UK Basel 3.1: Credit risk standardised approach – exposures in default
On 30 November 2022, the Prudential Regulation Authority (PRA) published a Consultation Paper 16/22 (CP16/22) proposing the implementation of Basel 3.1 standards. The framework was originally proposed to be implemented on January 1, 2025. However, according to the news release dated September 27, 2023, the revised implementation date is July 1, 2025. A brief summary of the changes proposed to ‘exposures in default’ under the credit risk standardised approach is provided below.
Key changes to exposures in default (Article 127), include:
To assess the specific credit risk adjustments threshold the outstanding amount of the facility is to be considered, instead of the unsecured part of the exposure value used currently.
A preferential risk weight of 100% would be applied on residential real estate exposures where repayments do not materially depend on cash flows generated by the property (currently, 100% risk weight is applied on the exposures fully and completely secured by mortgages on residential or commercial property).
A summary of the proposed classifications and applicable risk weights is given below:
Existing and proposed Risk Weights
