On 7 June 2021, the PRA published Policy Statement 13/21 ‘Credit risk: The approach to overseas IRB models’ (PS13/21).
In PS13/21 the PRA provides feedback to the responses it received on Consultation Paper 16/20 ‘Credit risk: The approach to overseas IRB models’ (CP16/20). It also contains the PRA’s final policy, as follows:
- An updated Supervisory Statement 11/13 ‘Internal Ratings Based (IRB) approaches’ (SS11/13)
- An updated pro-forma for firms to complete and submit to the PRA for overseas models moving onto the overseas models approach (OMA).
The PRA reports that in light of the responses to CP16/20 it has made the following changes to the draft amendments to SS11/13:
- The aggregate amount of credit risk risk-weighted assets derived using overseas models, and aggregate amount of exposure value allowed on the OMA, has been increased from 5% to 7.5%.
- The scope of asset classes eligible for the OMA has been expanded to include corporate small and medium-sized enterprises.
- A definition of the overseas models’ exposure value measure has been introduced.
In terms of implementation, the PRA states that for existing overseas IRB models built to non-UK requirements that are not currently used for UK consolidated capital requirements, there are two options:
- Firms that wish to use the OMA can now submit applications using the updated pro forma on the PRA’s website. The implementation date for the changes resulting from PS13/21 begins 1 July 2021.
- Firms that do not wish to use the OMA can continue not to use it for UK consolidated capital requirements.
