Prudential Regulation Authority Rulebook

Institutions calculating the risk-weighted exposure amounts under the IRB Approach to credit risk shall disclose the following information:

1. (a) the competent authority's permission of the approach or approved transition;
2. (b) for each exposure class referred to in Article 147, the percentage of the total exposure value of each exposure class subject to the Standardised Approach laid down in Chapter 2 of Title II of Part Three or to the IRB Approach laid down in Chapter 3 of Title II of Part Three, as well as the part of each exposure class subject to a roll-out plan; where institutions have received permission to use own LGDs and conversion factors for the calculation of risk-weighted exposure amounts, they shall disclose separately the percentage of the total exposure value of each exposure class subject to that permission;
3. (c) the control mechanisms for rating systems at the different stages of model development, controls and changes, which shall include information on:
1. (i) the relationship between the risk management function and the internal audit function;
2. (ii) the rating system review;
3. (iii) the procedure to ensure the independence of the function in charge of reviewing the models from the functions responsible for the development of the models;
4. (iv) the procedure to ensure the accountability of the functions in charge of developing and reviewing the models;
4. (d) the role of the functions involved in the development, approval and subsequent changes of the credit risk models;
5. (e) the scope and main content of the reporting related to credit risk models;
6. (f) a description of the internal ratings process by exposure class, including the number of key models used with respect to each portfolio and a brief discussion of the main differences between the models within the same portfolio, covering:
1. (i) the definitions, methods and data for estimation and validation of PD, which shall include information on how PDs are estimated for low default portfolios, whether there are regulatory floors and the drivers for differences observed between PD and actual default rates at least for the last three periods;
2. (ii) where applicable, the definitions, methods and data for estimation and validation of LGD, such as methods to calculate downturn LGD, how LGDs are estimated for low default portfolio and the time lapse between the default event and the closure of the exposure;
7. (iii) where applicable, the definitions, methods and data for estimation and validation of conversion factors, including assumptions employed in the derivation of those variables;
8. (g) as applicable, the following information in relation to each exposure class referred to in Article 147:
1. (i) their gross on-balance-sheet exposure;
2. (ii) their off-balance-sheet exposure values prior to the relevant conversion factor;
3. (iii) their exposure after applying the relevant conversion factor and credit risk mitigation;
4. (iv) any model, parameter or input relevant for the understanding of the risk weighting and the resulting risk exposure amounts disclosed across a sufficient number of obligor grades (including default) to allow for a meaningful differentiation of credit risk;
9. (v) separately for those exposure classes in relation to which institutions have received permission to use own LGDs and conversion factors for the calculation of risk-weighted exposure amounts, and for exposures for which the institutions do not use such estimates, the values referred to in points (i) to (iv) subject to that permission;
10. (h institutions' estimates of PDs against the actual default rate for each exposure class over a longer period, with separate disclosure of the PD range, the external rating equivalent, the weighted average and arithmetic average PD, the number of obligors at the end of the previous year and of the year under review, the number of defaulted obligors, including the new defaulted obligors, and the annual average historical default rate.

For the purposes of point (b) of this Article, institutions shall use the exposure value as defined in Article 166.

[Note: This rule corresponds to Article 452 of the CRR as it applied immediately before revocation by the Treasury.]