High-level expectations for estimation

10.1 In order to be able to determine that the requirements in CRR Article 144(1) have been met, the PRA would typically have the high level expectations set out in this subsection.

10.2 The PRA expects the information that a firm produces or uses for the purpose of the IRB approach to be reliable and take proper account of the different users of the information produced (customers, shareholders, regulators and other market participants).

10.3 The PRA expects firms to establish quantified and documented targets and standards, against which it should test the accuracy of data used in its rating systems. Such tests should cover:

(a) a report and accounts reconciliation, including whether every exposure has a Probability of Default (PD), Loss Given Default (LGD) and, if applicable, conversion factor (CF) for reporting purposes;

(b) whether the firm’s risk control environment has key risk indicators for the purpose of monitoring and ensuring data accuracy;

(c) whether the firm has an adequate business and information technology infrastructure with fully documented processes;

(d) whether the firm has clear and documented standards on ownership of data (including inputs and manipulation) and timeliness of current data (daily, monthly, real time); and

(e) whether the firm has a comprehensive quantitative audit programme.