[X1PART THREE U.K. CAPITAL REQUIREMENTS

TITLE II U.K. CAPITAL REQUIREMENTS FOR CREDIT RISK

CHAPTER 3 U.K. Internal Ratings Based Approach

Section 1 U.K. Permission by competent authorities to use the IRB approach

Article 142 U.K. Definitions

1 . For the purposes of this Chapter, the following definitions shall apply:

(1)

‘ rating system ’ means all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to rating grades or pools, and the quantification of default and loss estimates that have been developed for a certain type of exposures;

(2)

‘ type of exposures ’ means a group of homogeneously managed exposures which are formed by a certain type of facilities and which may be limited to a single entity or a single sub-set of entities within a group provided that the same type of exposures is managed differently in other entities of the group;

(3)

‘ business unit ’ means any separate organisational or legal entities, business lines, geographical locations;

(4)

‘ large financial sector entity ’ means any financial sector entity which meets the following conditions:

(a)

its total assets, calculated on an individual or consolidated basis, are greater than or equal to a EUR 70 billion threshold, using the most recent audited financial statement or consolidated financial statement in order to determine asset size; and

(b)

it is, or one of its subsidiaries is, subject to prudential regulation in the [F1United Kingdom] or to the laws of a third country which applies prudential supervisory and regulatory requirements at least equivalent to those applied in the [F1United Kingdom];

(5)

‘ unregulated financial sector entity ’ means an entity that is not a regulated financial sector entity but that performs, as its main business, one or more [F2Annex 1 activities] or [F3the activities in Parts 1, 3 and 3A of Schedule 2 to the Regulated Activities Order];

(6)

‘ obligor grade ’ means a risk category within the obligor rating scale of a rating system, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of probability of default (PD) are derived;

(7)

‘facility grade’ means a risk category within a rating system's facility scale, to which exposures are assigned on the basis of a specified and distinct set of rating criteria, from which own estimates of LGD are derived [F4.]

(8)

F5...

2 . For the purposes of point (4)(b) of paragraph 1 of this Article, [F6the Treasury may by regulations determine whether] a third country applies supervisory and regulatory arrangements at least equivalent to those applied in the [F7United Kingdom]. F8...]

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