Related provisions for IFPRU 4.8.2

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IFPRU 4.8.1GRP
The FCA considers that a firm may provide own estimates of exposure at default (EAD) in place of the own estimates of conversion factors (CFs) that it is permitted or required to provide under article 151 of the EU CRR.
IFPRU 4.8.7GRP
The FCA expects firms using own estimates of EAD to have done the following in respect of EAD estimates:(1) applied EAD estimates at the level of the individual facility;(2) where there is a paucity of observations, ensured that all EAD estimates are cautious, conservative and justifiable. In accordance with article 179(1)(a) of the EU CRR, estimates must be derived using both historical experience and empirical evidence, and must not be based purely on judgemental consideration.
IFPRU 4.8.12GRP
The FCA expects the time horizon for additional drawings to be the same as the time horizon for defaults. This means that EAD estimation need cover only additional drawings that might take place in the next year, such that:(1) no own funds requirements need be held against facilities, or proportions of facilities that cannot be drawn down within the next year; and(2) where facilities can be drawn down within the next year, firms may, in principle, reduce their estimates to the
IFPRU 4.8.16GRP
In cases where firms estimate conversion factors (CFs) directly using a reference data set that includes a significant number of high CFs as a result of very low undrawn limits at the observation date, the FCA expects firms to:(1) investigate the distribution of realised CFs in the reference data set;(2) base the estimated CF on an appropriate point along that distribution, that results in the choice of a CF appropriate for the exposures to which it is being applied and consistent
IFPRU 4.8.22GRP
The FCA expects firms to investigate how their EAD estimates are impacted by exposures that are in excess of limits at either the observation date (if in the reference data set) or at the current reporting date (for the existing book to which estimates need to be applied). Unless a momentum approach is being used, exposures in excess of limit should be excluded from the reference data set (as the undrawn limit is negative and nonsensical answers would result from their inclusion).
IFPRU 4.8.23GRP
Exposures include not only principal amounts borrowed under facilities but also interest accrued which will fluctuate between payment dates. To ensure proper coverage of interest, the FCA expects firms to take the following approach:(1) accrued interest to date should be included in current exposure for performing exposures;(2) firms may choose whether estimated increases in accrued interest up to the time of default should be included in LGD or EAD;(3) in the estimation of EAD,
IFPRU 4.8.24GRP
The FCA considers that there is scope within the EU CRR for a firm to recognise on-balance sheet netting (including in respect of cross-currency balances) through EAD as an alternative to LGD1 in cases where a firm meets the general conditions for on-balance1sheet netting, as set out in article 205 of1 the EU CRR.11
IFPRU 4.8.26GRP
The lower the net limit as a percentage of gross limits or exposures, the greater will be the need on the part of the firm to ensure that it is restricting exposures below net limits in practice and that it will be able to continue to do so should borrowers encounter difficulties. The application of a zero net limit is acceptable in principle but there is, consequently, a very high obligation on the firm to ensure that breaches of this are not tolerated (see article 166(3) of
IFPRU 4.8.28GRP
Firms are reminded that, since the basis of EAD estimation is that default by the borrower is expected to take place in a one-year time horizon and quite possibly in downturn conditions, the FCA expects any reduction in their CF in anticipation of syndication to take account of this scenario (see article 4(56) of the EU CRR).
IFPRU 8.2.3GRP
This section contains the rules that exercise the discretion afforded to the FCA as competent authority under article 400(2)(c) and (3) of the EU CRR (Large exposures: exemptions). The FCA does not intend to exercise its discretion for any of the other exemptions in article 400(2).
IFPRU 8.2.4GRP
Article 400(2) of the EU CRR permits the FCA to fully or partially exempt exposures incurred by a firm to intra-group undertakings that meet the specified criteria from the limit stipulated in article 395(1) of the EU CRR in relation to a firm's group of connected clients that represent its wider group. The FCA will consider exempting non-trading book and trading book exposures to intra-group undertakings if specified conditions throughout IFPRU 8.2 are met.
