WRITTEN NOTICE - IRB PERMISSION

Transcription

1 BANKOF ENGLAND WRITTEN NOTICE - IRB PERMISSION To: Skipton Building Society [FRN: ]("the firm") Ref: Date: 1 November 2016 DECISIONS 1. In accordance with the discretions afforded to the PRA under Chapter 3, Title II, Part Three of Regulation 575/2013 of the European Parliament and of the Council of 26th June 2013 on prudential requirements for credit institutions and investment firms (the "CRR"), the firm has been granted the permission to calculate its risk weighted exposure amounts using the Internal Ratings Based Approach ("IRB Approach") on the terms and conditions set out in Annex 1 (the "IRB Permission"). 2. Further to Article 101 and 104 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (the "CRD") the firm has applied for and the PRA has imposed the matters specified in Annex 2 as requirements under section 55M (5) of the Financial Services and Markets Act 2000 (the "Act"). 3. If the firm ceases to comply with the conditions for granting of this IRB Permission set out in Chapter 3, Title U, Part Three of the CRR, the terms and conditions of the IRB Permission set out in Annex 1, and any of the requirements set out in Annex 2, the PRA will re-consider the terms and conditions of the IRB Permission and the requirements relevant to it, including a revocation of the IRB Permission in whole or in part. 4. The IRB Permission with the requirements in Annex 2 takes effect on 1 December Name Role Prudential Regulation Authority Page 1 of 10

2 PROCEDURAL MATTERS 5. If the firm wishes to challenge the decisions taken by the PRA in relation to the IRB Permission, the firm may refer the matter to the Upper Tribunal. 6. Details of the IRB Permission and the related requirements sought or imposed under section 55M of the Act will be published on the Financial Services Register. PRA contacts 7. For more information concerning this matter general, the firm should contact its usual supervisory contact. Page 2 of 10

3 BANKOF ENGLAND ANNEX 1 THE INTERNAL RATINGS BASED PERMISSION Legal Entities 1. The IRB Permission means that the firm may apply the internal ratings based approach to the legal entities in its calculation of own funds requirements on the following basis: a. Skipton Building Society on its consolidated situation; 2. The firm must calculate its risk-weighted exposure amounts for the categories of exposure identified in Table 1 of Schedule 1 (with the exception of the permanent exemptions and any exposures still subject to sequential implementation) using the IRB Approach, to the extent, in the manner and subject to the conditions set out in this IRB Permission, and in accordance with Table 1 in Schedule 1. Ratings Systems 3. The firm is permitted to use the ratings systems and internal models approaches to equity exposures (together the "Ratings Systems") as specified in the documentation contained in the firm's IRB case file (ACTS 6954) comprising its IRB application documentation, as modified by all changes and specifications notified to the firm by the PRA, including those specified in this IRB Permission Notice, all changes and extensions notified by the firm and accepted by the PRA, and all material changes and extensions for which permission has been granted by the PRA noted in Annex 4. Permanent partial use 4. The firm is permitted to apply the Standardised Approach for the exposures listed in Table 2 in Schedule 1 in accordance with art 150 of the CRR. Reversion to the Standardised Approach under art [The firm is permitted to revert to the use the Standardised Approach for the calculation of riskweighted exposure amounts for the exposure classes or types of exposure listed in Table 3 in Schedule 1.] [This paragraph does not apply to this IRB Permission] Reversion to CRR art 151(8) LGD/Conversion factors under CRR art [The firm is permitted to revert to the use of LGD and conversion factors referred to in a CR art 151(8) for the calculation of risk-weighted exposure amounts for the exposure classes or types of exposure listed in Table 4 in Schedule 1.] [This paragraph does not apply to this IRB Permission] Sequential implementation 7. The firm is permitted to implement the IRB Approach sequentially in accordance with Table 5 in Schedule 1 in accordance with art 148 of the CRR. 8. The firm is required to implement the IRB Approach for all exposures by 31 December Sequential implementation is not subject to any further conditions. Page 3 of 10

4 BANKOF ENGLAND Treatment by exposure class 10. The firm is permitted to use the approaches in Article 155(3) and (4) for equity exposures as set out in Table 1 of Schedule [The firm is permitted to use its own estimates of LGDs and conversion factors for the exposure classes as set out in Table 1 of Schedule 1. ] [This paragraph does not apply to this IRB Permission] Maturity under art 162 ofthe CRR 12. To the extent that the firm does not have permission to use own estimates of LGDs and conversion factors it shall calculate maturity as set out under CRR Article 162(2). Definition of default days is replaced with 180 days in CRR Article 178(l)(b) for exposures secured by residential real estate in the retail exposure class. Unfunded credit protection 14. [The firm may recognise unfunded credit protection by adjusting [PD][LGD].] [This paragraph does not apply to this IRB Permission] Eligible collateral 15. [The firm [may use as eligible collateral the following type[s] of physical collateral: [This paragraph does not apply to this IRB Permission].] Further specifications 16. The firms must comply with the following specifications as far as applicable: (a) Point-in-time Ratings Systems: As part of the CRR permission for the following rating systems: Model 1; PD for loans fully secured on residential property (SBS). PD for loans fully secured on residential property (Amber). PD for loans fully secured on residential property (NYM). The PRA expects that the firm will re-align each of the above models to a new calculation data-set using methods, processes and controls approved as part of the PRA's approval of the respective model. The re-alignment process should comprise a recalibration of the model to recently realised defaults. The PD estimates derived through the model should incorporate the approved buffer necessary to account for any potential under estimation of PD between recalibrations. The re-alignment process should take place with sufficient regularity, and at least every six months, except where such a re-alignment can be shown to have an impact of less than 5% on the Risk Weighted Assets produced by the corresponding rating system. The PRA considers that the ongoing alignment specifically described in the previous paragraph is part of the ongoing operation of the ratings system and as such does not constitute a change to the rating Page 4 of 10

