[2025] UKUT 00185 (TCC)

On 1 November 2018, Deloitte issued its preliminary report, entitled “the RWA calculation and the COREP reporting process”. It was based on the first two weeks of work, which involved “meetings with key people across Finance, Risk and Operations, walking through the calculation spreadsheets with the process owner, and reviewing significant aspects of rule interpretation”. The “key messages” were as follows:

“► The most significant mis-statement in the RWA calculation is due to the incorrect risk weighting of commercial property at 50% rather than 100%. Impact c. £600m RWA.

► There are multiple other data issues leading to mis-statements, but these are unlikely to be of similar size either individually or in aggregate (based on [Deloittes’] experience with other banks).

► Notwithstanding the above, currently it is virtually impossible to evidence the integrity of the RWA calculation or the COREP reports. This is because there are multiple gaps in the controls framework at every stage of the process, from data sourcing through to report generation.

► The data issues cannot be sustainably mitigated by the regulatory reporting team, and will need fixing upstream at source.

► This means that there are currently no firm grounds for providing attestation over COREP reporting.

► Inability to evidence controls has been a key concern in the PRA’s thematic work around regulatory reporting, and has led to supervisory action against some firms.

► Lack of controls over regulatory reporting is likely to come up as an obstacle in the IRB application process.”

The report also said that “there is currently no requirement [at the Bank] for upstream creators/providers of data sourced for regulatory reporting to attest to the quality of that data” and that one of the problems encountered by the regulatory reporting team was that:

“The entire commercial loans portfolio had to be manually re-classified because lack of source data/inconsistencies in the recording of loan purpose/facility type meant that the data was unfit for regulatory reporting.”

Under the heading “current state assessment”, Deloitte said that the bank was “potentially non-compliant with the CRR” in a number of areas, including:

“The bank has been incorrectly risk weighting commercial real estate lending at 50% whereas many other banks who had previously adopted this approach have already moved to a 100% risk weight. The Bank has quantified the RWA impact of applying the 100% risk weight at c. £600m.”

In relation to the remainder of the project work, Deloitte said that it would “focus on quick wins” but that “the data quality issues – in particular – will require longer term strategic remediation including system and process changes to how loan data is captured up-front”.

On 20 December 2018, Deloitte presented their final report to Mr Arden. An accompanying slide-deck said that a total RWA adjustment of £960m was required, of which £563m related to CLIP Loans, £312m to PBTL and the balance of around £25m was other adjustments, and concluding:

“it is estimated that, in aggregate, the issues identified in the RWA calculation will increase RWA by £0.9-1.0bn, and an increase in capital requirements of c.£100m, at a target capital ratio of 12.6%.”