SA Risk Weights Specification¶

Basel 3.1 Standardised Approach risk weight changes: ECRA/SCRA for institutions, corporate sub-categories, real estate loan-splitting, SA specialised lending, currency mismatch multiplier, and SME corporate class.

Regulatory Reference: PRA PS1/26 Art. 112–134, CRE20 Test Group: B31-A

Requirements Status¶

Due Diligence Obligation (Art. 110A)¶

Article 110A is a new framework-wide obligation applying to every exposure within the Standardised Approach (subject to five named exemptions). It has no CRR equivalent. The obligation sits above the exposure-class tables below: a firm cannot rely on the standard risk weight unless it has performed due diligence consistent with Art. 110A(2).

Regulatory text (PRA PS1/26 Art. 110A, ps126app1.pdf pp. 29–30)¶

Scope and exemptions¶

All other obligor classes — institutions, corporates, retail, real estate, equity, CIUs, and Art. 117(1) non-named MDBs (Table 2B) — are within the DD obligation.

Minimum DD standard (Art. 110A(4))¶

• Assess condition of every obligor (Art. 110A(4)(a)). The requirement is "reasonable and adequate steps" — the sophistication scales with the institution's activities (Art. 110A(3)).
• Policy, process, system, and control framework for assigning risk weights (Art. 110A(4)(b)). This is the hook for the risk-weight uplift: if internal assessment shows the ECAI/class-based RW understates risk, the firm must assign a higher RW.
• Timing: initial DD before the exposure is incurred; re-performed at least annually thereafter (Art. 110A(4)(c)).
• Granularity: per-exposure where reasonably practicable (Art. 110A(4)(d)); portfolio-level otherwise.
• Group structure: membership of a corporate group must be factored into the assessment (Art. 110A(4)(e)) — relevant to connected-client and intra-group support analysis.

Distinction from class-specific CQS step-up overrides¶

Art. 110A is the umbrella obligation. Three narrower, class-specific CQS step-up rules apply to rated exposures where ECAI assessment is the default RW source:

Art. 110A is broader: it applies to every non-exempt SA exposure, rated or unrated, and permits an arbitrary uplift (not limited to one CQS step) where the firm's internal assessment indicates the calculated RW understates risk.

Implementation¶

Two optional input fields on the facility schema support Art. 110A:

Override behaviour:

• Apply as the final risk-weight modification — after CQS lookup, CRM substitution (life-insurance / guarantee / FCSM), and currency-mismatch multiplier (Art. 123B).
• Directional floor: RW_final = max(RW_calculated, RW_override). The override can only increase the RW; a lower override has no effect.
• Null override values are silently ignored.

Sequencing in the SA calculator:

1. Standard CQS/class-based risk weight determination (Art. 112–134).
2. CRM substitution — FCSM, life insurance, guarantee (Art. 197–236).
3. Currency-mismatch multiplier — 1.5×, 150% cap (Art. 123B).
4. Due diligence override (Art. 110A) — max(calculated, override) applied here.
5. RWA calculation — RWA = EAD × RW_final.

Validation:

• Under Basel 3.1, when the due_diligence_performed column is absent from the facilities frame, the calculator emits a data-quality warning with code SA004 (ERROR_DUE_DILIGENCE_NOT_PERFORMED, severity WARNING, regulatory_reference="PRA PS1/26 Art. 110A"). The calculation continues — the warning does not block execution.
• Under CRR, no warning is emitted (no CRR equivalent to Art. 110A).

Audit:

• When the override column is present, an output column due_diligence_override_applied (Boolean) flags exposures whose RW was raised by the override. Use this to reconcile against internal DD records and to populate SA RW-uplift disclosures.

CRR comparison¶

CRR has no Art. 110A equivalent. SA firms under CRR rely on generic risk-management obligations in Art. 79 CRD IV (not a CRR provision) and the IRB-specific Art. 186 requirements. There is no SA-specific DD gate. The calculator therefore does not apply the SA004 warning under CRR, and the due_diligence_override_rw column is ignored on the CRR path.