IFPRU 8.2.6RRP
A firm with a non-core large exposures grouppermission may (in line with that permission) exempt, from the application of article 395(1) of the EU CRR (Limits to large exposures), exposures, including participations or other kinds of holdings, incurred by a firm to:(1) its parent undertaking; or(2) other subsidiary undertakings of that parent undertaking; or(3) its own subsidiary undertakings;in so far as those undertakings are covered by the supervision on a consolidated basis
IFPRU 8.2.7RRP
A firm may only make use of the non-core large exposure group exemption where the following conditions are met: (1) the total amount of the non-trading book exposures from the firm to its non-core large exposures group does not exceed 100% of the firm'seligible capital; or (if the firm has a core UK grouppermission) the total amount of non-trading book exposures from its core UK group (including the firm) to its non-core large exposures group does not exceed 100% of the core
IFPRU 8.2.11GRP
The FCA will assess core UK group and non-core large exposure group applications against article 400(2)(c) on a case-by-case basis. The FCA will only approve this treatment for non-core large exposure group undertakings where the conditions in article 400(2)(c) are met. A firm should note that the FCA will still make a wider judgement whether it is appropriate to grant this treatment even where the conditions in article 400(2)(c) are met.
IFPRU 8.2.13RRP
A firm may only make use of the exemptions provided in this section where the following conditions are met:(1) the specific nature of the exposure, the counterparty or the relationship between the firm and the counterparty eliminate or reduce the risk of the exposure; and(2) any remaining concentration risk can be addressed by other equally effective means, such as the arrangements, processes and mechanisms in article 81 of CRD (Concentration risk).[Note: article 400(3) of the
IFPRU 4.12.1RRP
(1) A firm must notify the FCA that it is relying on the deemed transfer of significant credit risk under article 243(2) of the EU CRR (Traditional securitisation) or article 244(2) of the EU CRR (Synthetic securitisation), including when this is for the purposes of article 337(5) of the EU CRR, no later than one month after the date of the transfer.(2) The notification in (1) must include sufficient information to allow the FCA to assess whether the possible reduction in risk-weighted
IFPRU 4.12.3GRP
The significant risk transfer requirements in articles 243 (Traditional securitisation) or 244 (Synthetic securitisation) of the EU CRR provide three options for a firm to demonstrate how it transfers significant credit risk for any given transaction:(1) the originator does not retain more than 50% of the risk-weighted exposure amounts of mezzanine securitisation positions, where these are:(a) securitisation positions to which a risk weight lower than 1250% applies; and(b) more
IFPRU 4.12.10GRP
Notification under IFPRU 4.12.1 G should include sufficient information to enable the FCA to assess whether the possible reduction in RWEA which would be achieved by the securitisation is justified by a commensurate transfer of credit risk to third parties. The FCA expects this to include the following:(1) details of the securitisation positions, including rating, exposure value and RWEA broken down by securitisation positions sold and retained;(2) key transaction documentation
IFPRU 4.12.24GRP
An originator must transfer a significant amount of credit risk associated with securitisedexposures to third parties to be able to apply the securitisation risk weights set out in Part Three, Title II, Chapter 5 of the EU CRR (Securitisation), and any associated reduction in own funds requirements must be matched by a commensurate transfer of risk to third parties.
IFPRU 4.12.42GRP
Where a firm achieves significant risk transfer for a particular transaction, the FCA expects it to continue to monitor risks related to the transaction to which it may still be exposed. The firm should consider capital planning implications of securitised assets returning to its balance sheet. The EU CRR requires a firm to conduct regular stress testing of its securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of stressed
IFPRU 8.1.7GRP
The FCA will assess an application for individual consolidation against articles 9 and 396(2) (Compliance with large exposure requirements) of the EU CRR on a case-by-case basis. The FCA will assess whether it is still appropriate to permit the treatment if doing so risks conflict with its statutory objectives. The FCA will apply a high level of scrutiny to applications under article 9 of the EU CRR, consistent with the previous solo consolidation regime.
IFPRU 8.1.14GRP
Article 113(6) of the EU CRR (Intra-group credit risk exemption) permits a firm, subject to conditions, to apply a 0% risk-weighting for exposures to certain entities within its FCAconsolidation group, namely its parent undertaking, its own subsidiaries and subsidiaries of its parent undertaking. Article 400(1)(f) of the EU CRR then fully exempts such exposures from the large exposures limit stipulated in article 395(1) of the EUCRR (Limits to large exposures).
