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IFPRU 4.2 Standardised approach

Standardised approach

IFPRU 4.2.1 R RP

For the purposes of article 115 of the UK CRR4 (Exposures to regional governments or local authorities), a firm may treat exposures to the following regional governments as exposures to the UK central government:

  1. (1)

    The Scottish Parliament;

  2. (2)

    The National Assembly for Wales; and

  3. (3)

    The Northern Ireland Assembly.

Risk weights

IFPRU 4.2.2 G RP

Where the FCA has published evidence showing that a well-developed and long-established residential property market is present in that territory with loss rates which do not exceed the limits in article 125(3) of the UK CRR4 (Exposures fully and completely secured by mortgages on residential property), a firm does not need to meet the condition in article 125(2)(b) of the UK CRR4 in order to consider an exposure, or any part of an exposure, as fully and completely secured for the purposes of article 125(1) of the UK CRR4.

Criteria for certain exposures secured by mortgages on commercial immovable property

IFPRU 4.2.3 R RP

For the purposes of articles 124(2) and 126(2) of the UK CRR4, and in addition to the conditions in those regulations, a firm may only treat exposures as fully and completely secured by mortgages on commercial immovable property located in the UK1 in line with article 126 where annual average losses stemming from lending secured by mortgages on commercial property in the UK did not exceed 0.5% of risk-weighted exposure amounts over a representative period. A firm must calculate the loss level in this rule on the basis of the aggregate market data for commercial property lending published by the FCA in line with article 101(3) of the UK CRR4.

IFPRU 4.2.4 R RP

For the purpose of this rule, a representative period shall be a time horizon of sufficient length and which includes a mix of good and bad years.

Exposures to institutions

IFPRU 4.2.5 G RP

The FCA confirms that, in relation to the concessionary treatment set out in article 119(5) of the UK CRR4, there are no financial institutions currently authorised and supervised by it (other than those to which the UK CRR4 applies directly) that are subject to prudential requirements that it considers to be comparable in terms of robustness to those applied to institutions under the UK CRR4.

[Note: article 119(5) of the UK CRR4]

Retail exposures

IFPRU 4.2.6 G RP

Where an exposure is denominated in a currency other than the euro, the FCA expects a firm to use appropriate and consistent exchange rates to determine compliance with relevant thresholds in the UK CRR3. Accordingly, a firm should calculate the euro equivalent value of the exposure for the purposes of establishing compliance with the aggregate monetary limit of €1 million for retail exposures using a set of exchange rates the firm considers to be appropriate. The FCA expects a firm's choice of exchange rate to have no obvious bias and to be derived on the basis of a consistent approach (see article 123(c) of the UK CRR3).

Exposures fully and completely secured by mortgages on residential property: Ijara mortgages

IFPRU 4.2.7 G RP

The FCA considers an Ijara mortgage to be an example of an exposure to a tenant under a property leasing transaction concerning residential property under which the firm is the lessor and the tenant has an option to purchase. Accordingly, the FCA expects exposures to Ijara mortgages to be subject to all of the requirements that apply to exposures secured by mortgages on residential property, including in respect of periodic property revaluation (see articles 124 and 125 of the UK CRR4).

Lifetime mortgages

IFPRU 4.2.8 G RP

The FCA expects a firm with exposure to a lifetime mortgage to inform the FCA of the difference in the own funds requirements on those exposures under the UK CRR4 and the credit risk capital requirement that would have applied under BIPRU 3.4.56A R.The FCA will use this information in its consideration of relevant risks in its supervisory assessment of the firm (see articles 124, 125 and 208 of the UK CRR4).

Exposures in default

IFPRU 4.2.9 G RP

When determining the portion of a past due item that is secured, the FCA expects the secured portion of an exposure covered by a mortgage indemnity product that is eligible for credit risk mitigation purposes under Part Three, Title II, Chapter 4 of the UK CRR4 (Credit risk mitigation) to qualify as an eligible guarantee (see article 129(2) of the UK CRR4).

Items associated with particularly high risk2

IFPRU 4.2.10 G RP

When determining whether exposures in the form of units or shares in a CIU are associated with particularly high risk, the FCA expects the following features would be likely to give rise to such risk:

  1. (1)

    an absence of external credit assessment of such CIU from an ECAI recognised under article 132(2) of the UK CRR4 (Items representing securitisation positions) and where such CIU has specific features (such as high levels of leverage or lack of transparency) that prevent it from meeting the eligibility criteria in article 132(3) of the UK CRR4 (Items associated with particular high risk); or

  2. (2)

    a substantial element of the CIU's property is made up of items that would be subject to a risk weight of more than 100%, or the mandate of a CIU would permit it to invest in a substantial amount of such items.

IFPRU 4.2.11 G RP

The FCA expects a firm's assessment of whether types of exposure referred to in article 128(3) of the UK CRR4 are associated with particularly high risk to include consideration of exposures arising out of a venture capital business (whether the firm itself carries on the venture capital business or not) . The FCA considers "venture capital business" to include the business of carrying on any of the following:

  1. (1)

    advising on investments, managing investments, arranging (bringing about) deals in investments in or making arrangements with a view to transactions in investments in venture capital investments;

  2. (2)

    advising on investments or managing investments in relation to portfolios, or establishing, operating or winding up a collective investment scheme, where the portfolios or collective investment schemes (apart from funds awaiting investment) invest only in venture capital investments;

  3. (3)

    any custody activities provided in connection with the activities in (1) or (2); and

  4. (4)

    any related ancillary activities.

IFPRU 4.2.12 G RP