Model Permissions Specification¶

Basel 3.1 approach restrictions under Art. 147A limiting which exposure classes may use A-IRB, and routing exposures to F-IRB, slotting, or SA based on regulatory constraints.

Regulatory Reference: PRA PS1/26 Art. 147A; PS1/26 Glossary p. 78 (LFSE definition, corresponds to CRR Art. 142(1)(4)) Test Group: B31-M

Requirements Status¶

Overview¶

Art. 147A introduces mandatory approach restrictions that limit which exposure classes may use the Advanced IRB (A-IRB) approach under Basel 3.1. These restrictions address concerns about model risk in areas where internal estimates have proven unreliable or insufficiently validated.

The restrictions are enforced in the classifier stage of the pipeline, after hierarchy resolution and before calculation. Exposures that fail the Art. 147A check are routed to a permitted approach.

Art. 147A Approach Restrictions¶

Restriction Table¶

The letter scheme in Art. 147A(1) points to sub-classes in Art. 147(2) (verified against PRA PS1/26 ps126app1.pdf pp.88, 92–93, 17 Apr 2026). Financial corporates and large corporates are grouped together under point (c)(ii) of Art. 147(2) — both are handled by Art. 147A(1)(e), not by separate letters.

Large Corporate Definition¶

Art. 147A(1)(e) via Art. 147(2)(c)(ii): A corporate exposure is classified as "large corporate" if:

• The obligor's consolidated annual revenue exceeds £440 million (GBP)

Financial Sector Entity (FSE) Definition¶

Art. 4(1)(27), Art. 147A(1)(e): An FSE is an entity whose primary business involves:

• Banking, insurance, asset management, or financial intermediation

All FSEs (regardless of size) are restricted to F-IRB under Art. 147A(1)(e). This includes both regulated and unregulated financial entities.

Separately, a large FSE (LFSE) — total assets ≥ GBP 79 billion under PS1/26 Glossary p. 78 (CRR equivalent: ≥ EUR 70 billion per Art. 142(1)(4)) — receives the 1.25x correlation multiplier under Art. 153(2). This correlation uplift is distinct from the approach restriction — even small FSEs that do not trigger the correlation multiplier are still restricted to F-IRB.

IPRE/HVCRE Routing¶

Art. 147A(1)(c) (via Art. 147(2)(c)(i)): Income-producing real estate (IPRE) and high-volatility commercial real estate (HVCRE) exposures must use either the Standardised Approach (with Art. 148 / Art. 150 permission) or the Slotting Approach. F-IRB and A-IRB are not available for IPRE/HVCRE. In practice, most firms without an Art. 148/150 SA permission for these sub-classes will route to slotting.

Permission Configuration¶

Model permissions are configured via the model_permissions input data source, which specifies per-exposure-class and per-model approach permissions:

config = CalculationConfig.basel_3_1(
    irb_approach_permissions={
        ExposureClass.CORPORATE: ApproachType.AIRB,
        ExposureClass.RETAIL: ApproachType.AIRB,
        ExposureClass.INSTITUTION: ApproachType.FIRB,  # A-IRB not permitted
    }
)

Routing Precedence¶

The classifier applies restrictions in the following order:

1. Art. 147A hard constraints — exposure class-level restrictions (equity→SA, sovereign/RGLA/PSE/MDB/international organisation→SA, institution→F-IRB, all FSEs→F-IRB, IPRE/HVCRE→slotting, retail→A-IRB) override any permission
2. Threshold-based restrictions — large corporate (>£440m revenue) overrides A-IRB permission to F-IRB
3. Model permissions — firm-specific approach permissions from the model_permissions table
4. Fallback — exposures with no valid permission fall back to SA

Art. 143(2A)/(2B) — A-IRB Permission Conditions for Other General Corporates¶

For "other general corporates" (Art. 147(2)(c)(iii) — non-FSE corporates with consolidated revenue ≤ £440m), Art. 147A(1)(f) makes the Foundation IRB Approach the default IRB treatment, and the Advanced IRB Approach is available only where the PRA has granted permission under Art. 143(2A) or Art. 143(2B). This subsection documents the substantive conditions a firm must satisfy to obtain that A-IRB permission.

