Related provisions for BIPRU 4.6.22
1 - 20 of 44 items.
The risk weighted exposure amounts for credit risk for exposures belonging to one of the exposure classes referred to in (1) to (4) must, unless deducted from capital resources, be calculated in accordance with the following provisions:(1) for exposures in the sovereign, institution and corporate IRB exposure class, BIPRU 4.4.57 R to BIPRU 4.4.60 R, BIPRU 4.4.79 R, BIPRU 4.5.8 R to BIPRU 4.5.10 R (for specialised lending exposures), BIPRU 4.9.3 R and BIPRU 4.8.16 R to BIPRU 4.8.17
The calculation of risk weighted exposure amounts for credit risk and dilution risk must be based on the relevant parameters associated with the exposure in question. These include probability of default (PD), loss given default (LGD), maturity (M) and the exposure value of the exposure. PD and LGD may be considered separately or jointly, in accordance with the provisions relating to PD and LGD in BIPRU 4.4, BIPRU 4.6, BIPRU 4.7 and BIPRU 4.8 at:(1) for exposures in the sovereign,
The expected loss amounts for exposures belonging to one of the IRB exposure classes referred to in (1) to (3) must be calculated in accordance with the methods set out in the following provisions:(1) for exposures in the sovereign, institution and corporate IRB exposure class, BIPRU 4.4.61 R to BIPRU 4.4.62 R and (for specialised lending exposures) BIPRU 4.5.13 R to BIPRU 4.5.15R;(2) for exposures in the retail exposure class, BIPRU 4.6.47 R to BIPRU 4.6.48 R;(3) for exposures
The calculation of expected loss amounts in accordance with BIPRU 4.3.6 R must be based on the same input figures of PD, LGD and the exposure value for each exposure as being used for the calculation of risk weighted exposure amounts in accordance with BIPRU 4. For defaultedexposures,where a firm uses its own estimate of LGDs, EL must be the firm's best estimate of expected loss (ELBE), for the defaultedexposure in accordance with BIPRU 4.3.122 R.[Note:BCD Article 88(2)]
Internal ratings-based analysis of the firm's credit risk profile must be an essential part of the management reporting required under BIPRU 4.3.9 R, BIPRU 4.3.11 R and BIPRU 4.3.13 R. Reporting must include at least risk profile by grade, migration across grades, estimation of the relevant parameters per grade, and comparison of realised default rates and, to the extent that own estimates are used, of realised LGDs and realised conversion factors against expectations and stress-test
A firm making use of BIPRU 4.3.17 R must ensure that the appropriate regulator has access to all relevant information from the third party that is necessary for examining compliance with the minimum IRB standards and the firm'sIRB permission and that the appropriate regulator may perform on-site examinations to the same extent as within the firm.[Note:BCD Annex VII Part 4 point 130 (part)]
A firm must document the design and operational details of its rating systems. The documentation must evidence compliance with the minimum IRB standards and the firm'sIRB permission, and address topics including portfolio differentiation, rating criteria, responsibilities of parties that rate obligors and exposures, frequency of assignment reviews, and management oversight of the rating process.[Note:BCD Annex VII Part 4 point 31]
A firm must ensure that all documentation relating to its rating systems or otherwise required by the rules governing the IRB approach are stored, arranged and indexed in such a way that the firm would be able to make them all available to the appropriate regulator, or to make any class or description of them specified by the appropriate regulator available to the appropriate regulator, immediately on demand or within a short time thereafter.
A firm must document the rationale for and analysis supporting its choice of rating criteria. A firm must document all major changes in the risk rating process, and such documentation must support identification of changes made to the risk rating process subsequent to the last review by the appropriate regulator. The organisation of rating assignment including the rating assignment process and the internal control structure must also be documented.[Note:BCD Annex VII Part 4 point
A rating system comprises all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to grades or pools (rating), and the quantification of default and loss estimates for a certain type of exposure.[Note:BCD Annex VII Part 4 point 1]
A firm must have robust systems in place to validate the accuracy and consistency of rating systems, processes, and the estimation of all relevant risk parameters (PD, LGD, conversion factors and EL). A firm must be able to demonstrate to the appropriate regulator that the internal validation process enables it to assess the performance of internal rating and risk estimation systems consistently and meaningfully.[Note:BCD Annex VII Part 4 point 110]
(1) A firm must validate its rating systems. Its validation process must include, as a minimum, the elements set out in (2) - (8).(2) A firm must establish and define standards of objectivity, accuracy, stability and conservatism that it designs its ratings systems to meet. It must have processes that establish whether its rating systems meet those standards.(3) A firm must establish and define standards of accuracy of calibration (i.e. whether outcomes are consistent with estimate)
A firm must regularly compare realised default rates with estimated PDs for each grade and where realised default rates are outside the expected range for that grade a firm must specifically analyse the reasons for the deviation. A firm3using its own estimates of LGDs and/or conversion factors must also perform analogous analysis for own estimates of LGDs and conversion factors. Such comparisons must make use of historical data that cover as long a period as possible. A firm must
A firm must have sound internal standards for situations where deviations in realised PDs, LGDs, conversion factors and, where EL is used, total losses, from expectations become significant enough to call the validity of the estimates into question. These standards must take account of business cycles and similar systematic variability in default and loss experience. Where realised values continue to be higher than expected values, a firm must revise estimates upward to reflect
Internal audit or another comparable independent auditing unit must review at least annually the firm'srating systems and its operations, including the operations of the firm and the estimation of PDs, LGDs, ELs and conversion factors. Areas of review must include adherence to all applicable minimum requirements.[Note:BCD Annex VII Part 4 point 131]
4The appropriate regulator expects that firms will routinely make use of stress testing and scenario analysis as a tool in the calibration and/or validation of their IRB approach parameters in order to increase the accuracy or, at least, the conservatism of the estimates. Stress testing should include a thorough exploration of various outturns different to the firm's normal expectations in order to give the firm a clear view of the potential for the forward-looking estimate to
(1) A firm must regularly perform a credit risk stress test to assess the effect of certain specific conditions on its total capital requirements for credit risk. The test to be employed must be one chosen by the firm. The test to be employed must be meaningful and reasonably conservative. Stressed portfolios must contain the vast majority of a firm's total exposures covered by the IRB approach.(2) The stress test must be designed to assess the firm's ability to meet its capital
A firm must take all relevant information into account in assigning obligors and facilities to grades or pools. Information must be current and must enable the firm to forecast the future performance of the exposure. The less information a firm has, the more conservative must be its assignments of exposures to obligor and facility grades or pools. If a firm uses an external rating as a primary factor determining an internal rating assignment, the firm must ensure that it considers
(1) This paragraph applies to the use of statistical models and/or other mechanical methods to assign exposures to obligor grades, obligor pools, facility grades or facility pools.(2) A firm must be able to demonstrate to the appropriate regulator that the model has good predictive power and that capital requirements are not distorted as a result of its use.(3) The input variables to the model must form a reasonable and effective basis for the resulting predictions. The model
(1) This paragraph contains guidance on BIPRU 4.3.51 R for the use of external models.(2) BIPRU 4.3.51 R (2) - BIPRU 4.3.51 R (8) also apply to mechanical methods to assign exposures or obligors to facility grades or pools and to a combination of models and mechanical methods.(3) The standards which a firm applies to an external model should not be lower than those for internal models. (4) The appropriate regulator will not accredit any individual model or vendor. The burden is
The following provisions also apply with respect to the definition of default:(1) for overdrafts, days past due commence once an obligor has breached an advised limit, has been advised a limit smaller than current outstandings, or has drawn credit without authorisation and the underlying amount is material;(2) an advised limit means a limit which has been brought to the knowledge of the obligor;(3) days past due for credit cards commence on the minimum payment due date;(4) in
(1) This paragraph contains guidance on the definition of default.(2) If:(a) a firm ordinarily assigns exposures in the sovereign, institution and corporate IRB exposure class to a member of a group substantially on the basis of membership of that group and a common group rating; and(b) the firm does so in the case of a particular group;(3) the firm should consider whether members of that group should be treated as a single obligor for the purpose of the definition of default.(4)
(1) This paragraph contains guidance on the meaning of days past due for the purposes of the definition of default.(2) If an amount is overdue by the relevant number of days past due because of administrative oversight on the part of the obligor or the firm, a firm with sufficient information may, retrospectively if necessary, treat that as not involving a default if:(a) that failure is not associated with any increase in the risk referred to in BIPRU 4.3.56 R (1); and(b) treating
(1) Elements to be taken as indications of unlikeliness to pay must include the items set out in this rule.(2) The firm putting the credit obligation on non-accrued status must be taken as an indication of unlikeliness to pay.(3) The firm making a value adjustment resulting from a significant perceived decline in credit quality subsequent to the firm taking on the exposure must be taken as an indication of unlikeliness to pay.(4) The firm selling the credit obligation at a material
A firm may use the amount overdue as an additional indication of unlikeliness to pay. If a firm uses this approach, the days past due element of the definition of default continues to apply, including the provisions relating to the fixed number of days past due referred to in BIPRU 4.3.57 R (4). A firm might make the use of a definition of default that takes into account the amount overdue consistent with the days past due element of the definition by setting the amount overdue
In the case of a retail exposure, a value adjustment resulting from significant perceived decline in credit quality falling within BIPRU 4.3.63 R (3) need not necessarily be taken as an indication of unlikeliness to pay if a firm employs formulaic portfolio provisioning based on a number of days overdue for its retail exposures. However, if such an exposure reaches the compulsory days past due indicator for the purposes of the definition of default it should automatically be deemed
(1) The realisation or forfeiture of collateral may be taken as an indication of unlikeliness to pay for the purposes of the definition of default.(2) However, the realisation or forfeiture of collateral may not indicate unlikeliness to pay:(a) in the case of an exposure in a market (such as one that involves retail exposures involving margin lending) in which it is established practice for collateral to be sold if its value falls below a certain percentage of the exposure and
(1) If an obligor approach is being taken with respect to retail exposures (that is, the application of the definition of default at an obligor level rather than at a facility level as set out in BIPRU 4.6.21 R,) a firm should ensure that the PD associated with unsecured exposures is not understated as a result of the presence of any collateralised exposures. A firm should be able to explain to the appropriate regulator, if asked, how it has ensured that its estimate of PD is
A firm may, but without prejudice to BIPRU 4.4.22 R and BIPRU 4.6.20 R (Fixed numbers of days past due), use additional, or stricter, indicators of unlikeliness to pay if it uses these indicators for internal purposes in accordance with BIPRU 4.2.2 R (2) (Use tests) and if the disclosures under BIPRU 11 (Disclosure) are on this basis.
