Related provisions for IFPRU 4.3.15

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To access the FCA Handbook Archive choose a date between 1 January 2001 and 31 December 2004 (From field only).

The FCA expects a firm to ensure that no LGD estimate is less than zero.
The FCA does not expect a firm to be using zero LGD estimates in cases other than where it had cash collateral supporting the exposures.
To ensure that estimates of LGDs take into account the most up-to-date experience, the FCA expects a firm to take account of data for relevant incomplete workouts (ie, defaulted exposures for which the recovery process is still in progress, with the result that the final realised losses in respect of those exposures are not yet certain) (see article 179(1)(c) of the UK CRR2).
To ensure that sovereign LGD models are sufficiently conservative in view of the estimation error that may arise from the lack of data on losses to sovereigns, the FCA expects a firm to apply a 45% LGD floor to each unsecured exposure in the sovereign asset class (see article 179(1)(a) of the UK CRR2).
To ensure that its LGD estimates are oriented towards downturn conditions, the FCA expects a firm to have a process through which it:(1) identifies appropriate downturn conditions for each IRB exposure class within each jurisdiction;(2) identifies adverse dependencies, if any, between default rates and recovery rates; and(3) incorporates adverse dependencies, if identified, between default rates and recovery rates in the firm's estimates of LGD in a manner that meets the requirements
To ensure that its LGD estimates incorporate material discount effects, the FCA expects a firm's methods for discounting cash flows to take account of the uncertainties associated with the receipt of recoveries for a defaulted exposure. For example, by adjusting cash flows to certainty-equivalents or by using a discount rate that embodies an appropriate risk premium; or by a combination of the two.
The FCA expects a firm using advanced IRB approaches to have done the following in respect of wholesale LGD estimates:(1) applied LGD estimates at transaction level;(2) ensured that all LGD estimates (both downturn and non-downturn) are cautious, conservative and justifiable, given the paucity of observations. Under article 179(1)(a) of the UK CRR2, estimates must be derived using both historical experience and empirical evidence, and not be based purely on judgemental consideration.
The extent to which a borrower's assets are already given as collateral will clearly affect the recoveries available to unsecured creditors. If the degree to which assets are pledged is substantial, this will be a material driver of LGDs on such exposures. Although potentially present in all transactions, the FCA expects a firm to be particularly aware of this driver in situations in which borrowing on a secured basis is the normal form of financing, leaving relatively few assets
The FCA expects a firm seeking to apply the Standardised Approach on a permanent basis to certain exposures to have a well-documented policy explaining the basis on which exposures are to be selected for permanent exemption from the IRB approach. This policy should be provided to the FCA when the firm applies for permission to use the IRB approach and maintained thereafter. Where a firm also wishes to undertake sequential implementation, the FCA expects the firm's roll-out plan
Where a firm wishes permanently to apply the Standardised Approach to certain business units on the grounds that they are non-significant and/or certain exposure classes or types of exposures on the grounds that they are immaterial in terms of size and perceived risk profile, the FCA expects to permit a firm to make use of this exemption only to the extent that the risk-weighted exposure amount calculated under article 92(3)(a) and (f) of the UK CRR3 that are based on the Standardised
Where a firm wishes to permanently apply the Standardised Approach to exposures to connected counterparties in accordance with article 150(1)(e) of the UK CRR3, the FCA would normally expect to grant permission to do so only if the firm had a policy that provided for the identification of connected counterparties exposures that would be permanently exempted from the IRB approach and also identified connected counterparty exposures (if any) that would not be permanently exempted
SUP 16.12.22ARRP

2The applicable data items referred to in SUP 16.12.4 R are set out according to type of firm in the table below:

89Description of data item

Firms’ prudential category and applicable data item (note 1)

MIFIDPRU investment firms

Firms subject to IPRU(INV)

Chapter 13

Firms that are also in one or more of RAGs 2 to 6 and not subject to IPRU(INV)

Chapter 13

Solvency statement

No standard format

(note 2)

Balance sheet


(note 3)

Section A RMAR

Income statement


(note 3)

Section B RMAR

Capital adequacy


(notes 3 and 6)

Section D1 RMAR (note 9)


MIF002 (notes 3, 4 and 6)

Metrics monitoring


(notes 3 and 6)

Concentration risk



(notes 3, 5 and 6)

Concentration risk



(notes 3, 5 and 6)

Group capital test


(notes 6 and 8)

ICARA assessment questionnaire


(note 6)

Supplementary capital data for collective portfolio management investment firms


(note 10)

Professional indemnity insurance (note 11)90

Section E RMAR

Section E RMAR

Section E RMAR

Threshold conditions

Section F RMAR

Training and competence

Section G RMAR

Section G RMAR

Section G RMAR

COBS data

Section H RMAR

Section H RMAR

Section H RMAR

Client money and client assets

Section C RMAR

Section C RMAR

Fees and levies

Section J RMAR

Section J RMAR

Adviser charges

Section K RMAR (note 7)

Section K RMAR (note 7)

Section K RMAR (note 7)

Note 1

When submitting the completed data item required, a firm (except a MIFIDPRU investment firm in relation to an item reported under MIFIDPRU 9) must use the format of the data item set out in SUP 16 Annex 24R, or SUP 16 Annex 18AR in the case of the RMAR. Guidance notes for completion of the data items are contained in SUP 16 Annex 25, or SUP 16 Annex 18BG in the case of the RMAR.

Note 2

Only applicable to a firm that is a sole trader or partnership. Where the firm is a partnership, this report must be submitted by each partner.

Note 3

A UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5 must also submit this report on the basis of the consolidated situation.

Note 4

Does not apply to an SNI MIFIDPRU investment firm which has been granted an exemption from the liquidity requirements in MIFIDPRU 6.

Note 5

Only applicable to a non-SNI MIFIDPRU investment firm.

Note 6

Data items MIF001 – MIF007 must be reported in accordance with the rules in MIFIDPRU 9.

Note 7

This item only applies to firms that provide advice on retail investment products and P2P agreements.

Note 8

Only applicable to a parent undertaking to which the group capital test applies.

Note 9

Where a firm submits data items for both RAG 7 and RAG 9, the firm must complete Section D1.

Note 10

Only applicable to firms that are collective portfolio management investment firms.

Note 11

Only applicable to firms that are subject to an FCA requirement to hold professional indemnity insurance and are not MIFIDPRU investment firms.90

The FCA would expect to replace 90 days with 180 days in the days past due component of the definition of default for exposures secured by residential real estate in the retail exposure class, and/or for exposures to PSEs,1 where this was requested by the firm. Where this occurred, it would be specified in the firm's IRB permission.