[X1Section 1 U.K. General principles
Article 111 U.K. Exposure value
[F11.The exposure value of an asset item shall be its accounting value remaining after specific credit risk adjustments in accordance with Article 110, additional value adjustments in accordance with Articles 34 and 105, amounts deducted in accordance with point (m) Article 36(1) and other own funds reductions related to the asset item have been applied. The exposure value of an off-balance sheet item listed in Annex I shall be the following percentage of its nominal value after reduction of specific credit risk adjustments and amounts deducted in accordance with point (m) Article 36(1):]
(a)100 % if it is a full-risk item;
(b)50 % if it is a medium-risk item;
(c)20 % if it is a medium/low-risk item;
(d)0 % if it is a low-risk item.
The off-balance sheet items referred to in the second sentence of the first subparagraph shall be assigned to risk categories as indicated in Annex I.
When an institution is using the Financial Collateral Comprehensive Method under Article 223, the exposure value of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions shall be increased by the volatility adjustment appropriate to such securities or commodities as prescribed in Articles 223 to 225.
2.The exposure value of a derivative instrument listed in Annex II shall be determined in accordance with Chapter 6 [F2of this Regulation and Sections 3 to 5 of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook] with the effects of contracts of novation and other netting agreements taken into account for the purposes of those methods in accordance with Chapter 6 [F2of this Regulation and Sections 3 to 5 of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook]. The exposure value of repurchase transaction, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions may be determined either in accordance with Chapter 6 [F2of this Regulation and Sections 3 to 5 of Chapter 3 of the Counterparty Credit Risk (CRR) Part of the PRA Rulebook] or Chapter 4.
3.Where an exposure is subject to funded credit protection, the exposure value applicable to that item may be amended in accordance with Chapter 4.
Textual Amendments
Article 112 U.K. Exposure classes
Each exposure shall be assigned to one of the following exposure classes:
exposures to central governments or central banks;
exposures to regional governments or local authorities;
exposures to public sector entities;
exposures to multilateral development banks;
exposures to international organisations;
exposures to institutions;
exposures to corporates;
retail exposures;
exposures secured by mortgages on immovable property;
exposures in default;
exposures associated with particularly high risk;
exposures in the form of covered bonds;
items representing securitisation positions;
exposures to institutions and corporates with a short-term credit assessment;
exposures in the form of units or shares in collective investment undertakings ( ‘ CIUs ’ );
equity exposures;
other items.
Article 113 U.K. Calculation of risk-weighted exposure amounts
1 . To calculate risk-weighted exposure amounts, risk weights shall be applied to all exposures, unless deducted from own funds, in accordance with the provisions of Section 2. The application of risk weights shall be based on the exposure class to which the exposure is assigned and, to the extent specified in Section 2, its credit quality. Credit quality may be determined by reference to the credit assessments of ECAIs or the credit assessments of export credit agencies in accordance with Section 3.
2 . For the purposes of applying a risk weight, as referred to in paragraph 1, the exposure value shall be multiplied by the risk weight specified or determined in accordance with Section 2.
3 . Where an exposure is subject to credit protection the risk weight applicable to that item may be amended in accordance with Chapter 4.
4 . Risk-weighted exposure amounts for securitised exposures shall be calculated in accordance with Chapter 5.
5 . Exposures for which no calculation is provided in Section 2 shall be assigned a risk-weight of 100 %.
6 . With the exception of exposures giving rise to Common Equity Tier 1, Additional Tier 1 or Tier 2 items, an institution may, subject to the prior approval of the competent authorities, decide not to apply the requirements of paragraph 1 of this Article to the exposures of that institution to a counterparty which is its parent undertaking, its subsidiary, a subsidiary of its parent undertaking or an undertaking linked by a [F3common management relationship]. Competent authorities are empowered to grant approval if the following conditions are fulfilled:
( a ) the counterparty is an institution, a financial institution or an ancillary services undertaking subject to appropriate prudential requirements;
( b ) the counterparty is included in the same consolidation as the institution on a full basis;
( c ) the counterparty is subject to the same risk evaluation, measurement and control procedures as the institution;
( d ) the counterparty is established in the [F4United Kingdom];
( e ) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the institution.
Where the institution, in accordance with this paragraph, is authorised not to apply the requirements of paragraph 1, it may assign a risk weight of 0 %.
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Textual Amendments
F3Words in Art. 113(6) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1401), regs. 1(3), 111(2)(a) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)
F4Words in Art. 113(6) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1401), regs. 1(3), 111(2)(b) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)
F5Art. 113(7) omitted (31.12.2020) by virtue of The Capital Requirements (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1401), regs. 1(3), 111(3) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)