Sovereign Risk Weights (Art. 114)¶

Largely unchanged from CRR. The key Basel 3.1 clarification is the treatment of unrated sovereigns.

Table 1 — Sovereign Risk Weights (Art. 114)

PSE and RGLA Risk Weights (Art. 115–116)¶

PSE (Public Sector Entities) and RGLA (Regional Governments and Local Authorities) risk weights are largely unchanged from CRR. The key Basel 3.1 clarification concerns non-UK unrated exposures.

Art. 116(4) — Competent-Authority Equivalence Not Retained¶

PRA PS1/26 Art. 116(4) is marked [Note: Provision left blank] (ps126app1.pdf p.38), and the PS1/26 rule is stated to correspond only to CRR Art. 116(1)–(3). The CRR Art. 116(4) route — permitting, in exceptional circumstances, a PSE exposure to be treated as an exposure to the central government, regional government or local authority where an appropriate guarantee exists and the competent authorities determine there is no difference in risk — has no Basel 3.1 successor.

From 1 January 2027, any guarantee-based RGLA/sovereign substitution for a PSE must be routed through the general CRM guarantee substitution regime (PS1/26 Art. 235, Chapter 4) rather than through an Art. 116-specific carve-out. See the CRR PSE spec — Sub-treatment 3 for the CRR-side text.

Art. 116(5) — Third-Country PSE Equivalence Preserved by Cross-Reference¶

PRA PS1/26 Art. 116(5) itself is marked [Note: Provision not in PRA Rulebook], but PS1/26 Art. 116(3A) explicitly cross-refers to "Article 116(5) of CRR" to redirect the "UK public sector entities" references in paragraphs 1 and 2 to third-country PSEs when CRR Art. 116(5) applies. The Art. 112 class-mapping table (ps126app1.pdf p.34) likewise lists "Article 116 or Article 116(5) of CRR" as the basis for PSE class assignment. The CRR Art. 116(5) third-country equivalence gate (Treasury equivalence determination; otherwise flat 100%) therefore remains operative under Basel 3.1.

Art. 116(3A) — Third-Country PSE Sovereign-Derived Floor Mechanism¶

PS1/26 Art. 116(3A) (ps126app1.pdf p. 38) is the redirection clause that activates third-country PSE treatment when CRR Art. 116(5) equivalence is met:

The mechanism therefore operates as a two-stage redirection rather than a single explicit "floor of 20%":

1. Equivalence gate (CRR Art. 116(5)) — the Treasury must have determined the third-country jurisdiction's supervisory and regulatory arrangements to be at least equivalent to those of the UK. If not, the exposure is risk-weighted at a flat 100% and the redirection in Art. 116(3A) is never reached.
2. Sovereign-derived lookup (PS1/26 Art. 116(1)/(2) as redirected) — once the equivalence gate is passed, the PSE is risk-weighted via Table 2 (unrated PSE, indexed on the third-country sovereign's CQS) or Table 2A (ECAI-rated PSE).

How the 20% floor arises when the sovereign RW is 0%¶

Sovereigns at the strongest credit-quality step receive a 0% risk weight under PS1/26 Art. 114 Table 1, but the same CQS 1 row in PSE Table 2 is 20% — Table 2 is bounded below at 20%, not 0%:

The trigger for the 20% PSE risk weight is therefore "sovereign RW = 0%" (i.e. sovereign CQS 1), not a generic 20% floor: a third-country PSE whose sovereign would receive 0% under Art. 114 still attracts a 20% risk weight via the Table 2 lookup. This 20% floor matches the Art. 121(3) institution-grade-A short-term Table 5A entry (20% for SCRA Grade A institutions with original maturity <= 3 months) — i.e. once the sovereign linkage delivers the strongest credit-quality outcome, the PSE is treated no more favourably than an equivalent short-term Grade A institution exposure.

MDB Exposures (Art. 117)¶

Named MDBs at 0% (Art. 117(2))¶

The 16 named MDBs receiving a 0% risk weight are unchanged from CRR — see CRR SA Risk Weights — Named MDBs for the full list.

