# Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (Text with EEA relevance), Article 370: Requirements for modelling specific risk

Extent: E+W+S+N.I.

An internal model used for calculating own funds requirements for specific risk and an internal model for correlation trading shall meet the following additional requirements:
(a) it explains the historical price variation in the portfolio;
(b) it captures concentration in terms of magnitude and changes of composition of the portfolio;
(c) it is robust to an adverse environment;
(d) it is validated through back-testing aimed at assessing whether specific risk is being accurately captured. If the institution performs such back-testing on the basis of relevant sub-portfolios, these shall be chosen in a consistent manner;
(e) it captures name-related basis risk and shall in particular be sensitive to material idiosyncratic differences between similar but not identical positions;
(f) it captures event risk.

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Source: https://www.legislation.gov.uk/eur/2013/575/article/370 (the official version)
Page: https://openlegislation.uk/eu-regulation-2013-575/article-370
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.