[2025] UKUT 00185 (TCC)

On 6 September 2018, Mr Arran Salmon, the head of the PRA’s “New Banks 1&2 Teams”, together with Mr Sutherland and a Ms Warren, met Mr Gunn. Both the PRA and Mr Gunn produced contemporaneous notes of that meeting. Key points were:

On 10 September 2018, Ms Melanie Beaman, the Director of UK Deposit Takers at the PRA and a director of the Bank of England, sent Mr Hill the Bank’s annual Periodic Summary Meeting (“PSM”) letter. PSM letters are confidential summaries of the view taken by the PRA of a financial institution’s material risks, and they delineate required mitigating actions. The PSM letter included the following passages about publishing information about confidential discussions between the Bank and the PRA:

“We consider the firm should manage the expectations of external stakeholders more effectively to avoid capital discussions leading to reputational issues or management distraction for Metro. This risk was highlighted by the public announcement in April when you said there would be no expectation to raise further equity in 2018, only to proceed with an equity issuance shortly thereafter.

We were also somewhat frustrated that discussions we have had with you over IRB model recognition were recently referenced publicly, and portrayed in a manner which may risk setting false expectations over the timeframe for achieving IRB model approval. We have not yet reached any formal decision on your application but we remain concerned about the depth of your relevant modelling experience.

Similarly, in April 2018 you publically [sic] stated an expectation that Metro would benefit from the Pillar 2A offset approach before we had reviewed your ICAAP. We would not wish to see a repeat of this type of instance.”

The PSM letter also referred to RWAs, saying:

“Finally, we understand that you are remediating the classification of commercial risk weights which will likely increase the Pillar 1 risk weighted assets that have previously been reported to us…At this stage we are
uncertain about the materiality of any prospective adjustment to your capital position. So until this matter is satisfactorily resolved, and we have received reassurance that Metro is holding sufficient Pillar 1 capital against its commercial assets, we will not apply Policy Statement 22/17 which allows the offsetting of certain Pillar 2a variable add-ons.”

The reference to PS22/17 was to the PRA’s approach to allowing overcapitalisation in the calculation of Pillar 1 requirements to reduce a bank’s Pillar 2A requirements using the unders/overs principle, see §16(2)(c).

Appendix 1 set out key actions for the Bank, which included:

“CRO [Chief Risk Officer] to submit the results of the commercial risk weighting exercise and the CFO to provide an attestation on the accuracy of regulatory reporting. This should be supported by an internal audit review of the remediation exercise…

We have chosen not to apply PS22/17 because we have been unable to confirm the adequacy of the commercial risk weights provided by you during the course of the capital assessment. Once you have completed the remediation project and we have received assurance from Internal Audit that you are correctly reporting risk weights for your commercial book, we will be willing to consider an application to apply PS22/17.”

On 11 September 2018, Mr MacLean emailedMr Arden, saying:

“As per previous discussions, we are now expecting to move ahead with the change of approach on commercial RWAs to include all of our commercial lending secured on commercial property as 100% RWA. Risk have spoken to Deloitte for a second opinion, and they have confirmed our understanding.”

On 12 September 2018, a meeting took place between the PRA (Mr Salmon, Mr Sutherland and others) and Mr Donaldson, Mr Arden and Ms Gillan. Contemporaneous minutes were taken both by the PRA and by Ms Gillan. Under the heading “Pillar 1 RWA reporting issue”, the PRA recorded as follows:

“AS [Mr Salmon] explained that the reporting error had caused agitation on the Panel as it had been perceived as the firm not being able to get the basics right.

CD [Mr Donaldson] expressed sincere regret and apology for the error. He expects the reporting to be corrected by October/November and believes c£40m assets are in scope for re-classification (Footnote: ²). He was unsure what this represented in percentage terms. Once the team has worked through the results CD will be seeking external assurance and DA [Mr Arden] will attest as to their accuracy, and the correct numbers will be contained in the new ICAAP.

CD fully accepted the PRA’s decision not to apply the Unders/Overs principle as a result, however he asked if this decision could be revisited before the next Panel. AS agreed to a discussion about this once the mistake had been corrected, noting that we would need to understand how the mistake had occurred and to be assured there is no read-across to other reporting aspects.”

In reliance on Ms Gillan’s evidence in cross-examination we find that all those present agreed that an error had been made. She said: “no-one was hiding that. Everyone was agreeing that that was the case.”

Under the heading “AIRB” the PRA minutes recorded:

“CD asked what Metro could do to help move the AIRB issue along. AS explained there was no decision yet but the high level feedback so far is that the firm does not have the required level of use testing experience and that the CRR is clear on the requirements.

AG [Ms Gillan] does not agree regarding the interpretation of the CRR, and CD added that other senior figures at the PRA had been more encouraging about Metro’s prospects of getting AIRB.

GS [Mr Sutherland] advised Metro that there would be an internal Challenge Session and there would be an opportunity for the firm to appeal the decision after that.”

On 17 September 2018 there was a meeting of the CRPAC; Mr Donaldson, Mr Arden, Ms Gillan, Mr Stokes, Mr Somers and others attended.