[2025] UKUT 00185 (TCC)

The first item on the agenda after the minutes of the previous meeting was “PQR Asset Classification Proposal”. A paper circulated in advance was headed “PQR-Paper for Approval. Non-Retail Asset Classification”. It was produced by Ms Orrell and Mr Wayne Jackson, who was also from the Credit Risk & Analytics team, and was presented at the meeting by Mr Somers. It began:

“To obtain approval for the decision tree produced by KPMG to determine the correct asset classes, and hence capital treatment, for both the Standardised and IRB approaches for all Commercial assets other than PBTL, which has been reviewed separately.

BACKGROUND
Reporting the correct risk weight (identified via the exposure’s asset classification) is a mandatory regulatory requirement and drives our 7 year plan and strategy for, amongst other things, lending and deposit growth and future levels of risk weighted assets.

In June 2017 Internal Audit identified a gap relating to the asset classification of non-retail exposures resulting in risk weights being wrongly allocated for some non-retail exposures. This was reported to ELT [Executive Leadership Team], Audit Committee and the PRA.

MATERIALITY
Non-retail assets account for 34% of our balance sheet (June 2018) and are split between our Professional BTL product and our Commercial Lending product.”

In reliance on the minutes of the meeting we find that “the committee accepted the recommendations for the implementation of the decision trees produced by KPMG”.