficient authority to be able to reduce the company's positions and risks.

d) the company shall have a sufficient number of qualified employees in the trade-, control-and back-office functions, as well as in internal audit.

(e)), the company has established control procedures to ensure that the company's written instructions and procedures relating to the application of the models are complied with and monitored.

f) the company must have sufficient evidence that the models have historically meant the company's risks with reasonable accuracy.

(g)) the company must frequently conduct comprehensive stress tests, and the results thereof shall be reviewed by the Executive Board. The results of stress tests carried out must be reflected in the instructions and the limits to be determined by the Board of Directors and group management. The company's stress tests shall in particular include conditions such as illiquidity during stressful market conditions, concentration risk, markets where that cannot be traded, the risk of unforeseen events (event risks) and the risk of sudden failure, non-linear products, positions that are "deep out-of-the-money" positions with bid/offer-tighten and other risks which are not adequately incorporated in the internal models. The shock, as the models are subjected to, should take into account the composition of the portfolios and the time it will be able to take that risk hedge or manage risks under severe market conditions. An entity shall apply the hypothetical portfolios to ensure that the models are able to take account of the specific structural conditions that may arise, such as basis risks and concentration risk. The company's stress tests must not include the types of risks that the company is not or only in negligible is exposed to.

h) internal audit shall carry out independent reviews of models, including the application of these in trade-and control functions.

in) the company must, at least once annually conduct a review of the models and risk management as a whole, which, as a minimum, involves an examination of the following:







 



in





Whether or not documentation of models, risk management and risk kontrolfunktionens organisation and tasks is adequate.





 



(ii)





The integration of market risks calculated by the models are integrated into the daily risk management and the integrity of the management reporting is adequate.





 



(iii)





The company's internal procedures for the approval of risk calculation and valuation methods and systems therefor used by trading and back-office functions.





 



(iv)





The market risks covered by risk calculation methods and validation of any significant changes in risk calculation methods.





 



(v)





Whether the inventory of the company's positions are correct and complete, whether used volatilities and correlations are accurate, and whether the statement and calculation of risk sensitivities are accurate.





 



We





The verification process the company uses in assessing whether the information sources used in the models, are consistent, current, and reliable, and whether such sources are independent.





 



(VII)





The company's procedures for the development of backtests, conducted with the aim of assessing the internal model's accuracy.














5) the company shall have procedures to ensure that its internal models adequately validated by persons with sufficient qualifications that are independent of the models ' development process, in order to ensure that the models are functioning and take sufficient account of all significant risks. This validation must be carried out in connection with the model's development, and when there are substantial model changes. Validation must be carried out regularly, but especially in the context of essential structural market changes or changes in the portfolio mix, which may mean that the models are no longer adequate. In line with the development of methods, techniques and market practices, the company must ensure that the internal models are accordingly. Validation of the models must as a minimum include the following, in addition to the backtests:

(a)) the company must conduct tests that show that the assumptions they are based on internal models, is appropriate and neither under-or overestimate the risks.

(b)) the company shall, in addition to the prescribed in paragraphs 21 and 22 specified backtests make own model validation tests in relation to the risks and structures that characterize the portfolios.



Quantitative requirements




6) the company's internal models shall, as a minimum, apply the following quantitative criteria for the purpose of calculating market risks:

(a)) the calculation of the company's potential risk (VaR) on at least a daily basis.

(b) 99% confidence interval Unilaterally).

c) Bearer period equal to 10 days.

d) effective historical observation period of at least one year except where a shorter observation period is justified by a significant increase in price volatility.

e) at least quarterly updating of volatilities, correlations, etc.



Backtests




7) the company must verify the accuracy and the results of the models by implementing backtests. Backtests are carried out by the daily potential risk of loss (VaR), which is calculated using the company's internal models for portfolios daily end positions, compared with the daily change in the portfolio's value by the end of the following business day. The company must be able to perform backtests on the basis of both actual and hypothetical changes in the portfolio's value.

8) Backtests on the basis of hypothetical changes in the portfolio's value is performed by comparing the portfolio's daily closing value and, assuming unchanged positions, its value at the end of the following day, IE. Apart from acting, which concluded the following day. Backtests on the basis of actual changes in the portfolio's value is performed by comparing the portfolio's daily closing value with the final value of the company's portfolio the following day, IE. to account for any deals that concluded the following day, but taking apart from revenue in the form of fees, commissions and net interest income.

9) the company shall take appropriate measures with a view to improving its backtests, if these are deemed to be inadequate.



Risk factors




10) the company's internal models must take account of a sufficient number of risk factors, depending on the company's activity level in the respective markets, including material risks relating to options and option-like positions. In particular, the following risk factors included:


(a)) For the interest-rate risks, the internal model using a set of risk factors corresponding to the interest rates in each currency in which the company has interest rate sensitive on-balance-sheet and off-balance-sheet positions. An entity shall estimate the yield curves using generally accepted practices. For significant interest rate risk in the major currencies and markets, the yield curve shall be divided into a minimum of six maturity segments, to capture differences in volatility along the yield curve. The internal model shall also detect the risk that the correlation between different yield curves are not complete.

(b)) For Exchange rate risk, the internal model using risk factors corresponding to the individual foreign currencies (including gold), the company has positions in. For collective investment schemes must take account of the collective investment scheme's actual foreign exchange position. The company can rely on external balances of the collective investment scheme foreign exchange position, provided that it has ensured that the statement is correct. The company has no knowledge of the currency position of the collective investment scheme, this position is not included, but will be treated in accordance with annex 14, paragraph 10.

(c)) For stock quote risks should the internal model using at least one separate risk factor for each of the equity markets in which the company has significant positions.

(d)) For commodity risk, the internal model using at least one separate risk factor for each of the raw materials, which the company has significant positions. The internal model shall also take account of the risks of not-completely-connected movements between comparable, but not identical, commodities and the risk of changes in forward prices arising from maturity times do not coincide. It must also take account of market characteristics, including particular delivery dates and dealernes option to close positions.

11) the company shall ensure that the impact of risks not covered by the model, can be taken into account in the assessment of the basic capital, see. section 124 (1) and section 125 (1) of the financial business Act.

12) FSA can give the company permission to use empirical correlations within risk categories and across risk categories if the company's systems for calculation and assessment of the correlations is conceptually sound and implemented with integrity.



Calculation of the specific risk




13) the Danish financial supervisory authority may, in accordance with section 40 (4) give the company permission to use internal models for the calculation of the specific risk of shares and debt instruments. The models must in addition to the other requirements of this annex satisfy the following:

(a)) Explain historical price variation in the portfolio volatility.

b) take account of the concentration in terms of magnitude and changes of composition of the portfolio.

(c)) Be robust to adverse changes in assumptions.

(d)) shall be validated through backtests, which aims to assess whether that accurately takes into account the specific risk. Implemented backtests on the basis of relevant sub-portfolios, these must be chosen in a consistent manner.

e) take account of name-related basis risk, IE. the company must show that the models are sensitive to differences between similar but not identical positions.

f) take account of the risk of unforeseen events (event risk).

14) the company shall further comply with the following requirements:

(a)), the company is exposed to the risk of unforeseen events (event risk), which Was not part of the century, because it is outside a 10-day holding period and 99 percent confidence interval (i.e., an event with small probability, and serious consequences), the entity shall ensure that the effect of this can be taken into account in the assessment of the basic capital, see. section 124 (1) and section 125 (1) of the financial business Act.

(b)) the company's models, by conservative estimates, recognise risks arising from less liquid positions and positions with limited price transparency under realistic market scenarios. The models must also meet minimum data standards. Proxies (proxies) must be appropriately cautious and may only be used where available data are not sufficient or do not reflect the position or portfolio's real volatility.

15) in line with the development of methods, techniques and market practices, the company must ensure that the internal models be developed accordingly.

16) the company must also have a method for the calculation of risk-weighted items, which makes it possible to take into account the risk of default by positions in the trading book, which is in addition to the internal model in risk of default contained in accordance with the criteria set out in paragraphs 13 and 14 for specific risk. In order to avoid double counting of specific risk, the company may take into account whether or not the risk of default is already included in the VaR calculation, particularly for risky positions that could, and would, be settled within 10 days in the event of adverse market conditions or other indications of worsening credit conditions. If your organization includes an increased risk of non-performance on the basis of a charge, it must have established methods for the validation of this.

17) the company must prove that its methods of paragraph 16, after the liver functioning standards which are comparable to the requirements of the internal ratings based approach to credit risk (IRB approach), see. § § 19-33, under the assumption of a constant level of risks and where necessary adjusted to reflect the impact of liquidity, concentrations, hedging and optionality.

18) If the company does not include an increased risk of default through proprietary models, it must calculate the appendix see. paragraph 16 through a method that is in accordance with the requirements of the standardised approach for credit risk, see. § § 9-18, or requirements to the internal ratings based approach to credit risk (IRB approach), see. § § 19-33.

19) With regard to traditional or synthetic securitiseringer, which would have to risk a weighting of 1,250 percent. in accordance with Annex 11 on securitization, apply, these will be included in the risk-weighted items with an amount that is not less than by this treatment. Companies that do business with these securitiseringer, however, can apply to the FSA for authorization to employ a different method. This assumes that they are able to prove that, in addition to trading intent are a liquid two-way market for trade with securitiseringer. For synthetic securitiseringer, exclusively depends on credit derivatives, requires it, that they can demonstrate the existence of a liquid two-way market for these securitiseringer or their risk components. A liquid two-way market is considered to exist if there are independent market makers on the market, so that a price that is related to the last traded price or current quotation on purchase/sales can be determined within one day, and that can be executed at that price within a relatively short space of time, in accordance with normal commercial practice. A company that wants to apply for permission to use such other method, must have sufficient market data in order to ensure that it takes full account of the concentrated default risk for those securitiseringer in the calculation of the increased risk of default, in accordance with the above-defined standards.

20) Meets the company's internal models pkt. 13-19, not to the specific risk is calculated by the standard method, see. Annex 12.



Calculation of the company's risk-weighted items with market risk




21) If your company uses internal models, constitute risk-weighted items covered by these models the largest sums of the following values multiplied by 12.5:

(a)) was the century calculated for yesterday's positions plus a possible addition, see. paragraph 16.

(b)) the average Was calculated for the last century 60 business days, multiplied by the sum of a multiplication factor of at least 3 and a plus factor, which depends on the number of overshootings ascertained by the company's recent backtests 250 working days. Plus factor value is in the range between 0 and 1 in accordance with table 1. To the resulting number be a possible addition, see. paragraph 16.







 

 

 



 



Table 1





 



Number of exceedances





Plus factor





 



under 5





0.00





 



5





0.40





 



6





0.50





 



7





0.65





 



8





0.75





 




9





0.85





 



10 or more





1.00














22) the company must calculate the daily overshootings consistently on the basis of either backtests actual or hypothetical changes in the portfolio value, see. clause 8. An excess is a daily change in value of the portfolio in excess of the related daily potential risk (VaR), which is calculated using the company's internal models. The number of overshootings ascertained on an ongoing basis with the objective of determining the plus factor.

23) to the Danish financial supervisory authority on an ongoing basis can check plus factor and the model's reliability, the company must notify the supervisory authority as soon as possible, and no later than within five working days, about excesses in the daily backtests.

24) FSA can in individual cases and in the light of special circumstances, dispense with the requirement for a plus factor in accordance with table 1 of section 21, if the company over for the Danish financial supervisory authority can demonstrate that such an increase is unjustified and that the internal model principle is correct.

25) If an internal model has many exceedances, which indicates that it is not sufficiently accurate, the Danish financial supervisory authority authorisation pulls back or instructs the company to take the necessary measures to ensure that the internal model is immediately improved.

Annex 16

Counterparty risk











Table of contents





PT.





 

 





The scope of the





1-2





 

 





Definitions





3-9





 

 





Market value method for counterparty risk





10-17





 

 





The default method for counterparty risk





18-38





 

 





The internal model method for counterparty risk (EPE-models)





39-82







General conditions





39-42







Calculating the size of exposure





43-54







Minimum requirements for EPE models





55-80







Control of counterparty risk





56-65







Application test





66-70







Stress tests





71-72







Correlation risk ("Wrong-way" risk)





73-74







The modeling process integrity





75-80







Validation requirements for EPE models





81-82





 

 





Netting





83-92







Risk-reducing nettingtyper





83-85







Effects of netting agreements





86-87







Conditions for inclusion of netting agreements





88-92











The scope of the




1) this annex provides for counterparty risk, see. § § 42-49.

2) Annex 23 contains a description of the requirements for an application to use EPE-models for the estimation of counterparty risk.



Definitions




3) A netting set is a group of transactions entered into with a single counterparty and covered by a legally valid bilateral netting nettingsystem, and for which fulfils the conditions set out in paragraphs 83-92 of this annex and annex 7. Any transactions not covered by a legally valid bilateral nettingsystem, which fulfils the conditions set out in paragraphs 83-92 of this annex shall be considered in the context of this annex as its own netting set.

4) A margin agreement is a contractual agreement or provisions of an agreement, whereby a counterparty shall provide a guarantee against any other counterpart, when the other counterparty exposure against the former counterpart when over a certain level.

5) Margin threshold value is the amount at which an exposure shall apply before a party has the right to demand collateral.

6) A margin risk period is the period from the latest Exchange of collateral for a netting set of transactions with a defaulting counterpart until nettingaftalen with the counterparty is closed, and the resulting market risk again is uncovered.

7) the current exposure is the highest value of zero and the market value of a transaction or portfolio of transactions within a netting set with a counterparty, where the value of these transactions is forfeit in the event of a counterparty default, since it is assumed that it is not possible to recover amounts in connection with a bankruptcy.

8) Market value distribution is a probability distribution for the forecast of the net values of transactions within a netting set at a future time (forecast horizon) based on these transactions realised market value until now.

9) an exposure distribution is a probability distribution for the forecast of market values, where predicted occurrences of negative net markedsværdier will be set to zero.



Market value method for counterparty risk




10) Statement by exposure size after market value method for counterparty risk follows the steps below:

a) Contracts are stated at market value, in order to achieve the current replacement cost of all contracts with positive value.

(b)) in order to arrive at a figure for potential future credit exposure is multiplied by the notional principal amounts or underlying values with the percentages in table 1. Swaps based on two variables of interest rates in the same currency are excluded for this, since only the current replacement cost will be calculated.

(c)) the sum of current replacement cost and potential future credit exposure represents exposure value.







 

 

 

 

 

 

 

 



 



Table 1





 



Residual maturity





Interest rate contracts





Currency exchange contracts and contracts concerning gold





Contracts relating to shares





Contracts concerning precious metals (except gold)





Contracts relating to commodities (excluding precious metals)





Credit derivatives in the trading book *





 



One year or less





0 per cent.





1 per cent.





6 per cent.





7 per cent.





10 per cent.





10 per cent.





 




Over a year, but not more than five years





0.5 per cent.





5 per cent.





8 per cent.





7 per cent.





12 per cent.





10 per cent.





 



Over five years





1.5 per cent.





7.5%.





10 per cent.





8 per cent.





15 per cent.





10 per cent.





 



* Credit derivatives in the form of total return swaps and credit default swaps.





 

 












11) Contracts that do not fall under one of the six categories in table 1 in section 10 shall be treated as contracts concerning commodities (excluding precious metals), see. However, paragraph 12.

12) A contract relating to collective investment schemes referred to in article 6. paragraph 32 of annex 3, which the company is aware of the asset categories, as the scheme may invest in, can be treated as a contract relating to the asset category, among the categories to which the scheme should invest in, which has the highest percentage in accordance with table 1 in paragraph 10.

13) For credit derivatives in the trading book in the form of total return swaps and credit default swaps, where the reference obligation is a record, as is apparent from paragraph 45 (e)-in of annex 12, may be used a percentage of 5% instead of the rate of credit derivatives in table 1 in point 10. If the credit derivative is an "nth to default" credit derivative, the percentage of 5% can only be used if the reference obligation with the nth lowest credit quality is a record, as is apparent from paragraph 45 (e)-in, in annex 12.

14) For credit derivatives in the trading book in the form of credit default swaps, the party for which the swap represents a long position in the reference obligation (purchase of risk), see. paragraphs 31 and 35 in annex 12, apply a percentage of 0% instead of the rate of credit derivatives in table 1 in point 10. However, this does not apply if the swap is subject to a final settlement in the event of insolvency of the other party, even if the underlying position is not defaulted.

15) For contracts involving multiple exchanges of principal, multiply the percentages in table 1 in paragraph 10, with the number of payments remaining to be effected according to the contract.

16) the company must ensure that the notional amount to be taken into account for the purpose of calculating the potential future credit exposure, is an appropriate yardstick for the risk inherent in the contract. If there URf.eks. the contract provided for a multiplication of payment flows, the notional amount is adjusted to take into account the multiplier effect on the concerned contract risk structure.

17) For contracts that are composed in order to settle the outstanding risks on certain payment dates, and where conditions are adjusted so that the market value of the contract is zero on these specified dates, the residual maturity is equal to the period until the next adjustment date. In the context of interest rate contracts that meet these criteria, and which have a residual maturity greater than one year, the percentage, must see. table 1 in paragraph 10, however, not be lower than 0.5%.