5 system within the meaning of Art 143(4) CRR and Regulation (EU) 529/2014. Accordingly, the PRA considers any failure to adhere to the specifications set out in the previous paragraph as potentially a change to the rating system, and would expect prior notification in such cases. Material, significant and other changes 17. In accordance with Article 143(3), (4) of the CRR and the Delegated Regulation (EU) No 529/2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for assessing the materiality of extensions and changes of the Internal Ratings Based Approach and the Advanced Measurement (as amended), (1) the firm will require a further permission from the PRA in respect of the following changes to the IRB Permission: (a) (b) material changes to the range of application of a ratings system or an internal models approach to equity exposures; or material changes to a ratings system or an internal models approach to equity exposures; and (2) the firms must notify the PRA of all changes to ratings systems and internal models approaches to equity exposures subject to the IRB Permission. Page 5 of 10

6 SCHEDULE 1 High level scope and coverage of IRB permission. The PRA has granted the IRB permission for the categories and types of exposures identified in Table 1 below with the exception of the permanent exemptions in Table 2. Exposure classes that are not applicable to the firm are marked N/A. Table 1 IRB exposure classes Exposures on central governments and central banks Exposures on institutions Exposures on corporates Retail exposures Sub-classes (& art 155 approach, if applicable) Country Own estimates of LGDs and Conversion Factors (tick if apply) Loans fully secured on residential property (SBS) Loans fully secured on residential property (Amber) Loans fully secured on residential property (NYM) Equity exposures Investment in subsidiaries N/A Securitisation positions Non creditobligation assets Cash in hand Property, plant and equipment Fair value adjustments for hedged risk on mortgages N/A Additional provisions/ Table 2 Exposures permanently exempted from the IRB Approach under CRR Article 150 Exposure Class Sub-classes Portfolio/Business Unit Exposures to central Exposures to central governments and central banks Bank of England governments and Exposures to central governments and central Sovereigns and institutions central banks (CRR Article 150(l)(a)) banks, exposures to institutions Exposures to institutions (CRR Exposures to corporates Derivative financial instruments Prudential Regulation Authority, 20 Moorgate, London EC2R 6DA T+44 (0) Page 6 of 10

7 Article 150(l)(b)) Non significant businesses or immaterial exposure classes or exposure types(crr Article 150(l)(c)) Exposures on central governments and central banks, etc. in Member States (CRR Article 150(l)(d) Other Exposure to corporates Exposure to corporates Items representing securitisation positions Loans fully secured on residential property Non-standard mortgages Loans fully secured on land - NIPRE Other loans to customers Other loans to customers Exposure to corporates Investment in joint venture Due from Group companies Securitisations (RMBS/CMBS) SBS equity release Skipton International Limited Commercial Lending Skipton Building Society Skipton Business Finance Other assets Table 3 [This table does not apply in this IRB Permission] Exposures for which permission has been given to revert to the Standardised Approach under CRR Article 149 Category Exposure class/exposure Portfolio/Business Unit Description type Table 4 [This table does not apply in this IRB Permission] Exposures for which permission has been given to revert to LGD/ conversion factors referred to in CRR art 151(8) under CR] * Article 149 Category Exposure class/exposure Portfolio/Business Unit Description type Table 5 Sequential implementation Exposure class Portfolio Description Expected date for submission of application Page 7 of 10

8 Loans fully secured Commercial The firm has a CRE portfolio of 2017 on land - IPRE Real Estate around 280m which is on a rollout plan, expected to complete by Page 8 of 10

9 BANKOF ENGLAND ANNEX 2 REQUIREMENTS RELEVANT TO THE IRB PERMISSION THAT THE FIRM HAS SOUGHT AND THE PRA IMPOSES UNDER SECTION 55M (5) OF THE ACT Reporting Requirements 1. The firm must submit, on an annual basis, an inventory of: (i) all ratings systems; and (ii) all internal approaches to equity exposures which are included within the scope of its IRB Permission as of 30 September of that year. The firm must submit the inventory no later than 31 December of the relevant year. Other Requirements [Not Applicable ] Prudential Regulation Authority, registered office: 8 Lothbury, London EC2R7HH. Registered in England and Wales No: Page 9 of 10

10 ANNEX 3 VERSION CONTROL SCHEDULE Version Comment Authorisation Date 1.0 IRB Permission granted Martin Stewart, Director BBSCU 1/11/2016 Prudential Regulation Authority, registered office: 8 Lothbury, London EC2R7HH. Registered in England and Wales No: Page 10 of 10