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Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) (repealed)
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Competent authorities shall examine the institution's capability to perform back‐testing on both actual and hypothetical changes in the portfolio's value. Back‐testing on hypothetical changes in the portfolio's value is based on a comparison between the portfolio's end‐of‐day value and, assuming unchanged positions, its value at the end of the subsequent day. Competent authorities shall require institutions to take appropriate measures to improve their back‐testing programme if deemed deficient. Competent authorities may require institutions to perform back-testing on either hypothetical (using changes in portfolio value that would occur were end-of-day positions to remain unchanged), or actual trading (excluding fees, commissions, and net interest income) outcomes, or both.
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