The default method for counterparty risk




18) Standard method of counterparty risk can only be used in connection with derivatives and forward transactions. The size of the exposure shall be calculated separately for each netting set. Value exposure, after taking into account collateral shall be determined as follows:







 



Exposure size =





 

 





 



where





 



(a))






CMV = the current market value, which is calculated as the net market value of the portfolio of transactions within the netting set, established with a counterparty, without consideration for collateral, i.e. where





 

 

 





 

 



where CMVi = the current market value of the transaction, which can be positive as well as negative.





 



(b))






CMC = the current market value of the security has been lodged in the nettinggruppen, IE. where





 

 

 





 

 



where CMCl = the current market value of the collateral (l).





 



(c))






RPTij = risk position, see. paragraph 28, concerning the transaction in with regard to hedging the Group j.





 



(d))






RPClj = risk position, see. paragraph 28, concerning the collateral l with respect to hedging the Group j.





 



(e))






CCRMj = counterparty risk-multiplier, which is given in table 3 in paragraph 35 of the hedging the Group j.





 



(f))






I = index that indicates the transaction.





 



(g))






l = index, which indicates the security.





 



(h))






j = index of hedging, there is a group of risk positions concerning operations belonging to the same netting set, where risk positions with opposite sign can be offset, to produce a net risk position, as exposure value is calculated on the basis of the basic regulation. paragraph 29.





 



in)






β = 1,4.





 



(j))





Collateral received from a counterparty has a positive sign, while collateral made to a counterparty has a negative sign.





 



k)





Collateral, which are approved for this method include the collateral that is permitted in accordance with Annex 7, paragraph 59 and 78.














19) By a transaction in a derivative with a linear risk profile, where a financial instrument to be exchanged against a payment, be referred to the latter as a payment item. Transactions in which a payment must be exchanged against a payment, payment is made up of two elements. Payment items consist of the contractually provided gross payments, including the nominal amount of the transaction. The company may choose not to account for interest rate risk at the payment items in connection with the following calculations, where the transaction has a residual maturity of less than one year. The company can process transactions that consist of two payment items, denominated in the same currency, such as URf.eks. an interest rate swap, as a single transaction. The treatment of payment items shall apply in the case of the total transaction.

20) transactions in derivatives with a linear risk profile, where the underlying financial instruments consist of shares (including stock index), gold, other precious metals or other commodities, are assigned a risk position for the respective stock (or stock index) or raw material (including gold and other precious metals) and an interest rate risk position for the payment item. If the payment item is denominated in a foreign currency, it also assigns a risk position in that currency.


21) in derivatives transactions with a linear risk profile, where the underlying instrument is a debt instrument that is assigned an interest rate risk position for the debt instrument and a different interest rate risk position for the payment item. Transactions with a linear risk profile where a payment to be exchanged against a payment, including foreign exchange forward transactions, is assigned an interest rate risk position for each pay item. If the underlying debt instrument denominated in a foreign currency, the debt instrument is assigned a risk position in this currency. If the payment item is denominated in a foreign currency, assign payment item a risk position in that currency. The size of exposure in connection with basic swap denominated in foreign currencies shall be set at zero.

22) except in the case of debt instruments correspond to the size of a risk position from a transaction with a linear risk profile for the actual nominal value (market price times quantity) of the underlying financial instruments (including commodities) converted into Danish kroner.

23) For debt instruments and payment elements match the size of a risk position for the actual nominal value of the outstanding gross payments (including the nominal amount), translated into Danish kroner and multiplied by the modified duration of the debt instrument or the payment element respectively.

24) the size of the risk position in connection with a "credit default swap" corresponds to the nominal value of the reference debt instrument, multiplied by the relevant "credit default swaps" residual maturity.

25) Unless there is an underlying debt instrument, similar to the size of the risk position on a derivative of a non-linear risk profile (including options and swaptioner), to the delta-equivalent actual nominal value of the financial instrument that provides the basis for the transaction.

26) the size of the risk position on a derivative of a non-linear risk profile (including options and swaptioner), where the underlying instrument is a debt instrument or a payment item, corresponds to the delta-equivalent actual nominal value of the financial instrument or payment element multiplied by the modified duration of the instrument or debt payment of the item.

27) By statement of risk positions in a derivative contract treated collateral received from a counterparty as a claim on the counterparty (long position), which is due today, while secured is treated as an obligation of the counterparty (short position) that is due today.

28) the company can use the following formulas to determine the amount and the sign of a risk position:

(a)) For all instruments other than debt instruments, calculated risk position as the actual nominal value, also called the delta-equivalent nominal value:







 

 

 





 

 



where





 

 



Pref = price of the underlying instrument, expressed in the reference currency,





 

 




V = the value of the financial instrument (for options are the options price, while for transactions with a linear risk profile, the value of the underlying instrument), and





 

 




p = price of the underlying instrument, expressed in the same currency as V.





 

 

 



 



(b))





For debt instruments and payment element of all transactions is calculated risk position as the actual nominal value multiplied by the modified duration, or delta-equivalent nominal value multiplied by the modified duration, where





 

 

 





 

 



where





 

 




V = the value of the financial instrument (for options are the options price, while for transactions with a linear risk profile, the value of the underlying instrument or payment element), and





 

 




r = interest rate level.





 

 



If V is denominated in a currency other than the reference currency, derivative shall be converted into the reference currency by multiplying with the relevant exchange rate.














29) risk positions are grouped into hedging, there are groups of risk positions concerning operations belonging to the same netting set. In determining the exposure value is the total net position that is relevant. NET risk position, specified as the numerical value of the sum of the risk positions included in the hedging the group, is calculated for each group. NET risk position is represented by







 

 





 



in the formula in paragraph 18.














30) in connection with interest rate risk positions on money deposits received from the counterparty as collateral for payment items and underlying debt instruments, which, according to annex 12, paragraphs 44, 45 and 49 is included with a weight of 20 per cent or less, there are six hedging set for each currency in the table 2 below. Hedging is defined using a combination of criteria "maturity" and "reference rates".







 

 

 

 

 



 



Table 2





 



State reference interest rates





Duration ≤ 1 year





1 year < Duration ≤ 5 years Maturity > 5 years





 



Non-governmental

reference interest rates





Duration ≤ 1 year





1 year < Duration ≤ 5 years Maturity > 5 years














31) For interest rate risk positions concerning the underlying debt instruments or payment items, where the interest rate is linked to a reference interest rate, which reflects the General market interest remaining maturity corresponds to the period up to the next adjustment of interest rates. In all other cases the underlying debt instrument and residual maturity, or for an item, the transaction of payment residual maturity, to reason.

32) established a hedging group for each issuer of a reference debt instrument that underlies a "credit default swap".

33) in relation to interest rate risk positions on money deposits placed with a counterparty as collateral when that counterparty does not have outstanding debts with low specific risk, and the debt instruments which, according to annex 12, paragraphs 46-49, a weighting of more than 20 per cent, sets a hedging group for each issuer. When a pay element has the same characteristics as such a debt instrument shall be also a hedging group for each issuer of a reference debt instrument. The company can choose to gather risk positions, which are associated with a particular issuer's debt instruments or to the same reference debt instruments of the same issuer, hedging the group if they have the same properties as the payment item or is subject to a "credit default swap".

34) underlying financial instruments, debt instruments, which are not referable only to the same hedging, in the case of identical or similar instruments. In all other cases shall be assigned to the various hedging. Whether similar instruments shall be assessed by the following criteria:

(a)) For the shares is similar instruments, instruments that are from the same issuer. A stock index is treated as a separate issue.

(b)) For precious metals are similar instruments, instruments that deal with the same metal. A precious metal index is treated as a separate precious metal.


(c)) For electricity are similar instruments the delivery rights and obligations, which relate to the same "load time interval" within and outside peak time within an interval of 24 hours.

(d)) For commodities is similar instruments, instruments that deal with the same raw material. A commodity index is treated as a separate index.

35) multipliers (CCRM)-counterparty risk for the various categories of hedging is set as indicated in table 3:







 

 

 

 



 



Table 3





 



1.





Interest rates





0.2 per cent.





 



2.





Interest on risk positions concerning a reference debt instrument that underlies a "credit default swap", and which, according to annex 12, paragraph 44, 45 and 49 a weighting of 20% or less





0.3%.





 



3.





Interest on risk positions concerning a debt instrument or reference debt instrument, which, according to annex 12, paragraphs 46-49 a weighting of more than 20 per cent.





0.6%.





 



4.





Exchange rates





2.5 per cent.





 



5.





Electricity





4.0%.





 



6.





Gold





5.0%.





 



7.





Aktier





7.0 per cent.





 



8.





Precious metals (except gold)





8.5 per cent.





 



9.





Other commodities (excluding precious metals and electricity)





10.0%.





 



10.





Underlying instruments relating to derivatives which are not covered by the above categories





10.0%.





 



Underlying instruments relating to derivatives and covered by table 3, nr. 10, corresponds to a separate individual hedging for each category of underlying instruments.














36) For transactions which have a non-linear risk profile, or for the payment items and transactions in debt instruments as underlying instruments for which the company is unable to calculate the delta value respectively or the modified duration by means of a model, as the Danish FSA can accept for the purposes of calculating risk-weighted items relating to market risk, FSA can determine the risk positions and the relevant counterparty risk multiplikatorers (CCRM'ers) size on the basis of a careful assessment. Alternatively, the FSA impose upon the company to apply the method set out in paragraph 10-17. Netting is not recognized, that is. the size of exposure shall be determined as if there were a netting set containing only the individual transaction.

37) the company must have internal procedures to verify that a transaction covered by a legally valid nettingaftale, who meets the requirements set out in paragraphs 83-92, before this transaction is included in the nettinggruppen.

38) Does your company use of collateral in order to reduce counterparty risk, the use of internal procedures to verify that collateral meets the legal standards set out in annex 7, before the include of the collateral effects in its calculations.



The internal model method for counterparty risk (EPE-models)

General conditions




39) the company may, subject to the FSA authorisation, without prejudice. section 49 using the internal model method for counterparty risk (EPE-models) for the estimation of the size of exposure for derivative financial instruments referred to in article 6. § 42, for securities financing instruments, see. section 43, or, in the case of derivative financial instruments and securities financing instruments, assembled. Independently of the choice of method for financial derivatives and securities financing instruments, the company in accordance with § 44 using the internal model method for forward transactions. For exposures which is insubstantial in terms of size and risk, the company may decide not to apply the internal model method. In order to apply the method the company must satisfy the conditions set out in paragraphs 40-82.

40) application of EPE models provided by the Danish financial supervisory authority authorisation can be done in phases over different transaction types, and during this period the company can apply the methods set out in paragraph 10-38. It is not required that the company uses a particular model type.

41) For all transactions involving derivatives and Futures businesses, as the company has not received approval to include in EPE-model, the entity shall apply the methods set out in paragraph 10-38. It is allowed to use these two methods concurrently permanently in a group. Parallel use of these two methods in a legal entity is only allowed if one of the methods used in the cases described in paragraph 36.

42) undertakings which have been authorised to apply the EPE-models, cannot again apply the methods set out in paragraph 10-38, except if the company has demonstrated a good reason for doing so, and it has been approved by the Danish financial supervisory authority. If the company no longer meets the requirements for application of EPE-models, it must either submit the FSA a plan for a timely renewed compliance or demonstrate that the effect of the non-compliance is immaterial.



Calculating the size of exposure




43) Exposure size must be calculated from nettinggruppen. The model must specify the estimated distribution of changes in the market value of nettinggruppens, which can be attributed to changes in market variables, such as interest rates and exchange rates. Then, the model calculate exposure size for nettinggruppen on all future dates given changes in market variables. For counterparties that provide margin can also describe future changes in the security model.

44) the company may take into account the financial collateral as defined in annex 7, paragraphs 59 and 78, in the estimated distributions of changes in nettinggruppens market value, if the quantitative and qualitative requirements and data requirements for EPE models are fulfilled in respect of the security.

45) Exposure size is calculated as:







 



Exposure size = α, where α EPE * actually be set at 1.4.





 



The Danish financial supervisory authority may require the α assigns a higher value.














46) The actually expected positive exposure (in fact, EPE) is the weighted average over time of the actual expected exposure (EE actually) for the first year, the exposures run. If all exposures in a netting set have a maturity of less than one year, is in fact, EPE, the weighted average of actual EE for the period for which the exposure in nettinggruppen, who have the longest maturity, covers. The weight is the maturity of the individual expected exposure compared to the total time range. The effective EPE is calculated as:







 

 





 



where the weights ∆ tk = tk – t (k-1) taking into account the fact that the future exposure can be calculated at dates that are not evenly distributed throughout the relevant time period.


An expected positive exposure (EPE) is the weighted average over time of expected exposure (EE) for the first year, the exposures run. If all exposures in a netting set have a maturity of less than one year, EPE is the weighted average of EE for the period for which the exposure in nettinggruppen, who have the longest maturity, covers. The weight is the maturity of the individual expected exposure compared to the total time range.














47) The actually expected exposure (EE actually) on a given date is the maximum expected exposure that exists on this or an earlier date. Alternatively it can be fixed to the higher value of either the expected exposure on this date or the actual exposure on the previous date. The actual EE be calculated recursively as:







 

 





 



where t is a time parameter, while k specifies nettinggruppen.





 



An expected exposure (EE) is the average of the distribution of exposures at a given future date prior to the transaction in the nettinggruppen, which has the longest maturity due.














48) the expected or maximum exposure shall be calculated on the basis of a distribution of exposures that take into account the fact that the exposures are not necessarily normal distributed.

49) the company can use one size for exposure, there is more cautious than the amount as calculated in paragraph 45.

50) The actual duration for a netting set with a maturity of over one year is the ratio between the sum of the expected exposure in nettinggruppens transactions lifetime discounted at the risk-free interest rate and the sum of expected exposure over the course of a year in nettinggruppen discounted at the risk-free interest rate. The actual maturity may be adjusted to reflect the renewal risk ("rollover" risk) by replacing expected exposure with the actual expected exposure for forecast horizons in less than a year. Renewal risk is the amount by which the value of the expected positive exposure be underestimated when there is expected to be a continuous renewal of transactions with a counterparty. The more exposure that these future transactions resulting in, are not included in the calculation of EPE.

51) the FSA may, notwithstanding the provisions referred to in paragraph 45 to allow the company to use the highest value of 1.2 and the company's own estimates of α, where α corresponds to the relationship between the internal capital based on a comprehensive simulation of market and credit risk for exposures by counterparty risk (numerator) and the internal capital based on EPE (denominator). EPE should be used in the denominator, as if it were a fixed outstanding amount. The company must prove that its internal estimates of α in the numerator reflects the essential elements of stochastic dependency of distribution of market values of the transactions in question or of portfolios of transactions across counterparties. Internal estimates of α shall take into account the portfolios diversification.

52) the company shall ensure that the numerator and the denominator by determining α is calculated in a way that is consistent with respect to the modeling methods, parameter specifications and portfolio composition. The method used should be based on the company's internal capital models, be well documented and subject to an independent validation. The company must also revise its estimates at least four times per year or more frequently, if the portfolio's composition varies over time. The company must also assess model risk.

53) Volatility and correlation of the market risk factors used in the total simulation of market and credit risk, where it is considered necessary, reflect potential increases in volatility or correlation during an economic downturn.

54) If nettinggruppen is subject to a margin of agreement, the entity shall measure EPE on one of the following ways:

(a)) Actually EPE without taking into account the margin agreement.

(b) The threshold value)-If this is positive-laid down in the margin agreement plus an addendum which reflects the potential increase in exposure over the margin period of risk. The supplement is calculated on the basis of the expected increase of nettinggruppens exposure calculated from a current exposure of zero and over the margin period of risk. For netting sets with a consisting only of repo-style transactions covered by a daily margin settlement and daily market fixing, used a margin risk period of a minimum of 5 working days, while for all other netting sets with a to be applied a margin risk period of a minimum of 10 working days.

(c)) If the model's estimation of EE reflects the importance of margin, the model's EE-value provided by the Danish financial supervisory authority authorisation is applied directly in the equation in point 47.



Minimum requirements for EPE models




55) company's EPE model shall meet the operational requirements of paragraph 56-80.



Control of counterparty risk




56) the company shall have a control unit with responsibility for the design and implementation of management system for counterparty risk, including the initial and ongoing validation of the internal model. This device must verify that the input data is reassuring, and prepare and analyze reports on the results of the company's risk measurement model, including evaluating the relationship between the measure of risk exposures and limits for exposures to credit and market risk area. The device must be independent of the units in charge of the establishment and renewal of exposures, as well as trading activity, and must not be exposed to undue influence. It must have the necessary staff and report directly to the company's top management. The unit's work should be integrated closely with the company's daily credit risk management. The results must consequently form an integral part of the procedure for planning, monitoring and management of enterprise's credit risk profile and overall risk profile.

57) the company must possess management policies, procedures and systems for counterparty risk, there are sound and implemented with integrity. A sound management tool for counterparty risk should include identification, measurement, management, approval and internal reporting of counterparty risk.

58) the company shall in its risk management policies take account of market and liquidity risks and to legal and operational risks, which can be related to counterparty risk. The company shall have no business with a counterparty without assessing its creditworthiness and must take appropriate account of the credit risk that occurs in connection with the conduct and prior to this. These risks should to the extent practicable, are handled for the entire company and on counterparty level, since exposures with counterparty risk are aggregated with other credit exposures.

59) the company's Board and management to participate actively in the monitoring procedure regarding counterparty risk and consider this as a major aspect of the company's activities, as it is necessary to devote significant resources to. The Executive Board must be aware of the limitations and assumptions associated with the model used, and on the impact these may have on the reliability of results. The Executive Board shall also take account of the uncertainties that characterise the market conditions and the operating environment, and know how these are reflected in the model.

