http://www.legislation.gov.uk/eur/2013/153/chapter/XII/section/1Commission Delegated Regulation (EU) No 153/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on requirements for central counterparties (Text with EEA relevance)Commission Delegated Regulation (EU) No 153/2013Commission Delegated Regulation (EU) No 153/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on requirements for central counterparties (Text with EEA relevance)King's Printer of Acts of Parliamenthttps://webarchive.nationalarchives.gov.uk/eu-exit/https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02013R0153-20160615texttext/xmlen2023-12-08Expert Participation2023-07-11 CHAPTER XII <Strong>REVIEW OF MODELS, STRESS TESTING AND BACK TESTING</Strong> (Article 49 Regulation (EU) No 648/2012) SECTION 1 <Strong> <Emphasis>Models and programmes</Emphasis> </Strong> Model Validation Article 47 1 A CCP shall conduct a comprehensive validation of its models, their methodologies and the liquidity risk management framework used to quantify, aggregate, and manage its risks. Any material revisions or adjustments to its models, their methodologies and the liquidity risk management framework shall be subject to appropriate governance, including seeking advice from the risk committee, and validated by a qualified and independent party prior to application. 2 A CCP’s validation process shall be documented and at least shall specify the policies used to test the CCP’s margin, default fund and other financial resources methodologies and framework for calculating liquid financial resources. Any material revisions or adjustments to such policies shall be subject to appropriate governance, including seeking advice from the risk committee, and validated by a qualified and independent party prior to application. 3 A comprehensive validation shall, at least, include the following: a an evaluation of the conceptual soundness of the models and framework, including developmental supporting evidence; b a review of the ongoing monitoring procedures, including verification of processes and benchmarking; c a review of the parameters and assumptions made in the development of its models, their methodologies and the framework; d a review of the adequacy and appropriateness of the models, their methodologies and framework adopted in respect of the type of contracts they apply to; e a review of the appropriateness of its stress testing scenarios in accordance with Chapter VII and Article 52; f an analysis of the outcomes of testing results. 4 A CCP shall establish the criteria against which it assesses whether its models, their methodologies and liquidity risk management framework can be successfully validated. The criteria shall include successful testing results. 5 Where pricing data is not readily available or reliable, a CCP shall address such pricing limitations and, at least, adopt conservative assumptions based on observed correlated or related markets and current behaviours of the market. 6 Where pricing data is not readily available or reliable, the systems and valuation models used for this purpose shall be subject to appropriate governance, including seeking advice from the risk committee, and validation and testing. A CCP shall have its valuation models validated under a variety of market scenarios by a qualified and independent party to ensure that its models accurately produces appropriate prices, and where appropriate, it shall adjust its calculation of initial margins to reflect any identified model risk. 7 A CCP shall regularly conduct an assessment of the theoretical and empirical properties of its margin model for all the financial instruments that it clears. Testing programmes Article 48 1 A CCP shall have in place policies and procedures that detail the stress and back testing programmes it undertakes to assess the appropriateness, accuracy, reliability and resilience of the models and their methodologies used to calculate its risk control mechanisms including margin, default fund contributions, and other financial resources in a wide range of market conditions. 2 A CCP’s policies and procedures shall also detail the stress testing programme it undertakes to assess the appropriateness, accuracy, reliability and resilience of the liquidity risk management framework. 3 The policies and procedures shall include at least methodologies for the inclusion of the selection and development of appropriate testing, including portfolio and market data selection, the regularity of the tests, the specific risk characteristics of the financial instruments cleared, the analysis of testing results and exceptions and the relevant corrective measures needed. 4 A CCP shall include any client positions when performing all tests.