If a firm considers that a previously defaultedexposure is such that no trigger of default continues to apply, the firm must rate the obligor or facility as it would for a non-defaultedexposure. Should the definition of default subsequently be triggered, another default must be deemed to have occurred.[Note:BCD Annex VII Part 4 point 47]
A firm's own estimates of the risk parameters PD, LGD, conversion factor and EL must incorporate all relevant data, information and methods. The estimates must be derived using both historical experience and empirical evidence, and must not be based purely on judgemental considerations. The estimates must be plausible and intuitive and must be based on the material drivers of the respective risk parameters. The less data a firm has, the more conservative it must be in its estimation.[Note:BCD
(1) This paragraph provides guidance on BIPRU 4.3.73 R.(2) Relevant data and information under BIPRU 4.3.73 R includes external data.(3) Where internal default and loss experience is scarce, a firm should consider using material relevant external information. When using external information such as industry averages when determining LGD or conversion factors, a firm should consider whether this data is appropriate to its own experience and whether adjustments are necessary.
(1) In calculating estimates of PD, LGD and conversion factors a firm must adjust the averages of historical experience referred to in the historical averages rules in order to ensure that those estimates are accurate estimates of the default rate, loss rate or conversion factor over the long-run.(2) The historical average rules means the requirements in BIPRU 4 relating to the calculation of PD, LGD and conversion factors using historical averages (and in particular BIPRU 4.4.24
Where a firm is able to demonstrate that the effect is immaterial in accordance with BIPRU 4.1.25 R (Compliance), it may estimate average LGDs and conversion factors under the historical average rules in a way that does not strictly comply with BIPRU 4.3.94 R (Default weighted average), provided the final estimates of LGD and conversion factors following the adjustments to averages of historical experience are made on the basis of default weighted averages for the facility grade
While the qualitative requirements in BIPRU 4 are important for all portfolios, they are of even greater importance in those cases where a firm lacks sufficient historical data to calibrate or validate its estimates of PD, LGD or conversion factors on the basis of proven statistical significance, sometimes referred to as low default portfolios.
(1) A firm must collect data on what it considers to be the main drivers of the risk parameters PD, LGD, conversion factor and EL for each group of obligors or facilities.(2) A firm must document its identification of the main drivers of risk parameters.(3) A firm must be able to demonstrate that its process of identification is reasonable and appropriate.
If a firm uses a rating model to assign exposures to the borrower or facility grades, it may reflect the data on main drivers of risk parameters by its inclusion in the model as a risk driver or as part of a subsequent process that adjusts the output of that model to calculate the risk parameters PD, LGD, conversion factor and EL.
A firm must be able to provide a breakdown of its loss experience in terms of default frequency, LGD, conversion factor, or loss where EL estimates are used, by the factors it sees as the drivers of the respective risk parameters. A firm must be able to demonstrate to the appropriate regulator that its estimates are representative of long-run experience.[Note:BCD Annex VII Part 4 point 50]
Any changes in lending practice or the process for pursuing recoveries over the observation periods referred to in BIPRU 4.4.31 R (Observation period for sovereigns, institutions and corporates for PDs), BIPRU 4.6.28 R (Observation period for retail exposures for PDs), BIPRU 4.4.54 R (Observation period for sovereigns, institutions and corporates for LGDs), BIPRU 4.6.33 R (Observation period for retail exposures for LGDs), BIPRU 4.4.55 R (Observation period for sovereigns, institutions
A firm should be able to demonstrate to the appropriate regulator:(1) how, with respect to each rating system, both assignment of ratings and estimates of PD, LGD and conversion factors are affected by:(a) movements in the economic cycle; and(b) other cyclical effects which are material to levels of default, loss or the amount of exposures at default for the exposures covered by the rating system; and(2) the level of conservatism inherent in its ratings, as provided for by BI
If a firm can demonstrate to the appropriate regulator that for data that has been collected prior to 31 December 2006, appropriate adjustments have been made to achieve broad equivalence with the definitions of default or loss, the appropriate regulator may in the IRB permission allow the firm some flexibility in the application of the required standards for data.[Note:BCD Annex VII Part 4 point 56]
BIPRU 4.3.92 R (1) is intended to ensure that data entering a pool is consistent and does not contain distortions as a result of different contributors' practices. It is not intended to constrain the use of pooled data by one firm that is contributed by a second firm where the differences do not affect the data being contributed.
(1) If:(a) a firm's internal experience of exposures of a type covered by a model or other rating system is 20 defaults or fewer; and(b) in the firm's view, reliable estimates of PD cannot be derived from external sources of default data, including the use of market price related data, for all the exposures covered by the rating system;the firm must estimate PD for exposures covered by that rating system in accordance with this rule.(2) A firm must use a statistical technique
(1) A firm's estimates of LGDs must take into account:(a) data in respect of relevant incomplete workouts; and(b) the possibility that the proportion of defaultedexposures which are cured (as referred to in BIPRU 4.3.71 R) or restructured (as referred to in BIPRU 4.3.63 R (5)) or the length of the period over which a firm makes recoveries under a defaultedexposure may be different from the firm's observed historic experience.(2) An incomplete workout as referred to in (1)(a) means
A firm must use LGD estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver constant realised LGDs by grade or pool over time, a firm must make adjustments to its estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn.[Note:BCD Annex VII Part 4 point 74]
(1) A firm must have a rigorous and well documented process for:(a) assessing the effects, if any, of economic downturn conditions on recovery rates; and(b) producing LGD estimates consistent with downturn conditions as referred to in BIPRU 4.3.103 R.(2) That process must include the following, which may be included in an integrated manner:(a) identification of appropriate downturn conditions for each IRB exposure class within each jurisdiction;(b) identification of adverse dependencies,
A firm may derive the LGD in accordance with BIPRU 4.3.104 R (2)(c) either by directly assigning to the facility grade or pool an estimate of LGD appropriate for downturn conditions, or alternatively by estimating a default weighted average LGD in accordance with BIPRU 4.3.99 R and BIPRU 4.3.76 R and converting it into an LGD appropriate for downturn conditions by the use of a formula. It should be able to demonstrate that that formula produces well-founded estimates of LGDs consistent
A firm must retain sufficient data on both LGDs calculated on a economic downturn basis and calculated on a long-run average basis (as referred to in BIPRU 4.3.103 R) to be able to demonstrate to the appropriate regulator (if asked) that its estimates based on an economic downturn are no less conservative than the long-run average as referred to in that rule.
Where a firm is able to demonstrate that the effect is immaterial in accordance with BIPRU 4.1.25 R (Compliance), it may exclude defaultedexposures that have been cured (as referred to in BIPRU 4.3.67 G (1)) or restructured (as referred to in BIPRU 4.3.63 R (5)) from the data about default and loss experience on which LGDs are calculated provided it can demonstrate that its calculation of capital requirements (including capital requirements resulting from the application of capital
In order to support an LGD estimate which is very low or zero, a firm should be able to demonstrate that the estimate adequately reflects the expected experience on a default weighted average basis or in a downturn as appropriate, taking into account the costs and discount rate associated with realisations and the operation of BIPRU 4.3.118 R.
The methods that a firm uses for discounting cash flows for the purposes of estimating LGDs must take account of the uncertainties associated with the receipt of recoveries with respect to a defaulted exposure. If a firm intends to use a discount rate that does not take full account of the uncertainty in recoveries, it must be able to explain by what other process it has taken into account that uncertainty for the purposes of calculating LGDs.
To the extent that LGD estimates take into account the existence of collateral, these estimates must not solely be based on the collateral's estimated market value. LGD estimates must take into account the effect of the potential inability of the firm expeditiously to gain control of its collateral and liquidate it.[Note:BCD Annex VII Part 4 point 77]
(1) A firm may comply with BIPRU 4.3.118 R by reducing the amount of the collateral taken into account for the purposes of calculating LGD (applying a haircut to the collateral), basing that reduction on validated realisation experience and using conservatism to reflect the uncertainties.(2) If collateral is used to reduce the LGD, a firm should be able to demonstrate how the risk in BIPRU 4.3.118 R has been accounted for. To the extent that it is adequately accounted for in that
To the extent that LGD estimates take into account the existence of collateral, a firm must establish internal requirements for collateral management, legal certainty and risk management that are generally consistent with those set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10.[Note:BCD Annex VII Part 4 point 78]
To the extent that a firm recognises collateral for determining the exposure value for counterparty credit risk according to the CCR standardised method or the CCR internal model method, any amount expected to be recovered from the collateral must not be taken into account in the LGD estimates.[Note:BCD Annex VII Part 4 point 79]
For the specific case of exposures already in default, a firm must use the sum of its best estimate of expected loss for each exposure given current economic circumstances and exposure status and the possibility of additional unexpected losses during the recovery period.[Note:BCD Annex VII Part 4 point 80]
(1) A firm using own estimates of conversion factors should take into account all facility types that may result in an exposure when an obligor defaults, including uncommitted facilities.(2) A firm should treat a facility as an exposure from the earliest date at which a customer is able to make drawings under it.(3) To the extent that a firm makes available multiple facilities, it should be able to demonstrate:(a) how it deals with the fact that exposures on one may become exposures
A firm must use conversion factor estimates that are appropriate for an economic downturn if those are more conservative than the long-run average. To the extent a rating system is expected to deliver realised conversion factors at a constant level by grade or pool over time, a firm must make adjustments to its estimates of risk parameters by grade or pool to limit the capital impact of an economic downturn.[Note:BCD Annex VII Part 4 point 88]
A firm's estimates of conversion factors must reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered. The conversion factor estimate must incorporate a larger margin of conservatism where a stronger positive correlation can reasonably be expected between the default frequency and the magnitude of conversion factor.[Note:BCD Annex VII Part 4 point 89]
In arriving at estimates of conversion factors a firm must consider its specific policies and strategies adopted in respect of account monitoring and payment processing. A firm must also consider its ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events.[Note:BCD Annex VII Part 4 point 90]
(1) This section applies with respect to the sovereign, institution and corporate IRB exposure class.(2) The sovereign, institution and corporate IRB exposure class includes specialised lending exposures.(3) Both BIPRU 4.4 and BIPRU 4.5 (Specialised lending exposures) apply to specialised lending exposures. A firm may calculate risk weighted exposure amounts for a specialised lending exposure either:(a) (if it is able to do so) in accordance with BIPRU 4.4; or(b) in accordance
An obligor grade means for the purpose of BIPRU 4 as it applies to the sovereign, institution and corporate IRB exposure class a risk category within a rating system's obligor rating scale, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of PD are derived. A firm must document both the relationship between obligor grades in terms of the level of default risk each grade implies and the criteria used to distinguish