IFPRU 8.1.21GRP
The FCA will expect a firm to which this section applies not to use any member of its core UK group (which is not a firm) to route lending or to have exposures to any third party in excess of the limits stipulated in article 395(1) of the EU CRR (Limits to large exposures).
IFPRU 4.7.6GRP
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).
IFPRU 4.7.7GRP
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).
IFPRU 4.7.10GRP
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
IFPRU 4.7.13GRP
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.
IFPRU 4.4.12GRP
In assessing whether the external data used by a firm to build models is representative of its actual obligors or exposures, the FCA expects a firm to consider whether this data is appropriate to its own experience and whether adjustments are necessary (see article 174 of the EU CRR).
IFPRU 4.4.17GRP
To demonstrate that a rating system provides for a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk, the FCA expects a firm would have regard to the sensitivity of the rating to movements in fundamental risk drivers, in assigning exposures to grades or pools within a rating system (see article 171 of the EU CRR).
IFPRU 4.2.1RRP
For the purposes of article 115 of the EU CRR (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) The Scottish Parliament;(2) The National Assembly for Wales; and(3) The Northern Ireland Assembly.
IFPRU 4.2.2GRP
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 EU CRR (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 EU CRR in order to consider an exposure, or any part of an exposure, as fully and completely secured for the
IFPRU 4.2.3RRP
For the purposes of articles 124(2) and 126(2) of the EU CRR, 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
IFPRU 4.2.6GRP
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 EU CRR. 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
IFPRU 4.2.8GRP
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 EU CRR 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 EU CRR).
IFPRU 4.2.9GRP
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 EU CRR (Credit risk mitigation) to qualify as an eligible guarantee (see article 129(2) of the EU CRR).
IFPRU 4.2.10GRP
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) an absence of external credit assessment of such CIU from an ECAI recognised under article 132(2) of the EU CRR (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
IFPRU 4.3.2GRP
A significant IFPRU firm should consider developing internal credit risk assessment capacity and to increase use of the internal ratings based approach for calculating own funds requirements for credit risk where its exposures are material in absolute terms and where it has at the same time a large number of material counterparties. This provision is without prejudice to the fulfilment of criteria laid down in Part Three, Title I, Chapter 3, Section 1 of the EU CRR (IRB approach).[Note:
IFPRU 4.3.10GRP
(1) The FCA may permit the exemption of exposures to sovereigns and institutions under article 150(1)(a) and (b) of the EU CRR respectively only if the number of material counterparties is limited and it would be unduly burdensome to implement a rating system for such counterparties.(2) The FCA considers that the 'limited number of material counterparties' test is unlikely to be met if for the UK group total outstandings to 'higher risk' sovereigns and institutions exceed either
IFPRU 4.3.14GRP
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
SUP 16.12.11RRP
The applicable data items referred to in SUP 16.12.4 R are set out according to firm type in the table below:Description of data item45Firms' prudential category and applicable data items(note 1)IFPRU investment firms and BIPRU firmsFirmsother thanBIPRU firms or IFPRU investment firmsIFPRUBIPRUIPRU(INV)Chapter 3IPRU(INV)Chapter 5IPRU(INV)Chapter 9IPRU(INV)Chapter 1338Solvency statementNo standard format (note 11)No standard format (note 20)No standard format (note 11)38Balance
SUP 16.12.15RRP
The applicable data items referred to in SUP 16.12.4 R are set out76 according to firm type76 in the table below: 48Description of data itemFirms' prudential category and applicable data items (note 1)IFPRU investment firms and BIPRU firmsFirms other than BIPRU firms or IFPRU investment firmsIFPRUBIPRUIPRU(INV) Chapter 3IPRU(INV) Chapter 5IPRU(INV) Chapter 9IPRU(INV) Chapter 11 (collective portfolio management firms only)IPRU(INV) Chapter 1248IPRU(INV) Chapter 1338Solvency statementNo
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: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
SUP 16.12.25ARRP
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 of data itemFirms' prudential category and applicable data item(note 1)IFPRU investment firms and BIPRU firmsFirmsother thanBIPRU firms or IFPRU investment firmsIFPRUBIPRUIPRU(INV)Chapter 3IPRU(INV)Chapter 5IPRU(INV)Chapter 9IPRU(INV)Chapter 1338Solvency statement (note 11)No standard format38Balance sheetFSA001/FINREP (Notes 2 and 30)FSA001 (Note 2)FSA029FSA029FSA029Section
IFPRU 2.2.18RRP
A firm must have internal methodologies that:(1) enable it to assess the credit risk of exposures to individual obligors, securities or securitisation positions and credit risk at the portfolio level;(2) do not rely solely or mechanistically on external credit ratings;(3) where its own funds requirements under Part Three of the EUCRR (Capital Requirements) are based on a rating by an ECAI or based on the fact that an exposure is unrated, enable the firm to consider other relevant
IFPRU 4.5.1GRP
The FCA expects that if a firm ordinarily assigns exposures in the corporate, institution or central government and central bank exposure classes to a member of a group, substantially on the basis of membership of that group and a common group rating, and the firm does so in the case of a particular obligor group, the firm should consider whether members of that group should be treated as a single obligor for the purpose of the definition of default in article 178(1) of the EU
IFPRU 4.5.3GRP
Under article 178(1)(b)1 of the EU CRR, the FCA is empowered to replace 90 days with 180 days in the days past due component of the definition of default for exposures secured by residential or SME commercial real estate in the retail exposure class, as well as exposures to public sector entities (PSEs).1
IFPRU 4.5.6GRP
To be satisfied that a firm complies with the documentation requirements in article 175(3) of the EU CRR, the FCA expects a firm should have a clear and documented policy for determining whether an exposure that has been in default should subsequently be returned to performing status (see article 175(3) of the EU CRR).
IFPRU 4.6.22GRP
Where a firm has not chosen to apply the definition of default at the level of an individual credit facility in accordance with article 178(1) of the EU CRR, the FCA expects it to ensure that the PD associated with unsecured exposures is not understated as a result of the presence of any collateralised exposures.
IFPRU 4.6.31GRP
The FCA expects a firm to estimate PD for a rating system in line with this section where the firm's internal experience of defaults for that rating system was 20 defaults or fewer, and reliable estimates of PD cannot be derived from external sources of default data, including the use of market price-related data. In PD estimation for all exposures covered by the rating system, the FCA expects the firm to:(1) use a statistical technique to derive the distribution of defaults implied
IFPRU 3.2.20GRP
When a collective portfolio management investment firm calculates the total risk exposure amount in article 92(3) of the EUCRR, the own funds requirements referred to in article 92(3)(a) (Risk-weighted1 exposure amount for credit risk and dilution risk) and article 92(3)(b) (Risk-weighted1 exposure amount for position risk) should include only those arising from its designated investment business. For this purpose, managing an AIF or managing a UCITS is excluded from designated
IFPRU 4.11.19GRP
The FCA expects that a firm will1 be able to comply with certain other EU CRR requirements only where it can1demonstrate that:11(1) in relation to article 144(1)(e) of the EU CRR, where more than one model is used, the rationale, and the associated boundary issues, is clearly articulated and justified and the criteria for assigning an asset to a rating model are objective and clear;(2) in relation to article 173(1)(c) of the EU CRR, the firm has a process in place to ensure valuations
IFPRU 4.14.4GRP
(1) This guidance sets out the FCA's expectations for granting permission to a firm to use its own one-sided credit valuation adjustment internal models (an "internal CVA model") for the purpose of estimating the maturity factor "M", as proposed under article 162(2)(h) of the EU CRR (Maturity).(2) In the context of counterparty credit risk, the maturity factor "M" is intended to increase the own funds requirements to reflect potential higher risks associated with medium and long-term
IFPRU 4.14.5GRP
(1) This guidance sets out the FCA's expectations for permitting a firm with the permission to use the Internal Model Method set out in Part Three, Title II, Chapter 6, Section 6 (Internal model method) and the permission to use an internal VaR model for specific risk set out in Part Three, Title IV, Chapter 5 (Use of internal models) associated with traded debt instruments to set to 1 the maturity factor "M" defined in article 162 of the EU CRR.(2) In the context of counterparty
IFPRU 4.15.1GRP
For purposes of repurchase transactions and securities lending or borrowing transactions, the FCA does not consider that there are any core market participants apart from those entities listed in article 227(3) of the EU CRR.