Featured Product

    PRA Finalizes Approach to Overseas IRB Credit Risk Models

    June 07, 2021

    PRA published the policy statement PS13/21 that contains final policy on the approach to overseas internal ratings-based (IRB) models for credit risk. PS13/21 is relevant to UK banks, building societies, and PRA-designated investment firms. It contains the updated supervisory statement SS11/13 on IRB approaches, an updated pro-forma for firms to complete and submit for overseas models moving onto the overseas models approach, and the feedback to the responses to the consultation paper CP16/20 on the approach to overseas IRB models for credit risk. The updated SS11/13 will be effective from July 01, 2021.

    PRA had published CP16/20 in October 2020, in which it had proposed to update the approach to overseas IRB models (overseas model approach) and set out additional criteria for use of the approach. As per the final policy in PS13/21, the following three changes have been made to the draft amendments to SS11/13 in light of the responses received:

    • Aggregate amount of risk-weighted assets for credit risk derived using overseas models, and the aggregate amount of exposure value allowed on the overseas models approach, has been increased from 5.0% to 7.5%
    • Scope of asset classes eligible for the overseas models approach has been expanded to include corporate small and medium-size enterprises (SMEs)
    • Definition of the overseas models’ exposure value measure has been introduced

    The first two changes expand the scope of overseas models approach and PRA considers that these changes will reduce the burden of modeling for firms without material impact on the maintenance of strong prudential standards. The third change clarifies the definition of exposure value, which should result in a consistent definition being used. However, PRA considers that these changes are not expected to have a significant cost impact on firms currently allowed to use overseas models in UK consolidated capital requirements and will not materially alter the benefits of the policy or the cost-benefit analysis presented in CP16/20. For the existing overseas IRB models built to non-UK requirements that are not currently used for UK consolidated capital requirements, firms can choose whether to use the overseas model approach. Firms that wish to use the overseas models approach can now submit applications using the updated pro forma and the implementation date for the changes resulting from this PS13/21 begins July 01, 2021. However, firms that do not wish to use the overseas models approach can continue not to use it for UK consolidated capital requirements. For the existing overseas IRB models built to non-UK requirements that are already used for UK consolidated capital requirements, there are three options:

    • If these models meet the new PS13/21 criteria, they can continue to be used for UK consolidated capital requirements. Firms should submit a self-attestation that the criteria are met.
    • If these models do not meet the overseas models approach criteria from July 01, 2021, firms may need to remediate these models to meet the UK IRB requirements or the criteria for the overseas models approach. PRA expects the models that do not meet the criteria to be remediated by January 01, 2023.
    • If firms do not wish to use these models on the overseas models approach, they will need to develop models that meet the UK IRB requirements and discuss this with their supervisor.

     

    Related Links

    Keywords: Europe, UK, Banking, IRB Approach, Credit Risk, Overseas Models Approach, Brexit, PS13/21, SS11/13, CP16/20, Internal Ratings Based, Basel, Regulatory Capital, CRR, PRA

    Featured Experts
    Related Articles
    News

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    News

    HKMA to Increase Focus on Suptech and Regtech Cloud Adoption

    HKMA published the seventh and final issue of the Regtech Watch series, which outlines the three-year roadmap of HKMA to integrate supervisory technology, or suptech, into its processes.

    June 17, 2021 WebPage Regulatory News
    News

    EC Consults on Improving Transparency in Secondary Markets for NPLs

    EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs).

    June 16, 2021 WebPage Regulatory News
    News

    BIS and Nordic Central Banks Launch Innovation Hub in Stockholm

    BIS, Danmarks Nationalbank, Central Bank of Iceland, Norges Bank, and Sveriges Riksbank launched an Innovation Hub in Stockholm, making this the fifth BIS Innovation Hub Center to be opened in the past two years.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Tech Sprint Aims to Explore Technologies to Reach Unbanked

    FDITECH, the technology lab of FDIC, announced a tech sprint that is designed to explore new technologies and techniques that would help expand the capabilities of community banks to meet the needs of unbanked individuals and households.

    June 16, 2021 WebPage Regulatory News
    News

    EC Releases Sustainable Finance Taxonomy Compass

    EC released the EU Taxonomy Compass, which visually represents the contents of the EU Taxonomy starting with the EU Taxonomy Climate Delegated Act.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    EIOPA to Consider Liquidity Risk in Stress Test for 2021

    EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months.

    June 15, 2021 WebPage Regulatory News
    News

    ESRB Paper Discusses Measurement of Impact of Bank Failure via Lending

    The ESRB paper that presents an analytical framework that assesses and quantifies the potential impact of a bank failure on the real economy through the lending function.

    June 15, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7116