Credit Risk

1.1

This Part applies to:

1. (1) every firm that is a CRR firm; and
2. (2) a CRR consolidation entity.

1.1A

1. (1) A firm must comply with this Part on an individual basis.
2. (2) A CRR consolidation entity must comply with this Part on a consolidated basis, and for this purpose, references to a firm in this Part (other than in 1.1 and 1.1A) mean a CRR consolidation entity.

1.2

In this Part, the following definitions shall apply:

equity exposures

means exposures that meet the criteria in either:

(1) Article 133 of the CRR; or

(2) Article 147(6) of the CRR, if a firm has permission to use internal models in accordance with Chapter 3, Title II, Part Three of the CRR.

exposure

means an asset or off-balance sheet item as defined for credit risk purposes by Article 5(1) of the CRR.

loss

means economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument as defined for credit risk purposes by Article 5(2) of the CRR.

non-retail exposures

means exposures that are not retail exposures, in accordance with Commission Delegated Regulation (EU) 2018/171.

retail exposures

means exposures that meet the criteria in either:

(1) Article 123 of the CRR; or

(2) Article 147(5) of the CRR, if a firm has permission to use internal models in accordance with Chapter 3, Title II, Part Three of the CRR.

1.3

Unless otherwise defined, any italicised expression used in this Part and in the CRR has the same meaning as in the CRR.

2.1

For the purposes of Article 115 of the CRR, a firm may treat exposures to the following regional governments as exposures to the UK central government:

1. (1) The Scottish Parliament;
2. (2) The National Assembly for Wales; and
3. (3) The Northern Ireland Assembly.

[Note: Art 115 of the CRR]

3.1

A firm must notify the PRA that it is relying on the deemed transfer of significant credit risk under paragraph 2 of Article 244 of the CRR or paragraph 2 of Article 245 of the CRR, including when this is for the purposes of Article 337(5) of the CRR, no later than one month after the date of the transfer.

3.2

The notification in 3.1 must include sufficient information to allow the PRA to assess whether the possible reduction in risk weighted exposure amounts which would be achieved by the securitisation is justified by a commensurate transfer of credit risk to third parties.

4.1

For the purposes of Articles 124(2) and 126(2) of the CRR and in addition to the conditions set out therein, a firm may treat exposures as fully and completely secured by mortgages on commercial immovable property located in the UK in accordance with Article 126 of the CRR only where annual average losses stemming from lending secured by mortgages on commercial property located in the UK did not exceed 0.5% of risk-weighted exposure amounts over a representative period. A firm shall calculate the loss level referred to in this rule on the basis of the aggregate market data for commercial property lending published by the PRA in accordance with Article 430a(3) of the CRR.

4.1A

For the purposes of Articles 124(2) and 126(2) of the CRR and in addition to the conditions set out therein, a firm may treat an exposure or any part of an exposure that is not located in the UK as fully and completely secured for the purposes of Article 126 (1) of the CRR only if all of the following conditions are met:

1. (1) annual average losses stemming from lending secured by mortgages on commercial property located in that jurisdiction did not exceed 0.5% of the exposure value over a representative period where:
1. (a) there is sufficient evidence that the data used to determine the loss level referred to in this rule are of the same or better quality as the data required to be published under Article 430a(3) of the CRR; and
2. (b) it is reasonable to rely on such data;
2. (2) the risk-weight that would be applied to that exposure or part of an exposure by the relevant supervisory authority in that jurisdiction is 50% or less.

4.2

For the purposes of 4.1 and 4.1A, a representative period shall be a time horizon of sufficient length and which includes a mix of good and bad years.

[Note: Arts. 124(2) and 126(2) of the CRR]

5.1

In accordance with Article 380 of the CRR, where a system wide failure of a settlement system, a clearing system or a CCP occurs, the own funds requirements calculated as set out in Articles 378 and 379 of the CRR are waived until the situation is rectified. In this case, the failure of a counterparty to settle a trade shall not be deemed a default for purposes of credit risk.

[Note: Art. 380 of the CRR]

6.1

For the purposes of Article 178(1)(b) of the CRR, a firm must assess a credit obligation past due as material if:

1. (1) for retail exposures:
1. (a) the sum of all amounts past due owed by an obligor to the firm, any parent undertaking of the firm or any subsidiary of the firm is greater than £0; and
2. (b) the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor of the firm, any parent undertaking of the firm or any subsidiary of the firm, excluding equity exposures, is greater than 0%;
2. (2) for non-retail exposures:
1. (a) the sum of all amounts past due owed by an obligor to the firm, any parent undertaking of the firm or any subsidiary of the firm is greater than EUR 500 sterling equivalent; and
2. (b) the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor of the firm, any parent undertaking of the firm or any subsidiary of the firm, excluding equity exposures, is greater than 1%.

[Note: Arts. 178(1)(b) and 178(2)(d) of the CRR]