The U.K. Prudential Regulation Authority has published a Policy Statement on its approach to implementing the European Banking Authority’s Technical Standards and Guidelines on Probability of Default estimation, Loss Given Default estimation and the treatment of defaulted exposures in the Internal Ratings Based approach to credit risk. The EBA’s regulatory products are designed to address concerns about the variability of own funds requirements arising from the internal models that firms use to calculate their minimum credit risk capital requirements under the Capital Requirements Regulation. The Policy Statement is relevant to U.K. banks, building societies and PRA-designated U.K. investment firms.
The PRA’s policy will take effect on January 1, 2022 for all asset classes for all IRB firms. For firms using the Standardised Approach, the policy takes effect for residential and non-residential mortgage exposures on December 31, 2020 for TS for the materiality threshold only and on January 1, 2022 for the definition of default. This has been delayed in view of responses to the consultation and the impact of the coronavirus pandemic.
View the updated Supervisory Statement, “Internal Ratings Based (IRB) approaches” (SS 11/13).[View source.]