60) The daily reports on the company's exposure to counterparty risk will be examined at a high enough level of management with the power to carry out both reductions of positions, as individual credit responsible or dealers have made and reductions of the company's total exposures by counterparty risk.

61) enterprise system for managing counterparty risk must be used in combination with internal credit and trading limits. Credit and trading limits must in this regard relate to the company's risk measurement model in a way that is consistent over time, and as is well known by credit officer, handlers and the Management Board.

62) the company shall, in connection with its inventory of counterparty risk measurement application of credit lines from day to day and within the same day. An entity shall measure current exposure both before and after security. On portfolio and counterparty level, the company must calculate and monitor the maximum exposure or potential future exposure (PFE) with the confidence interval, the company has chosen. The company must take into consideration major or concentrated positions, inter alia. in relation to groups of related counterparties, industries and markets.

63) the company must have a systematic and thorough application of stress tests, which supports the analysis of counterparty risk, and based on the daily returns of the company's risk measurement model. The results of these stress tests must be reviewed regularly by the Executive Board and must be reflected in the policies and credit limits for counterparty risk, as the Board of Directors and the Management Board shall determine. If the stress tests reveal a special vulnerability to specific circumstances, it should immediately be taken to ensure that these risks are handled in an appropriate manner.


64) the company must have business processes that ensure compliance with the documented internal policies, controls and procedures relating to the management of counterparty risk. The company's system for managing counterparty risk should be well documented, and there must be evidence of the empirical techniques used for measurement of counterparty risk.

65) the company shall regularly carry out an independent review of the system for managing counterparty risk using their own internal audit procedure. This review must include both the activities of the business divisions, which is mentioned in paragraph 56, and the independent counterparty risk-control unit activities. To be regularly carried out a review of the overall procedure for management of counterparty risk, which, as a minimum, be seen on:

(a)) whether or not documentation of counterparty risk-management system and counterparty risk the procedure is adequate.

b) counterparty risk-control unit's organization.

(c) integration of counterparty risk)-measurements in the day-to-day risk management.

(d)) the procedure for the approval of the risk-pricing models and valuation systems that are used by the staff of front-and back-office.

e) validation of any significant changes in counterparty risk-measurement procedure.

f) extent of counterparty risks are taken into account in the risk-measurement model.

g) Management information system integrity.

h) counterparty risk – the data's accuracy and completeness.

in) Control of the data sources used in connection with internal models are consistent, current, and reliable, including whether such data sources are independent.

j) the accuracy and relevance of the assumptions which form the basis of volatilities and correlations.

k) the accuracy of valuation and risk transformation.

l) Control of the model's accuracy by frequent backtests.



Application test




66) The distribution of exposures, which is calculated using the internal model used for calculating the effective EPE shall be closely integrated with the company's daily management procedure for counterparty risk. The results of the internal model shall consequently play a significant role in credit allocation, management of counterparty risk, the internal capital allocation and corporate requirements for good corporate governance.

67) the company must have experience with the use of internal models that displays the distribution of exposures by counterparty risk. Thus, the company must demonstrate that it has applied an internal model for the calculation of the distribution of exposures, as the calculation of EPE is based on, and which, on the whole, for at least one year prior to the FSA approval have met the minimum requirements set out in paragraphs 55-82.

68) The internal model used to calculate a distribution of exposures by counterparty risk, must be included in a structure for managing counterparty risk, which must include the identification, measurement, management, approval and internal reporting of counterparty risk. This structure should include measurement of use of credit lines (where exposures with counterparty risk are aggregated with other credit exposures) and internal capital allocation. In addition to EPE, the company must measure and manage its current exposures. The undertaking shall, where it is considered necessary, measuring the current exposure both before and after security. Usage test is met if the company measures the counterparty risk in other ways, URf.eks. in terms of the maximum exposure or PFE, see. paragraph 62, based on the distribution of exposures, which is calculated with the same model, which is used for calculation of EPE.

69) the company must be able to estimate EE daily, unless it proves to the satisfaction of the Danish financial supervisory authority that counterparty risk justifies a less frequent calculation. The company must calculate EE with forecast horizons, there on wide show reflects time structure for future payment flows and duration of contracts, and in a manner that is consistent with the materiality and composition.

70) Exposures should be measured, monitored and controlled throughout the period during which the individual contracts in nettinggruppen covers (and not only the first year). The company should have procedures that make it possible to identify and control counterparty risks, where the exposure is found to have a maturity of more than one year. Estimated increases in exposure to be incorporated in the company's internal capital model.



Stress tests




71) the company should have worked out procedures for stress tests for use in the assessment of capital requirements in relation to counterparty risk. The results from the stress tests must be read in conjunction with EPE-value, and the company must regard them as part of the internal procedures described in annex 1. Stress tests should also identify possible events or future changes in economic conditions that could affect the company's exposures in the negative direction, and assess the company's ability to withstand such changes.

72) the company must conduct stress tests of exposures with counterparty risk, including make a comprehensive stress test of market and credit risk factors. Stress tests of counterparty risks shall include concentration risk (relating to a single counterparty or groups of counterparties), correlation risks for market and credit risks, and the risk of a liquidation of the counterparty's positions can move the market. To be in these stress tests also take into account such market movements influence on the company's own positions, and this influence must be included in the company's assessment of counterparty risk.



Correlation risk ("Wrong-way" risk)




73) company to take sufficient account of the exposures that give rise to a substantial general correlation risk, IE. exposures where counterparts from probability of default (PD) is positively correlated with General market risk factors.

74) the company must establish procedures that make it possible to identify, monitor and control situations where specific correlation risk – beginning at the conclusion of the transaction and continuing throughout its duration. Specific correlation risk occurs when an exposure against a specific counterparty is positively correlated with the other person's probability of default (PD) due to the characteristics of the transactions concluded with the counterparty. A company is considered to be exposed in the face of specific correlation risk, if the expected exposure against a specific counterparty is expected to be high when the counterparty's PD also is high.



The modeling process integrity




75) the internal model shall reflect the conditions and specifications, transactions are subject, on a current, comprehensive and careful way. These terms shall, inter alia: include the nominal amount of the contract, maturity, reference assets, margin arrangements and netting agreements. Terms and specifications must be stored in a data base, to be covered by formal and regular audit. The procedure for the approval of netting agreements implies that legal staff reviewing the agreement in order to verify that it can be enforced. Nettingaftalen by an independent entity must be defined in the database. The transfer of data relating to the transaction terms and specifications for the internal model shall also be subject to internal audit. There must be formal reconciliation between the internal model and source data systems in order to continuously verify that transaction terms and transaction specifications reflected on correctly or at least careful show in EPE.

76) the internal model shall use current market data to compute current exposures. When using historical data for the estimation of volatility and correlation, which involved historical data for a period of at least three years, and they need to be updated every three months or more frequently if market conditions make it necessary. The data shall cover a broad spectrum of economic circumstances, URf.eks. a whole cycle. An entity with no affiliation to the Trade Department to validate the price, Trade Department calculates. The data to be provided independently of the business areas, loaded into the internal model on a timely and adequate manner and stored in a database, to be subjected to formal and periodic review. The company must also possess a well-developed data integrity procedure that makes it possible to cleanse data of erroneous and/or anomalous observations. To the extent that the internal model shall be based on market data in the form of indicators, including for new products where there is no historical data for a period of three years, there must be internal guidelines in order to identify appropriate indicators, and the company must show purely empirically, that the indicator provides a careful preparation of the underlying risk under adverse market conditions. If the model incorporates the impact of collateral as a result of market changes on the value of nettinggruppen, the company must have relevant historical data to calculate a sufficiently high volatility.


77) Model must be covered by a validation procedure. Procedure shall be further defined in the company's business processes. The validation procedure should clarify which studies are required in order to ensure the model's integrity, and identify relationships, which means that the prerequisites are not met, which may result in EPE underestimated. The validation procedure should include a review of how wide EPE model is.

78) the company should monitor relevant risks and have procedures to adjust estimation of EPE when those risks assumes to some extent. This applies, among other things. the following conditions:

(a)) the company must identify and manage its exposures against specified correlation risks.

b) If eksponeringernes risk profile after a year is growing, the company must periodically compare EPE-estimate for a year with EPE-estimate for the entire lifetime of exposure.

c) For exposures with remaining maturity less than one year, the company must regularly compare the replacement cost (the current exposure) with the realised exposure profile and/or store data, which makes it possible to make such a comparison.

79) the company shall, before the transactions included in a netting set, have business times check that the operation in question is the subject of a legally valid nettingaftale that meets the applicable requirements set out in annex IX. item 83-92.

80) a company that makes use of collateral in order to limit counterparty risk, must have business processes for controls of that collateral meets the legal safety standards listed in annex 7, before taking into account the collateral effects in its calculations.



Validation requirements for EPE models




81) company's EPE model shall meet the following validation requirements:

(a)) must satisfy the qualitative validation requirements set out in annex 15, paragraph 4 and 5.

(b)) company shall prepare long-term forecasts of developments in interest rates, exchange rates, share prices, commodity prices and other market risk factors in order to calculate counterparty risk. The model's ability to predict the evolution of market risk factors shall be validated over a long time horizon.

(c)) The models used to determine the counterparty risk for a given scenario of future shock for market risk factors, to be tested as part of model validation procedure. Option pricing models must take account of the fact that the relationship between the options ' value and market risk factors has a non-linear character.

d) EPE model shall include transaction-specific information, which makes it possible to aggregate the exposures included in the nettinggruppen. The company must ensure that the transactions are assigned to the appropriate netting set within the model.

e) EPE model shall also include transaction-specific information, which makes it possible to recognise the effects of margin. It must take account both of the current margin amount and to the margin at a later date may be transferred between counterparties. To be in such a model takes into account the margin agreements (a-or bilateral), the frequency of margin accounts, margin risk period length, the maximum exposure that the company is willing to accept without margin settlement, and the minimum transfer amount by margin settlement. The model must be either model the changes in the market value of the security or follow the rules set out in annex 7.

(f)) to be as part of model validation procedure carried out a static historic backtest of representative counterparty portfolios. The company shall at regular intervals carry out such checks by following a number of representative counterparty portfolios (actual or hypothetical). These representative portfolios shall be selected according to their sensitivity to essential risk factors and correlations, which the company is exposed to.

82) If backtesten shows that the model is not sufficiently accurate, the FSA model licence back, or oblige the company appropriate measures to ensure that the model is improved promptly. The Danish financial supervisory authority may also require that the company devotes additional capital pursuant to the provisions of annex 1.



Netting

Risk-reducing nettingtyper




83) in connection with the provisions on netting, the term "counterparty" means any entity (including natural persons) that can legally enter into a netting agreement, and by "netting agreement across products" shall mean a written bilateral agreement between a company and a counterparty that creates a single legal obligation, covering all included, bilateral agreements and transactions within different product categories. Netting across products cover only netting on a bilateral basis.

84) for the purpose of netting across the following products shall be considered as different product categories:

a) repurchase transactions and transactions relating to lending and securities or commodities borrowing.

(b)) Margenlån.

(c)) The derivatives referred to in annex 17, as well as forward transactions.

85) the following types of contractual netting is risk mitigation by the inventory of the risk-weighted items:

a) Bilateral netting agreements between a company and its counterpart.

b) netting across products for companies of the Danish financial supervisory authority has been given permission to use the method set out in paragraph 39-82, in connection with transactions falling under this method. Netting across transactions carried out by companies belonging to the same group, are not recognised in connection with the calculation of risk-weighted items.



Effects of netting agreements




86) concerning the methods set out in paragraph 18-82, may be taken into account for the netting as described in these paragraphs.

87) uses the company method in paragraph 10-17, the following applies for netting agreements:

(a)) in step a) under section 10 may be the current replacement cost for the contracts included in a netting agreement may be obtained by taking account of the actual hypothetical net replacement cost which results from the agreement. Where netting leads to a net obligation for the company calculates the net replacement cost, the current replacement cost is fixed at zero.

(b)) in step b) under item 10 may the figure for potential future credit exposure for all contracts included in a netting agreement may be reduced according to the following equation:







 

 



Pcered = 0.4 * PCEgross + 0.6 * NGR * PCEgross where





 

 



Pcered = the reduced figure for potential future credit exposure for all contracts with a given counterparty included in a legally valid bilateral netting agreement





 

 



Pcegross = the sum of the figures for potential future credit exposure for all contracts with a given counterparty included in a legally valid bilateral netting agreement, and which is calculated by multiplying the notional principal amounts of the percentage specified in table 1





 

 



NGR = "Net/gross ratio" is calculated by the company which either i or ii, since the method chosen must be used consistently:





 

 



in





A separate calculation, which indicates the ratio between the net replacement cost for all contracts included in a legally valid bilateral netting agreement with a given counterparty (numerator) and the gross replacement cost for all contracts included in a legally valid bilateral netting agreement with that counterparty (denominator).





 

 



(ii)





An aggregate calculation, which indicates the ratio between the sum of the net replacement cost calculated on a bilateral basis for all counterparties taking into account shall be taken of contracts included in legally valid netting agreements (numerator) and the gross replacement cost for all contracts included in legally valid netting agreements (denominator).











Conditions for inclusion of netting agreements




88) netting agreements should only be considered as risk-reducing, if the following conditions are met:


(a)) with its counterpart company must have entered into a netting agreement, which creates a single legal obligation, covering all included transactions, such that the company in the event that a counterparty is not able to meet its obligations as a result of default, bankruptcy, liquidation or other similar circumstances, will only have the right to receive or the obligation to pay the net sum of the individual transactions positive and negative market values.

(b)) unless the Danish law shall apply to all of the above circumstances, the company must be able to provide written and reasoned legal opinions available to the Danish financial supervisory authority that the relevant courts and administrative authorities in the event of litigation would find that the company's requirements and obligations in the cases described under (a) is limited to the net sum, as described in (a) in accordance with :







 

 



in





The law of the State in which the counterparty is registered as a company, and if a foreign branch of an undertaking is involved, also under the law of the country where the branch is located,





 

 



(ii)





The law that governs the individual transactions, and





 

 



(iii)





The law that governs any contract or agreement necessary to implement the netting agreement.





 



(c))





The company should have procedures in place to ensure that the legal validity of its contractual netting is constantly maintained.





 



(d))





The company must keep the required documentation.





 



(e))





The effects of netting to be factored into the company's measurement of the individual partners for overall credit risk exposure, and the company must manage its counterparty risk on the basis thereof.





 



(f))





Credit risk associated with the individual counterparties must be added together in order to achieve an overall legal exposure across transactions. This aggregation shall be recognised in the context of credit limits and internal capital.














89) the Danish financial supervisory authority must, if necessary, after consulting the other relevant competent authorities, could satisfy itself that the agreement concerned the netting is legally valid under the law of each of the relevant countries. If one of the competent authorities are not satisfied of this fact can not be considered contractual netting as risk-reducing for either of the counterparties.

90) Reasoned legal opinions may be drawn up for each type of nettingaftale.

91) Contracts containing a clause, according to which it is allowed a non-defaulting counterparty to make limited payments only, or no payments at all to the bankrupt estate, even if the defaulter is a net creditor ("walkaway" clause) cannot be considered as risk-reducing.

92) in addition to the above, the following criteria are met in relation to netting agreements across products:

(a) the Net sum described in item) 88 (a), shall be the net sum of the positive and negative values of all involved netting individual bilateral agreements, as well as positive and negative market values of individual transactions.

(b)) the written and reasoned legal opinions referred to in paragraph 88 (b) must relate to the validity and enforceable similarity of entire agreement netting across products and nettingaftalens importance to the essential provisions of any bilateral agreement signed relating thereto. A legal opinion is generally recognised as such by the legal system or by virtue of a legal document that describes all the relevant issues in a well-grounded way.

(c)), the company shall have at its disposal procedures, see. paragraph 88 (c), which ensures that all transactions that should be covered by a nettingsystem, has undergone a review of legal staff.

(d)) when the company takes into account netting across products, it must continue to meet the conditions for the recognition of bilateral netting and the requirements in annex 7 for the recognition of risk mitigation, where appropriate, in respect of each involved individual bilateral agreement and transaction.

Annex 17

Types of derivative financial instruments

The scope of the




1) this annex contains a list of the types of derivative financial instruments covered by article 6, paragraph 1, no. 2, article 42, paragraph 1, and section 44.



Included the derivative financial instruments




2) the following types of derivative financial instruments is subject to:

a) options, futures, swaps, forward rate agreements (FRA) and any other derivative contracts, excluding forward transactions, relating to securities, currencies, interest rates or yields, or other derivatives, financial indices or financial targets.

(b)) Financial difference contracts.

c) options, futures, swaps, forward rate agreements (FRA) and any other derivative contracts relating to commodities, including contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics, taking account, inter alia,. taken into account, whether they are traded on a regulated market or an equivalent foreign securities market or a multilateral trading facility (MTF), cleared and settled through recognised clearing houses or are subject to regular margin setting.

d) All other derivative contracts relating to assets, rights, obligations, indices and targets, which are not otherwise referred to in this annex, and which has the characteristics of other derivative financial instruments, taking account, inter alia,. taken into account, whether they are traded on a regulated market or an equivalent foreign securities market or a multilateral trading facility (MTF), cleared and settled through recognised clearing houses or are subject to regular margin setting.