Rated Non-Named MDBs — Table 2B (Art. 117(1)(a))¶

PRA PS1/26 Art. 117(1) replaces the CRR "treated as institution" approach with a dedicated MDB risk weight table (Table 2B). Non-named MDBs with an ECAI rating use Table 2B:

Unrated Non-Named MDBs (Art. 117(1)(b))¶

Unrated non-named MDBs receive a risk weight of 50%.

Key Change from CRR¶

Institution Risk Weights — ECRA (Art. 120)¶

The External Credit Risk Assessment (ECRA) approach uses the institution's own ECAI rating.

Table 3 — Institution ECRA Risk Weights (Art. 120(1))

ECRA Short-Term (Art. 120(2), Table 4)¶

For exposures with an original maturity ≤ 3 months:

Art. 120(2) keys on original maturity (not residual), mirroring CRR Art. 119(2). The opening clause "Subject to paragraph 3" cross-refers to the Art. 120(3) interaction rules below — when a specific short-term ECAI assessment exists, Table 4A (Art. 120(2B)) may override Table 4 for that exposure.

ECRA Short-Term Trade Finance Exception (Art. 120(2A), Table 4)¶

Basel 3.1 extends the Table 4 short-term preferential window from 3 months to 6 months for rated institution exposures whose tenor is driven by the underlying flow of goods, mirroring the SCRA carve-out at Art. 121(4). The exception preserves the BCBS CRE20.20 capital treatment of cross-border documentary credits and similar short-dated trade instruments that would otherwise miss the 3-month window and fall back to the Table 3 long-term weights.

Trigger. Both limbs must be satisfied:

• (a) The exposure is to an institution with a long-term ECAI credit assessment (the ECRA path — unrated institutions use SCRA under Art. 121 and pick up the analogous Art. 121(4) exception).
• (b) The exposure has original maturity ≤ 6 months and arose from the movement of goods. Both sub-conditions must hold — a 6-month working-capital facility unrelated to goods movement does not qualify; it reverts to Table 3.

Effect. Table 4 weights apply (CQS 1–3 = 20%, CQS 4–5 = 50%, CQS 6 = 150%), even though the exposure's tenor exceeds the general Art. 120(2) ≤ 3 months threshold. For a rated CQS 4 trade-goods exposure with 5-month original maturity, Table 4 gives 50% vs Table 3's 100% — a 50pp (halving) capital saving for genuine trade finance.

Worked example. A 5-month USD-denominated documentary credit financing cross-border shipment of goods from a CQS 3-rated foreign bank to a UK buyer:

• Rated institution on the ECRA path → Art. 120 applies.
• Original maturity 5 months > 3 months → Art. 120(2) (Table 4) would not apply directly.
• Original maturity ≤ 6 months and arose from the movement of goods → Art. 120(2A) extends Table 4 eligibility.
• CQS 3 Table 4 weight = 20% (vs Table 3 CQS 3 = 50%).
• 30pp RW reduction preserved relative to a non-trade-finance 5-month exposure.

Implementation. The SA calculator routes Art. 120(2A) through the same ECRA short-term branch as Art. 120(2), gated on the is_short_term_trade_lc input field (already used by the Art. 121(4)/121(6) SCRA branches). When is_short_term_trade_lc = True and original_maturity_years ≤ 0.5, a rated institution exposure receives Table 4 weights even if the standard ≤ 0.25 window has been missed. The logic sits in the B31 ECRA maturity branch in src/rwa_calc/engine/sa/risk_weights.py:

# ECRA short-term rated institutions — Art. 120(2) Table 4 extended by Art. 120(2A).
chain.when(
    is_institution
    & is_rated
    & (
        (original_mty <= 0.25)                                        # Art. 120(2) — ≤ 3m
        | (pl.col("is_short_term_trade_lc").fill_null(False)          # Art. 120(2A) — ≤ 6m
           & (original_mty <= 0.5))                                   #   trade-goods gate
    )
)

Required input fields:

ECRA Short-Term ECAI (Art. 120(2B), Table 4A)¶

New in Basel 3.1 — for exposures with a specific short-term ECAI assessment:

Rated Institution Due Diligence CQS Step-Up (Art. 120(4))¶

Basel 3.1 introduces a class-specific CQS step-up rule for rated institution exposures that sits alongside the framework-wide Art. 110A due diligence obligation discussed earlier in this specification. The rule is textually parallel to Art. 122(4) for rated corporates and Art. 129(4A) for covered bonds.

