PRA Amends Policy on Internal Ratings-Based Mortgage Risk-Weights
PRA published the policy statement PS16/21, which updates the supervisory statement SS11/13 on internal ratings based UK mortgage risk-weights and provides feedback to responses to the associated consultation paper CP14/20. This consultation had included proposals to introduce two complementary expectations on the level of mortgage risk-weights in UK for banks applying the internal ratings-based approaches. The proposals in CP14/20 garnered 10 comments, wherein respondents were generally not in favor of the proposed minimum expectations, with concerns being raised against the proposed 7% risk-weight minimum expectation for individual UK mortgage exposures. The consultation process resulted in certain amendments, with changes to SS11/13 having been scheduled to take effect from January 01, 2022.
In response to the feedback received, PRA has made two changes to the draft policy as consulted on:
- PRA will not introduce the proposed 7% minimum risk-weight expectation on individual UK mortgage exposures. Instead, PRA will consider carefully the calibration of the incoming probability of default (PD) and loss given default (LGD) parameter floors for mortgage exposures as part of the implementation of the Basel 3.1 standards. Revised PD and LGD parameter minimum values will be consulted on as part of the the implementation of the Basel 3.1 standards.
- Mortgage exposures classified as "in default" will be excluded from the 10% average minimum risk-weight expectation
Not introducing the minimum risk-weight expectation on individual UK mortgage exposures will mean that the mortgage risk-weights below the proposed value will continue to be permitted. Firms that would have been impacted by the proposal through increases to their mortgage risk-weights, and the corresponding capital requirements, will no longer be impacted by it. As part of the full implementation of the Basel 3.1 standards, PRA plans to carefully consider calibration of the incoming PD and LGD parameter floors for mortgage exposures. These minima were agreed by BCBS, but PRA will consider whether higher levels would be more appropriate in the UK to reflect concerns about low individual mortgage risk-weights. This would allow for a simpler framework than the original proposal consulted on, by having one less floor covering individual mortgage exposures. PS16/21 has been designed in the context of the end of Brexit transition and any references to the EU or EU-derived legislation refer to the version of that legislation that forms part of the retained EU law.
Related Links
Effective Date: January 01, 2022
Keywords: Europe, UK, Banking, Mortgage Risk Weights, PS16/21, CP14/20, SS11/13, Credit Risk, Basel, Regulatory Capital, IRB Approach, Probability of Default, Loss Given Default, PRA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous Article
OSFI Consults on Approach to Address Operational Risk and ResilienceRelated Articles
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.