A firm with portfolios concentrated in a particular market segment and range of default risk must have enough obligor grades within that range to avoid undue concentrations of obligors in a particular grade. Significant concentrations within a single grade must be supported by convincing empirical evidence that the obligor grade covers a reasonably narrow PD band and that the default risk posed by all obligors in the grade falls within that band.[Note:BCD Annex VII Part 4 point
In addition to complying with the material in BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) complete rating histories on obligors and recognised guarantors;(2) the dates the ratings were assigned;(3) the key data and methodology used to derive the rating;(4) the person responsible for the rating assignment;(5) the identity of obligors and exposures that defaulted;(6) the date and circumstances of such defaults;(7) data on the PDs and realised default rates
(1) This rule, in accordance with BIPRU 4.3.57 R (4) (Definition of default), sets the exact number of days past due that a firm should abide by in the case of exposures to PSEs.(2) For counterparts that are PSEs situated within the United Kingdom the number of days past due is 180.(3) [deleted]8(4) For counterparts that are PSEs in a state other than the UK8 the number of days past due is the lower of:(a) 180; and(b) (if a number of days past due for such exposures has been fixed
Where rating agency experience or the output of a statistical default model are the primary component of PD estimation, a firm should consider whether it needs to make adjustments for other relevant information, such as internal experience, conservatism and cyclical effects. In making these adjustments, a firm should consider the extent to which it needs to take account of the potential for both under-recording of actual defaults experienced and divergence of actual experience
To the extent that a firm uses data on internal default experience for the estimation of PDs it must be able to demonstrate in its analysis that the estimates are reflective of underwriting standards and of any differences in the rating system that generated the data and the current rating system. Where underwriting standards or rating systems have changed, a firm must add a greater margin of conservatism in its estimate of PD.[Note:BCD Annex VII Part 4 point 63]
To the extent that a firm associates or maps its internal grades to the scale used by an ECAI or similar organisations and then attributes the default rate observed for the external organisation's grades to the firm's grades, mappings must be based on a comparison of internal rating criteria to the criteria used by the external organisation and on a comparison of the internal and external ratings of any common obligors. Biases or inconsistencies in the mapping approach or underlying
To the extent that a firm uses statistical default prediction models it may estimate PDs as the simple average of default-probability estimates for individual obligors in a given grade. The firm's use of default probability models for this purpose must meet the standards specified in BIPRU 4.3.51 R.[Note:BCD Annex VII Part 4 point 65]
Irrespective of whether a firm is using external, internal, or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used must be at least five years for at least one source. If the available observation period spans a longer period for any source, and this data is relevant, this longer period must be used. A firm not permitted to use own estimates of LGDs or conversion factors may have, when it implements
A firm must use the following LGD values:(1) senior exposures without eligible collateral, 45%;(2) subordinated exposures without eligible collateral, 75%;(3) a firm may recognise funded and unfunded credit protection in the LGD in accordance with BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10;(4) covered bonds may be assigned an LGD value of 11.257%; and7(5) for certain senior corporate exposure purchased receivables, for certain subordinated corporate exposure purchased
(1) The exposure value for the items set out in this rule must be calculated as the committed but undrawn amount multiplied by the applicable conversion factor set out in this rule.(2) For credit lines which are uncommitted, that are unconditionally cancellable at any time by the firm without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower's credit worthiness, a conversion factor of 0 % applies. To apply a conversion factor
1Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, if a firm'sIRB permission permits it to use own LGD estimates under the advanced IRB approach for exposures to which BIPRU 4 applies and permits it to use the approach in this rule, unfunded credit protection may be recognised by adjusting PD and/or LGD estimates subject to the minimum IRB standards. A firm must not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of
1A firm using the advanced IRB approach may only recognise unfunded credit protection in accordance with BIPRU 4.4.43 R. The other methods for recognising unfunded credit risk mitigation under the standardised approach and foundation IRB approach are not available to a firm on the advanced IRB approach.
1If a firm uses its own estimates of conversion factors under the advanced IRB approach it must calculate the exposure value of off-balance sheet exposures calculated with the use of conversion factors by using its own estimates of conversion factors across different product types as mentioned in BIPRU 4.4.37 R and BIPRU 4.4.39 R (2) to BIPRU 4.4.39 R (4).[Note:BCD Annex VII Part 3 point 9 (part)]
1A facility grade means for the purpose of the advanced IRB approach a risk category within a rating system's facility scale to which exposures are assigned on the basis of a specified and distinct set of rating criteria from which own estimates of LGDs are derived. The grade definition must include both a description of how exposures are assigned to the grade and of the criteria used to distinguish the level of risk across grades.[Note:BCD Annex VII Part 4 point 10]
1For a firm permitted to use own estimates of LGDs or conversion factors under the advanced IRB approach, each exposure must be assigned to a facility grade as part of the credit approval process. This is in addition to the requirements in BIPRU 4.4.11 R - BIPRU 4.4.13 R.[Note:BCD Annex VII Part 4 point 20]
1As well as complying with BIPRU 4.3.54 R and BIPRU 4.4.21 R (Data maintenance), a firm using own estimates of LGDs and/or conversion factors under the advanced IRB approach must collect and store:(1) complete histories of data on the facility ratings and LGD and conversion factor estimates associated with each rating scale3;(2) the dates the ratings were assigned and the estimates were done;(3) the key data and methodology used to derive the facility ratings and LGD and conversion
1In addition to the requirements in BIPRU 4.3.74 R - BIPRU 4.3.94 R (General requirements about risk quantification) and BIPRU 4.3.98 R - BIPRU 4.3.123 R (Requirements for risk quantification specific to own-LGD estimates), estimates of LGD must be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for
1In addition to the requirements in BIPRU 4.3.124 R - BIPRU 4.3.131 R (Requirements specific to own-conversion factor estimates), estimates of conversion factors must be based on data over a minimum of five years, increasing by one year each year after implementation until a minimum of seven years is reached, for at least one data source. If the available observation period spans a longer period for any source, and the data is relevant, this longer period must be used.[Note:BCD
Table: Formulae for the calculation of risk weighted exposure amounts
This table belongs to BIPRU 4.4.57 R
Correlation (R) |
0.12 × (1 - EXP(-50*PD))/(1-EXP(-50)) + 0.24* |
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[1-(1-EXP(-50*PD))/(1-EXP(-50))] |
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Maturity factor (b) |
(0.11852-0.05478*1n(PD))2 |
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(1-1.5*b)-1*(1+(M-2.5)*b)*12.5*1.06 |
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N(x) |
denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x). G(z) denotes the inverse cumulative distribution function for a standard normal random variable (i.e. the value x such that N(x) = z). |
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PD = 0 |
For PD = 0, RW shall be: 0 |
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PD = 1 |
For PD = 1: |
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(i) |
for defaultedexposures where a firm applies the LGD values set out in BIPRU 4.4.32R and BIPRU 4.8.25R RW shall be: 0; |
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(ii) |
for defaultedexposures where a firm uses its own estimates of LGDs, RW shall be: Max {0, 12.5 *(LGD-ELBE)}; |
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where ELBEmust be the firm's best estimate of expected loss for the defaultedexposure according to BIPRU 4.3.122 R. |
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[Note:BCD Annex VII Part 1 point 3]
3Table: Formulae for the calculation of expected loss amounts
This table belongs to BIPRU 4.4.61 R
Expected loss amount |
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For defaultedexposures (PD = 1) where a firm uses its own estimates of LGDs, EL must be ELBE, the firm's best estimate of expected loss for the defaultedexposure according to BIPRU 4.3.122 R. |
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For exposures subject to the treatment set out in BIPRU 4.4.79 R (Double default) EL must be 0. |
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[Note:BCD Annex VII Part 1 point 30 (part)]
Subject to BIPRU 4.4.42 R (Advanced IRB approach: LGDs and PDs) a firm may recognise unfunded credit protection in the PD in accordance with the provisions of BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10. For dilution risk, however, a firm may also recognise unfunded credit protection providers which are specified in its IRB permission in addition to those indicated in the CRM eligibility conditions.[Note:BCD Annex VII Part 2 point 5]
(1) A firm must calculate maturity (M) for each of the exposures referred to in this rule in accordance with this rule and subject to BIPRU 4.4.68 R to BIPRU 4.4.70 R. In all cases, M must be no greater than 5 years.(2) For an instrument subject to a cash flow schedule M must be calculated according to the following formula:where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the obligor in period t.(3) For derivatives subject to a
Notwithstanding BIPRU 4.4.67 R (2) - (4)6 and (8)-(9), M must be at least one-day for:6(1) fully or nearly-fully collateralised financial derivative instruments;(2) fully or nearly-fully collateralised margin lending transactions; and(3) repurchase transactions, securities or commodities lending or borrowing transactions,provided the documentation requires daily remargining and daily revaluation and includes provisions that allow for the prompt liquidation or setoff of collateral
The risk weighted exposure amount for each exposure which meets the requirements set out in BIPRU 5.7.2 R and BIPRU 4.4.83 R (Double default) may be adjusted according to the following formula:(1) Risk weighted exposure amount = RW *exposure value * (0.15 + 160*PDpp)](2) PDpp = PD of the protection provider(3) RW must be calculated using the relevant risk weight formula set out in BIPRU 4.4.57 R for the exposure, the PD of the obligor and the LGD of a comparable direct exposure
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.4.43 R, for the purposes of BIPRU 4.4.79 R, the LGD of a comparable direct exposure to the protection provider shall either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether in the event both the guarantor and the obligor default during the life of the hedged transaction available evidence and the structure of the guarantee indicate that the amount recovered
An institution, an insurance undertaking (including an insurance undertaking that carries out reinsurance) or an export credit agency which fulfils the following conditions may be recognised as an eligible provider of unfunded credit protection which qualifies for the treatment set out in BIPRU 4.4.79 R:(1) the protection provider has sufficient expertise in providing unfunded credit protection;(2) the protection provider is regulated in a manner equivalent to the rules laid down
To be eligible for the treatment set out in BIPRU 4.4.79 R, credit protection deriving from a guarantee or credit derivative must meet the following conditions:(1) the underlying obligation must be to:(a) a corporate exposure, excluding an exposure to an insurance undertaking (including an insurance undertaking that carries out reinsurance); or(b) an exposure to a regional government, local authority or public sector entity which is not treated as an exposure to a central government
3Pursuant to the third paragraph of article 95(2) of the UK CRR5, BIPRU 4 also applies requirements that correspond to5 Annex VIII of the Banking Consolidation Directive so far as it applies to the IRB approach. In particular, it applies requirements corresponding to5 (in part):(1) from Part 1 of that Annex, points 12-16, 19-22, 26(g)(ii) and 27;(2) from Part 2 of that Annex, points 8-11; and(3) from Part 3 of that Annex, points 1, 11, 20, 23-24, 58(h), 61, 64-79 and 90-93.
