CP7/21 – Credit risk: The identification of the nature, severity, and duration of an economic downturn for the purposes of Internal Ratings Based (IRB) models

Consultation Paper 7/21
Published on 07 April 2021

Overview

This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposed approach to implementing new requirements relating to the specification of the nature, severity, and duration of an economic downturn in the Internal Ratings Based (IRB) approach to credit risk.

The proposals in this CP would result in new UK Technical Standards (Appendix 1) and amended expectations in Supervisory Statement (SS) 11/13 ‘Internal Ratings Based (IRB) approaches’ (Appendix 2)'.

The PRA is also proposing to make additional minor changes to SS11/13 to reflect the UK’s exit from the EU, which are set out in Chapter 3 of this CP.

The proposals are relevant to UK banks, building societies, and PRA-designated UK investment firms.

Implementation

The PRA proposes that the implementation date for the changes resulting from this CP would be Saturday 1 January 2022, in line with the implementation deadlines set out in Policy Statement (PS) 11/20 for IRB firms to implement all changes from the IRB roadmap (except in respect of the RTS on materiality thresholds for firms only using the standardised approach, where the implementation deadline was Thursday 31 December 2020). Firms should continue to submit model change applications in line with the submission timings communicated by their supervisors.

Responses and next steps

This consultation closes on Wednesday 7 July 2021. The PRA invites feedback on the proposals set out in this consultation. The PRA also invites feedback from firms on the expected impact of the proposals on capital requirements. Please address any comments or enquiries to CP7_21@bankofengland.co.uk.

The proposals set out in this CP have been designed in the context of the UK having left the EU and the transition period having come to an end. Unless otherwise stated, any references to EU or EU derived legislation refer to the version of that legislation which forms part of retained EU law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework.

Consultation Paper 7/21

 
Consultation end date: 7 July 2021

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