Credit Risk

1.1

This Part applies to every firm that is a CRR firm.

1.2

In this Part, the following definitions shall apply:

exposure

means an asset or off-balance sheet item as defined for credit risk purposes by Article 5(1) of the CRR.

loss

means economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument as defined for credit risk purposes by Article 5(2) of the CRR.

1.3

Unless otherwise defined, any italicised expression used in this Part and in the CRR has the same meaning as in the CRR.

2.1

For the purposes of Article 115 of the CRR, 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.

[Note: Art 115 of the CRR]

3.1

A firm must notify the PRA that it is relying on the deemed transfer of significant credit risk under paragraph 2 of Article 243 of the CRR or paragraph 2 of Article 244 of the CRR, including when this is for the purposes of Article 337(5) of the CRR, no later than one month after the date of the transfer.

3.2

The notification in 3.1 must include sufficient information to allow the PRA to assess whether the possible reduction in risk weighted exposure amounts which would be achieved by the securitisation is justified by a commensurate transfer of credit risk to third parties.

4.1

For the purposes of Articles 124(2) and 126(2) of the CRR and in addition to the conditions set out therein, a firm may treat exposures as fully and completely secured by mortgages on commercial immovable property located in the UK in accordance with Article 126 of the CRR only where annual average losses stemming from lending secured by mortgages on commercial property located in the UK did not exceed 0.5% of risk-weighted exposure amounts over a representative period. A firm shall calculate the loss level referred to in this rule on the basis of the aggregate market data for commercial property lending published by the PRA in accordance with Article 430a(3) of the CRR.

4.1A

For the purposes of Articles 124(2) and 126(2) of the CRR and in addition to the conditions set out therein, a firm may treat an exposure or any part of an exposure that is located in a jurisdiction that is not an EEA State as fully and completely secured for the purposes of Article 126 (1) of the CRR only if all of the following conditions are met:

1. (1) annual average losses stemming from lending secured by mortgages on commercial property located in that jurisdiction did not exceed 0.5% of the exposure value over a representative period where:
1. (a) there is sufficient evidence that the data used to determine the loss level referred to in this rule are of the same or better quality as the data required to be published under Article 430a(3) of the CRR; and
2. (b) it is reasonable to rely on such data;
2. (2) the risk-weight that would be applied to that exposure or part of an exposure by the relevant supervisory authority in that jurisdiction is 50% or less.

4.2

For the purposes of 4.1 and 4.1A, a representative period shall be a time horizon of sufficient length and which includes a mix of good and bad years.

[Note: Arts. 124(2) and 126(2) of the CRR]

5.1

In accordance with Article 380 of the CRR, where a system wide failure of a settlement system, a clearing system or a CCP occurs, the own funds requirements calculated as set out in Articles 378 and 379 of the CRR are waived until the situation is rectified. In this case, the failure of a counterparty to settle a trade shall not be deemed a default for purposes of credit risk.

[Note: Art. 380 of the CRR]