Trigger. Applies whenever a rated institution exposure uses Art. 120(1) Table 3 (or the short-term Art. 120(2B) Table 4A once implemented — see ECRA Short-Term ECAI (Art. 120(2B), Table 4A)) for its risk weight and the firm's internal due diligence reveals risk characteristics higher than the ECAI-implied credit quality step.

Effect. The firm must assign the risk weight of the next CQS step higher. Worked examples against Table 3:

Art. 120(4) is not a discretionary floor — it is a mandatory override where the DD finding is triggered. The CQS 4 → CQS 5 row yields no uplift because Table 3 assigns both bands the same 100% weight; the mandatory step-up still applies in name but the resulting RW is unchanged until CQS 6 (150%) is reached.

Distinction from Art. 110A. Art. 120(4) is a narrower, rated-exposure-only rule with a fixed one-step uplift; Art. 110A applies to every non-exempt SA exposure (rated or unrated) and permits an unbounded uplift. The two rules can interact: a firm's DD finding may be satisfied either by a one-step CQS uplift under Art. 120(4) or by a larger uplift channelled through the Art. 110A due_diligence_override_rw path. Where both would apply, the final RW is max(RW_Art_120_4, RW_Art_110A_override, RW_ECAI).

Distinction from SCRA (Art. 121). Art. 120(4) applies to rated institutions only. Unrated institution exposures are routed to the SCRA grade table at Institution Risk Weights — SCRA (Art. 121) and do not use the ECAI-based step-up at all. A rated institution whose DD reveals higher-than-implied risk is stepped up one CQS band under Art. 120(4); it is not reclassified into SCRA.

Parallel provisions. Art. 120(4) is textually near-identical to two other class-specific step-up rules in PS1/26:

All three share the same trigger ("DD reveals higher risk than implied by the CQS") and the same consequence ("at least one CQS step higher"). CRR has no equivalent provision for any of the three classes — the rules are Basel 3.1-only. For rated institutions specifically, the CRR ECAI-based approach in Art. 120 Table 3 is applied without any direct DD step-up mechanism; firms relied solely on Art. 79 CRD (sound credit-granting) and ICAAP-level overlays.

Implementation status. The calculator does not yet implement a dedicated Art. 120(4) branch. Firms currently carry Art. 120(4) findings through the Art. 110A pathway: set due_diligence_override_rw on the facility to the next-CQS-band weight drawn from Table 3 (or Table 4 / Table 4A for short-term exposures), and the SA calculator will apply it as a directional floor (see Implementation earlier in this specification). This is functionally equivalent and captured in the output via the due_diligence_override_applied audit column.

Institution Risk Weights — SCRA (Art. 121)¶

The Standardised Credit Risk Assessment (SCRA) approach applies when ECAI ratings are not available. This replaces the CRR sovereign-derived approach (CRR Art. 121, Table 5).

SCRA Disclosure Barring Rules (Art. 121(1)(a), (1)(b))¶

Art. 121(1) ties each SCRA grade to the public disclosure of the institution's minimum financial regulatory requirements. The disclosure tests are asymmetric between Grade A and Grade B and form a two-step barring ladder rather than a single "undisclosed → Grade C" rule. A single piece of missing disclosure can bar Grade A without forcing Grade C, producing a Grade B outcome that the simpler "undisclosed → Grade C" characterisation would miss.

Institution-specific carve-out. Both tests exclude "institution-specific" minimum requirements or buffers imposed through supervisory actions and not made public — a confidential Pillar 2A add-on kept private by the home supervisor does not itself trigger either barring rule. The disclosure test applies only to the publicly applicable prudential framework. For CRR firms, Art. 121(1A) defines that baseline as the Required Level of Own Funds (CRR Part Art. 92), the additional own funds required by regulation 34(1) of the Capital Requirements Regulations, the minimum leverage ratio requirement (Leverage Ratio — Capital Requirements and Buffers Part 3.1), the combined buffer (Capital Buffers Part 1.1), the countercyclical leverage ratio buffer, and the additional leverage ratio buffer.

