Upper Tribunal Tax and Chancery Chamber

[2025] UKUT 00185 (TCC)

Fecha: 09-Abr-2025

Rules on classification

Rules on classification

365.

The Applicants’ position was that at the time of the Q3 Update, there was uncertainty about whether the Bank had to risk-weight CLIP loans at 50%. We agree with Mr Stanley that this is unsustainable. We have already made the following findings:

(1)

In May 2018, KPMG had informed the Bank that it was wrong to use 50% risk weighting, see §100.

(2)

On 17 July 2018, Ms Gillan informed the PRA that the 50% was inaccurate, see §109 and §110.

(3)

There were then numerous internal communications to the same effect, culminating in the PowerPoint presentation headed “RWA Calculating Review – August 2018” together with the meeting with the PRA and the PSM letter.

(4)

At some point before 11 September 2018, Deloitte confirmed to the Bank that the 50% risk weighting was wrong, see §136.

(5)

There is no contemporaneous evidence to the effect there was any doubt as to the regulatory requirement, see our findings at §§184ff.

366.

As set out at §25, the PRA did allow a 50% risk-weighting where the condition in Rule 4.1 of the Credit Risk section of its Rulebook was met. That condition was that a bank’s “annual average losses stemming from lending secured by mortgages on commercial property in the UK did not exceed 0.5% of risk-weighted exposure amounts over a representative period”. However, we have also found as a fact that the RWA Report included a slide saying that the Credit Risk and Analytics team had considered this exception, but that KPMG had confirmed that “they were not aware of any UK regulated firm that has demonstrated loss levels to be less than 0.50% over the relevant time horizon”, see §§177(3)-177(4).

367.

There was no subsequent reference in the contemporaneous evidence to any consideration being given to this Rule, and Mr Arden’s oral evidence was that Deloitte had told him it “would be very difficult to achieve” and that no time was spent considering it as a possibility.

368.

On the basis of the foregoing, we find as facts that at the time of the Q3 Update:

(1)

it was known that the exception to Rule 4.1 did not apply to the Bank; and

(2)

there was no uncertainty as to the rules on classification which applied to the Bank’s CLIP loans.