Annex 18

Basic indicator and default indicator methods for operational risk

General




1) risk-weighted items for operational risk is calculated according to the methods specified in this annex, without prejudice to article. § 53.

2) Below are listed a number of examples of operational risks. The examples are not exhaustive.









Category of event type





Definition





Examples (not exhaustive)







Internal fraud





Losses caused by acts with the intent to commit fraud, unjust acquisition funds or circumvent rules, regulations or company policy with the exception of events concerning discrimination involving at least one internal party.





The intentional misreporting of positions.

Employee theft.

Insider trading.

Fraud.







External fraud





Losses caused by acts with the intent to commit fraud, unjust acquisition funds or circumvent the law, committed by third parties.





Robbery.

Document forgery.

Check forgery.

Damage from computer hacking.







Employment conditions and safety at work





Loss arising from actions contrary to the labour market, health and safety legislation, payment of damages arising from personal injury or events relating to discrimination.





Work-related injuries.

Breach of safety regulations.

Discrimination.

Liability.

Under Manning.







Customers, products and business practices






Losses arising as a result of unintended actions or negligence, resulting in non-compliance with a professional commitment to specific clients (including fiduciary and suitability requirements) or as a result of the nature or design.





Breach of confidentiality.

Abuse of confidential customer information.

Conflicts of interest with clients.

Improper trading activities for the Institute's expense/speculation.

Money laundering.

Terrorist financing.

Lending without requisite permits and/or lack of certainties.

Missing or incorrect security documents.

Error in agreements.

Other legal risks.







Damage to physical assets





Loss resulting from loss of or damage to physical assets as a result of natural disasters or other events.





Terrorism.

Vandalism.

Natural disasters.







Business crashes and system errors





Loss resulting from business disruption or system error.





Hardware and software failures.

Telecommunications problems.

Power failure.







Order processing, delivery and process management





Losses as a result of deficient management or transaction process management relating to transactions with trading partners and resellers.





Intervention in internal audit work.

Erroneous reporting to the Executive Board.

Bad or missing documentation.

Errors in the entries.

Wrong posting.

Lack of functional separation.

Lack of business processes.

Lack of control.

Access to customer accounts without authorization.

Disputes with suppliers.











Basic indicator method




3) risk-weighted items for operational risk shall in accordance with the basic indicator method is calculated as:







 



15 per cent of the base indicator



 



 



the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business



 












4) Base indicator is defined as a three-year average of the sum of net interest income and net non-interest related income. Net interest income and net non-interest related income is calculated as the sum of the following items:







 



Accounting records:





 



+ Interest income





 



-Interest expenses





 



+ Dividends of shares, etc.





 



+ Fees and Commission income





 



-The extent to which fees and commissions payable





 



+/-Exchange adjustments





 



+ Other operating income














5) Basic indicator should be calculated before deducting operating expenses and depreciation/provisions. Operating expenses include costs paid for outsourcing done by third party that is not a parent undertaking or subsidiary of the company or a subsidiary undertaking of the parent undertaking, which is also the parent company of the company. Costs from outsourcing, carried out by another credit institution, investment firm or management company, which is subject to supervision in a country within the European Union or in a country with which the community has entered into an agreement on the financial area, can be deducted from the basic indicator. The Danish financial supervisory authority may permit costs from outsourcing done by another credit institution, investment firm or management company from countries outside the European Union, which the community has not concluded an agreement with in the financial field, can be deducted from the basic indicator, if countries follow the rules which correspond to the rules set out in the notice.

6) the following entries shall not be included in the calculation of the base indicator:

(a)) realized gain/loss on sale of non-trading book entries.

b) Disposable income and other extraordinary income.

c) income from insurance activities. Revenue from insurance mediation must not be deducted, as these are regarded as normal business activities of the company.

7) enterprises that are not subject to the applicable notice of financial reports for credit institutions shall calculate the base indicator based on the data that best reflects the definition of the basic indicator, see. section 4.

8) the three-year average is calculated on the basis of figures from the past three years of annual reports. URF.eks. will the calculation of base indicator throughout 2007 consist of figures from the annual accounts 2004-2006. In the absence of audited figures are the company's own estimates are used.

9) is the sum of net interest income and net non-interest related income for a given year is negative or equal to zero, this number will not be included in the calculation of the three-year average. The basic indicator is calculated as the sum of positive numbers, divided by the number of years with positive numbers. This means that start-up companies in the first three years only counting the years, where the company has been in operation.



The default indicator method




10) risk-weighted items for operational risk to be after the default indicator method is calculated as the sum of the risk-weighted items was calculated for each of the business areas in paragraph 13.







 



Risk-weighted items can then be decomposed as follows:





 

 



18 per cent of the basic indicator for corporate finance business area

the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



18 per cent of the basic indicator for the trading and sales business area

the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



12 per cent of the basic indicator for the business area brokerage business on the retail market

the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



15 per cent of the basic indicator for the business area commercial bank

the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



12 per cent of the basic indicator for retail banking business area

the solvency requirement (8pct.), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



18 per cent of the basic indicator for the business area payment and settlement

the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



15 per cent of the basic indicator for the business area services


the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 



+



 



 

 



12 per cent of the basic indicator for the business area asset management

the solvency requirement (8 percent), see. section 124, (2). 1 of the law on financial business





 

 

 



 



=





Risk-weighted items for operational risk














11) using the default indicator method calculates a basic indicator for each business area For each business area is the basic indicator is a three-year average of the sum of net interest income and net non-interest related income, see. item 4-8.

12) this year where risk-weighted items intended for a single business area is negative due to a negative calculated basic indicator of the business area, can the negative calculated risk-weighted items for each business line are included in the calculation of risk-weighted items for operational risk. If the sum of the risk-weighted items for all business areas in a given year is negative, the value for that year to zero.

13) company's activities to be distributed in these business areas:









Business area





Activities







Corporate finance





Participation in the issuance of securities and the services associated therewith.

Advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to the Association and the purchase of undertakings.

Analytical work as well as other forms of general recommendations relating to transactions in financial instruments.







Trade and sales





Monetary intermediation.

Business on their own account.

Outlets for customers ' expense.

Storage and management of own mortgage bonds and other securities.







Brokerage business on the retail market regulation. definition in annex 3, paragraph 14 and annex 8, paragraph 11





Outlets for customers ' expense.







Commercial bank

(Transactions with customers as the opposite of retail banking are not covered by the definition set out in annex 3, paragraph 14, and annex 8, paragraph 11)





The receipt of deposits and other repayable funds.

Lending business.

Collateral and guarantees.

Credit information.







Retail bank

(Transactions with customers that are covered by the definition set out in annex 3, paragraph 14, and annex 8, paragraph 10)





The receipt of deposits and other repayable funds.

Lending business.

Collateral and guarantees.

Credit information.

Granting of loans against mortgages registered on the basis of the issue of mortgage bonds or other securities.







Payment and settlement





Payment processing.

Issuing and administering means of payment.

The issuance of electronic money.

Other activities in connection with the circulation of money and credit funds.







Services





Safekeeping and administration in relation to one or more of the financial business Act Annex 5 referred to instruments as well as mortgages.

Box rental.







Capital management





Portfolio management and advice.

Administration of mutual funds.

Administration of special funds.

Administration of fåmandsforeninger.

Administration of hedge funds.














14) companies can apply standard indicator method to the calculation of risk-weighted items for operational risk, if the following criteria are met:

(a)) the company has guidelines and procedures for the assessment and management of operational risk. Responsibility for the management of operational risk must be clearly defined.

(b)) the company has a well-documented system for the identification and assessment of the Department's exposure against operational risks, which can track the relevant data related to operational risk, including information on significant losses. The system shall be periodically reviewed by an independent control function, which does not have any related responsibility.

c) System for the identification and assessment of operational risks are to be included as an integral part of the company's overall risk management. The system output must be included as an integral part of the monitoring and management of the company's operational risk profile.

(d)) the company has business processes for reporting to the Executive Board, which ensures that the Executive Board regularly informed of developments in the company's operational risks. The company also has business processes, ensuring an appropriate intervention on the basis of the information contained in the reports to the Executive Board.

15) the fulfilment of the above criteria must be reasonable in relation to the company's size, complexity and level of activity.

16) enterprises, which employ standard indicator method, you must have procedures for the classification of the company's activities in the different business areas. The criteria must be reviewed and adjusted when required in connection with new or changed business activities and risks. The criteria for the classification of the company's activities in the different business areas shall comply with the following principles:

(a) All activities must be classified under business) areas so that they do not overlap, and cover the entire area.

b) All activities that are not immediately can be placed directly under a business area, but which constitute a support function for the activity within the business area, must be placed under the business area, where they act as support function. Concerns support function more than a business area, to support the function to be allocated to the respective business areas.

c) Can an activity not classified in a particular business area, business area with the highest percentage is used. The same is true for any support functions.

(d)), the company may use internal pricing methods to allocate the default indicator between business areas. Costs generated in one business area, and which is to be built under a different business area, can be reallocated to the business area to which they relate, URf.eks. by using a cost allocation under the internal settlement principles.

e) Classification of activities in the various business areas under standard indicator method must be in accordance with the company's breakdown of activities by statement of credit and market risks.

f) Executive Board has overall responsibility for the classification of assets in the different business areas.

(g) criteria for classification of activities) during the various business areas to be reviewed by an independent control function that does not have related responsibilities.

17) enterprises, which want to use the default indicator method, before the transition to the standard method to inform the FSA on this indicator. The company shall at the same time, in the face of the Danish financial supervisory authority in writing declare that the company is in compliance with the criteria in paragraph 14 and 16.

Annex 19

The advanced measurement approach for operational risk (AMA-models)

The scope of the




1) this annex provides for the calculation of risk-weighted items for operational risk using the advanced measurement approach (AMA-models), see. § 57.

2) Annex 24 contains a description of the requirements for an application to use the advanced measurement approach for operational risk.



Qualitative requirements





3) the company's internal measurement system for operational risk must be closely integrated with its day-to-day risk management.

4) the company shall have an independent risk management function for the operational risk.

5) there should be a regular reporting on experiences with exposures and losses in connection with operational risk. The company must have business processes for appropriate measures to follow up on these experiences.

6) the company's risk management system shall be well documented. The company shall have routines to ensure compliance and policies concerning handling of non-compliance.

7) management procedures and measurement systems for operational risk shall be subject to regular review, carried out by internal and/or external audit.

8) the company shall ensure that the internal validation procedures is functioning satisfactorily and that data flows and processes concerning risk measurement system is clear and accessible.



Quantitative requirements

Procedures




9) using the advanced measurement approach for operational risk-weighted items is calculated risk to 12.5 times the company's targets for operational risk. The goal for operational risk shall include both expected and unexpected losses, unless the company can demonstrate that the expected loss amounts intercepted in its business practices in a satisfactory manner. the objective of operational risk shall take account of the events in the tail with potentially serious consequences for the purpose of obtaining a security standard that is comparable to a 99.9% confidence interval over a one-year period.

10) company's measurement system for operational risk shall include certain key elements in order to meet the safety standards referred to in section 9. These elements should, as described in paragraph 14-25, include the use of internal data, external data, scenario analysis and factors that reflect business practices and internal control systems. The company must have a well documented method of weighting of these four elements in its overall system for the measurement of operational risk.

11) risk-measurement system must detect the main driving forces behind the risk that affects the shape of the tail of the distribution of loss estimates.

12) Correlations between losses from operational risk across individual operational risk estimates can only be taken into account if the company over for the Danish financial supervisory authority can demonstrate that its systems for measuring correlations are functioning, implemented with integrity and takes into account the uncertainty associated with any such correlation estimates, particularly in stress situations. The company must validate its correlation assumptions using appropriate quantitative and qualitative techniques.

13) risk-measurement system must be consistent, and it must be ensured that qualitative assessments or risk mitigation techniques listed in the other parts of the Ordinance and its annex, not be counted several times.



Internal data




14) internally developed targets for operational risk must be based on a historical observation period of at least 5 years. When a company first time goes over to use the advanced measurement approach, a three-year historical observation period can be accepted.

15) the company must be able to divide its internal loss data on the event types and on the areas of business, as shown by the tables in clause 2 and 13 of annex 18 on basic indicators and standard indicator methods for operational risk. These divisions must be presented at the request of the Danish financial supervisory authority. There shall be documented, objective criteria for the allocation of loss in the specified event types and business areas. Loss on operational risk, which is linked to the credit risk, and have historically been included in the internal credit risk databases must be registered in the databases of operational risk and shall be identified separately. Such losses will not be included when calculating the risk-weighted items for operational risk, as long as they continue to be treated as credit risks related to the calculation of risk-weighted items. Loss on operational risk that is inherent in the market risks to be included in the risk-weighted items for operational risk.

16) the company's internal data regarding loss must be comprehensive, because all material activities and exposures from all appropriate sub-systems and geographic locations to be registered. The company must be able to demonstrate that any excluded activities or exposures, both individually and collectively, would not have any significant impact on the overall risk estimates. It is necessary to establish appropriate limits for losses that are so small that they are not to be registered.

17) in addition to information about the size of the loss, the company must collect information about the date of the event, any full or partial recovery of loss as well as description of the driving forces behind or causes of loss.

18) there must be specific criteria for allocation of loss arising from an incident in a centralized function within the company or is related to an activity that spans more than one line of business. Furthermore, should there be specific criteria for allocation of loss arising from incidents that take place over a period of time.

19) the company must have business processes for assessment of the continuing relevance of historical losses. Including business corridors must include situations where one can make discretionary deviations or apply scaling or other adjustments. Business corridors must also include the extent to which the said adjustments can be used, and who has the authority to take decisions on this matter.



External data




20) company's measurement system for operational risk shall use relevant external data, particularly when there is a good reason to believe that the company is exposed to the rare, but potentially serious loss. The company must have business processes for the identification of situations where there will be used for external data, and to determine which methods should be used to involve the contents of the measurement system. Conditions and practices relating to the use of external data must be reviewed regularly, be documented and be subject to periodic, independent review.



Scenario analysis




21) the company must use the scenario analysis in the form of expert assessments combined with external data to evaluate its exposure facing very serious incidents. Over time such assessments must be validated and re-assessed through comparison with the actual losses in order to ensure that they are reasonable.



Business practices and internal control factors




22) risk assessment method that applies to the entire enterprise, must take account of essential factors relating to both business practices and internal control, which can change your company's profile with regard to operational risk.

23) the choice of the individual factors must be justified by the fact that they are significant drivers of risk based on experience and with the involvement of expert assessments of the affected business areas.

24) estimaternes sensitivity to changes in Risk factors and the relative weighting of the various factors need to be well founded. In addition to take account of changes in the risk due to improvements in risk controls should the system take into account the potential increases in the level of risk as a result of the increased complexity of the activities or increased business volume.

25) This system should be documented and be subject to independent review internally within the company. Over time the process and results must be validated and re-assessed through comparison with the actual internal loss experience and relevant external data.



The importance of insurance and other risk transfers




26) the company may take into account the importance of insurance in accordance with the provisions of paragraphs 27-30 and other forms of risk transfer, if the opposite the Danish financial supervisory authority can demonstrate that achieved a noticeable risk suppressant effect.

27) provider must be insurance undertaking or reinsurance undertaking has an assessment of its ability to make the compensation payment drawn up by an approved credit-rating agency, and where the evaluation is equivalent to credit quality step 3 or above under the rules set out in annex 3 for the risk weighting of exposures against institutions in accordance with the standardised approach for credit risk.

28) the insurance and the company's handling thereof shall satisfy the following conditions:

(a)) the insurance policy must have an original maturity of at least one year. For policies with a residual term of less than one year, the company must make appropriate reductions, which reflect the policy decreasing residual maturity, up to a reduction of 100% for policies with a residual term of 90 days or less.

(b) the period of notice for) the insurance policy must be at least 90 days.


c) Supervisory measures must not lead to exceptions or limitations on insurance coverage. The insurance policy must not contain exceptions or limitations with respect to compensation for damage or costs on the grounds that the company be taken during insolvency proceedings, including opened negotiations on an arrangement that the company goes into liquidation or is declared bankrupt, unless the insurance event occurred after the time of the opening of insolvency proceedings. The insurance policy may, however, exclude or restrict coverage of loss in the form of fines, penalties or the like that is in the nature of punitive measures.

d) risk mitigation calculations must reflect the insurance coverage in a way that is clear as regards the relationship with and is consistent with the actual probability of losses and the impact of such losses, which are used in the determination of the total risk-weighted items for operational risk.

e) Insurance shall be delivered by a third party. When there is talk about insurance through captives and affiliates, the exposure is transferred to an independent third party, URf.eks. through reinsurance, which meeting the criteria set out in paragraphs 26, 27 and 28, (a) to (d) and (f).

f) Framework for consideration of periods of insurance shall be justified and documented.

29) after taking into account insurance, there must be reductions on the included insurance amount, if one or more of the following items occurs:

a) insurance policy residual maturity, when this is less than one year as specified in paragraph 28 (a).

(b) the conditions for Cancellation policy), when the period of notice is less than one year.

c) Payment uncertainty and constraints with regard to insurance policers coverage.

30) Reduction in risk-weighted items as a result of taking into account of insurance shall not exceed 20 per cent of risk-weighted items for operational risk, before taking account of risk mitigation techniques.



