Prudential Regulation Authority Rulebook

7.1

Where a firm uses any internal credit assessment of assets within the relevant portfolio of assets, the firm must ensure on an ongoing basis:

1. (1) that, as required by regulation 4(4) of the IRPR regulations, such internal credit assessment is of a comparable standard to a credit rating; and
2. (2) the appropriateness of:
   1. (a) its process to produce such internal credit assessments; and
   2. (b) the outcomes of such internal credit assessments.

7.2

For the purposes of 7.1, the firm must ensure at a minimum that:

1. (1) the internal credit assessments have considered all possible sources of credit risk, both qualitative and quantitative, and how these types of credit risk may interact;
2. (2) the internal credit assessment outcomes lie within a plausible range of issue ratings that could have resulted from a credit rating agency;
3. (3) both at the level of the relevant portfolio of assets and of each asset type, there is broad consistency and no bias between:
   1. (a) internal credit assessment outcomes; and
   2. (b) issue ratings that could have resulted from a credit rating agency;
4. (4) the internal credit assessment process is subject to appropriate validation, and appropriate assessment of its on-going appropriateness;
5. (5) the firm has obtained proportionate independent external assurance in respect of 7.2(2); and
6. (6) the firm’s internal credit assessment function is independent and there are effective controls to manage any potential conflicts of interest.

7.3

Upon request, the firm must be able to demonstrate its compliance with 7.1 to the PRA.

7.4

The use of credit ratings in the calculation of the matching adjustment shall be in line with the specifications set out in Solvency Capital Requirement – Standard Formula 1A to 1C and Commission Implementing Regulation 2016/1800.