Third-country counterparties (Art. 121(1B)). For counterparties outside the UK, the disclosure test extends to any local-equivalent or additional regulatory requirements and buffers, so long as they are published and required to be met by CET1, Tier 1, or other own funds. A US G-SIB whose home supervisor requires a jurisdiction-specific SCB is assessed on the disclosure of that SCB alongside the baseline Basel minima. This is distinct from the Art. 119(3) third-country equivalence gate that governs whether the institution treatment is available at all.

Implementation status. The calculator consumes scra_grade as a pre-determined input (A / A_ENHANCED / B / C). Both barring rules are therefore firm-side governance responsibilities — the firm must evaluate disclosure (requirements and buffers for Grade A; requirements alone for Grade B) before passing the grade to the calculator. No dedicated input field flags the disclosure test outcome; no audit column surfaces the (1)(a) ceiling or (1)(b) forced-to-C path.

SCRA Short-Term Trade Finance Exception (Art. 121(4))¶

Self-liquidating trade-related exposures arising from the movement of goods with an original maturity ≤ 6 months may receive the short-term risk weight applicable to Table 5A (Grade A/A enhanced: 20%, Grade B: 50%, Grade C: 150%) even if the exposure is not otherwise eligible for short-term preferential treatment. This exception ensures trade finance exposures are not penalised by the full-term SCRA weights.

SCRA Sovereign Floor for Foreign-Currency Exposures (Art. 121(6))¶

Notwithstanding Art. 121 paragraphs (2) to (5), the risk weight assigned to an unrated institution exposure may not be lower than the risk weight applicable to the central government of the jurisdiction where the institution is incorporated (per Art. 114(1) and (2)) when both of the following conditions are met:

• (a) Foreign currency. The exposure is denominated in a currency other than the local currency of the institution's jurisdiction of incorporation. For exposures booked through a branch of the institution in a foreign jurisdiction, the test is against the local currency of the jurisdiction in which the branch operates.
• (b) Not short-term self-liquidating trade. The exposure is not a self-liquidating, trade-related contingent item arising from the movement of goods with an original maturity of less than one year.

When both conditions hold, the SCRA grade weight (Grade A: 40%, Grade A enhanced: 30%, Grade B: 75%, Grade C: 150%) is overridden by max(SCRA_grade_RW, sovereign_RW). The floor binds whenever the institution's home sovereign carries a higher risk weight than the SCRA grade derives — for example, an unrated Grade A institution (40%) of a sovereign at CQS 4 (100%) is floored at 100%.

Worked example. A USD-denominated 2-year loan to an unrated Brazilian bank (Brazil sovereign CQS 4 → 100%) classified as SCRA Grade A (40%):

• Condition (a): exposure currency USD ≠ Brazil's local currency BRL → met.
• Condition (b): not a trade-related contingent item, original maturity > 1 year → met.
• Floor applies: RW = max(40%, 100%) = 100%.

A 6-month USD-denominated documentary credit financing the movement of goods to the same bank would fail condition (b) and retain the SCRA Grade A 40% weight (or the Art. 121(4) Table 5A 20% weight if it qualifies for the trade-finance preferential treatment).

Implementation. The floor is applied in _apply_sovereign_floor_for_institutions() within engine/sa/calculator.py. Required input fields:

When cp_local_currency is unavailable, the calculator falls back to a domestic-currency heuristic; upstream enrichment is recommended for accurate floor application.

ECAI Assessment — Implicit Government Support (Art. 138(1)(g), Art. 139(6))¶

Basel 3.1 introduces two new anti-arbitrage provisions governing how institution ECAI ratings that incorporate assumptions of implicit government support may be used to determine risk weights for institution exposures. Art. 138(1)(g) is a general prohibition on the nominated-ECAI side; Art. 139(6) is the residual "higher-of" rule that applies where the prohibition binds and an issue-specific rating is nonetheless available.

Both provisions apply only to exposures where the obligor is an institution (Art. 139(6)(a)). They do not alter the risk weighting of exposures to sovereigns, corporates, retail obligors, or other SA classes, and they do not change the single- or multi-rating resolution mechanics in hierarchy-classification — Multi-Rating Resolution beyond the institution-obligor carve-out documented here.

Regulatory text (PRA PS1/26, ps126app1.pdf pp. 70–72)¶

Trigger¶

Art. 139(6) fires only when all three of the following conditions hold simultaneously:

Effect¶

When the trigger is met, the firm computes two candidate risk weights and applies the higher:

Effective rule: RW = max(RW_baseline, RW_issue_specific_with_support). If no issue-specific rating exists, (ii) is undefined and the baseline (i) applies without comparison.

Worked example¶

Consider a 5-year senior-unsecured bond issued by "Bank X" — an institution not owned or sponsored by a government (so the Art. 138(1)(g) exemption does not apply):

• Bank X's general issuer rating (from its nominated ECAI) is BBB+ (CQS 3), which includes implicit sovereign support in the agency's methodology. Without that support, the agency would rate Bank X at BB+ (CQS 5).
• The specific bond carries an issue-specific rating of BBB+ (CQS 3), also incorporating implicit support.

Application of Art. 139(6):

1. Candidate (i) — baseline with Art. 138(1)(g) applied. The BBB+ general rating is disallowed because it incorporates implicit support. The firm must step back to any remaining "clean" assessment. If none exists, the exposure is treated as unrated under Art. 139(2) final sentence ("in all other cases, the exposure shall be treated as unrated") — 100% under Art. 121 SCRA defaulting to Grade A/B, or the relevant CQS derived from the BB+ clean rating if one is published (→ CQS 5, 100%).
2. Candidate (ii) — issue-specific disregarding Art. 138(1)(g). The BBB+ issue-specific rating is used as-is → CQS 3 → 50% under Art. 120 Table 3.
3. Apply the higher: RW = max(100%, 50%) = 100%.

The firm cannot simply lean on the cleaner-looking issue-specific 50% weight — the higher-of rule forces recognition of the unsupported creditworthiness whenever the issue-specific rating relies on implicit support.

Art. 138(1)(g) exemption — government-owned or government-sponsored institutions¶

Where the rated institution is owned by or set up and sponsored by central governments, regional governments, or local authorities, Art. 138(1)(g) does not apply and implicit-support ratings may be used directly. Art. 139(6) never engages for these institutions (there is no "clean" rating requirement to fail). Typical examples:

• State-owned development banks, policy banks, and export-credit agencies
• RGLA-owned local banks
• Municipally-sponsored clearing or settlement institutions

The exemption is a narrow one: private institutions whose ratings benefit from market-anticipated sovereign bailout expectations (the classic "too big to fail" uplift) are not exempt — the government must have an actual ownership or sponsorship relationship with the institution.

Distinction from Art. 121(6) SCRA Sovereign Floor¶

Both provisions impose institution-level floors that reference sovereign or support- adjusted risk, but they sit in different parts of the framework and address different facts:

The two rules are complementary rather than alternatives: Art. 139(6) governs the ECRA path when implicit support is embedded in the rating; Art. 121(6) governs the SCRA path when there is no rating at all.

Comparison to CRR¶

The Art. 139(6) higher-of rule is a new Basel 3.1 provision with no CRR analogue. CRR firms do not suppress implicit-support assessments at all; the rating that comes out of the Art. 138 multi-rating selection is used directly. The corresponding CRR spec does not document an equivalent mechanism because none exists — see CRR SA Risk Weights for CRR-era Art. 120 institution treatment, which relies on sovereign-derived weights (CRR Art. 121 Table 5) rather than the ECAI rating directly for many institution exposures.

Implementation Status¶

Firm responsibility¶

Determining whether a specific ECAI assessment incorporates implicit government support is a firm governance responsibility (ECAI methodology review under the institution's use-test framework) and cannot be automated by the calculator. The Art. 138(1)(g) exemption (government-owned or government-sponsored) likewise requires firm-level determination of the ownership / sponsorship relationship.

Corporate Risk Weights (Art. 122)¶

CQS-Based Table (Art. 122(1), Table 6)¶

Corporate Sub-Categories (Art. 122(4)–(11))¶

New in Basel 3.1 — corporates are divided into sub-categories with differentiated risk weights:

Output-Floor Election for Unrated Corporates (Art. 122(7)–(8))¶

Art. 122(7) and Art. 122(8) govern how IRB firms treat unrated corporate exposures in the standardised leg of the output floor (the S-TREA term of the TREA = max{U-TREA; x × S-TREA + OF-ADJ} formula in Art. 92(2A)). The election sits alongside — but is legally distinct from — the Art. 122(5)/(6) branch a firm uses for its regular SA application, and it carries its own PRA notification obligation.

Scope. Art. 122(8) applies only to:

• institutions with IRB permission for corporate exposures (Art. 112(1)(g)); and
• the S-TREA computation used in the output floor under Art. 92(2A) — it does not alter how the same exposures are risk-weighted for U-TREA (IRB) or for SA firms' regular SA capital.

The Art. 122(11) SME carve-out still dominates: regardless of (a) or (b), an exposure to an SME corporate receives the 85% weight. (a)/(b) only governs the unrated non-SME population.

The two branches.

Branch (b) is only available to firms that already hold the Art. 122(6) permission for their regular SA exposures (Art. 122(7) retains their obligation to maintain sound processes). A firm without Art. 122(6) permission has only branch (a) available for S-TREA.

Why the election matters. The S-TREA leg of the output floor determines the minimum RWA for floor-binding IRB firms. Branch (a) fixes every unrated non-SME corporate at 100%, which is conservative relative to the IG-heavy portfolio most IRB firms hold. Branch (b) lets the firm recognise its internal IG assessment (65%) in S-TREA, typically reducing the floor impact materially — at the cost of also taking the 135% penalty on any obligor assessed as non-IG. Firms that expect the floor to bind should compare the portfolio-weighted 100% against the portfolio-weighted w_IG × 65% + w_nonIG × 135% before making the election.

Rated Corporate Due Diligence CQS Step-Up (Art. 122(4))¶

Basel 3.1 introduces a class-specific CQS step-up rule for rated corporate exposures that sits alongside the framework-wide Art. 110A due diligence obligation discussed earlier in this specification.

Trigger. Applies whenever a rated corporate exposure uses Art. 122(1) Table 6 (or the short-term Art. 122(3) Table 6A once implemented — see D3.8) for its risk weight and the firm's internal due diligence reveals risk characteristics higher than the ECAI-implied credit quality step.

Effect. The firm must assign the risk weight of the next CQS step higher. Worked examples against Table 6:

Art. 122(4) is not a discretionary floor — it is a mandatory override where the DD finding is triggered.

Distinction from Art. 110A. Art. 122(4) is a narrower, rated-exposure-only rule with a fixed one-step uplift; Art. 110A applies to every non-exempt SA exposure (rated or unrated) and permits an unbounded uplift. The two rules can interact: a firm's DD finding may be satisfied either by a one-step CQS uplift under Art. 122(4) or by a larger uplift channelled through the Art. 110A due_diligence_override_rw path. Where both would apply, the final RW is max(RW_Art_122_4, RW_Art_110A_override, RW_ECAI).

Distinction from the unrated corporate IG/non-IG split. Art. 122(4) applies to rated corporates only. The Art. 122(6)(a)/(b) 65%/135% IG split applies only to unrated corporates and requires separate PRA permission. A rated corporate whose DD reveals higher-than-implied risk is stepped up one CQS band under Art. 122(4); it does not drop into the unrated sub-category table.

Parallel provisions. Art. 122(4) is textually near-identical to two other class-specific step-up rules in PS1/26:

All three share the same trigger ("DD reveals higher risk than implied by the CQS") and the same consequence ("at least one CQS step higher"). CRR has no equivalent provision for any of the three classes — the rules are Basel 3.1-only.