Application for use of the advanced measurement approach for the whole group




31) When the advanced measurement method is desired used by capital adequacy and loss of a parent undertaking which is a credit institution, mortgage lender, stockbroking firm, investment management company or financial holding company, and its subsidiaries, the application to that effect to the Danish financial supervisory authority contain a description of the method used for the allocation of the risk-weighted items for operational risk between the Group's different companies.

32) in the application in accordance with paragraph 31 it must be specified whether and how it is envisaged that the impact of diversification should be included in the risk-measurement system.



Use of the advanced measurement approach in combination with other methods




33) the company can make use of the advanced measurement approach in combination with either the base indicator method or standard indicator method, subject to the following conditions:

(a)) all of the company's operational risks are to be included. The Danish financial supervisory authority must approve the method used to cover the different group companies, activities, geographical locations or other relevant divisions determined internally.

(b) the conditions set out in annex 18) and item 3-32 in this annex must be met for the part of the activities covered by the basic indicator method, respectively the standard indicator method and the advanced measurement approach.

34) FSA authorisation for use of the advanced measurement approach assumes that the following conditions are complied with, unless deviations from here is done with a good reason:

(a)) at the time when the company takes the AMA models in use by capital adequacy statement, a significant part of the operational risk is calculated using these models.

(b)) the Company undertakes to use AMA-models for a substantial part of his remaining operational risk in accordance with a timetable, which must be approved by the FSA.

Annex 20

The company's disclosure obligations

Relating to General requirements

The objectives and risk policies




1) the company shall publish the objectives and policies of risk management at the individual risk categories, including the risks discussed below in paragraph 2-23.







 



The publication shall include:





 



(a))





strategies and procedures for managing those risks,





 



(b))





the structure and organisation of the relevant risk management function or other relevant features,





 



(c))





the extent and nature of the systems for risk reporting and measurement,





 



(d))





policies for hedging and reduction as well as strategies and procedures for monitoring the hedging and reduction mechanisms effectiveness.











The scope of the




2) the company shall provide the following information:

(a) the name of the company).

b) differences in consolidation basis between accounting purposes and consolidation in accordance with Chapter 12 of the financial business act with a concise description of the records that are:







 

 



1)





fully consolidated.





 

 



2)





Pro-rata consolidated.





 

 



3)





deducted from the capital base.





 

 



4)





Neither consolidated nor deducted.





 



(c))





All current or foreseeable practical or legal obstacles to a rapid transfer of capital resources or repayment of debts between the parent undertaking and its subsidiary undertakings.











Capital base




3 the company should disclose the following related to) their capital base:

a) an overview of the main characteristics of all entries in basic capital and the underlying components.

(b)) the size of the core capital with separate information about all allowances and deductions.

(c)) the size of the additional capital with separate information about all allowances and deductions.

d) deductions in the core capital and supplementary capital in accordance with §§ 131 and 139 in the financial business Act. A specification corresponding to schema CS02, postal 2, schedule, post 6, as well as schema CS02 CS03, item 11 shall be deemed to meet this requirement.

(e)) the size of the capital base after deductions.



Solvency requirements and adequate capital base




4 the company shall disclose the following about) fulfillment of solvency requirements and adequate capital base:

a) an overview of the company's method for assessing whether its capital base is adequate to support current and future activities, within the meaning of. section 124 (1) and section 125 (1) of the financial business Act.

(b)) For businesses that use the standardised approach to credit risk for calculating the risk-weighted items, see. § 9, indicated 8 per cent of risk-weighted exposures for each of the categories specified in section 9.

(c)) For companies using the internal ratings based approach to credit risk for calculating the risk-weighted items, see. § 19, indicated 8 per cent of risk-weighted exposures for each of the exposure categories specified in annex 8, point 3. In the case of retail exposures will find this requirement apply to all subcategories of exposures (qualified revolving retail real estate exposures, exposures and other retail exposures), contained in annex 8, paragraphs 16-18. With regard to equity exposures will find this requirement apply to:







 

 



1)





the simplified risk weighting method, LGD method as well as the internal models approach, see. Annex VII, part 1, points 17 to 26 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).





 

 



2)






positions in listed equities, private equity exposures in sufficiently diversified portfolios and other exposures.





 

 



3)





exposures covered by a transitional arrangement in respect of the supervision of capital requirements.





 

 



4)





exposures covered by General provisions on capital requirements.





 



(d))





8 per cent of risk-weighted items with market risk.





 



(e))





Solvency requirements for operational risk calculated in accordance with the basic indicator approach, the standard indicator method or the advanced measurement approach.











Individual solvency needs and individual solvency requirements for establishments covered by article 1, paragraph 1, no. 1 and 2




5) establishments covered by article 1, paragraph 1, no. 1 and 2, shall deepen the test specified in paragraph 4, point (a), with the following conditions: methods referred to

(a)) A description of the company's internal process for the inventory of the sufficient capital base and solvency requirements.

(b)) A description of the company's method of estimating the sufficient capital base as well as the assumptions the company puts the basis for application of the model. The description should also include methods and the major inputs for the company's use of stress tests by the statement by the insufficient capital base.

6) establishments covered by article 1, paragraph 1, no. 1 and 2, shall inform the sufficient capital base, see. section 124 (1) of the financial business Act, and solvency requirements, see. section 124, paragraph 4, of the financial business Act, as well as specify the measurements thereof on at least the following categories:

(a)) Credit risks.

b) market risks.

c) operational risk.

d) Other conditions included in the inventory of the sufficient capital base and solvency requirements.

e) Any charge that is due to the fact that the sufficient capital base, see. section 124 (1) of the financial business Act, and solvency requirements, see. section 124, paragraph 4, of the law on financial business, follow statutory requirements, see. Nr. 8.

7) in item 6 (a) to (e) shall be separate and adequate specifications referred to be commented on by the company, so it is clear what are the risks and other factors that are included in the different categories.

8) establishments covered by article 1, paragraph 1, no. 1 and 2, shall indicate where the sufficient capital base and solvency need is determined by statutory requirements, including the following:

(a) the solvency requirement, see). section 124, (2). 1 of the law on financial business.

(b)) one of the FSA set out individual solvency requirements, see. section 124, paragraph 5, of the financial business Act.

c) A solvency requirement provided by the FSA as a result of mandatory measures pursuant to section 350, paragraph 1 of the law on financial business.

d) minimum capital requirement, see. section 124, (2). (2) and (3) of the financial business Act.

9) establishments covered by article 1, paragraph 1, no. 1 and 2, shall also provide information on:

(a)) the company's capital base after deductions and capital adequacy ratio.

(b)) the amount of any capital requirements in accordance with the transitional rules for IRB institutions.

10) establishments covered by article 1, paragraph 1, no. 1 and 2, in connection with the statement by the insufficient capital base as well as the solvency requirement to provide information on the outcome of the company's internal process before any supplement resulting from statutory requirements. In such cases, the entity shall apply the terms "internally calculated solvency needs" respectively "internally compiled sufficient capital base" for this result. The company has a goal of maintaining a capital base over a certain level, the company may disclose this objective in connection with the statement by the insufficient capital base and solvency requirements, and the company shall in such a case, use the terms "target," "goal" or "target" in connection with this target figures.



Counterparty risk




11) the company must disclose the following about exposure with regard to counterparty risk:

a) explanation of the method, which has formed the basis for the establishment of an adequate capital base and credit limits in relation to counterparty credit exposures.

b) explanation of the policies that will ensure the provision of security and create credit reserves.

c) explanation of the policies that apply to "wrong-way"-risk exposures, see. Annex 16.

d) explanation of the effect of the guarantee, the company must provide, if a rating scale.

(e)) The positive gross fair value of contracts, nettingfortjenester, the net current credit exposure and collateral. A net credit exposure is a credit exposure relating to transactions in derivatives including the profit derived from netting agreements that are legally enforceable and collateral agreements.

f) Measurements of exposure value under the current relevant method set out in annex III, part 3-6 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).

(g)) the nominal value of hedging by means of credit derivatives and the current credit exposure, spread across various types of credit exposures.

h) transactions in credit derivatives (nominal value) broken down by use of the company's own credit portfolio and in its intermediary activities, including distribution of the used credit derivative products, further distributed on bought and sold protection within the individual product groups.

I) estimation of α, if the company has been authorised by the FSA or another competent authority to estimate α.



Credit risk and dilution risk




12) the company must disclose the following about credit risk and dilution risk:

(a)) The accounting definitions of non-performing debts and impaired claims, as well as a description of the methods used for determining value adjustments and write-downs. Companies that follow the notice of financial reports for credit institutions and stockbroking companies and others., can refer to §§ 51-54.

(b)), the total value of the exposures by value adjustments and write-downs and before taking into account the effects of credit risk mitigation.

(c)) Eksponeringernes average value during the period, divided by the different types of exposure categories. These categories are listed in section 9 for companies that use the default method for the estimation of credit risk, and annex 8, paragraph 3, of the companies that uses the internal ratings based method for the estimation of credit risk.

(d)) The geographic distribution of the exposures, broken down in significant areas for major exposure categories. The breakdown of types of exposure categories listed in section 9 for companies that use the default method for the estimation of credit risk, and annex 8, paragraph 3, of the companies that uses the internal ratings based method for the estimation of credit risk. Companies that have 95 percent or more of their exposures in Denmark, may refrain from performing this distribution.

e) an industry-or modpartsmæssig distribution of the exposures, broken down by exposure categories, which are listed in section 9 for companies that use the default method for the estimation of credit risk, and annex 8, paragraph 3, of the companies that uses the internal ratings based method for the estimation of credit risk. The Division specified in § 93 of the ordonnance on financial reports for credit institutions and stockbroking companies and others. can be used.

f) A distribution of eksponeringernes residual maturity, broken down by exposure categories listed in section 9 for companies that use the default method for the estimation of credit risk, and annex 8, paragraph 3, of the companies that uses the internal ratings based method for the estimation of credit risk. Restløbetids intervals specified in § 91 of the ordonnance on financial reports for credit institutions and stockbroking companies and others. can be used.

g) For each significant industry or counterparty type indicate the total value of:







 

 



1)





non-performing and impaired claims, listed separately,





 

 



2)





value adjustments and write-downs, and





 

 



3)





the charged amounts relating to value adjustments and write-downs during the period.





 

 




Industry classification specified in § 93 of the ordonnance on financial reports for credit institutions and stockbroking companies and others. can be used here.





 



(h))





The total value of non-performing debts and impaired claims, broken down by major geographical areas, including the value of value adjustments and write-downs for individual geographic areas. Companies who have 95 percent or more of their exposures in Denmark may choose not to make this Division.





 



in)





Movements on impaired claims due to value adjustments and write-downs.





 

 



The information must include:





 

 



1)





a description of the type of value adjustments and write-downs.





 

 



2)





the total depreciation/provisions primo.





 

 



3)





the total depreciation/provisions during the period.





 

 



4)





the total reversals of impairment losses/provisions made in previous periods.





 

 



5)





the total final losses (depreciated) of write-downs/provisions made in previous periods.





 

 



6)





the total currency adjustments on depreciation/provisions.





 

 



7)





the total of the other movements, including the revaluation of the acquired assets.





 

 



8)





the total impairment losses/provision at the end.





 

 



9)





the total loss (written off), which have not previously been individually recorded/retained.





 

 



10)





the agreement values on earlier written-off receivables.





 

 



A specification similar to AS18 considered to meet these requirements.














13) companies using the default method for the estimation of credit risk, see. section 9, shall indicate each of the standardized exposure categories specified in section 9.







 



Companies using external credit assessment institutions for the calculation of risk-weighted exposures, must disclose the following information for each exposure category specified in section 9:





 



(a))





The names of the designated rating agencies and export credit agencies as well as the reasons for any changes.





 



(b))





Exposure categories, as each of the rating agencies or export credit agencies are used for.





 



(c))





A description of the procedure for the transfer of credit ratings and the assignment of credit ratings for records outside the trading book.





 



(d))





The coherence between the external credit assessment for each of the rating agencies or export credit agencies and credit quality steps set out in annex 3, taking into account that this information shall not be disclosed, if the company meets the standard transfer, which the FSA has published.





 



(e))





Value of the exposures and eksponeringernes value after credit risk mitigation in the context of the various credit quality step, as described in annex 3, as well as value of exposures, there shall be deducted from the capital base.














14) the company that uses the internal ratings based approach to credit risk, see statement. § 19, must specify the following information about exposures that constitute specialized lending, and equity exposures:

a) Exposures that are assigned to each category from the table in annex 8, paragraph 82.

b) Exposures that are assigned to each risk weights from the simple risk weight method, see. Annex 8, paragraph 94-96.

15) the company must separately disclose the solvency requirements for each of the following risks are assessed below market risk area:

(a)) Records with position risk: debt instruments.

b) Records with position risk: shares, etc.

c) Records with position risk: raw materials.

d) Records with counterparty risk.

e) Records with delivery risk, etc.

f) Total foreign exchange position.

16) company, using internal models (VaR-models), see. section 40 and annex 15, to the statement of risk on positions in the trading book must provide the following information:

(a)) For each sub-portfolio covered:







 

 



1)





description of the used models,





 

 



2)





a description of the stress test, which is applied to the sub-portfolio;,





 

 



3)





a description of the method used for verifying and validating the accuracy and consistency of the internal models and modelling processes





 



(b))





the scope of the of the Danish financial supervisory authority or any other competent authority approval, and





 



(c))





an explanation of the scope and methods for compliance with the requirements for the systems and controls, see. Annex VIII, part 3, paragraph (B) of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).














17) the company must provide the following information about operational risk:

a) methodologies for the assessment of solvency requirements for operational risk, as are applicable to the company, and

(b)) If your company uses the advanced measurement approach.

18) the company must disclose the following about exposures in equities, etc., are not included in the trading book:

a) company's purpose of the exposure as well as indication of applied accounting practice and valuation methods, including key assumptions and practices affecting valuation, as well as significant changes in these practices.

(b)) Types and nature of, as well as the size of positions in listed shares (private equity exposures), private equity exposures in sufficiently diversified portfolios and other exposures.

(c)) The total realized gains or losses arising from the sale and liquidation during the period.


(d)) The total unrealized gains or losses, the total latent gains and losses in accordance with the valuation, as well as such amount (if any) inclusion in core capital or additional capital.

19) the company must disclose the following about exposures to interest rate risk in the non-trading book positions:

(a) nature of the interest rate risk) and the key assumptions, including assumptions concerning the repayment of loans, as well as the evolution of deposits with no specified maturity date, as well as how often the interest rate risk are stated, and

b) variation in income, economic value or other relevant measurements, as the company's management uses to measure the interest rate risk associated with upward or downward interest rate shocks, broken down according to the currency.

20) company should disclose the following related to securitiseringer:

(a)) a description of the company's objectives concerning securitiseringsaktiviteten,

(b)) the company's roles in securitiseringsprocessen,

c) an indication of the degree of the company's involvement in each of these,

d) methods for the estimation of risk-weighted items, as the company uses in connection with its securitiseringsaktiviteter,

e) an overview of the company's accounting principles regarding securitiseringsaktiviteter, including:







 

 



1)





whether the transactions are treated as sales or financing,





 

 



2)





registration of gains from the sale,





 

 



3)





the key assumptions for valuing retained interests capital, and





 

 



4)





treatment of synthetic securitiseringer, if this is not covered by other accounting principles.





 



(f))





names on the rating agencies, used in conjunction with securitiseringer, and the types of exposures, as each of the rating agencies will be used on,





 



(g))





the total outstanding amount of exposures securitised by the company and which are covered by the framework for securitisation (divided into traditional and synthetic securitisation), and on the exposure type,





 



(h))





for exposures that have been securitised by the company and which are covered by the framework for securitization, a breakdown on the type of exposure the amount of defaulted exposures and exposures in arrears that have been securitised and the company registered loss during the period,





 



in)





the total amount of retained or acquired securitiseringspositioner, broken down by exposure type,





 



(j))





the total amount of retained or acquired securitiseringspositioner, 1)





divided into a meaningful number of risk weight classes;





 

 



2)





positions that have been assigned a risk weight of 1,250 percent, must be shown separately,





 



k)





the total outstanding amount of securitised revolving exposures segregated on the originator company's participating interests and investors ' exposure to holdings, and





 



l)





an overview of the securitiseringsaktiviteterne in the period, including the size of the securitised exposures (according to the type of exposure) and registered gains or losses on sale spread over exposure type.











Concerning the usage requirements for the use of particular instruments or methodologies




21) the company that uses the internal ratings based approach to credit risk, see statement. section 19, shall indicate the following:

(a)) the competent authority that has authorised the method, and what transitional provisions approved by the competent authority.

b) an explanation of and a review of:







 

 



1)





the structure of the system of internal credit ratings and the relationship between internal and external credit assessments.





 

 



2)





the use of internal estimates for other functions than the calculation of risk-weighted exposures in accordance with Annex 8, paragraph 115.





 

 



3)





the procedure for the use of credit risk mitigation.





 

 



4)





control procedures for rating systems, including a description of the independence, accountability and auditing of a rating system.





 



(c))





A description of the internal rating process listed separately for the following exposure categories:





 

 



1)





State exposures.





 

 



2)





Institutions.





 

 



3)





Companies, including small-and medium-sized enterprises, specialized lending and acquired claims on companies.





 

 



4)





The retail market for each of the exposure categories for which the different correlations in annex VII, part 1, sections 10-13 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) corresponds to.





 

 



5)





Shares, etc.





