[2025] UKUT 00185 (TCC)

the Bank wanted to move from standardised basis to IRB; it had developed a plan to do this over five years, beginning in February 2018 when it applied for residential mortgages to move onto that basis. The Bank’s plan was to follow this in turn by buy-to-let mortgages, revolving unsecured mortgages, and finally by commercial loans, see §91. Thus, the application which had been made at the time of the Q3 Update related only to residential mortgages, not to CLIP loans.

The Bank’s own expectation, set out in its 2018 half year update, was that it would make the transition to IRB for residential mortgages in the second half of 2019, see §112.

At the meeting with Mr Gunn on 6 September 2018, the PRA said that the Bank’s application was “more complex/challenging than any other of our comparator banks” and they had “some genuine concern about the depth of [the Bank’s] use test experience and also of the depth of experience of [its] modelling team”. Although the PRA had not yet carried out detailed testing, they were “uneasy” and as a result “it may take [the Bank] longer to get approval, maybe considerably so”, see §131(3).

The PSM letter dated 10 September 2018 warned the Bank about speaking publicly about the application, saying that this “may risk setting false expectations over the timeframe for achieving IRB model approval” and adding that the PRA had “not yet reached any formal decision on [the Bank’s] application but we remain concerned about the depth of your relevant modelling experience”, see §132.

At the meeting on 12 September 2018, the PRA said there “was no decision yet but the high level feedback so far is that the firm does not have the required level of use testing experience”. When Ms Gillan and Mr Donaldson challenged that response, Mr Sutherland advised the Bank that “there would be an internal Challenge Session and there would be an opportunity for the firm to appeal the decision after that”.

The 2019 Budget paper which was discussed at the October Board meeting, said that the Bank was hoping that AIRB approval for residential mortgages would be being “received during Q3 2019”, adding “we should have early sight of actual dates on AIRB before our full year results announcement”.

its own expectation, in the same Board meeting as the Q3 Update was approved, was that this would not be achieved before the third quarter of 2019, a full year ahead; and

the warnings from the PRA about the Bank’s unrealistic expectations and the reference in the meeting on 12 September to appealing the outcome of the decision-making process.