Routing Reminder (Art. 147A(1)(f))¶

Verbatim source: PRA PS1/26 Appendix 1, p. 92 (Art. 147A(1)(f)).

When Each Permission Article Applies¶

For other general corporates, an A-IRB application will be Art. 143(2B) in the typical case — the firm is already running F-IRB (the Art. 147A(1)(f)(iii) default) on those exposures and is now applying for A-IRB on top.

Substantive Permission Test — "Materially Comply With This Part"¶

Both Art. 143(2A) and Art. 143(2B) gate permission on the same substantive standard: the applicant must demonstrate to the satisfaction of the PRA that its proposed arrangements materially comply with Part 3 (Credit Risk: IRB). The two paragraphs operationalise that test slightly differently:

Art. 143(1)(b) standard (referenced by Art. 143(2A) initial applications):

"An institution shall be considered to materially comply with this Part if: (i) the effect of any non-compliance is immaterial for each of its rating systems; and (ii) the overall effect of any non-compliance is immaterial."

— PRA PS1/26 Appendix 1, p. 81 (Art. 143(1)(b))

Art. 143(2C) standard (referenced by Art. 143(2B) sophistication applications):

"The change proposed in an application shall be considered to materially comply with this Part if it fully complies with this Part or if both of the following conditions are met: (a) the effect of any non-compliance for each of the institution's relevant rating systems would be immaterial if the institution made the proposed change; and (b) the overall effect of the non-compliance would be immaterial if the institution made the proposed change."

— PRA PS1/26 Appendix 1, p. 82 (Art. 143(2C))

Both tests apply at two levels: the individual rating system, and the overall IRB permission perimeter. Material non-compliance at either level is sufficient to deny permission.

High-Level Requirements the Rating System Must Meet (Art. 144(1))¶

"Materially comply with this Part" is a forward-reference to the substantive minimum requirements in Article 144 onwards. For an A-IRB other-general-corporate application, each rating system in scope must satisfy all of the following (PRA PS1/26 Appendix 1, pp. 86–87, Art. 144(1)):

Article 144(1A) extends each of these obligations to third-party (vendor) rating systems and models — the firm cannot offload compliance to a vendor.

Minimum Data History — Art. 145¶

Article 145 sets the minimum prior experience thresholds. For A-IRB on other general corporates, the relevant requirements are (PRA PS1/26 Appendix 1, pp. 87–88):

The Art. 145(2) three-year own-estimate track record is the A-IRB-specific gate — F-IRB applicants need only the (1) three-year IRB-broadly-consistent track record, while A-IRB applicants must also evidence three years of own-LGD and own-CCF/EAD estimation.

Cross-reference to Section 6 minimum requirements. Art. 144(1) and Art. 145 both point to the detailed minimum requirements in Section 6 of Part 3 (Articles 169–191 in the PS1/26 numbering — rating system structure, risk quantification, validation, use test, data maintenance, internal governance, and the Article 181 / Article 182 requirements specific to own estimates of LGD and own estimates of conversion factors). Those articles are the substantive content the PRA tests against the "materially complies" standard. They are out of scope for this routing-focused page.

Application Process (PS1/26 / FSMA Framework)¶

The mechanical process for lodging an Art. 143(2A) or (2B) application is governed by the FSMA permission framework rather than by Art. 143 itself:

• Permission instrument: Art. 143(1) and (2A), and Art. 143(2B) together with (2C), are each flagged as "a permission under sections 144G and 192XC of FSMA to which Part 8 of the Capital Requirements Regulations applies" (PS1/26 Appendix 1, pp. 81–82). The Capital Requirements Regulations Part 8 sets out the procedural rules (form of application, fees, PRA decision timetable, modification powers).
• Per-class declaration (Art. 143(2A)): The application must "make clear in relation to each exposure class, exposure subclass or type of exposures, as the case may be, its proposal to adopt one or more of [the Slotting Approach, F-IRB, A-IRB] instead of the Standardised Approach" (PS1/26 Appendix 1, p. 81). For other general corporates the relevant subclass is Art. 147(2)(c)(iii).
• Documentation requirements: Article 143E (PS1/26 Appendix 1, p. 86) prescribes the documentation that must accompany any change requiring PRA permission — including (a) description of the change, its rationale and objective, (d) technical and process documents, (e) reports of the institution's independent review or validation, (f) confirmation of management body approval under Article 189(1), and (g) the quantitative impact on RWA / EL where applicable.
• Annual confirmation (Art. 143(4)(a)): Once permission is granted, the firm must "at least annually, submit details to the PRA of all rating systems that are included within the scope of its IRB permission" (PS1/26 Appendix 1, p. 83).

Ongoing Obligations After Permission Is Granted¶

Permission is not a one-shot event. Three articles impose continuing duties on a firm holding A-IRB permission for other general corporates:

Stress testing and model risk management are not addressed substantively in Art. 143 itself. The PRA's stress-testing obligations for IRB models flow from Section 6 (Art. 177 — stress tests used in assessment of capital adequacy) and from SS1/23 Model risk management principles for banks (which sits outside the CRR rulebook but applies to all PRA-authorised firms running internal models). Both apply to A-IRB models for other general corporates as for any other IRB rating system.

Worked Routing Example¶

A firm with the following position:

• Has F-IRB permission for the corporate exposure class.
• Has not previously held A-IRB permission for any corporate subclass.
• Wishes to use A-IRB on other general corporates only (revenue ≤ £440m, non-FSE).

Submits an Art. 143(2B) application (existing IRB permission → more sophisticated approach within the same class) for the other general corporates subclass under Art. 147(2)(c)(iii). The application must:

1. Demonstrate at least three years of own-LGD and own-CCF/EAD estimates broadly consistent with Section 6 for the corporate population in scope (Art. 145(2)).
2. Show that each rating system in the proposed perimeter satisfies all eight high-level requirements in Art. 144(1)(a)–(h), including the use test and an independent credit risk control unit.
3. Pass the Art. 143(2C) materiality test — non-compliance immaterial both per rating system and overall.
4. Include the Art. 143E documentation pack (rationale, scope, technical docs, validation reports, management body approval, quantitative impact).

Until PRA permission is granted, the classifier continues to route the relevant exposures via Art. 147A(1)(f)(iii) to the Foundation IRB Approach — the calculator treats absence of an A-IRB model_permissions record exactly as the regulation does: F-IRB by default for other general corporates, A-IRB only with explicit permission.

Implementation note. The calculator does not evaluate any of the substantive Art. 143(2A)/(2B) gating criteria above; it trusts the model_permissions table as evidence that the firm holds the relevant PRA permission. See Permission Configuration for the data model and hierarchy-classification.md for the runtime routing logic.

Art. 143(6)–(8) — Overseas Model Approach¶

Basel 3.1 introduces a structured Overseas Model Approach at Art. 143(6), with a transitional grandfathering rule at Art. 143(7) for firms that already had a CRR Art. 143 permission for the same approach as at 31 December 2026, and an ongoing compliance requirement at Art. 143(8). This is a UK-specific addition — CRR Art. 143 contained no equivalent structured Overseas Model Approach; PS1/26 codifies the substantive conditions and the eligible scope.

The "Overseas Model Approach" is defined in PS1/26 Glossary p. 79 as:

"the use of non-UK rating systems developed to meet non-UK IRB requirements, in the calculation of UK consolidated capital requirements in accordance with a permission granted under Article 143(6)."