 



(d))





Eksponeringernes value for each of the exposure categories specified in annex 8, point 3. Exposures to central Governments and central banks, institutions and companies, where the company uses own lgds or conversion factors for the calculation of risk-weighted exposures shall be published separately from exposures for which the company did not prepare such estimates.





 



(e))





For each of the exposure categories central Governments and central banks, institutions, companies and capital stock, and across a sufficient number of risk groups for borrowers (including defaulted) in order to be able to make a meaningful differentiation of credit risk, companies must specify:





 

 



1)






the total exposures (for exposure categories central Governments and central banks, institutions and companies: the sum of outstanding loans and the amount of exposures for undrawn commitments; for share capital: the outstanding amount).





 

 



2)





for companies using own LGD estimates for calculating risk-weighted exposures, the exposure weighted average LGD in percentage.





 

 



3)





the exposure-weighted average risk weight.





 

 



4)





for companies using own estimates of conversion factors for calculating risk-weighted exposures, the amount of undrawn commitments and the exposure-weighted average sizes of exposures for individual exposure categories.





 



(f))





For retail exposures and exposure category for each of the categories defined in paragraph (c), no. 4: either the disclosed information under (e) above (if necessary in a pool form), or an analysis of exposures (outstanding loans and eksponeringernes value of unused commitments) against a sufficient number of EL-gradients to allow for a meaningful differentiation of credit risk (if necessary in a pool form).





 



(g))





The actual value adjustments in the previous period for each of the exposure categories (for retail exposures, for each of the categories as defined under (c), nr. 4, above), and how this differs from previous experience.





 



(h))





A description of the factors that have had an impact on the losses in the preceding period (URf.eks., the company has experienced default rates that are higher than average Lgds and conversion factors, or there is higher than average).





 



in)





The company's estimates as compared to the actual results over a longer period of time. These shall at least include information on the estimated loss in relation to actual losses in each exposure categories (for retail exposures for each of the categories as defined under (c), nr. 4), over a period which is sufficiently long to allow for a meaningful assessment of the procedures for internal rating for the individual exposure categories (for retail exposures for each of the categories as defined under (c) , nr. 4). When appropriate, the entity shall divide this further in order to be able to make a PD-analysis, and for companies that use own lgds and/or conversion factors, LGD and conversion factors results in relation to the estimates is entered in the information about quantitative risk assessments above.





 



For the purposes of point (c) must include the types of exposures, the description of which is included in the exposure category, definitions, methods and data for estimation and validation of PD and LGD and conversion factors, where appropriate, including the assumptions used in the derivation of these variables, as well as descriptions of significant deviations from the definition of default as described in annex VII, part 4 , paragraphs 44-48 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast), including the broad segments affected by such deviations.














22) company that uses credit risk mitigation techniques, shall indicate the following:

a) Policies and procedures as well as an indication of the extent to which the company takes advantage of on-balance sheet netting and netting under the line.

b) policies and procedures for the valuation and management of collateral.

c) A description of the main categories of collateral, which the company receives.

d) Main types of counterparties in the form of the guarantor and the credit derivatives and their creditworthiness.

e) information about the market or credit risk concentrations within the credit risk mitigation.

f) businesses, that calculates the size of the risk-weighted exposure amounts in accordance with the standard method, see. Annex 3, or in accordance with the internal ratings based method, see. Annex 8, but does not carry out own estimates of Lgds or conversion factors in connection with the exposure categories, separately for each exposure category, give up the total value of the exposures (after any balance sheet netting or off-balance sheet netting) that is covered after application of volatility adjustments of recognised financial collateral and other recognised collateral.

g) companies, which calculates the amount of risk-weighted exposures in accordance with the standard method, see. Annex 3, or in accordance with the internal ratings based method, see. Annex 8, separately for each exposure category, give up the overall exposures (after any balance sheet netting or off-balance sheet netting) that is covered by guarantees or credit derivatives. For equity exposure category will find this requirement apply to each of the methods set out in annex VII, part 1, points 17 to 26 of Directive 2006/48/EC of 14. June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).

23) companies using the advanced measurement approach for calculation of operational risk, give a description of their use of insurance in order to reduce the risk.

Annex 21

Application for the internal ratings based approach to credit risk

This annex contains the provisions on the application for authorisation of the use of the IRB approach, see. § 19.

1. Application process

A financial group with a Danish parent company must submit a single application for the use of the IRB approach to supervision. The application includes the starting point all the consolidated companies within the group, which is covered by the rule set, see. § 19, paragraphs 2 and 5.

The group can take the IRB approach in applying for capital adequacy purposes, when the decision on approval of the IRB approach is communicated to the Group's parent company, and after the individual group companies covered by the rule set, and must use the IRB approach, separately has been granted authorisation for the use of the IRB approach for capital adequacy purposes. The notice of authorization, supervision or, in the case of any foreign subsidiaries within the group, of the foreign regulatory authority.

When the application is submitted, the supervision will carry out an assessment of the application material to assess the fulfilment of the requirements related to the use of the IRB approach. Inspectorate expects that the assessment of the material will take about three months. In this period, the primary contact with the applicant group consist of submission of any additional documentation to be used for the assessment.

If the assessment of the material in the application provides the basis for this supervision will schedule an examination on the spot in the group. The DFSA's primary purpose of this study is to verify whether the Group meets the minimum requirements for the approval of the requested rating systems for capital adequacy purposes. As part of the investigation expect supervision, among other things. to review some selected exposures in advance as part of the assessment of the application of the rating systems are in risk management. Planning, implementation and follow-up of on-the-spot investigation is expected to take up to two months.

Any approval by the IRB approach and the subsequent permission to individual group companies shall be notified not later than six months after receipt of a complete application. Refusal of approval shall be notified accordingly where appropriate to the Group's parent company at the latest six months after receipt of a complete application in accordance with the requirements of this annex.

If the supervision in connection with the examination of the application finds significant shortcomings in the submitted material in relation to the requirements of this annex, supervision, as an alternative to a refusal of the application, temporarily putting the clock in stand in relation to that time limit of six months for the processing of the application and wait for the group addresses the deficiencies in the submitted application.


It can be an advantage for the application process, that supervision early and in advance of the application itself informed about the Group's plans for a future application. This will provide an opportunity to discuss the preparation of the application with supervision. When the Group has taken a decision on a future application, supervision will contact any foreign authorities must be involved in the examination of the application, with a view to the preparation of the examination of the application.

1.1. Parallel reporting

To supervision, among other things. to assess the effect of the use of the IRB approach, the group in the first quarter after submission of the application and quarterly forward to the planned use quantify and report risk-weighted items after the IRB approach in parallel with the inventory and reporting of risk-weighted items after the hitherto used method.

The group must carry out parallel reporting on a consolidated level for all the consolidated companies. In addition, the group must carry out parallel reporting at solo level for the consolidated companies which are under supervision.

Parallel reporting must be carried out in the reporting framework for the IRB approach, which is available on the FSA website, see. section 67. The level of detail of reporting according to the method agreed with supervision in each case.

1.2. Application letter

An application for the use of the IRB approach shall consist of an application letter accompanied by any additional applications, see. section 1.3, the dossier referred to in article 6. section 2, and the quick reference schemas, see. section 3.

Application letter must express whether the IRB approach, which the Group seeks approval to apply for capital adequacy purposes, will include the own estimates of loss given default (LGD) and conversion factors (CF) for business, institution and Government exposures. The application letter shall also give an account of any planned and significant changes in the group, which can affect any approval to use the IRB approach. The application letter shall be signed by the parent company's Managing Director, as well as by the CEOs of the Group's other legal entities (subsidiaries), covered by the application and under individual supervision.

The letter must contain a statement that the submissions provides an accurate and relevant picture of the areas to which the application covers.

The application must include the portfolios, which the Group would fall within the scope of the IRB approach from that point in time. Information on other portfolios should include only information that is necessary for the supervisory authority can assess whether the Group meets the requirements for exceptions from the IRB approach and incremental deployment. A group's later application for capital adequacy purposes of the rating systems, which are not covered by the IRB approach from that point in time, requires prior permission of the FSA.

For some groups, it may be an advantage for the Group and the oversight that the application letter and larger or smaller parts of the rest of the application material is available in English. Language choice agreed with supervision in each case.

1.3. additional applications for incremental deployment and permanent derogations from the IRB approach

In the context of an application can submit a series of additional demand-group applications.

There may be submitted supplementary applications relating to:




– Incremental deployment (deployment plans)

– Permanent derogation from the IRB approach for State Department exposures, exposures, nonessential business units and/or portfolios, intra-group exposures and equity exposures

– Data history requirement in the calculation of the PD for business, institution and Government exposures, as well as in the calculation of PD, LGD and CF or ELECTRICITY for retail exposures

– The application of the PD/LGD approach to equity exposures

– The application of the VaR method for equity exposures

-Fulfilment of the minimum requirements on group level



1.3.1. Incremental deployment

The Group may apply for permission to carry out implementation of the IRB approach in the group stage shown in accordance with a deployment plan approved in advance, in accordance with article 3. sections 24 and 25.

Deployment plan shall show when the areas to be covered by incremental deployment, are expected to be covered by the IRB approach, as well as a description of the implementation process.

It must be indicated in the application for incremental deployment, why those areas he wishes to temporarily exempt from the IRB approach. The application shall also include the Group's own assessment of the uncertainties associated with the deployment plan.

If the group under section 25 (3), apply for a longer time limit for the implementation of the implementations than three years, the group must specify what special conditions that necessitate an extension of a time limit, and the schedule for implementation pursuant to an extension.

1.3.2. Permanent derogation from the IRB approach

The Group may apply for permission to exclude certain exposures permanently from the IRB approach and instead use the standardised approach to credit risk for the exposures referred to in article 6. section 26.

The group must justify the desired permanent derogations from the IRB approach. Below are also some special information requirements for applications for different permanent exceptions:

1 Department of State) exposures and exposures

For each exposure category group must specify the number of counterparties, including the number of material counterparties, the portfolio volume (on-balance-sheet and off-balance-sheet items), as well as an estimate of the risk-weighted items after the IRB approach. In addition, the group explain to what extent the conditions for derogation are met, including why it is judged to be excessively burdensome for the group to implement a rating system for these counterparties.

2) Group's business units and/or unimportant portfolios

The Group should indicate which business units and/or portfolios to be exempt from the IRB approach. The Group should explain on what basis the business units and/or portfolios assessed as insubstantial. In addition, the Group describe why it is assessed to be disproportionately burdensome to implement the internal rating system for the relevant business units and/or portfolios. The group must specify volume (on-balance-sheet and off-balance-sheet items), as well as an estimate of the risk-weighted items after the IRB approach for each of the business units and/or portfolios to be exempted.

3) intra-group exposures

The group must specify volume (on-balance-sheet and off-balance-sheet items) of these exposures. Furthermore, it must be specified, between which affiliates the intra-group exposures are made.

4) Equity exposures

The group must specify which positions to be exempt under section 26 (1) (8). 5, as well as the size of the respective equity positions. The Group's reasons for seeking exception for that portfolio must be indicated in the application. The group must submit separate applications, if equity exposures covered by, respectively, § 26 (1) (8). 6, and section 26, paragraph 1, no. 9, optionally excluded.

1.3.3. Data history requirement

The group can, in accordance with article 3. section 189 and 191 in annex 8, apply for exemption from the requirement to calculate the PD history data for business, institution and Government exposures, as well as in the calculation of PD, LGD and CF or ELECTRICITY for retail exposures.

1) enterprise, institution-and State exposures

Groups that do not use own estimates of LGDS and CF for business, institution and Government exposures, have the ability to search the oversight permission on portfolio level to base their PD estimates for business, institution and Government exposures on data, based on a time period that is shorter than five years, however, at least two years, without prejudice to article. Annex 8, paragraph 189. This also includes data history the requirement for use of the PD/LGD approach to equity exposures. The application shall include a justification for the Group's desire for an exception. Furthermore, it should be apparent from the application whether the calculated parameters are considered to be representative of the Group's experience over a longer period of time. The Group shall attach PD-estimates a precautionary margin, which relate to the expected margin of error associated with the estimation. The fewer the data the Group has, the more cautious estimates must be. It must be indicated in the application, the extent to which and the method the Group has attributed a precautionary margin as a result of a data period that is shorter than five years.

2) Retail exposures

Groups have for retail exposures with an opportunity to seek supervision for permission to base their PD, LGD and CF-estimates or EL, where appropriate, on data, based on a time period that is shorter than five years, however, at least two years, without prejudice to article. Annex 8, paragraph 191. The application shall include a justification for the Group's desire for an exception. Furthermore, it should be apparent from the application whether the calculated parameters are considered to be representative of the Group's experience over a longer period of time. The group must attribute its estimates a precautionary margin, which relate to the expected margin of error associated with the estimation. The fewer the data the Group has, the more cautious estimates must be. It must be indicated in the application, the extent to which and the method the Group has attributed a precautionary margin as a result of a data period that is shorter than five years.


1.3.4. PD/LGD approach to equity exposures

The Group may seek permission for use of PD/LGD approach to equity exposures, see. Annex 8, paragraph 91. The application shall contain a description of the method and a statement of compliance with the requirements of Annex 8, paragraphs 97-100.

1.3.5. The VaR method for equity exposures

The Group may seek permission for use of the VaR method for equity exposures, see. Annex 8, paragraph 91. The application shall contain a description of the method and a statement of compliance with the requirements of Annex 8, paragraphs 101-103 and paragraphs 234-242.

1.3.6. The fulfilment of the minimum requirements on group level

The Group may seek permission for the minimum requirements set out in annex 8, paragraphs 113-242, met the Group's parent company and subsidiaries considered together, see. Article 20, paragraph 2. The application shall contain an indication of which devices you want to be exempt from having to meet the minimum requirements, as well as the minimum requirements of the exemption relates.

1.4. Self assessment

The group must make an assessment of whether it meets the requirements related to the use of the IRB approach. In addition to an assessment of the individual claims to be self assessment include an overall assessment.

If the group determines that it does not fully comply with all requirements, the Group describe the identified deviations and draw up an action plan for when and how the group will meet the requirements.

The group must have made even the assessment before the oversight may deal with the Group's application.

Although the assessment will form the basis for completing the checklist, see. section 3 of the summary forms.

1.5. Internal audit

According to annex 8, paragraph 124, internal audit, or a similar independent audit unit at least once a year to review the Group's rating systems and their use. The review must include the Group's compliance with all minimum requirements.

There is no requirement that the review has made a review before a group of companies applying for approval of the IRB approach. It will, however, be included in the supervisory assessment of the application, the extent to which the review has carried out tasks in the field.

2. Application materials

The following documents must be attached to the application:

1. Filled-in history and check out forms (see section 3)

2. Fields of application




– Description of the use of rating systems estimated risk parameters to different internal purposes



3. Organization




– Organization chart for the Group/companies

– Organization chart of the departments and internal Committee with tasks related to the applied rating systems

– Description of the included departments and Committee duties and responsibilities

– Description of expected resource usage. development and implementation of the IRB approach (including allocation of resources before and after deployment)



4. Credit policy and written business times




-Copy of credit instructions

– Copy of written procedures for classification of borrowers in exposure categories

– Copy of written procedures for the award of ratings and placement of exposures in ratingklasser or pools

– Copy of written procedures for the validation of internal rating systems are used in models

– Copy of written procedures for conducting stress tests

– Copy of written business processes for the preparation of management reporting based on rating systems

– Overview of written business processes for internal controls related to rating systems, which may include references to internal documentation in the schema overview 7



5. Documentation of rating systems




-Summary description of rating systems (Schedule 4)



Descriptions for each of the internal models used in a rating system, including documentation of statistical models, see also. Annex 8, paragraph 160




– Description of data basis

– Copy of written documentation for the calibration of the parameters PD, LGD and CF

– Description of the validation methods used (may be omitted if the methods are described in the Group's written procedures submitted under point 4 above)

– Copy of written documentation for validation of internal models used in suggestions, including validation of assigned ratings and parameter estimates

– Documentation regarding. definitions of default and loss, see. Annex 8, paragraph 159



6. Stress test




– A description of the stress test methods

— Documentation of completed tests



7. Management reporting for credit risk and rating systems




– Copy of reporting to the Board of Directors, Executive Board

– Copy of reporting to internal committees



8. Review




– Description of the previous tasks in this area, including also the description of Division of labour between internal and external audit

– Copy of the audit reports for completed audits related to the requested rating system

– Description of upcoming tasks in this area including. planned audits related to rating systems



9. The IT structure of the subject. The IRB approach




– Description of the IT structure, which supports the rating systems, including the integration with other systems within the Group

– Description of IT security



10. Self assessment




– A summary of self assessment results

– A brief description of the completed self-assessment process

– The action plan drafted with indication of the identified variances. The current status at the time of application for the identified deviations must be explained



11. Contact persons




– Overview of relevant contacts within the group in relation to the treatment of the Group's application



The submitted material as a starting point can consist of copies of the Group's internal documentation.

The material can either electronically or in paper form. If the material submitted in paper form, it must be available in five copies.

If in the application process proves the need to submit an edited version of an already-posted document, it must clearly appear, what is edited, and which version of the edited document replaces document.

Supervision can as needed, request the group to submit additional material in connection with the assessment of the application.

3. Summary forms

Schedule 1 to 7 shall be completed in accordance with the following guidelines. The number of rows in the tables is increased as needed:

Table 1: Portfolios subject to the IRB approach

The purpose of the scheme is to provide supervision at a glance, which rating systems the Group's application, including which includes portfolios, business units and legal entities covered by the respective rating systems.

