Update 6 March 2019
This Supervisory Statement (SS) (available under ‘future version’ below) was updated following Policy Statement 7/19 ‘Credit risk: the definition of default’. The updates take effect from 31 December 2020. See the Annex for more details.
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.