The IRB approach is an alternative to the standardised approach for calculating a firm's credit risk capital requirements. It may be applied to all a firm'sexposures or to some of them, subject to various limitations on partial use as set out in BIPRU 4.2. Under the IRB approach capital requirements are based on a firm's own estimates of certain parameters together with other parameters set out in BIPRU 45.
For exposures in the sovereign, institution and corporate IRB exposure class, there is a foundation IRB approach under which a firm provides its own estimates of PD and an advanced IRB approach under which a firm additionally provides its own estimates of LGD and conversion factors. The distinction between the foundation IRB approach and the advanced IRB approach only applies to this IRB exposure class.
For the corporate exposure class there is a separate sub-class of specialised lending exposure. A firm may calculate risk weights for these exposures, where it is able to do so, in the same way as it does for the rest of its corporate exposure class, i.e. using the foundation IRB approach or the advanced IRB approach. Where a firm is not able to use this approach it may calculate risk weights for specialised lending exposures by slotting them into predetermined risk weights.
The rules in GENPRU and BIPRU do not allow a firm to use the IRB approach. A firm that wishes to use the IRB approach should therefore apply for permission to use the IRB approach using the application procedure explained in BIPRU 1.3. If a firm's application is granted, its terms will be set out in an IRB permission.
The appropriate regulator recognises that the nature of IRB approaches will vary between firms. The scope of and the requirements and conditions set out in an IRB permission may therefore differ in substance or detail from BIPRU 4 in order to address individual circumstances adequately. The FCA will consider any differences by having regard to the Banking Consolidation Directive5. An IRB permission will implement any such variation by modifying the relevant provisions of GENPRU
(1) The appropriate regulator will only grant an IRB permission if it is satisfied that the firm's systems for the management and rating of credit risk exposures are sound and implemented with integrity and, in particular, that they meet the standards in BIPRU 4.2.2 R in accordance with the minimum IRB standards.(2) Under BIPRU 4.2.11 R, a firm applying for an IRB permission is required to demonstrate that it has been using for the IRB exposure classes in question rating systems
An IRB permission will modify GENPRU 2.1.51 R (Calculation of the credit risk capital requirement) by amending, to the extent set out in the IRB permission, the calculation of the credit risk capital requirement in accordance with BIPRU 4 and the other provisions of the Handbook relating to the IRB approach.
A firm must calculate its credit risk capital component as the sum of:(1) (for exposures to which the standardised approach is applied) the credit risk capital component as calculated under BIPRU 3.1.5 R; and(2) (for exposures to which the IRB approach is applied to which the standardised approach would otherwise apply in accordance with BIPRU 3.1.5 R (Credit risk capital component)), 8% of the total of the firm'srisk weighted exposure amounts calculated in accordance with the
By modifying GENPRU 2.1.51 R to allow the firm to use the IRB approach to calculate all or part of its risk weighted exposure amounts, the appropriate regulator is treating it like an application rule. The modification means that the provisions of BIPRU relating to the IRB approach supersede the rules relating to the standardised approach for exposures coming within the scope of the IRB permission.
A reference in the Handbook to a provision of the IRB approach, in the case of a firm:(1) excludes any provision of the IRB approach set out in the Handbook that is not applied to that firm by its IRB permission;(2) includes any additional provision contained in the firm'sIRB permission; and(3) takes into account any other amendments made to the provisions in the Handbook relating to the IRB approach made by the firm'sIRB permission.
If a provision of the Handbook relating to the IRB approach says that a firm may do something if its IRB permission allows it, a firm may do that thing unless its IRB permission expressly says that it may not do so except that:(1) BIPRU 4.2.18 R - BIPRU 4.2.19 R (Sequential implementation of IRB approach) and BIPRU 4.2.26 R (1)-BIPRU 4.2.26R (5) (Combined use of standardised approach with IRB approach) only apply if expressly permitted by a firm'sIRB permission;(2) a firm may
An IRB permission will set out firm-specific material. This will generally include:(1) details about the firm's methodology for carrying out the IRB approach, including the models and rating systems that a firm should use;(2) reporting requirements; and(3) requirements about internal control structure.
A firm's systems for the management and rating of credit risk exposures must be sound and implemented with integrity and, in particular, they must meet the following standards in accordance with the minimum IRB standards:(1) the firm'srating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;(2) internal ratings and default and loss estimates used
Where a parent institution in the UK9 and its subsidiary undertakings or a parent financial holding company in the UK9 and its subsidiary undertakings or a parent mixed financial holding company in the UK9 and its subsidiary undertakings6 use the IRB approach on a unified basis, the question whether the minimum IRB standards are met is answered by considering the parent undertaking and its subsidiary undertakings together,6 unless the firm'sIRB permission specifies otherwise.[Note:
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (1).(2) The information that a firm produces or uses for the purpose of the IRB approach should be reliable and take proper account of the different users of the information produced (customers, shareholders, regulators and other market participants).(3) A firm should establish quantified and documented targets and standards, against which it should test the accuracy of data used in its rating
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (2).(2) The IRB approach as applicable to a firm should be an integral part of its business and risk management processes and procedures to the extent that credit risk is relevant to them. It should also have a substantial influence on its decision-making and actions.21(a) particular regard should be had to the use of the IRB approach in: (i) credit approval;(ii) individual and portfolio limit
This paragraph provides further guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (2). In the appropriate regulator's view risk management has an essential role in informing risk decisions. However, an essential role does not necessarily mean an exclusive role or even always a primary role. There may be justifiable differences between the IRB approach and the firm's use of rating systems for its internal purposes as referred to in BIPRU 4.2.2 R (2). For example, internal
If a firm uses scorecards for its internal credit approval process and the models it uses for the purpose of the IRB approach are fundamentally different from those scorecards, a firm's demonstration of how this is compatible with BIPRU 4.2.2 R (2) might include demonstrating that estimates calculated under the IRB approach are used to change sanctioning decisions at an individual or portfolio level. Examples of this might include amending cut-offs, the application of policy rules,
A firm must be able to demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly in line with the minimum IRB standards for internal risk measurement and management purposes for at least three years prior to the date of its IRB permission.[Note:BCD Article 84(3)]
A firm that has applied for the use of own estimates of LGDs and/or conversion factors must be able to demonstrate to the appropriate regulator that it has been estimating and employing own estimates of LGDs and/or conversion factors in a manner that was broadly consistent with the minimum IRB standards for use of own estimates of those parameters for at least three years prior to the date of its IRB permission or of a variation of its IRB permission that, in either case, entitled
In meeting the experience requirement under BIPRU 4.2.13 R, the appropriate regulator would expect a firm to be able to demonstrate that it has been:(1) operating an internal rating system with estimates of LGD and with conversion factors; and(2) compliant with BIPRU 4.2.11 R as applied to the advanced IRB approach.for the required minimum 3 year period.
To the extent that a firm'sIRB permission permits this, implementation may be carried out sequentially across the different IRB exposure classes within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk weights for the sovereign, institution and corporate IRB exposure class.3[Note:BCD Article 85(1) (part)]
(1) Implementation of the IRB approach as referred to in BIPRU 4.2.18 R must be carried out within a reasonable period of time as set out in the IRB permission.(2) The implementation must be carried out subject to strict conditions determined by the appropriate regulator and set out in the IRB permission.(3) A firm must not use the flexibility under BIPRU 4.2.18 R selectively with the purpose of achieving reduced minimum capital requirements in respect of those IRB exposure classes
(1) A firm should achieve full roll-out of the IRB approach to all its exposures, subject to the exemptions outlined in BIPRU 4.2.26 R, within the period specified in its IRB permission. A firm should not retain a permanent mix of portfolios on the standardised approach and the IRB approach, on the foundation IRB approach and the advanced IRB approach or on a mixture of all approaches with the exception of portfolios covered by those exemptions.(2) This applies to a move:(a) from
Subject to BIPRU 4.2.17 R - BIPRU 4.2.20 R, BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm that has an IRB permission must not use the standardised approach for the calculation of risk weighted exposure amounts for the exposures to which the IRB approach applies under the IRB permission.[Note:BCD Article 85(4)]1
Subject to BIPRU 4.2.17 R - BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm whose IRB permission provides for the use of the advanced IRB approach for the calculation of LGDs and conversion factors for the sovereign, institution and corporate IRB exposure class must not use the LGD values and conversion factors applicable to the foundation IRB approach for the exposures to which the advanced IRB approach applies under the IRB permission.[Note:BCD Article 85(5)]
The appropriate regulator will not agree to a firm's request to revoke or vary its IRB permission so as to permit the firm to revert to the standardised approach except for demonstrated good cause. Likewise, the appropriate regulator will not agree to a firm's request to revoke or vary its IRB permission so as to permit the firm to revert to the foundation IRB approach if the IRB permission provides for it to use the advanced IRB approach, except for demonstrated good cause.
(1) To the extent that its IRB permission permits this, a firm permitted to use the IRB approach in the calculation of risk weighted exposure amounts and expected loss amounts3 for one or more IRB exposure classes may apply the standardised approach in accordance with this rule.3(2) A firm may apply the standardised approach to the IRB exposure class referred to in BIPRU 4.3.2 R (1) (Sovereigns) where the number of material counterparties is limited and it would be unduly burdensome
As part of the application for an IRB permission, a firm should have a well documented policy explaining the basis on which exposures are to be selected for permanent exemption from the IRB approach and for treatment under the standardised approach. The firm's roll out plan should also contain provisions for the continuing application of that policy on a consistent basis over time.
For the purposes of BIPRU 4.2.26 R (4), the equity exposureIRB exposure class of a firm must be considered material if its aggregate value, excluding equity exposures incurred under legislative programmes as referred to in BIPRU 4.2.26 R (8) but including exposures in a CIU treated as equity exposures in accordance with BIPRU 4.9.11 R to BIPRU 4.9.15 R,4 exceeds, on average over the preceding year, 10% of the firm'scapital resources. If the number of those equity exposures is
(1) This rule sets out what must be treated as being non-significant business or immaterial for the purposes of BIPRU 4.2.26 R (4), for exposures that do not fall within the equity exposureIRB exposure class.(2) A firm may elect permanently to exclude exposures from the IRB approach and apply the standardised approach. However a firm may only make use of this exemption to the extent that:(a) the consolidated credit risk requirement (adjusted under (6)) so far as it is attributable
If a firm applies to use the advanced IRB approach for the sovereign, institution and corporate IRB exposure class, BIPRU 4.2.26 R (4) also applies with respect to exposures in that class. For these purposes, to the extent permitted in the firm'sIRB permission, a firm may:(1) exclude some exposures from the IRB approach and apply the standardised approach to those exposures; and(2) exclude other exposures from the advanced IRB approach and apply the foundation IRB approach to
Where BIPRU 4.2.31 R applies:(1) the 15% limit in BIPRU 4.2.30 R (2) is a combined limit for excluded exposures remaining on the standardised approach and excluded exposures remaining on the foundation IRB approach; and(2) the calculation in BIPRU 4.2.30 R (2)(a) is carried out under whichever method of calculation would be applicable to the exposure in question.