The split in the schema based on the Group's internal division of exposures in the sub-portfolio covered. The Group's internal designation for the individual portfolios is valid.

When completing the form, the following must be specified:




– Portfolio title (the Group's internal designation for the portfolio)

– By portfolios means a demarcation of the Group's business areas based on, for example, customer group, product or geographic map. To the extent that it is not clear from the portfolio name, what areas of business portfolio covers, please the specified in a corresponding note.

– Exposure category, see. the grouping of exposures in annex 8, point 3-24.

– Legal entities (legal entities where the IRB approach is used for that portfolio)

– Rating system (the Group's internal designation for the rating systems used for that portfolio)

– If the group does not use own estimates of lgds and/or CF, please this is marked with G (G for the "basic" IRB approach) in the schema.

– If the Group want to scroll LGD and/or CF-dimension out, please indicate the time of foreseeable use in the cell.

– For cross-border groups please in parentheses indicated a C (Central) or an L (local), depending on whether the model is developed at the corporate data or local data.

– Volume

– Volume for balance sheet items is entered as the posted amount (is calculated in accordance with accounting regulations). Volume of off-balance-sheet items is entered as the notional amount multiplied by the weights respectively for full risk, medium risk and medium/low-risk, see. Article 10, paragraph 5.

– Risk-weighted items

– For each portfolio are specified risk-weighted items compiled both under the current method and the applied method.

– Share (the portfolio's risk-weighted items calculated according to the methodology in force at the time of application, in relation to the Group's overall risk-weighted items also calculated according to the current methodology, in%)



Table 2: exceptions to the IRB approach as well as portfolios subject to the deployment plans

The purpose of the scheme is to provide supervision, an overview of the portfolios to be exempt from the IRB approach, as well as provide an overview of the Group's deployment plans at portfolio level.


For the portfolios, the Group would put in place step by step, must be the subject of a deployment plan that specifies the expected time when portfolio included in the IRB approach is desired. This time specified respectively for PD, LGD and CF-dimension. For portfolios, which the group permanently want to exempt from the IRB approach, a S (standard method) in the columns.

With regard to the filling of the other columns, please refer to the guidelines for Schedule 1.

Schedule 3: Portfolios subject to the IRB approach in the Group's legal entities

The purpose of the scheme is to provide an overview of the individual supervision of legal entities ' use of the IRB approach. The group must fill out a form for each relevant legal entity.

With regard to the filling of the form please refer to the guidelines for Schedule 1.

Schedule 4: rating systems

The purpose of the scheme is to provide an overview of the Group's rating systems supervision. Rating systems must be understood in this context as the systems and processes, the group uses in the allocation of PD, LGD or CF to a borrower or facility.

The form must be completed for each rating system, which is part of the Group's IRB method.

Schedule 5: Additional applications

The purpose of the scheme is to give an overview of what additional applications group has submitted, without prejudice. section 1.3.1-1.3.5.

Table 6: Checklist

The purpose of the checklist is to provide an overview of how the monitoring group believes that compliance is documented. The statement must also provide supervision the opportunity at a later time to identify any documents that the oversight would posted.

Check out the table is based on a set of minimum requirements in the Executive provisions concerning the IRB approach.

For each item in the checklist to the Group:




1) refer, as precisely as possible to the relevant documentation for the fulfillment of the requirement. The reference can refer to the documentation submitted with the application or to the list of internal documentation in table 7. If the documentation relates to matters which have not yet been fully implemented at the time of application, the status of implementation be provided, and reference should be made to the action plan

2) where appropriate, briefly describe how the requirement is met. If the Group at the time of application does not yet fully comply with this requirement, set this.



As a starting point, it will not be necessary to describe how the Group meets the requirement, since it should be apparent from the documentation, which the Group refers to. But there may be a requirement where it is an advantage to supplement the documentation with a short description. URF.eks. in the case of General requirements or requirements where not immediately available a comprehensive documentation (here it is assumed that there is no notice explicitly demands for documentation). Examples include the requirements set out in annex 8, paragraph 116-119, on the Board of Directors ' and management's tasks.

There may be points in the checklist, which is not relevant for the group – in this case, the Group at the table say why requirements are not relevant.

The Group may have different answers regarding the individual points in the checklist, as the answer may be different for different legal entities, business units, countries, rating systems, etc. If that is the case, the various responses indicate, and it must be specified, which is why there are different answers.

Schedule 7: overview documentation

The purpose of the scheme is to provide an overview of the Group's supervision documentation in relation to the IRB approach.

The form must contain a complete overview of all relevant documentation, as well as the documentation group has submitted, as the documentation group alone refers to. There should also be a descriptive document name and a short description of the contents of the material. The group asked to enumerate the individual documents in accordance with the number in the table. It must appear on the list, when the document is approved, and whether the document reflects conditions that have not been completely implemented in your organization. If the document is not fully implemented, the document's implementation status. Furthermore, in the last column indicates whether the document is submitted to the Inspectorate.

Table 1: Portfolios subject to the IRB approach











Ports-





Exposure-





Legal aspects





Rating system





Volume





Risk-





Risk-





Share føljens term





nerings-

category





be-

of interest





PD-dimension





LGD-

dimension





CF-dimension





Balance-

led

records





Non-

Balance-

led

records





weighted entries calculated according to the current method





weighted entries calculated according to the method





(per cent)





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Total volume covered by the IRB approach



 

 

 

 

 









Table 2: exceptions to the IRB approach as well as portfolios subject to the deployment plans











Ports-





Exposure-





Legal aspects-





Rating system





Volume





Risikovæg-





Share (%)







føljens name





nerings-

category





Spoon units





PD-dimension





LGD-dimension





CF-dimension





Balance sheet items





Off-balance-sheet items





TEDE entries calculated according to the current method



 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Total volume not covered by the IRB approach



 

 

 

 









Schedule 3: Portfolios subject to the IRB approach in the Group's legal entities

Legal entity:











Ports-





Exposure-





Rating system





Volume





Risk-





Risk-





Andel







føljens beteg

training





neringskategori





PD-dimension





LGD-dimension





CF-dimension





Balance sheet items





Off-balance-sheet items





weighted entries calculated according to the current method





weighted entries calculated according to the method





(per cent)






 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

Schedule 4: rating systems











General



 





Ratingsystemets name:



 





Type (dimension): PD, LGD, CF:



 





Exposure class:



 





(E) legal unit (s) covered by a rating system:



 





Portfolios covered by a rating system (products and/or customers as well as the indication of the country):



 





Type of rating system (based mainly on a statistical model suggestions, an expert model, or a hybrid model):



 





List of internal models used in a rating system with indication of the (s) area (s)/segment (s) in a rating system models covers:



 





List of external models, including the use of input from external ratings and other external methods (apart from external data, see below) used in a rating system with indication of the (s) area (s)/segment (s) in a rating system the external models covers:



 





Date of implementation: ratingsystemets



 





Volume (on-balance-sheet and off-balance-sheet items) that rates of the system:



 





Risk-weighted items after the current method that rates of the system:



 





Number of obligors or facilities, rates of the system:



 





Any significant changes in a rating system:



 





In fact, the number of loan defaults, the experienced over a given period of time (both the number of defaults and the time period must be specified):



 





Guidelines for breach of ratingsystemets results (reference to the rules of time):



 





Number of times where ratings have been infringed in relation to the number of ratings:



 





At what organizational level approval ratings:



 





Data



 





Starting date for internal data, which will be used for the estimation of the parameters:



 





Will be applied to external data:



 





List of external data sources:



 





Ratingsystemets dependence of external data (suggestions are more/less or equally dependent on which of the internal data):



 





Validation



 





Date of the most recent validation of the suggestions:



 





Who approved the validation:



 





Summary of the results from the latest validation of a rating system and reference to relevant documentation. Where appropriate, this statement include the following:



 





(a)) where applicable, the work carried out in order to ensure the accuracy of inputs in a rating system (or models used in suggestions):



 





(b)) any external and internal benchmarks, as suggestions (or models used in suggestions) have been measured in relation to, and the result of such comparisons:



 






c) Any statistical techniques or tests used to assess ratingsystemets (or models used in a rating system) ability to differentiate between borrowers/PD, LGD and facilities after respectively CF and the results of such tests:



 





d) Any statistical techniques or tests used to assess ratingsystemets (or models used in a rating system) ability to calibrate PD, LGD and CF, respectively, and the results of such tests:



 





e) Any qualitative techniques (or quantitative techniques which are not already covered by the previous questions) used to assess the ratingsystemets (or models used in a rating system) continued appropriateness:



 





f) where applicable, recommended follow-up work on the suggestions:



 









Schedule 5: Additional applications











Application





Mark with a cross if the application is accompanied by







Incremental deployment (deployment plans), see. Article 24 and article 25, paragraph 3



 





Permanent derogation from the IRB approach for State exposures, see. section 26 (1) (8). 1-3



 





Permanent derogation from the IRB approach for Department exposures, see. section 26 (1) (8). 4



 





Permanent derogation from the IRB approach for equity exposures, see. section 26 (1) (8). 5 Permanent derogation from the IRB approach for equity exposures, see. section 26 (1) (8). 6 Permanent derogation from the IRB approach for intra-group exposures, see. section 26 (1) (8). 7



 





Permanent derogation from the IRB approach for non-essential business units and/or portfolios, see. section 26 (1) (8). 8 and paragraph 2



 





Permanent derogation from the IRB approach for equity exposures, see. section 26 (1) (8). 9



 





Data history requirement – business, institution and Government exposures, see. Annex 8, paragraph 189



 





Data history requirement – retail exposures, see. Annex 8, paragraph 191 PD/LGD approach to equity exposures, see. Annex 8, paragraph 91



 





Was the method of stock exposures, see. Annex 8, paragraph 91



 





Fulfilment of the minimum requirements on the corporate level, see. section 20 (2)



 









Table 6: Checklist











Requirements for the IRB approach (refer either to the notice (BEK) or to the relevant paragraph in annex 8.





Reference to relevant documentation in the application documents or in Schedule 7 for the fulfilment of the requirements.

If the documentation relates to matters which have not yet been fully implemented at the time of application, the status of implementation be provided, and reference should be made to the action plan.





Where appropriate, a brief description of how the requirements are met.

If the Group at the time of application are not yet fully complies with the requirements referred to in that paragraph, shall be indicated.







Application requirements:







BEK sections 22 and 23



 

 





Grouping of exposures (PT. 3-24):







Consistent method for classification of exposures in exposure categories and Division of retail exposures on subcategories



 

 





Specific requirements for revolving retail exposures (volatility of expected loss)



 

 





The identification of specialized lending



 

 





Second



 

 





Risk parameters (point 25-67):







The definition of default



 

 





The probability of default



 

 





Loss given default (LGD) Conversion factor (CF)



 

 





Maturity (M)



 

 





Estimation of risk parameters for purchased receivables



 

 





Estimation of risk parameters for specialized lending



 

 





Collective investment schemes



 

 





Second



 

 





Management and risk control (paragraph 116-124):







The Board of Directors ' and management's tasks (articles 116-119)







Acceptance and understanding of the rating and estimation processes, etc.



 

 





Orientation of the Board about the changes, etc.



 

 





The Directorate's tasks



 

 





Management reporting



 

 





Credit risk control unit's tasks (paragraph 120-123)







Independence and tasks



 

 





Areas of responsibility



 

 





Possible outsourcing internal audit (paragraph 124)







Regularly review the rating systems building (paragraph 125-165):







General



 

 





Documentation of the rationale for the choice of rating system



 

 





Regular review of the rating criteria and business times



 

 





Update of ratings



 

 





Business, institution and Government exposures







Number of ratingklasser



 

 





Descriptions of the rating criteria for default risk



 

 





Concentrations of counterparty-ratingklasser



 

 






Separate LGD-estimation/CF-estimation on facility-level



 

 





Treatment of overrides



 

 





Second



 

 





Retail exposures







Number of ratingklasser/pools



 

 





Number of exposures and concentrations



 

 





The use of models (paragraph 156)







Requirements for statistical models for rating



 

 





Documentation of a rating system (paragraphs 157-160) Structure and function



 

 





Assignment, etc.



 

 





Maintenance of data (paragraph 161-164)







Business, institution and Government exposures



 

 





Retail exposures







Stress test (paragraph 165)







Methods



 

 





Estimation of risk parameters (paragraphs 166-222):







General requirements for estimation of risk parameters (paragraphs 166-176)







Credible, cautious estimates based on relevant factors, etc.



 

 





Decomposition of loss experience



 

 





Taking into account the changed lending practices



 

 





Representative data basis



 

 





Prudential margins



 

 





Various internal estimates



 

 





Data before 1. January 2007



 

 





Datapooling/common data basis



 

 





Liability, etc. for suggestions by datapooling



 

 





Analysis of the systematic changes of parameters



 

 





Relevant information, purchased receivables



 

 





Specific requirements for the estimation of risk parameter PD (PT. 177-191)







Long-term average



 

 





Supporting analyses



 

 





Representative data base and lending policy



 

 





Mapping to a credit rating agency



 

 





Acquired business claims







EL-method



 

 





PD/LGD method



 

 





Data length (business)







5-year requirement



 

 





Transitional provision



 

 





Retail exposures







Method basis



 

 





Internal/external data basis



 

 





Purchased retail receivables







Reference data



 

 





PD/LGD method



 

 





Data length (Retail)







5-year requirements and weighting



 

 





Transitional provision



 

 





Specific requirements for the estimation of risk parameter LGD (paragraph 192-205)







Adjustment which reflect economic downturn



 

 





Correlation between the risk of counterparty and securities



 

 





Currency mismatch



 

 





The effect of collateral



 

 





Monitoring of collateral, etc.



 

 





Collateral and counterparty risk



 

 





Defaulted exposures



 

 





Unpaid overdue fees



 

 





Data length



 

 





Specific requirements for the estimation of risk parameter CF (paragraph 206-212)







Adjustment which reflect economic downturn Data length



 

 





Credit facilities



 

 





Requirements relating to guarantees and credit derivatives (paragraph 213-222)







Criteria for recognition Rating of the guarantor



 

 





Legal requirements



 

 





Adjustment criteria



 

 





Credible adjustment criteria



 

 





Minimum requirements for credit derivatives and mismatch



 

 





Payout structure, etc.



 

 





The validation process (paragraph 223-227):







Well-developed systems



 

 





Backtests




 

 





Benchmarking



 

 





Consistency



 

 





Sound guidelines



 

 





Minimum requirements for specific exposure categories (paragraph 228-233):







Minimum requirements for purchased receivables (section 228-233)



 

 









Schedule 7. Overview of internal documentation











Nr.





Document name





Brief description of the document content





Approval date





Fully implemented? (yes/no)

by no indicated status





Posted? (yes/no)







1.



 

 

 

 

 





2.



 

 

 

 

 





3.



 

 

 

 

 





4.



 

 

 

 

 





5.



 

 

 

 

 





6.



 

 

 

 

 





7.



 

 

 

 

 





8.



 

 

 

 

 





9.



 

 

 

 

 





10.



 

 

 

 

 





11.



 

 

 

 

 





12.



 

 

 

 

 





13.



 

 

 

 

 





14.



 

 

 

 

 





15.



 

 

 

 

 





16.



 

 

 

 

 





17.



 

 

 

 

 





18.



 

 

 

 

 





19.



 

 

 

 

 





20.



 

 

 

 

 





21.



 

 

 

 

 









 

 

 

 

 







Annex 22

Application for internal models for market risk (VaR-models)

Application for internal models for market risk (VaR-models)

This annex contains the provisions on the application for authorisation of the use of internal models for market risk (VaR-models), see. § 40.

section 40 and annex 15 contains requirements for internal models for market risk.

1. Approval process for internal models

A financial group with a Danish parent company must submit a single application on the use of internal models (VaR-models) to the FSA. The application includes the starting point all the consolidated companies within the group, which is covered by the rule set.

The group can take internal models in use for capital adequacy purposes, when the decision on approval of the models are announced the Group's parent company, and after the individual group companies covered by the rule set, and which must use internal models, designated have been granted permission for the use of models for capital adequacy purposes. Notification of the authorisation given by the Danish financial supervisory authority or, in the case of any foreign subsidiaries within the group, by the competent foreign authority.

When the application is submitted, the supervision will carry out an assessment of the application material to assess the fulfilment of the requirements related to the use of internal models. Supervision time spent for assessment of the material will depend on the specific application. In this period, the primary contact with the applicant Group deal with the submission of any additional documentation to be used for the assessment.

If the assessment of the material in the application provides the basis for this supervision will schedule an examination on the spot in the group. The DFSA's primary purpose of this study is to verify whether the Group meets the minimum requirements for the approval of the requested internal models for capital adequacy purposes.

Possible the approval of internal models and the subsequent permission to individual group companies shall be notified not later than six months after receipt of a complete application. Refusal of approval shall be notified accordingly where appropriate to the Group's parent company at the latest six months after receipt of a complete application in accordance with the requirements of this annex.

If the supervision in connection with the examination of the application finds significant shortcomings in the submitted material in relation to the requirements of this annex, supervision, as an alternative to a refusal of the application, temporarily putting the clock in stand in relation to that time limit of six months for the processing of the application and wait for the group addresses the deficiencies in the submitted application.

