Counterparty credit risk: Treatment of model limitations in banks’ internal models

Policy Statement 22/20 | Consultation Paper 17/19

Published on 14 October 2020

Counterparty credit risk: Treatment of model limitations in banks’ internal models - PS22/20

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 17/19 ‘Counterparty credit risk: Treatment of model limitations in banks’ internal models’ (page 2 of 2). It also contains final policy in the form of the updated Supervisory Statement (SS) 12/13 ‘Counterparty credit risk’ (Appendix).

This PS is relevant to UK banks, building societies and PRA-designated UK investment firms that are subject to the Capital Requirements Regulation (575/2013) (CRR). It is not relevant to UK branches of firms in other European Economic Area (EEA) countries and non-EEA countries, nor to insurance firms.

Summary of responses

The PRA received three responses to the CP. The responses were broadly supportive of the principle of a centralised inventory for monitoring model limitations and assumptions, and were broadly opposed to the principle of a floor for over-collateralised exposures. The PRA’s feedback to these responses, and final policy decisions, are set out in Chapter 2.

Implementation

The changes to SS12/13 will be effective on publication of this PS, on Wednesday 14 October 2020. If firms have concerns about their ability to comply with these expectations, they should get in touch with their usual supervisory contacts.

The policy set out in this PS has been designed in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place.

PDFPolicy Statement 22/20


Published on 23 July 2019

Counterparty credit risk: Treatment of model limitations in banks’ internal models - CP17/19

Overview

This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposed changes to Supervisory Statement (SS) 12/13 ‘Counterparty Credit Risk’ to clarify expectations regarding the treatment of model limitations and assumptions under Part Three, Title II, Chapter 6 (counterparty credit risk) of the Capital Requirements Regulation (575/2013) (CRR).

The CP is relevant to all firms to which CRD IV applies.

Draft amendments to the SS, which add a new chapter (4A) are set out in the Appendix.

Responses and next steps

This consultation closed on Friday 25 October 2019. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP17_19@bankofengland.co.uk.

Implementation

The PRA proposes that the draft changes to SS12/13 would take effect from the publication of the final policy.

PDFConsultation Paper 17/19

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