Use test

4.1 In accordance with Article 144(1)(b) of the Credit Risk: Internal Ratings Based Approach (CRR) Part, firms should ensure that the estimates of risk parameters used for the purpose of capital requirements calculations play an essential role in internal risk management and decision-making processes. In particular, the PRA expects firms to ensure that:

(a) any deviations between parameters used for internal purposes and for capital requirements purposes are justified and appropriate for the specific area of use; and

(b) the rank-ordering in the assignment of obligors or facilities to grades and pools within a calibration segment plays an essential role in the rank-ordering used for internal risk management and decision-making processes.

4.2 The PRA considers that deviations caused by the use of parameters for internal purposes that do not include either:

(a) a MoC;

(b) regulatory floors; or

(c) downturn adjustments in the case of LGD, or EAD or CF estimates

will not normally prevent the criteria in Article 144(1)(b) of the Credit Risk: Internal Ratings Based Approach (CRR) Part from being met.