On 30 September 2020, the PRA published Consultation Paper 14/20: Internal Ratings Based UK mortgage risk weights: managing deficiencies in model risk capture (CP14/20).
CP14/20 is relevant to PRA-authorised UK banks, building societies and ring-fenced banks holding internal ratings based (IRB) model permissions. The purpose of the proposals in CP14/20 is to address the prudential risks stemming from inappropriately low IRB UK mortgage risk weights. The PRA believes that an additional benefit from the proposals would be a narrowing of differentials between IRB and standardised approach UK mortgage risk weights, and a limit on future divergence. The PRA considers that this will support competition between firms on the different approaches. The proposals when finalised will result in changes to Supervisory Statement 11/13 ‘Internal Ratings Based (IRB) approaches’.
The deadline for comments on CP14/20 is 30 January 2021. The PRA proposes that the final policy resulting from CP14/20 would take effect from 1 January 2022 alongside other IRB reforms.