— PRA PS1/26 Appendix 1, p. 79 (Glossary, "Overseas Model Approach")

Art. 143(6) — Substantive Permission to Use the Overseas Model Approach¶

Verbatim opening of Art. 143(6) (PS1/26 Appendix 1, p. 83):

"An institution may, with the prior permission of the PRA, use the Overseas Model Approach, if it can demonstrate to the satisfaction of the PRA that its use of the Overseas Model Approach complies with the following conditions: …"

Conditions (a)–(k) (paraphrased; verbatim text on p. 83):

Art. 143(6) is flagged in the PS1/26 note as "a permission under sections 144G and 192XC of FSMA to which Part 8 of the Capital Requirements Regulations applies" — i.e. the same FSMA / Capital Requirements Regulations Part 8 permission framework that governs Art. 143(1) and Art. 143(2A)/(2B) applications (see Art. 143(2A)/(2B) — Application Process).

Art. 143(7) — Transitional Grandfathering¶

Verbatim text (PS1/26 Appendix 1, p. 84):

"Where, on 31 December 2026, an institution had PRA permission to use the Overseas Model Approach as part of its IRB permission under Article 143 of CRR, as that provision existed on 31 December 2026, the institution shall, after 31 December 2026, be treated as having permission under paragraph 6."

— PRA PS1/26 Appendix 1, p. 84 (Article 143(7))

Plain-English summary:

• Trigger: the firm already held a PRA-granted permission under CRR Art. 143 (as that article stood at 31 December 2026) for use of the Overseas Model Approach as part of its IRB permission. The grandfathering pivots on an existing PRA permission, not on a standalone overseas-regulator approval.
• Effect: from 1 January 2027 onwards the firm is automatically treated as having permission under Art. 143(6). No fresh application or PRA decision is required for continuity; the existing CRR permission is mapped across.
• No firm-side notification step: Art. 143(7) does not itself impose a notification obligation on the firm. The plan-item paraphrase ("subject to PRA notification") was incorrect — the rule is a deeming provision, not a notification gate.
• Time-limit: Art. 143(7) does not impose a sunset on the grandfathering. The firm continues to hold the deemed permission indefinitely, provided it satisfies the ongoing-compliance test in Art. 143(8) below. Material changes to the grandfathered rating system would still trigger Art. 143(3) / Art. 143C in the normal way.

Art. 143(8) — Ongoing Compliance¶

Verbatim text (PS1/26 Appendix 1, p. 84):

"An institution with PRA permission to use the Overseas Model Approach shall ensure that its use of the Overseas Model Approach complies with each of the conditions in paragraph 6 on an ongoing basis."

— PRA PS1/26 Appendix 1, p. 84 (Article 143(8))

Art. 143(8) applies to all holders of an Overseas Model Approach permission — both fresh Art. 143(6) permissions and Art. 143(7) grandfathered permissions. If the firm ceases to comply with any of the (a)–(k) conditions (e.g. the aggregate breaches the 7.5% cap, the overseas regulator withdraws its approval, the subsidiary's jurisdiction loses CRR Art. 114(7) equivalence, the rating system extends beyond retail / SME corporate scope), the firm is in breach of Art. 143(8) and Art. 146 (cessation of compliance) is engaged — see the Ongoing Obligations section above for Art. 146 mechanics.

Interaction With Other Articles¶

CRR vs Basel 3.1 Delta¶

Implementation note. The calculator does not currently model the Overseas Model Approach as a distinct approach type. Exposures of UK firms' overseas subsidiaries that are in scope of an Art. 143(6) / 143(7) permission are expected to be loaded through the standard model_permissions data source with the underlying retail / SME-corporate IRB approach (typically A-IRB for retail, A-IRB or F-IRB for SME corporate). The aggregate 7.5% cap in Art. 143(6)(a) and the Art. 143(8) ongoing-compliance test are not validated by the engine — they are firm-level governance obligations outside the per-exposure RWA pipeline. See Permission Configuration.

Permanent Partial Use Materiality Thresholds (Art. 150(1A))¶

Art. 150(1A) permits firms to use the Standardised Approach permanently for certain exposure classes or types, subject to materiality thresholds:

Fallback Behaviour¶

When no model permission matches an exposure:

• The exposure is routed to the Standardised Approach (SA)
• No error is raised (this is expected for exposures not covered by IRB approval)
• The fallback is logged as a data quality note, not an error

Key Scenarios¶

Acceptance Tests¶