PRA amends IRB approach statement

PRA has published a policy statement on risk weights in the residential mortgages sector (PS13/17). The statement applies to banks and building societies who use an internal rating based (IRB) method to  calculate credit risk capital requirements relating to residential mortgage portfolios.

The statement contains the final amendments to the ‘IRB approaches’ supervisory statement, which includes a new (and extended) 2020 deadline by which firms must have adopted the amended rules and guidelines. It emphasises that firms and their supervisors must agree the date by which their amended models for regulatory approval far in advance of this deadline – which is the reason for the extension. The statement also amends the definition and formulation of cyclicality, clarifies the application of the cyclicality cap to historical modelling, and emphasises PRA’s expectation that firms should use margins of conservatism where there are low historical data.

PRA does not consider these changes will have a significant material impact on firms from those it originally consulted on.