[2025] UKUT 00185 (TCC)

The Bank had developed a plan to move from standardised basis to IRB over five years, beginning with residential mortgages, followed in turn by buy-to-let mortgages, revolving unsecured mortgages, and finally by commercial loans. The implementation of each stage would be dependent on PRA approval. The Bank began to carry out the plan in February 2018, by applying to the PRA for residential mortgages to move on to the IRB basis.

At the end of March 2018, the Bank began discussions with KPMG about assisting with its preparation for its commercial loan IRB application. On 29 March 2018, Ms Iovino emailed Mr Hall at KPMG saying:

“I just wanted to clarify our starting point to avoid any underestimation of the task or build false expectation. Our commercial portfolio is £2bn and made of circa 3k loans, we have no classification and very few data points, consequently our RWA assessment will not be extremely precise (especially in relation to the CRE exposure). For this reason, whilst we will happily provide access to the documentation, you will not be able to find a lot in it. The same applies to the data captured by the front end…”

On 10 April 2018, the Bank formally engaged KPMG to produce decision trees to support the correct classification of loans. Key elements of the task were as follows:

The decision trees were designed following a “desktop review of key documentation”; onsite meetings to discuss actual business and data structures, and analytical work in KPMG’s offices.One of the factors in the decision trees was whether the SME supporting factor applied. The purpose of the decision trees was to provide a tool which the Bank’s staff could apply to individual loans to determine the asset classification of each.