Update 3 October 2017
SS11/13 was updated alongside the publication of PS23/17 ‘Internal Ratings Based (IRB) approach: clarifying PRA expectations’. This version of SS11/13 updates the version issued on 19 June 2017.
Update 19 June 2017
SS11/13 was updated alongside the publication of PS13/17 ‘Residential mortgage risk weights’. This version of SS11/13 updates the version issued on 11 November 2015.
Update 11 November 2015
The PRA updated this statement to remove expectations that have been superseded by decisions or technical standards adopted by the European Commission. Specifically, those expectations relating to third country equivalence have been deleted and expectations for the notification of changes to IRB rating systems have been amended. Readers should refer to the equivalence decisions taken by the European Commission and Delegated Regulation (EU) No 529/2014 as amended by Delegated Regulation (EU) No 2015/942 instead – see Related Links. A reference to form FSA004 has been deleted. The model change notification pro-forma, which has also been updated to align with relevant regulation, has been removed from the statement and can now be accessed via the PRA’s webpages using the link provided – see Related Links. Finally, various typographical errors have been corrected throughout the statement. No other expectations have been reviewed or amended and they remain as they were in the original statement published on 19 December 2013.
Published on 19 December 2013
This supervisory statement sets out the Prudential Regulation Authority’s (PRA’s) expectations regarding firms’ use of internal ratings based approaches.
The supervisory statement covers the following principal topics:
- corporate governance;
- permanent partial use and sequential implementation;
- overall requirements for estimation;
- definition of default;
- probability of default (PD);
- loss given default (LGD);
- exposure at default (EAD);
- income-producing real estate portfolios; and
- notification and approval of changes to approved models.
Update 9 June 2014: Regulation (EU) No 529/2014 sets out Regulatory Technical Standards (RTS) for assessing the materiality of extensions and changes of the Internal Ratings Based Approach and the Advanced Measurement Approach. This RTS came into force on 9 June 2014 and is directly applicable. SS11/13 remains in place (and firms should continue to use the pro-forma set out in Appendix B to make the notifications required by the RTS), but only to the extent necessary the RTS supersedes the supervisory statement. We will reissue the supervisory statement to take full account of the RTS in due course.