On 6 July 2021, the PRA published Policy Statement 16/21 ‘Internal Rating Based UK mortgage risk weights: Managing deficiencies in model risk capture’ (PS16/21).
In PS16/21 the PRA provides feedback on Consultation Paper 14/20 ‘Internal Ratings Based UK mortgage risk weights: Managing deficiencies in model risk capture’ (CP14/20) and sets out its final policy in the form of an updated version of Supervisory Statement 11/13 ‘Internal Ratings Based (IRB) approaches’ (SS11/13). The amendments to SS11/13 will take effect from 1 January 2022.
The PRA reports in PS16/21 that it has made two changes to the draft policy that it consulted on in CP14/20:
- It will not introduce the proposed 7% minimum risk weight expectation on individual UK mortgage exposures. Instead, the PRA will consider carefully the calibration of the incoming probability of default and loss given default parameter floors for mortgage exposures as part of the PRA’s implementation of the Basel 3.1 standards.
- Mortgage exposures classified as in default will be excluded from the 10% average minimum risk weight expectation.