(1) Generally, the appropriate regulator will consider excluding, through a firm'sIRB permission, exposures falling into BIPRU 4.2.26 R (6) from the IRB approach. The degree to which this exclusion applies will be set out in the firm'sIRB permission.(2) Exposures excluded under (1) will be eligible for a 0% risk weight under the standardised approach if they satisfy the conditions in BIPRU 3.2.25 R to BIPRU 3.2.27A R5 (Zero risk weight for certain intra-group exposures).5(3) Exposures
(1) This guidance deals with some possible effects of acquiring a major new business after the grant of an IRB permission.(2) A firm should if possible ensure that the exposures arising through the acquisition are dealt with in accordance with the firm'sIRB permission.(3) If the acquisition is made during the currency of a roll out plan under BIPRU 4.2.18 R, a firm should ensure that the exposures arising through the acquisition are dealt with in accordance with that plan. For
A firm using the IRB approach, but not using its own estimates of LGD and conversion factors, may recognise credit risk mitigation in accordance with BIPRU 5 as modified by BIPRU 4.10 in the calculation of risk weighted exposure amounts for the purposes of the calculation of the credit risk capital component or as relevant expected loss amounts for the purposes of the calculation in GENPRU 2.2.191 R to GENPRU 2.2.193 R or GENPRU 2.2.236 R.[Note: BCD Article 91 (as it applies to
(1) Where the requirements of BIPRU 5.2.2 R - BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, and, as relevant, expected loss amounts, may be modified in accordance with BIPRU 5 as modified by BIPRU 4.10.(2) No exposure in respect of which credit risk mitigation is obtained must produce a higher risk weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.(3) Where the
For the recognition of real estate collateral: the minimum requirements in BIPRU 3.4.64 R - BIPRU 3.4.73 R must be met with the following adjustments:(1) those provisions apply to all real estate collateral eligible under BIPRU 4.10; and(2) the minimum frequency of valuation as referred to in BIPRU 3.4.66 R is once every year for commercial real estate.[Note: BCD Annex VIII Part 2 point 8 (as it applies to the IRB approach)]
A firm may recognise as eligible collateral a physical item of a type other than those types indicated in BIPRU 4.10.6 R - BIPRU 4.10.8R4 (Eligibility of real estate collateral) if its IRB permission provides that the firm may treat collateral of that type as eligible and if the firm is able to demonstrate the following:(1) the existence of liquid markets for disposal of the collateral in an expeditious and economically efficient manner;(2) the existence of well-established, publicly
If a firm wishes to recognise other types of collateral in accordance with BIPRU 4.10.16 R (whether as part of its application for an IRB permission or under a variation of its IRB permission) it should demonstrate to the appropriate regulator how the criteria in BIPRU 4.10.16 R (1) - BIPRU 4.10.16 R (3) have been met with respect to that type of collateral.
(1) If a type of other physical collateral referred to in BIPRU 4.10.16 R is potentially eligible under a firm'sIRB permission a firm must only recognise it as eligible if the minimum requirements in (2) to (10) are met.(2) The collateral arrangement must be legally effective and enforceable in all relevant jurisdictions and must enable the firm to realise the value of the property within a reasonable timeframe.(3) With the sole exception of permissible prior claims referred to
(1) Where:(a) risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach; and(b) an exposure is collateralised by both financial collateral and other eligible collateral;LGD* to be taken as the LGD for the purposes of the IRB approach must be calculated in accordance with this rule.(2) A firm must subdivide the volatility-adjusted value of the exposure (i.e. the value after the application of the volatility adjustment as set out in BIPRU 5.4.28
(1) This rule sets out how the calculations under BIPRU 5.6.11 R (Using the supervisory volatility adjustments or the own estimates volatility adjustments approaches to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach,
(1) This rule sets out how the calculations under BIPRU 5.6.24 R (Using the internal models approach to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach E is the exposure value for each separate exposure under
(1) This rule sets out how the calculations under BIPRU 5.6.29 R (Calculating risk-weighted exposure amounts and expected loss amounts for master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) E* must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master
(1) This rule sets out how the calculations under BIPRU 5.4.28 R (Calculating adjusted values under the financial collateral comprehensive method) must be modified under the IRB approach.(2) E as referred to in the provisions listed in (1) is the exposure value as would be determined under the IRB approach if the exposure was not collateralised. For this purpose, where a firm calculates risk weighted exposure amounts under the IRB approach, the exposure value of the items listed
(1) This rule sets out the calculation of risk weighted exposure amounts2 and expected loss2 amounts under the financial collateral comprehensive method2 for a firm using the IRB approach.222(2) LGD* (the effective loss given default) calculated as set out in this paragraph must be taken as the LGD for the purposes of BIPRU 4.(3) LGD* = LGD x (E*/E) where:(a) LGD is the loss given default that would apply to the exposure under the IRB approach if the exposure was not collateralised;(b)
(1) In the case of a firm using the IRB approach to calculate risk weighted exposure amounts and expected loss amounts, the persons in (2) are added to the list in BIPRU 5.4.64 R (Definition of core market participant).(2) The persons referred to in (1) are other financial companies (including insurance companies) exposures to which do not have a credit assessment by an eligible ECAI and are internally rated as having a probability of default equivalent to that associated with
(1) In the case of a firm using the IRB approach in calculating risk weighted exposure amounts and expected loss amounts, the persons in (2) are added to the list in BIPRU 5.7.1 R (List of eligible providers of unfunded credit protection).(2) The persons referred to in (1) are other corporate entities, including parent undertakings, subsidiary undertakings and affiliate corporate entities of the firm, that do not have a credit assessment by an eligible ECAI and are internally
BIPRU 4.10.41 R to BIPRU 4.10.48 R set out the minimum requirements:(1) assessing the effect of guarantees and credit derivatives for:(a) exposures in the sovereign, institution and corporate IRB exposure class2 where the advanced IRB approach is being used to calculate LGDs; and(b) retail exposures; and(2) additionally, in the case of retail exposure guarantees, to the assignment of exposures to grades or pools, and the estimation of PD.[Note: BCD Annex VII Part 4 point 97]
The guarantee must be evidenced in writing, non-cancellable on the part of the guarantor, in force until the obligation is satisfied in full (to the extent of the amount and tenor of the guarantee) and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach and enforce a judgement. Guarantees prescribing conditions under which the guarantor may not be obliged to perform (conditional guarantees) may be recognised if the IRB permission
In addition to BIPRU 5.8.2 R, where there is a maturity mismatch the credit protection must not be recognised where the exposure is a short term exposure specified in the firm'sIRB permission as being subject to a one-day floor rather than a one-year floor in respect of the maturity value (M) under BIPRU 4.4.68 R.[Note: BCD Annex VIII Part 4 point 2(b)]
Notwithstanding BIPRU 4.3.5 R (Relevant parameters), the calculation of risk weighted exposure amounts for credit risk for all exposures belonging to the equity exposureIRB exposure class must be calculated in accordance with one of the following ways:(1) the simple risk weight approach (see BIPRU 4.7.8 R;(2) the PD/LGD approach (see BIPRU 4.7.13 R); and(3) the internal models approach (see BIPRU 4.7.23 R);in accordance with BIPRU 4.7 and subject to the firm'sIRB permission.[Note:BCD
The expected loss amounts1 for equity exposures must be calculated according to the following formula:(1) expected loss amount = EL × exposure value; and(2) the EL values must be the following:(a) expected loss (EL) = 0.8% for private equity exposures in sufficiently diversified portfolios;(b) expected loss (EL) = 0.8% for exchange traded equity exposures; and(c) expected loss (EL) = 2.4% for all other equity exposures.[Note:BCD Annex VII Part 1 point 32]
The risk weighted exposure amounts must be calculated according to the formulas in BIPRU 4.4.58 R (Risk weighted exposure amounts for sovereigns, institutions and corporates). If a firm does not have sufficient information to use the definition of default a scaling factor of 1.5 must be assigned to the risk weights.[Note:BCD Annex VII Part 1 point 22]
A firm may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10. This must be subject to an LGD of 90% on the exposure to the provider of the hedge. For private equity exposures in sufficiently diversified portfolios an LGD of 65% may be used.[Note:BCD Annex VII Part 1 point 24]
PDs must be determined according to the methods for corporate exposures. The following minimum PDs must be applied:(1) 0.09% for exchange traded equity exposures where the investment is part of a long-term customer relationship;(2) 0.09% for non-exchange traded equity exposures where the returns on the investment are based on regular and periodic cash flows not derived from capital gains;(3) 0.40% for exchange traded equity exposures including other short positions as set out
The risk weighted exposure amount is the potential loss on the firm'sequity exposures as derived using internal value-at-risk models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term sample period, multiplied by 12.5. The risk weighted exposure amounts at the equity exposure portfolio2 level must not be less than the total of the sums2 of the minimum risk weighted
(1) A firm must meet the standards set out in (2) to (9) for the purpose of calculating capital requirements.(2) The estimate of potential loss must be robust to adverse market movements relevant to the long-term risk profile of the firm's specific holdings. The data used to represent return distributions must reflect the longest sample period for which data is available and be meaningful in representing the risk profile of the firm's specific equity exposures. The data used must
A firm must make use of other quantitative validation tools and comparisons with external data sources. The analysis must be based on data that are appropriate to the portfolio, are updated regularly, and cover a relevant observation period. A firm's internal assessments of the performance of its models must be based on as long a period as possible.[Note:BCD Annex VII Part 4 point 121]
A firm must have sound internal standards for situations where comparison of actual equity exposure returns with the models' estimates calls the validity of the estimates or of the models as such into question. These standards must take account of business cycles and similar systematic variability in equity exposure returns. All adjustments made to internal models in response to model reviews must be documented and consistent with the firm's model review standards.[Note:BCD Annex
