1 Overview

1.1 This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Chapter 5 of Consultation Paper (CP) 25/19 ‘Occasional Consultation Paper’. [October 2019.] It also contains the PRA’s final policy, as follows:

• update to Supervisory Statement (SS) 11/13 ‘Internal Ratings Based (IRB) approaches’  (Appendix 1); and

• update to SS10/13 ‘Standardised approach’ (Appendix 2).

1.2 This PS is relevant to all banks, building societies and PRA-authorised investment firms offering retirement interest-only (RIO) mortgages. It is also relevant to firms that have offered RIO mortgages in the past, or may do so in the future.

1.3 This PS should be read in conjunction with PS11/20 ‘Credit risk: Probability of Default and Loss Given Default estimation’, [May 2020.] which also makes an update to SS11/13.

Background

1.4 In the CP, the PRA set out its proposals to address potential inconsistencies in practices across firms in relation to the capital treatment of RIO mortgages. The PRA proposed:

• the circumstances in which firms should classify conversions of exposures to RIO mortgages as being distressed restructuring;

• the conditions for defaulted interest-only (IO) mortgages to return to non-defaulted status following conversion to a RIO mortgage; and