CAD model waivers
A CAD model waiver is a permission to use an advanced prudential calculation approach for the market risk capital requirement. These permissions are described in the FSA Handbook, in BIPRU 7.9 for a CAD1 approach and BIPRU 7.10 for a Value at Risk (VaR) approach, sometimes also known as a CAD2 approach. This page sets out some guidelines for you to follow when you apply for these types of waivers.
When should you apply?
If you are planning on applying for a CAD1 or VaR model waiver, you should first speak to your Relationship Manager at the FSA. Your Supervisor will then discuss your model with our Traded Risk Team and start the model approval process.
When these discussions are complete your Supervisor will tell you officially whether we have granted your model approval. Please only submit your application for a waiver after you have been through the model recognition process and obtained this approval.
Which firms should be included on the application?
If your firm does not belong to a UK consolidation group (as defined in BIPRU 8.2), then only the firm should be included on your application.
If your firm is part of a UK consolidation group, then you should submit your application on behalf of every BIPRU firm in that group. You should list these in question 3 on your application form (or on a continuation sheet if necessary). You do not need to submit a separate waiver application for each firm.
Which rules should you apply to modify?
Which rules you apply for depends on whether you are applying for a CAD1 or VaR model waiver, and whether your firm is part of a UK consolidation group. This flowchart helps you identify which rules need to be modified.
You should be applying for a modification of the rules, not that the rules be waived (in question 9). Please note you do not need to give the unmodified text or suggest a modification for these applications.
Which parts of the application should you complete?
Application forms for CAD model waivers still need to be completed in full before we can reach a decision on them. In particular, you will still need to provide answers to the statutory tests in question 15. You must answer either 15a or 15b, and then you must answer 15c. It is important that these answers are detailed and address the questions in full.
What additional information should you provide?
With your application, please include the following details:
- Does your firm belong to a UK consolidation group? If so, please state which firm (or firms) the waiver applies to on a solo basis, and which on a consolidated basis only.
- Are you applying to vary an existing CAD model direction? If so, please give the reference number of this direction and briefly explain what the reason for the variation is.
- Who have you been dealing with in our Traded Risk Team? We will ask for a copy of your proposed direction from this contact – there is no need for you to send us your own copy of the direction. You will have the opportunity to check this direction before it is issued.
When your application is complete, you should send it to the Central Waivers Team at the usual FSA address, or by email to centralwaiversteam@fsa.gov.uk.
What will we publish?
We publish waiver directions on our website, unless we think it is inappropriate to do so (see SUP 8.6.1G). The contents of CAD model waivers usually contain commercially sensitive material, so we do not publish them in full. However, abridged versions of these waivers are published.
You will have the opportunity to see draft copies of the full and abridged versions before your application is finalised. To see examples of what these abridged versions look like, please look up modifications of GENPRU 2.1.52 on our consolidated list of published waivers, and see the directions on the FSA register.