On March 6, 2019, the Prudential Regulation Authority (PRA) published its Policy Statement (PS) 7/19 on ‘Credit risk: definition of default’. CRISIL GR&A provides an analysis on the ‘new default definition’. The PRA has also published its revised supervisory statement on internal ratings-based approach, which has to be applied from December 31, 2020, unless a firm attains supervisory approval to extend this application date.
In the report, we compare the PRA’s recent policy statement on definition of default with EBA guidelines. Our analysis shows followings:
Convergence in the EBA and the PRA regulations for ‘days past due’ criterion
The PRA’s UTP indicators remains same as the EBA’s.
The PRA expects firms to use lower materiality thresholds for retail exposures and non-retail exposures compared with the EBA.