[2025] UKUT 00185 (TCC)

On 11 July 2018, Mr Sutherland emailed Mr Costa asking for the average risk weights for various types of commercial loan. Ms Gillan replied the following day, saying that they were between 38% and 58%.

At or around the same time, Mr Sutherland was informed by a capital specialist at the PRA that the Bank was risk weighting CLIP loans at 50% instead of 100%, with the result that the RWAs being reported to the PRA were materially lower than they should have been. It was “immediately clear” to Mr Sutherland that this would be “a serious issue”. He explained:

“Moving from 50% RWAs to 100% for all commercial secured loans would be a large material change, and the PRA quickly realised the magnitude of this. The material uncertainty in Metro Bank’s Pillar 1 RWAs would affect how the PRA considered a number of different areas, including Metro Bank’s key risks, systems and controls, the bank’s AIRB application, and whether the PRA would be able to consider a Pillar 2A offset.”

On 13 July 2018, Mr Sutherland emailed Ms Gillan again, copying Mr Somers and Mr Costa, saying that:

On 16 July 2018, Mr Somers emailed Ms Gillan, copying Mr Richardson and Mr Costa, saying:

“I think we need to come clean and simplify the story. The answer is that the 50% is wrong and we know it to be. Otherwise we will be told which will be worse (s166 territory?!).”

The reference to “s 166 territory” was to FSMA s 166, which gave the PRA power to be provided with information or documents “with respect to any matter”, either by requiring a report, or by appointing a “skilled person” to provide such a report.

Mr Richardson responded to Mr Somers and Ms Gillan within the hour, saying (emboldening in original):

“A bit of boring detail to support the previous emails – As confirmed with KPMG last week, the following changes need to be made to our current reporting – The 50% risk weights for “commercial mortgages (mixed collateral)” and “commercial (other)” should be 100%, with SME support factor as appropriate.”

He added (again, emboldening in original):

“One upside is that I think that many of the ‘retail commercial mortgages’ on CHL (London & Canberra) currently marked at 50% are loans to ‘personal investment companies’ for residential properties, so would qualify as retail under CRR Article 125 and hence 35%.”

On 17 July 2018, Ms Gillan responded to Mr Sutherland’s first point as follows:

“As you know, we are reviewing the asset classification and/or RWA assigned. The 44% is a result of applying an RWA of 50% and combining the 76% overlay for SME to the loans that qualify for the SME discount. Based on analysis undertaken as part of the asset classification review so far we now believe the 50% to be inaccurate and will be re-stating once the findings of the review are finalised.”

She responded to his second point by saying:

“We can confirm the 50% RWA is the RWA we used in March 2018 but, following our asset classification review, we now believe this to be inaccurate. Once the review has concluded, we will revert with further details.”