The estimates for determining the risk parameters PD, LGD, conversion factor and EL must reflect all relevant information available to the purchasing firm regarding the quality of the underlying receivables, including data for similar pools provided by the seller, by the purchasing firm, or by external sources. The purchasing firm must evaluate any data relied upon which is provided by the seller.[Note: BCD Annex VII Part 4 point 53]
If a firm derives long run average estimates of PDs and LGDs for corporate exposure purchased receivables from an estimate of EL, and an appropriate estimate of PD or LGD, the process for estimating total losses must meet the overall standards for estimation of PD and LGD set out in the minimum IRB standards,2 and the outcome must be consistent with the concept of LGD as set out in BIPRU 4.3.99 R.[Note: BCD Annex VII Part 4 point 61]
For its corporate exposure purchased receivables a firm must comply with the minimum requirements set out in BIPRU 4.8.11 R - BIPRU 4.8.15 R. For corporate exposure purchased receivables that comply in addition with the conditions set out in BIPRU 4.8.18 R, and where it would be unduly burdensome for a firm to use the risk quantification standards for corporate exposures as set out in the minimum IRB standards for these receivables, the risk quantification standards for retail
For corporate exposure purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for defaultlosses, dilution losses, or both, may be treated as first-loss positions under the provisions in BIPRU 9 (Securitisation) about the IRB approach.[Note: BCD Annex VII Part 1 point 8]
With respect to retail exposures, for purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for defaultlosses, dilution losses, or both, may be treated as first-loss positions under the provisions in BIPRU 9 (Securitisation) about the IRB approach.[Note: BCD Annex VII Part 1 point 15]
The risk weights for dilution risk for purchased receivables (both corporate exposures and retail exposures) must be calculated according to this rule. The risk weights must be calculated according to the formula in BIPRU 4.4.58 R. However, for the purposes of that formula, the total annual sales referred to in BIPRU 4.4.59 R are the weighted average by individual exposures of the pool. The input parameters PD and LGD and the exposure value must be determined under the applicable
For purchased corporate exposure receivables in respect of which a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the PDs for these exposures must be determined according to the following methods:(1) for senior claims on purchased corporate exposure receivables PD must be the firm's estimate of EL divided by LGD for these receivables;(2) for subordinated claims on purchased corporate exposure receivables PD must be the firm's estimate of EL; and1(3)
In the case of corporate exposures, for dilution risk of purchased receivables PD must be set equal to EL estimate for dilution risk. If a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for dilution risk of purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the PD estimate may be used. A firm may recognise unfunded credit protection in the PD in accordance
In the case of retail exposures, for dilution risk of purchased receivables PD must be set equal to EL estimates for dilution risk. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the PD estimate may be used.[Note: BCD Annex VII Part 2 point 19]
The following LGD values apply for purchased corporate exposure receivables:(1) for senior purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 45%;(2) for subordinated purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 100%; and(3) for dilution risk of purchased corporate exposure receivables,
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, for dilution risk and default risk if a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the LGD estimate for purchased corporate exposure receivables may be used.[Note: BCD Annex VII Part 2 point 9]
(1) The exposure value for the items in (2) must be calculated as the committed but undrawn amount multiplied by a conversion factor.(2) For undrawn purchase commitments for revolving purchased receivables that are unconditionally cancellable or that effectively provide for automatic cancellation at any time by the firm without prior notice, a conversion factor of 0% applies. To apply a conversion factor of 0%, a firm must actively monitor the financial condition of the obligor,
To be eligible to be treated as a retail exposure, exposures must meet the following criteria:(1) they must be either to an individual person or persons, or to a small or medium sized entity, provided in the latter case that the total amount owed to the firm and parent undertaking and its subsidiary undertakings, including any past due exposure, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential real estate collateral,
(1) This paragraph sets out guidance on BIPRU 4.6.2 R so far as it relates to the boundary between retail exposures and corporate exposures.(2) In deciding what steps are reasonable for the purposes of BIPRU 4.6.2 R (1), a firm may take into account complexity and cost, as well as the materiality of the impact upon its capital calculation. A firm should be able to demonstrate to the appropriate regulator that it has complied with the obligation to take reasonable steps under BIPRU
(1) A firm must consider the following risk drivers when assigning exposures to grades or pools:(a) obligor risk characteristics;(b) transaction risk characteristics, including product or collateral types or both; and(c) delinquency.(2) In the case of (1)(b) a firm must explicitly address cases where several exposures benefit from the same collateral.(3) However:(a) a firm need not consider delinquency if this is compatible with its IRB permission; and(b) (in the case of a firm
A firm must at least annually update obligor and facility assignments or review the loss characteristics and delinquency status of each identified risk pool whichever is applicable. A firm must also at least annually review in a representative sample the status of individual exposures within each pool as a means of ensuring that exposures continue to be assigned to the correct pool.[Note:BCD Annex VII Part 4 point 29]
Annual rescoring is one method of meeting the requirement in BIPRU 4.6.14 R. However a firm need not carry out this update by means of a full re-run of a credit scoring model if it is able to demonstrate that its method is appropriate to the portfolio given its materiality and its impact on its capital requirements and that the firm still meets the minimum IRB standards.
In addition to complying with BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) data used in the process of allocating exposures to grades or pools;(2) data on the estimated PDs, LGDs and conversion factors associated with grades or pools of exposures;(3) the identity of obligors and exposures that defaulted;(4) for defaultedexposures, data on the grades or pools to which the exposure was assigned over the year prior to default and the realised outcomes on LGD
(1) This rule, in accordance with BIPRU 4.3.57 R (4) (Definition of default), sets the exact number of days past due that a firm must abide by in the case of retail exposures.(2) For retail exposures to counterparts situated within the United Kingdom the number of days past due is 180 days with the exception of retail SME exposures. For these exposures the number is 90 days.(3) [deleted]2(4) For retail exposures to counterparts in a state outside the United Kingdom2 the number
If a firm derives long run average estimates of PD and LGD for retail exposures from an estimate of total losses, and an appropriate estimate of PD or LGD, the process for estimating total losses must meet the minimum IRB standards1 for estimation of PD and LGD, and the outcome must be consistent with the concept of LGD as set out in BIPRU 4.3.99 R (Default weighted average).[Note:BCD Annex VII Part 4 point 70]
Irrespective of whether a firm is using external, internal, pooled data sources or a combination of the three, for its estimation of loss characteristics, the length of the underlying historical observation period used must be at least five years for at least one source. If the available observation spans a longer period for any source, and these data are relevant, this longer period must be used. However:(1) a firm need not give equal importance to historic data if this is compatible
Estimates of LGD must be based on data over a minimum of five years. Notwithstanding BIPRU 4.3.99 R (Default weighted average):(1) a firm need not give equal importance to historic data if this is permitted by its IRB permission; and(2) (in the case of a firm with an IRB permission that permits this treatment of historic data) the firm must be able to convince the appropriate regulator that more recent data is a better predictor of loss rates.[Note:BCD Annex VII Part 4 point 86
Estimates of conversion factors must be based on data over a minimum of five years. Notwithstanding BIPRU 4.3.125 R:(1) a firm need not give equal importance to historic data if this is permitted by its IRB permission; and(2) (in the case of a firm with an IRB permission that permits this treatment of historic data) the firm must be able to convince the appropriate regulator if asked that more recent data is a better predictor of loss rates.[Note:BCD Annex VII Part 4 point 95
(1) For qualifying revolving retail exposures a correlation (R) of 0.04 must replace the correlation formula in the table in BIPRU 4.6.42 R.(2) Retail exposures qualify as qualifying revolving retail exposures if they meet the following conditions:(a) the IRB permission of the firm in question does not disapply this paragraph;(b) the exposures are to individuals;(c) the exposures are revolving, unsecured, and, to the extent they are not drawn, immediately and unconditionally cancellable
A firm should be able to demonstrate the low volatility of loss rates mentioned in BIPRU 4.6.44 R (2)(e) at the time of the initial application for an IRB permission and thereafter at any time on request. The benchmark level should be the volatility of loss rates for the qualifying revolving retail exposure portfolio relative to the volatilities of loss rates of other relevant types of retail exposures. A firm should demonstrate low volatility by reference to data on the mean
Unfunded credit protection may be recognised as eligible by adjusting PD or LGD estimates subject to the minimum IRB standards as specified in BIPRU 4.10.43 R - BIPRU 4.10.48 R and in accordance with the IRB permission either in support of an individual exposure or a pool of exposures. A firm must not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor.[Note:BCD Annex VII
Within the corporate exposureIRB exposure class, a firm must separately identify as specialised lending exposures, exposures which possess the following characteristics:(1) the exposure is to an entity which was created specifically to finance and/or operate physical assets;(2) the contractual arrangements give the lender a substantial degree of control over the assets and the income that they generate; and(3) the primary source of repayment of the obligation is the income generated
If a firm is using or is applying to use the advanced IRB approach for some or all of its exposures in the sovereign, institution and corporate IRB exposure class, then specialised lending exposures treated under BIPRU 4.5.8 R (Slotting) must be treated as being dealt with under the advanced IRB approach for the purposes of the calculations in BIPRU 4.2.30 R and BIPRU 4.2.31 R. If a firm is not using or applying to use the advanced IRB approach for any of its exposures in the
Table: Risk weights for specialised lending
This table belongs to BIPRU 4.5.8 R1
Remaining maturity |
Category 1 (Strong) |
Category 2 (Good) |