It can be an advantage for the application process, that supervision early and in advance of the application itself informed about the Group's plans for a future application. This will provide an opportunity to discuss the preparation of the application with supervision. When the Group has taken a decision on a future application, supervision will contact any foreign authorities must be involved in the examination of the application, with a view to the preparation of the examination of the application.

1.1. Application letter

An application for the use of internal models shall consist of an application letter attached to the material, as discussed in section 2.

The application letter shall explain any planned and significant changes in the group, which can affect any approval for the use of internal models. The application letter shall be signed by the parent company's Managing Director, as well as by the CEOs of the Group's other legal entities (subsidiaries) that are the subject of the preliminary application and under individual supervision.

The letter must contain a statement that the submissions provides an accurate and relevant picture of the areas that the preliminary application cover.


For some groups, it may be an advantage for the Group and the oversight that the application letter and larger or smaller parts of the rest of the application material is available in English. Language choice agreed with supervision in each case.

1.2. the use of a combination of standard methodologies and internal models

The Group has in determining risk-weighted items for positions with market risk the possibility of using standard methods, see. sections 35-39, or internal models, see. sections 40 and 41, or a combination of these.

In certain cases, it is expected that supervision does not allow a group's internal models, where the Group choose to calculate market risk by a combination of standard methodologies and internal models. This will include cases in which the Group choose to use internal models to calculate market risk on products where it results in a lower capital requirements for records with market risk than use of standard methods, while the group chooses to apply standard methods for products where this provides the lowest capital requirements.

The use of internal models in combination with standard methods must ensure that the Group has adequate capital to cover all market risks, and the application must also give the group a good overview of its total market risks.

Permission for use of a combination of standard methodologies and internal models to calculate market risk will also depend on the Group's business volume in products where market risks to be calculated by standard methods.

Provides supervision group allowed to use a combination of standard methodologies and internal models, it could lead to the group for the purpose of calculating market risk shall apply a higher multiplier than 3 of the basic regulation. Annex 15, paragraph 21.

Have oversight granted the group permission to use internal models for a variety of products, not without permission group can later choose to return to the use of standard methods for these products.

1.3. non-trading book interest rate risk

It is clear from section 40, the application may also include the company's non-trading book interest rate risk.

When assessing an application, supervision will place emphasis on whether the internal models for interest rate risk in and outside the trading book covers the Group's total interest-rate risks in an appropriate manner.

1.4. Model selection

The concept of internal models covers a number of different types of models, including historical simulation, Monte Carlo simulation and Variance-Covariance models.

Inspectorate makes no claim to, which of the abovementioned model types of the group must apply to get permission to use these. The Group's choice of internal models should be based on which model types that best reflect the risks in the Group's portfolio.

The group can choose to use different internal models on different products. Used different models, they must all comply with the requirements of this annex.

The Group's total market risk must, as a general rule, shall be calculated as the sum of the numerical risks calculated by the individual internal models. Select another type of aggregation based on calculated correlations, this method on application.

1.5. the specific risk

The group can choose to include specific risk for shares and/or debt instruments in the internal model. Failure means that the specific risk is calculated by standard methods.

Groups applying for permission to include specific risk, to draw attention to this effect in the application. Including shall specify how the specific requirements for specific risk in annex 15 shall be deemed to be fulfilled. The special requirements concerning specific risk must be met in parallel with the basic requirements for internal models.

Methods for involving the specific risk as for the other internal models must be validated, in part through backtests, partly through the requirements for validation, applicable internal models in General.

If the supervision gives the company permission to incorporate the specific risk, it must be calculated for each risk category, IE. shares and debt instruments, or for the portfolios of these, which involve a specific risk.

Choose the company to quantify the specific risk of the portfolios, it shall explain in advance the composition of its portfolios and do not change these without the consent of the supervisor.

By the total inventory of capital requirement, which contains both General and specific risk can be taken into account for correlations between the two separate statements, which, however, will require a validation of the method.

1.6. Variances and covariance are measures of

Supervision does not require that calculated variances and covariance are measures of the must is calculated as a moving average of ligevægtet historical variances and covariance are measures.

1.7. the Limits laid down by the Group

Supervision shall require that the Group should set verifiable limits for risks calculated by internal models. However, as a starting point, not the oversight provides requirements for verifiable limits for risks calculated by internal models at the individual dealer level.

1.8. Backtests

The group will need when applying for permission to use internal models, among other things. be able to document models ' reliability on the basis of completed backtests.

As a starting point, the models can first be allowed when the Group has implemented a 12-month period for backtests. Supervision will, however, in particular cases could accept a shorter backtest period.

If the Inspectorate accept a shorter period, it will be able to backtest result in that group for the purpose of calculating market risk shall apply a higher multiplier than 3 of the basic regulation. Annex 15, paragraph 21, until the backtest period is up on 12 months.

The group must be able to carry out both the actual and hypothetical backtests. In addition, the group could implement the backtests on both portfolio-like product level.

Daily backtests must in principle be based on positions in the trading book, as covered by the Group's internal models, unless the application also includes the Group's interest rate risk non-trading book.

The background to this is that the backtests based on positions in the trading book, as well as the non-trading book could result in fewer exceedances and thus a lower plus factor, see. Annex 15, paragraph 21, than backtests based on positions in the trading book alone.

A group whose application does not include the non-trading book interest rate risk, but who wants permission to implement daily backtests on positions in the trading book, as well as the non-trading book, in connection with the application to demonstrate that the deviation does not give the group a lower capital requirements at a lower plus factor.

Backtests must as mentioned above is implemented in both portfolio-like product level. Positions in and outside the trading book will in this context could be defined as two sub-portfolios, in which the group must implement backtests.

1.9. Stress tests

The group must have the capacity to develop stress tests daily. In addition, the Group on an ad hoc basis to perform more extensive stress tests. The selected scenarios for stress tests must be adapted to the Group's business area and historic market events.

The interior design of the stress tests should in particular reflect the abnormal market conditions, which cannot be captured sufficiently in backtests by the internal model. This applies, for example, illiquid markets and specific concentration risks in the Group's specific portfolio, see. also, paragraph 4, point (g) of annex 15.

Supervision will basically not setting concrete scenarios for stress tests, but would reserve the option in connection with significant market events.

1.10. Internal audit

In accordance with Annex 15, paragraph 4, point (h) shall carry out independent reviews of the internal audit function, including the application of these models in trade-and control functions.

There is no requirement that the review has made a review before a group's application for approval of internal models. It will, however, be included in the supervisory assessment of the application, the extent to which the review has carried out tasks in the field.

1.11. the fixing of the multiplication factor of the FSA.

Supervision in the context of the authorisation procedure can choose to establish a multiplier that is greater than 3, if the group does not have done it without prejudice. Annex 15, paragraph 21.

Examples of this could be that group:




– calculates the market risks associated with a combination of standard methodologies and internal models,

– bases its calculations on data from external sources, URf.eks. J. p. Morgan's data, and thus not always can be sure that this data is completely updated and correctly calculated,

– do not use the integrated IT systems and have problems with data feeds for systems,

– on individual days not being able to make a calculation, or Was that the calculation is deficient,

– not at the time of authorisation have implemented backtests on internal models for a 12 month period,

– get a deadline to change the models at the time of authorisation, so that the models within a stated period meets up to minimum requirements, see. Annex 15.




The above examples are indicative and can therefore not be concluded that the supervision in all cases would impose group a higher multiplying factor. For example, fixing a higher multiplying factor for the use of external data largely depend on the supervisory assessment of the Group's internal controls implemented by external data.

By changes of the models will also be able to increase the multiplication factor in a shorter period of time.

Supervision sets are generally not an explicit emphasis on the causes of a high multiplication factor, since it increased the multiplication factor is based on a comprehensive assessment of the specific circumstances of the Group's model.

Conditions in the conditional model that has allowed a high multiplication factor, as a general rule, will be taken up for review at the initiative of the FSA after a period of time.

1.12. The Group's subsequent reporting

If the internal models will be allowed, the decision will be reflected in the extent to which the group must report to the oversight, including the extent to which the model changes, such as new products and new sites, shall be subject to approval by the supervisory authority before they can be implemented. The detailed definition of model changes, which must be approved by the supervisory authority, will be determined individually, since the demarcation will greatly depend on the Group's model selection and organization.

1.13. Time limits provided by the oversight

If the Group's models after the FSA considers not live fully up to the minimum requirements or does not calculate the risks on the Group's portfolio sufficient properly, can either choose to reject supervision model, or to give the Group time limits for when the defects in the models must be rectified.

Choose the supervision to give the Group time to change models, can choose either to impose supervision group to calculate market risk by standard methods or select that group in the calculation of the market risk of internal models must use a higher multiplier than 3 of the basic regulation. Annex 15, paragraph 21.

The group does not comply with the time limits, or meets the requirements of supervision was carried out by the Group's changes do not, will not be allowed to use the Group's models for the calculation of market risk in accordance with Annex 15.

2. Application materials related to internal models

The following documents must be attached to the application. To the extent that it is relevant, information must be given both for the Group and for each of the undertakings which are the subject of the application.

2.1. background for the application and calculation of effects











2.1.1.





A description of why the group applying for permission to use internal models for the calculation of the market risk.







2.1.2.





Current calculations of how much effect the use of internal models have on the Group's and business units ' solvency ratios.











2.2. Organizational description











2.2.1.





Organisation charts of departments, which are responsible for the development, implementation, daily use or validation of the models, including a description of how tasks/responsibilities are shared, where several departments are engaged in the same task.







2.2.2.





An overview 1over employees who have a responsibility for development, deployment, use either or validation of the models.







2.2.3.





A description of the subsidiaries or foreign branches covered by the models. An indication of the units is not covered by the models. In addition, a description of their business scope and justification for the fact that they are not covered.







2.2.4.





A description of planned changes in relation to the descriptions in paragraphs 2.2.1.-2.2.3.











2.3. Fields of application











2.3.1.





A description of how the Group's internal models is used internally for purposes other than calculating market risks for capital adequacy purposes, including for ongoing risk management.







2.3.2.





A description of the relationship between the models and other systems or risk measures, which are used in the group to calculate risks or earnings.











2.4. the Limits laid down in the instructions, etc.











2.4.1.





A description of market risk limits laid down in the instructions.







2.4.2.





A description of procedures for monitoring and continuous follow-up on the limits, including the approval of exceedances of limits.











2.5. Business times











2.5.1.





An overview of the business processes that relate to the use, development, implementation and validation of the Group's internal models, as covered by the application.





 



If the descriptions in points 2.6-2.11 is covered by the above mentioned business processes, business corridors are submitted rather than descriptions.











2.6. Product scope











2.6.1.





An indication of product groups covered by the models, URf.eks. shares, debt instruments, commodities and currencies.







2.6.2.





A list of products covered by the models in the individual product groups, which the Group has indicated in its reply to point 2.6.1, URf.eks. Government bonds and callable mortgage bonds.







2.6.3.





A description of the risk factors that are relevant to the individual products, including whether they are covered by the models, URf.eks. Delta values, gamma values, volatilities, correlations, etc.







2.6.4.





A list of products which are not covered by the models. A description of the background and the level of positions in the products and trade in the products.







2.6.5.





A description of the products, which are included on the basis of conservative estimates under realistic market scenarios (illiquid products), including how the group ensures that the risks on these products are checked. The group uses proxies, explaining the choice of these.







2.6.6.





A description of the changes in product volume the last 12 months, and the expected changes, see. section 2.6.1-2.6.5.











2.7. Model description











2.7.1.





A description of the model types, including whether it URf.eks. is the Variance-Covariance models, Monte Carlo models, historical simulation or a combination of these.





 



If the Group has chosen to use multiple models, there must be a description of each model. In addition, the Group describe how risks are aggregated.







2.7.2.





A description of the assumptions, advantages and disadvantages of the chosen models, including procedures for handling:





 









Manglende data





 









Illiquid products





 










Data from different time zones











2.8. The involvement of specific risk











2.8.1.





A description of the internal models used to calculate the specific risk, including assumptions, advantages and disadvantages of the methods.







2.8.2.





An explanation of how the internal models for specific risk explains the historical price variation in the portfolio volatility, including how the model can take account of the concentration in terms of magnitude and changes of composition of the portfolio.







2.8.3.





An explanation of how the internal models of specific risk to be sensitive to differences between similar but not identical positions.







2.8.4.





A statement of how the group takes into account the risk of unforeseen events, as well as a validation of the method for doing so. The statement must cover all product groups and risk categories that are part of the internal model for specific risk. The Group shall, if not the entire risk of unforeseen events be included in the internal model, explain how they have been taken into account in the assessment of the Group's capital base.







2.8.5.





A description of the methods used for the calculation of the share of the risk of default, which is not included in the VaR calculation, as well as how these methods are validated.







2.8.6.





If applying for a special permit for the estimation of risk-weighted items in connection with trafficking in securitiseringer, the following must be demonstrated:





 









There is an intention to trade these products.





 









There exists a liquid two-way market for trade with securitiseringer, or of synthetic securitiseringer a liquid two-way market for all their risk components.





 









There is a sufficiently large data basis that can ensure that the incremental default risk for this type of products, that are beyond the basic calculation, Was taken into account fully.







2.8.7.





Whether the Group wants to use the sub-portfolios to statement of the specific risk. In the case of this group must give an account of the composition of these sub-portfolios.











2.9. Description of the calculation methods

Valuation models











2.9.1.





A description of the models used to value financial derivatives, URf.eks. options and swaps. For each model, the following information is requested:





 









The name of the model.





 









Description of any adjustments compared to the standard model.





 









An indication of any products that are valued by the model.





 









So far as is possible, a theoretical source of referral is indicated.





 









An indication of how long the Group and business units have used model, and about the group itself has developed or purchased model.







2.9.2.





A description of the methods used for the estimation of positions, URf.eks. stripping or mapping of individual positions to default positions.







2.9.3.





A description of the valuation of items with non-trading book interest rate risk, if they are covered by the application.







2.9.4.





A description of the assumptions, the pros and cons of models, including situations where the assumptions in the models will lead to problems, as well as what measures the group takes in such situations.











Risk management models











2.9.5.





A brief description of the models used to calculate the overall risk on debt instruments, equities, commodities and currencies, including:





 









What input models requires, as well as sources for this.





 









What valuation models that provide input to the models, as well as input from here is transferred at the interface.





 









How often the risks are calculated.





 









What are variable by a small change will result in significant changes in the calculated risks.





 









In the models are made to offset risks, assumptions for doing so are described.







2.9.6.





A description of how the models pick up interest rate risk, including a description of the manner in which:





 









Interest rate risk on cash-flow and derivative financial instruments is calculated.





 









Interest rate curves are estimated, what interest rates are used, though there is talk of zero coupon interest rates, forward interest rates etc.





 



It should also indicate whether it is the identical interest rate curves or various interest curves, which are used in the various models.







v2.9.7.





A description of how the models pick up exchange-rate risk.







2.9.8.





A description of how the voltage outlets captured by the models. If the businesses are not covered by the models, the background is described.







2.9.9.





A description of how the risks from options products and other non-linear products included in the models, including how volatilitetskurver etc. are estimated.







2.9.10.





A description of the assumptions, advantages and disadvantages the chosen models/methods.











2.10. Description of input











2.10.1.






A description of the inputs to the valuation and risk management models, as well as the sources for this, URf.eks. interest rate curves, volatilities, exchange rates, etc.







2.10.2.





An indication of the timetable for historical data, which is used in the simulation or calculation of historical variances and covariance are measures.







2.10.3.





If the group is using exponentially weighted variances or covariance are measures or GARCH models, this method must be described, including the background to the choice of method.







2.10.4.





An indication of the sources of historical data, URf.eks. Bloomberg or data stream, including the time of the data. If the group uses in-house data, the competent departments shall be indicated.







2.10.5.





A description of how the time series for the volatilities-URf.eks. implicit or historical volatilities-estimated. If the group uses implicit volatilities, the description indicate which sources or methods of calculation used in the connection. The group uses historical volatilities or another method to estimate volatilities, this method must be described.







2.10.6.





A description of how the time series for new products or new markets obtained.











2.11. Validation of the models, including tests

Validation of assumptions











2.11.1.





An explanation of how the models ' underlying assumptions are appropriate.







2.11.2.





Calculations showing that the models ' assumptions either underestimate or overestimate the Group's risk.







2.11.3.





Overview of the Group's methods for validating internal models in relation to the structure and risk in portfolios. Backtests to the estimation of capital requirements can be omitted from this list.







2.11.4.





Overview of the hypothetical portfolios, which the group uses to identify any structural changes, by way of example, changes in the basic risk and concentration risk.







2.11.5.





Overview of the scope and frequency of validation of the model's assumptions.











Backtests











2.11.6.





A description of the institution's procedures for implementing the backtests, including actual and hypothetical backtests.







2.11.7.





A description of the procedures for the calculation of the daily earnings, which is used in the context of backtests, including





 









internal and external sources,





 









computational methods, including how changes in positions of intra-day as well as fees, commissions and net interest income are handled, and





 









the Division of responsibilities between the Group's business units.







2.11.8.





A description of how the results of backtests are used to assess whether the internal model shall be improved, including the manner in which the causes of problems uncovered by backtests.







2.11.9.





Applicant group for permission to that internal models shall include specific risk must be accounted for, how backtests are used to assess whether there is sufficient to accurately take account of this risk.







2.11.10.





Documentation of completed daily backtests the previous 12-month period.











Stress tests











2.11.11.





A description of the procedure for stress tests, including: