On 9 February 2021, the PRA issued a statement intended to provide greater clarity for credit institutions that are in scope of its 2021 supervisory benchmarking exercise for capital internal models.

The PRA explains that for the 2021 supervisory benchmarking exercise, it is encouraging firms to use the draft implementing standards in relation to market risk and credit risk data, in preference to the outdated versions designed for the 2019 benchmarking exercise (i.e. for year-end 2018 reporting). The PRA will not object to firms submitting information on this basis only. The PRA states that this approach to market risk and credit risk reporting takes into account that annexes for the 2021 reporting package had equivalents for the 2019 supervisory benchmarking exercise that have been incorporated into UK law. In contrast, firms will not be required or expected to submit IFRS data for the 2021 supervisory benchmarking exercise. The PRA adds that this reflects the fact that the annexes relating to IFRS 9 data are scheduled to be implemented for the first time for the 2021 benchmarking exercise and so no requirement to submit IFRS 9 information has been brought into UK law. However, the PRA notes that firms may find the IFRS 9 information from the 2021 benchmarking exercise useful for internal management and control purposes, for example through facilitating comparisons between the output of IFRS 9 and other internal models or for discussions with supervisors.

In considering a pragmatic approach to these current highly unusual circumstances, the PRA has taken into account the additional reporting challenges caused by COVID-19, as well as the technical and operational challenges to switching the data requirements at a late stage. The PRA notes that reporting based on the final draft requirements adopted by the European Banking Authority, and submitted to the European Commission, would be consistent with the approach taken by UK and other EU firms in prior years.

The PRA will set out its proposals for the 2022 benchmarking exercise (i.e. in relation to reference dates on or around year-end 2021) in a consultation paper in due course.