Category 3 (Satisfactory) |
Category 4 (Weak) |
Category 5 |
Less than 2.5 years |
50% |
70% |
115% |
250% |
0% |
Equal or more than 2.5 years |
70% |
90% |
115% |
250% |
0% |
The coverage of each of the categories is set out in BIPRU 4.5.6 R |
|||||
[Note:BCD Annex VII Part 1 point 6 (part)]
A firm may generally assign preferential risk weights of 50% to exposures in category 1, and a 70% risk weight to exposures in category 2 if:(1) its IRB permission allows this; and(2) the firm's underwriting characteristics and other risk characteristics are substantially strong for the relevant category.[Note:BCD Annex VII Part 1 point 6 (part)]
(1) If a firm applies for an IRB permission or for a variation of an IRB permission that permits the treatment in BIPRU 4.5.10 R it should demonstrate that its standards exceed those of the slotting criteria provided for in BIPRU 4.5 and result in ratings that are stronger than the benchmarks referred to in (3).(2) If a firm has an IRB permission that permits the treatment in BIPRU 4.5.10 R it should continue to be able to demonstrate the matters in (1) to the appropriate regulator
Where a firm'sIRB permission authorises it generally to assign preferential risk weights as outlined in BIPRU 4.5.10 R of 50% to exposures in category 1, and 70% to exposures in category 2, the EL value for exposures in category 1 must be 0%, and for exposures in category 2 must be 0.4%.[Note:BCD Annex VII Part 1 point 31 (part)]
Subject to any IRB permission of the type described in BIPRU 9.12.28 G, in the case of an originator or sponsor unable to calculate KIRB and which has not obtained approval to use the ABCP internal assessment approach, and in the case of other firms where they have not obtained approval to use the supervisory formula method or, for positions in ABCP programmes, the ABCP internal assessment approach, a risk weight of 1250% must be assigned to securitisation positions which are
For an originator, a sponsor, or for other firms which can calculate KIRB, the risk weighted exposure amounts calculated in respect of its positions in a securitisation may be limited to that which would produce an amount in respect of its credit risk capital requirement equal to the sum of 8% of the risk weighted exposure amount which would be produced if the securitised assets had not been securitised and were on the balance sheet of the firm plus the expected loss amounts of
(1) If:(a) a firm'sIRB permission allows it to use this treatment; and(b) the conditions in (2)(16) are satisfied,a firm may attribute to an unrated position in an asset backed commercial paper programme a derived rating as laid down in (3).(2) Positions in the commercial paper issued from the programme must be rated positions.(3) Under the ABCP internal assessment approach, the unrated position must be assigned by the firm to one of the rating grades described in (5). The position
(1) Subject to any permission of the type described in BIPRU 9.12.28 G, the risk weight to be applied to the exposure amount must be:12.5 (S[L+T] - S[L]) / T(2) The remaining provisions of this paragraph define the terms used in the formulae in (1) and (3).(3) 2(4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) In these expressions, Beta [x; a, b]refers to the cumulative beta distribution with parameters a and b evaluated at x.(16) T (the thickness of the tranche in which the
(1) When it is not practical for the firm to calculate the risk weighted exposure amounts for the securitised exposures as if they had not been securitised and the position does not qualify for the ABCP internal assessment approach, a firm may apply to the appropriate regulator for a variation of its IRB permission under which, on an exceptional basis, it may temporarily apply the method in (2) for the calculation of risk weighted exposure amounts for an unratedsecuritisation
A firm calculating risk weighted exposure amounts in accordance with the IRB approach must disclose the following information:(1) the scope of the firm'sIRB permission;(2) an explanation and review of:(a) the structure of internal rating systems and relation between internal and external ratings;(b) the use of internal estimates other than for calculating risk weighted exposure amounts in accordance with the IRB approach;(c) the process for managing and recognising credit risk
For the purposes of BIPRU 11.6.1 R (3), the description must include the types of exposure included in the IRB exposure class, the definitions, methods and data for estimation and validation of PD and, if applicable, LGD and conversion factors, including assumptions employed in the derivation of these variables, and the descriptions of material deviations from the definition of default, including the broad segments affected by such deviations.[Note: BCD Annex XII Part 3 point
For the purposes of BIPRU 11.6.1 R (4), where a firm uses its own estimates of LGDs or conversion factors for the calculation of risk weighted exposure amounts for exposures falling into the sovereign, institution and corporate IRB exposure class1, the firm must disclose those exposures separately from exposures for which it does not use such estimates.[Note: BCD Annex XII Part 3 point 1 (part)]
A firm applying credit risk mitigation techniques must disclose the following information:(1) the policies and processes for, and an indication of the extent to which the firm makes use of, on- and off-balance sheet netting;(2) the policies and processes for collateral valuation and management;(3) a description of the main types of collateral taken by the firm;(4) the main types of guarantor and credit derivative counterparty and their creditworthiness;(5) information about market
BIPRU 4.10 applies requirements that correspond to3 those parts of Articles 91 to 93 and Annex VIII of the Banking Consolidation Directive which are specific to the recognition of credit risk mitigation by firms using the IRB approach, and modifies the application of the provisions in BIPRU 5 to those firms.
(1) Where the credit risk mitigation used relies on the right of a firm to liquidate or retain assets, eligibility depends upon whether risk weighted exposure amounts, and, as relevant, expected loss amounts, are calculated under the standardised approach or the IRB approach.(2) Eligibility further depends upon whether the financial collateral simple method is used or the financial collateral comprehensive method.(3) In relation to repurchase transactions and securities or commodities
A firm must not use both the financial collateral simple method and the financial collateral comprehensive method, unless such use is for the purposes of BIPRU 4.2.17 R to BIPRU 4.2.19 R and BIPRU 4.2.26 R, and such use is provided for by the firm'sIRB permission. A firm must demonstrate to the appropriate regulator that this exceptional application of both methods is not used selectively with the purpose of achieving reduced minimum capital requirements and does not lead to regulatory
A firm may choose to use the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm seeks to use the own estimates of volatility adjustments approach, it must do so for the full range of instrument types, excluding immaterial portfolios where it may use the supervisory
The obligation to conduct an ICAAP, includes requirements on a firm to:(1) carry out regularly assessments of the amounts, types and distribution of financial resources, capital resources and internal capital that it considers adequate to cover the nature and level of the risks to which it is or might be exposed (GENPRU 1.2.30 R to GENPRU 1.2.41 G (the overall Pillar 2 rule and related rules);(2) identify the major sources of risk to its ability to meet its liabilities as they
The appropriate regulator will review a firm'sICAAP, including the results of the firm's stress tests carried out under GENPRU and BIPRU, as part of its SREP. Provided that the appropriate regulator is satisfied with the appropriateness of a firm's capital assessment, the appropriate regulator will take into account that firm'sICAAP and stress tests in its SREP. More material on stress tests for a firm with an IRB permission can be found in BIPRU 2.2.41 R to BIPRU 2.2.45 G.44
A firm with an IRB permission must ensure that there is no significant risk that it will not be able to meet its capital resource requirements for credit risk under GENPRU 2.1 (Calculation of capital resources requirements) at all times throughout an economic cycle, including the capital resources requirements for credit risk indicated by any stress test carried out under BIPRU 4.3.39 R to BIPRU 4.3.40 R (Stress tests used in assessment of capital adequacy for a firm with an IRB
The applicable data items referred to in SUP 16.12.4 R are set out according to firm type in the table below:
Firms’prudential category and applicable data items (note 1) |
|||||
Firms other than MIFIDPRU investment firms |
|||||
IPRU(INV)Chapter 3 |
IPRU(INV)Chapter 5 |
IPRU(INV)Chapter 13 |
|||
Solvency statement |
No standard format (note 4) |
No standard format (note 6) |
No standard format (note 4) |
||
Balance sheet |
FSA029 (note 2) |
FSA029 (note 5) |
FSA029 |
Section A RMAR |
|
Income statement |
FSA030 (note 2) |
FSA030 (note 5) |
FSA030 |
Section B RMAR |
|
Capital adequacy |
MIF001 (note 2 and 3) |
FSA033 (note 5) |
FSA034 or FSA035 or FIN071 (note 7) |
Section D1 RMAR |
|
Supplementary capital data for collective portfolio management investment firms |
FIN067 (note 13) |
||||
ICARA assessment questionnaire |
MIF007 (note 3) |
||||
Threshold conditions |
Section F RMAR |
||||
Client money and client assets |
FSA039 |
FSA039 |
FSA039 |
Section C RMAR |
|
CFTC |
FSA040 (note 8) |
FSA040 (note 8) |
FSA040 (note 8) |
FSA040 (note 8) |
|
Liquidity |
MIF002 (notes 2, 3 and 10) |
||||
Metrics reporting |
MIF003 (notes 2 and 3) |
||||
Concentration risk (non-K-CON) |
MIF004 (notes 2, 3 and 11) |
||||
Concentration risk (K-CON) |
MIF005 (notes 2, 3 and 11) |
||||
Group capital test |
MIF006 (notes 3 and 12) |
||||
Liquidity Questionnaire |
MLA-M (note 9) |
MLA-M (note 9) |
MLA-M (note 9) |
MLA-M (note 9) |
|
Note 1 |
All firms (except MIFIDPRU investment firms in relation to items reported under MIFIDPRU 9) must, when submitting the completed data item required, use the format of the data item set out in SUP 16 Annex 24R. Guidance notes for completion of the data items are contained in SUP 16 Annex 25G. |
||||
Note 2 |
A UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5 must also submit this report on the basis of the consolidated situation. |
||||
Note 3 |
Data items MIF001 – MIF007 must be reported in accordance with the rules in MIFIDPRU 9. |
||||
Note 4 |
Only applicable to a firm that is a sole trader or partnership. Where the firm is a partnership, this report must be submitted by each partner. |
||||
Note 5 |
Except if the firm is an adviser (as referred to in IPRU-INV (3)-60(4)R). |
||||
Note 6 |
Only required in the case of an adviser (as referred to in IPRU-INV (3)-60(4)R)) that is a sole trader. |
||||
Note 7 |
FSA034 must be completed by a firm not subject to the exemption in IPRU(INV) 5.4.2R, unless it is a firm whose permitted business includes establishing, operating or winding up a personal pension scheme, in which case FIN071 must be completed. FSA035 must be completed by a firm subject to the exemption in IPRU(INV) 5.4.2R. |
||||
Note 8 |
Only applicable to firms granted a Part 30 exemption order and operating an arrangement to cover forward profits on the London Metals Exchange. |
||||
Note 9 |
Only applicable to RAG 3 firms carrying on home financing or home finance administration connected to regulated mortgage contracts, unless as at 26 April 2014 the firm’sPart 4A permission was and remains subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts. |
||||
Note 10 |
Does not apply to an SNI MIFIDPRU investment firm which has been granted an exemption from the liquidity requirements in MIFIDPRU 6. |
||||
Note 11 |
Only applicable to a non-SNI MIFIDPRU investment firm. |
||||
Note 12 |
Only applicable to a parent undertaking to which the group capital test applies. |
||||
Note 13 |
Only applicable to firms that are collective portfolio management investment firms. |
||||
The applicable data items referred to in SUP 16.12.4 R are set out76 according to firm type76 in the table below:
Firms’ prudential category and applicable data items (note 1) |
|||||||
Firms other than MIFIDPRU investment firms |
|||||||
Chapter 3 |
Chapter 5 |
Chapter 11 |
Chapter 12 |
Chapter 13 |
|||
Solvency statement (note 2) |
No standard format |
No standard format |
No standard format |
||||
Balance sheet |
FSA029 (note 3) |
FSA029 |
FSA029 |
FSA029 |
FSA029 |
Section A RMAR |
|
Income statement |
FSA030 (note 3) |
FSA030 |
FSA030 |
FSA030 |
FSA030 |
Section B RMAR |
|
Capital adequacy |
MIF001 (note 3 and 4) |
FSA033 |
FSA034 or FSA035 or FIN071 (note 5) |
FIN066 |
FIN069 |
Section D1 RMAR |
|
ICARA assessment questionnaire |
MIF007 (note 4) |
||||||
Supplementary capital data for collective portfolio management investment firms |
FIN067 (note 9) |
||||||
Threshold conditions |
Section F RMAR |
||||||
Volumes and types of business |
FSA038 |
FSA038 |
FSA038 |
FSA038 |
|||
Client money and client assets |
FSA039 |
FSA039 |
FSA039 |
FSA039 |
FSA039 |
Section C RMAR |
|
Liquidity |
MIF002 (notes 3, 4 and 6) |
||||||
Metrics monitoring |
MIF003 (notes 3 and 4) |
||||||
Concentration risk (non-K-CON) |
MIF004 (notes 3, 4 and 7) |
||||||
Concentration risk (K-CON) |
MIF005 (notes 3, 4 and 7) |
||||||
Group capital test |
MIF006 (notes 4 and 8) |
||||||
Information on P2P agreements |
FIN070 |
||||||
Note 1 |
All firms, except MIFIDPRU investment firms in relation to items reported under MIFIDPRU 9, must, when submitting the completed data item required, use the format of the data item set out in SUP 16 Annex 24. Guidance notes for completion of the data items are contained in SUP 16 Annex 25. |
||||||
Note 2 |
Only applicable to a firm that is a sole trader or partnership. Where the firm is a partnership, this report must be submitted by each partner. |
||||||
Note 3 |
A UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5 must also submit this report on the basis of the consolidated situation. |
||||||
Note 4 |
Data items MIF001 – MIF007 must be reported in accordance with the rules in MIFIDPRU 9. |
||||||
Note 5 |
FSA034 must be completed by a firm not subject to the exemption in IPRU(INV) 5.4.2R, unless it is a firm whose permitted business includes establishing, operating or winding up a personal pension scheme, in which case FIN071 must be completed. FSA035 must be completed by a firm subject to the exemption in IPRU(INV) 5.4.2R. |
||||||
Note 6 |
Does not apply to an SNI MIFIDPRU investment firm which has been granted an exemption from the liquidity requirements in MIFIDPRU [6]. |
||||||
Note 7 |
Only applicable to a non-SNI MIFIDPRU investment firm. |
||||||
Note 8 |
Only applicable to a parent undertaking to which the group capital test applies. |
||||||
Note 9 |
Only applicable to firms that are collective portfolio management investment firms. |
||||||
2The applicable data items referred to in SUP 16.12.4 R are set out according to type of firm in the table below:
Firms’ prudential category and applicable data item (note 1) |
|||
Chapter 13 |
Firms that are also in one or more of RAGs 2 to 6 and not subject to IPRU(INV) Chapter 13 |
||
Solvency statement |
No standard format (note 2) |
||
Balance sheet |
FSA029 (note 3) |
Section A RMAR |
|
Income statement |
FSA030 (note 3) |
Section B RMAR |
|
Capital adequacy |
MIF001 (notes 3 and 6) |
Section D1 RMAR (note 9) |
|
Liquidity |
MIF002 (notes 3, 4 and 6) |
||
Metrics monitoring |
MIF003 (notes 3 and 6) |
||
Concentration risk (non-K-CON) |
MIF004 (notes 3, 5 and 6) |
||
Concentration risk (K-CON) |
MIF005 (notes 3, 5 and 6) |
||
Group capital test |
MIF006 (notes 6 and 8) |
||
ICARA assessment questionnaire |
MIF007 (note 6) |
||
Supplementary capital data for collective portfolio management investment firms |
FIN067 (note 10) |
||
Professional indemnity insurance (note 11)90 |
Section E RMAR |
Section E RMAR |
Section E RMAR |
Threshold conditions |
Section F RMAR |
||
Training and competence |
Section G RMAR |
Section G RMAR |
Section G RMAR |
COBS data |
Section H RMAR |
Section H RMAR |
Section H RMAR |
Client money and client assets |
Section C RMAR |
Section C RMAR |
|
Fees and levies |
Section J RMAR |
Section J RMAR |
|
Adviser charges |
Section K RMAR (note 7) |
Section K RMAR (note 7) |
Section K RMAR (note 7) |
Note 1 |
When submitting the completed data item required, a firm (except a MIFIDPRU investment firm in relation to an item reported under MIFIDPRU 9) must use the format of the data item set out in SUP 16 Annex 24R, or SUP 16 Annex 18AR in the case of the RMAR. Guidance notes for completion of the data items are contained in SUP 16 Annex 25, or SUP 16 Annex 18BG in the case of the RMAR. |
||
Note 2 |
Only applicable to a firm that is a sole trader or partnership. Where the firm is a partnership, this report must be submitted by each partner. |
||
Note 3 |
A UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5 must also submit this report on the basis of the consolidated situation. |
||
Note 4 |
Does not apply to an SNI MIFIDPRU investment firm which has been granted an exemption from the liquidity requirements in MIFIDPRU 6. |
||
Note 5 |
Only applicable to a non-SNI MIFIDPRU investment firm. |
||
Note 6 |
Data items MIF001 – MIF007 must be reported in accordance with the rules in MIFIDPRU 9. |
||
Note 7 |
This item only applies to firms that provide advice on retail investment products and P2P agreements. |
||
Note 8 |
Only applicable to a parent undertaking to which the group capital test applies. |
||
Note 9 |
Where a firm submits data items for both RAG 7 and RAG 9, the firm must complete Section D1. |
||
Note 10 |
Only applicable to firms that are collective portfolio management investment firms. |
||
Note 11 |
Only applicable to firms that are subject to an FCA requirement to hold professional indemnity insurance and are not MIFIDPRU investment firms.90 |
||
2The applicable data items referred to in SUP 16.12.4 R are set out according to type of firm in the table below:
Firms’ prudential category and applicable data items (note 1) |
|||||
Firms other than MIFIDPRU investment firms |
|||||
Chapter 3 |
Chapter 5 |
Chapter 13 |
|||
Solvency statement (note 2) |
No standard format |
||||
Balance sheet |
FSA029 (note 3) |
FSA029 |
FSA029 |
Section A RMAR |
|
Income statement |
FSA030 (note 3) |
FSA030 |
FSA030 |
Section B RMAR |
|
Capital adequacy |
MIF001 (notes 3 and 5) |
FSA033 |
FSA034 or FSA035 or FIN071 (note 4) |
Section D1 RMAR |
|
Liquidity |
MIF002 (notes 3 and 5) |
||||
Metrics monitoring |
MIF003 (notes 3 and 5) |
||||
Concentration risk (non-K-CON) |
MIF004 (notes 3, 5 and 7) |
||||
Concentration risk (K-CON) |
MIF005 (notes 3, 5 and 7) |
||||
Group capital test |
MIF006 (notes 5 and 6) |
||||
ICARA assessment questionnaire |
MIF007 (note 5) |
||||
Threshold conditions |
Section F RMAR (note 17) |
||||
Client money and client assets |
FSA039 |
FSA039 |
FSA039 |
Section C RMAR (note 13) or FSA039 |
|
Note 1 |
All firms (except MIFIDPRU investment firms in relation to items reported under MIFIDPRU 9) when submitting the completed data item required, must use the format of the data item set out in SUP 16 Annex 24. Guidance notes for completion of the data items are contained in SUP 16 Annex 25. |
||||
Note 2 |
Only applicable to a firm that is a sole trader or partnership. Where the firm is a partnership, this report must be submitted by each partner. |
||||
Note 3 |
A UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5 must also submit this report on the basis of the consolidated situation. |
||||
Note 4 |
FSA034 must be completed by a firm not subject to the exemption in IPRU(INV) 5.4.2R, unless it is a firm whose permitted business includes establishing, operating or winding up a personal pension scheme, in which case FIN071 must be completed. FSA035 must be completed by a firm subject to the exemption in IPRU(INV) 5.4.2R. |
||||
Note 5 |
Data items MIF001 – MIF007 must be reported in accordance with the rules in MIFIDPRU 9. |
||||
Note 6 |
Only applicable to a parent undertaking to which the group capital test applies. |
||||
Note 7 |
Only applicable to a non-SNI MIFIDPRU investment firm. |
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The governance arrangements that apply to the governing body, the senior management and any designated committee of a firm in relation to the IRB approach also apply to the body or persons with equivalent powers with respect to the UK consolidation group or non-UK sub-group4. Where the parent undertaking and its subsidiary undertakings use rating systems on a unified basis, the approval and reporting process described in BIPRU 4.3.12 G (Approval and reporting arrangements for
(1) For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.4 R.(2) For the purposes of this section, originators interest means the sum of:(a) the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated
For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.5 R. The exposure of the originator associated with its rights in respect of that part of the originators interest described in BIPRU 9.13.6 R (2)(a) must not be treated as a securitisation position but as a pro rata exposure to the securitised drawn amounts as if they had not been securitised in an amount equal to that described in BIPRU 9.13.6 R (2)(a). The originator must also
Subject to BIPRU 9.9.5 R,(1) where a firm calculates risk weighted exposure amounts under the standardised approach to securitisations outlined in BIPRU 9.11, the exposure value of an on-balance sheet securitisation position must be its balance sheet value;(2) where a firm calculates risk weighted exposure amounts under the IRB approach to securitisations outlined in BIPRU 9.12, the exposure value of an on-balance sheet securitisation position must be measured gross of value adjustments;(3)
Where a securitisation position is subject to funded or unfunded credit protection the risk weight to be applied to that position may be modified in accordance with BIPRU 5 (Credit risk mitigation) and, if applicable, BIPRU 4.10 (Credit risk mitigation under the IRB approach) read in conjunction with BIPRU 9.14.[Note:BCD Article 96(3)]
The following must be calculated in accordance with BIPRU 9 (Securitisation):(1) risk-weighted exposure amounts for securitisedexposures and for exposures belonging to the IRB exposure class referred to in BIPRU 4.3.2 R (6) (securitisation positions); and(2) the expected loss amounts for securitisedexposures.[Note: BCD Article 87(10) and Article 88(3)]
(1) In the case of the non-trading book, a firm must treat an exposure falling into columns 2 and 3 of the table in BIPRU 14.4.3 R in accordance with the relevant provisions of the standardised approach to credit risk or the IRB approach, as the case may be.(2) In the case of the trading book, a firm must apply the treatment set out in BIPRU 14.4.5 R.[Note: CAD Annex II point 3 (part)]
(1) In applying a risk weight to free deliveryexposures treated according to column 3 of the table in BIPRU 14.4.3 R, a firm using the IRB approach may assign PD to counterparties, for which they have no other non-trading bookexposure, on the basis of the counterparty's external rating.(2) A firm using own estimates of LGDs may apply the LGD set out in BIPRU 4.4.34 R to BIPRU 4.4.35 RBIPRU 4.4.35 R (IRB foundation approach: LGDs) to free deliveryexposures treated according to