Related provisions for IFPRU 4.7.10
1 - 12 of 12 items.
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 EU CRR).
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 EU CRR).
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 EU CRR, estimates must be derived using both historical experience and empirical evidence, and not be based purely on judgemental consideration.
Where a firm wishes to permanently apply the Standardised Approach to exposures to connected counterparties in accordance with article 150(1)(e) of the EU CRR, 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
2The applicable data items referred to in SUP 16.12.4 R are set out according to type of firm in the table below:45Description ofData itemFirms' prudential category and applicable data item (note 1)IFPRUBIPRU firmExempt CAD firmssubject toIPRU(INV)Chapter 13Firms(other thanexempt CAD firms) subject toIPRU(INV)Chapter 13Firmsthat are also in one or more ofRAGs1 to 6 and not subject toIPRU(INV)Chapter 13Solvency statementNo standard format (note 11)Balance SheetFSA001/FINREP (Notes