Market risk – How to achieve international approval

Since April 1995 the Market Risk Amendment (MRA) agreement has allowed banks to measure their market risk using the Internal Model Approach (IMA). Adoption of IMA has permitted banks to better understand and control their risk exposure, and in turn, to distribute risk more effectively across their business.

However, meeting stringent regulatory requirements and gaining approval from an internal supervisory body has made IMA migration an extremely challenging, time consuming and costly process. The design and implementation of market risk management systems is highly complex - performance, flexibility and transparency being key requirements of IMA. The costs and challenges faced by banks in getting IMA approval can be significantly reduced by working with system suppliers already building IMA-relevant functionality into their systems.

This white paper gives insight into IMA and explores the benefits of using IMA to measure market risk. Additionally, it looks at the difficulties of implementing IMA and the various strategic options available to banks to ease their path to IMA approval.