Implementation status. The calculator does not yet implement a dedicated Art. 122(4) branch. Firms currently carry Art. 122(4) findings through the Art. 110A pathway: set due_diligence_override_rw on the facility to the next-CQS-band weight, and the SA calculator will apply it as a directional floor (see Implementation above). This is functionally equivalent and captured in the output via the due_diligence_override_applied audit column.

Short-Term Corporate ECAI (Art. 122(3), Table 6A)¶

New in Basel 3.1 — for exposures with a specific short-term ECAI assessment:

CRR has no equivalent short-term corporate ECAI table — all corporate exposures use the long-term CQS mapping (Art. 122(1), Table 6) regardless of assessment tenor. The Table 6A structure mirrors institution short-term ECRA (Art. 120(2), Table 4) with the same weight progression.

Retail Risk Weights (Art. 123)¶

The retail threshold is changed from EUR 1m to GBP 880,000 under PRA PS1/26 Art. 123(1)(b)(ii).

Transactor Exposure Eligibility (Art. 123(3)(a), PRA Glossary)¶

The 45% preferential risk weight for regulatory retail exposures under Art. 123(3)(a) is gated by the "transactor exposure" definition in the PRA Glossary (p. 9 of PRA PS1/26 Appendix 1). An exposure qualifies as a transactor only if it meets one of two behavioural tests over the previous 12-month period:

Qualifying revolving retail exposures that do not satisfy either limb are classified as non-transactor exposures and receive the 75% weight under Art. 123(3)(b). There is no partial or pro-rata treatment — the test is binary on the full 12-month window.

Implementation fields: The transactor flag maps to is_qrre_transactor in the counterparty schema. The flag is evaluated in engine/sa/calculator.py (B31 branch) for the 45% weight and in engine/irb/formulas.py for the PD-floor split. No 12-month history field exists in the schema — the input flag is accepted as-is and the upstream assessment is assumed.

Currency Mismatch Multiplier (Art. 123B)¶

New in Basel 3.1. For unhedged retail and residential RE exposures where the borrower's income currency differs from the lending currency:

RW_adjusted = min(RW x 1.5, 150%)

The 1.5x multiplier is capped at 150% — exposures already at or above 150% RW are not further increased by this multiplier.

Triggered by setting cp_borrower_income_currency in the input data to a currency different from the exposure currency. Output column: currency_mismatch_multiplier_applied.

Real Estate — Framework Scope (Art. 124)¶

Article 124 is the top-level scoping article for the real-estate risk-weight framework. It sits above Art. 124A–124L and determines which sub-article each RE exposure is routed through. Per the Note at the end of Art. 124, this provision consolidates Art. 124(1), 125, and 126 of CRR as it applied immediately before revocation by the Treasury — i.e., the CRR residential and commercial RE risk-weight articles are collapsed into a single scoping rule that delegates to the new Art. 124F–124L tables.

Regulatory Reference: PRA PS1/26 Art. 124 (ps126app1.pdf pp. 50–51)

Routing Decision Tree (Art. 124(1)–(3))¶

For a single-property RE exposure, Art. 124 paragraphs (1)–(3) route to exactly one risk-weight table:

The ADC check in Art. 124(3) is evaluated before the Art. 124A qualifying-criteria gate — Art. 124A(1) opens "A real estate exposure is a regulatory real estate exposure if it is not an ADC exposure and all the following requirements are met". An ADC exposure therefore never enters the Art. 124F–124J channel regardless of the six criteria.

Mixed Real Estate Split (Art. 124(4))¶

A mixed real estate exposure is a single exposure secured by both residential immovable property and commercial immovable property (e.g., a mixed-use building with shops on the ground floor and flats above, or a cross-collateralised facility backed by a mix of RESI and CRE). Art. 124(4) requires the exposure to be split into two notional components:

V_RESI = value of residential property securing the exposure
V_CRE  = value of commercial  property securing the exposure
V_total = V_RESI + V_CRE

RESI_share = V_RESI / V_total
CRE_share  = V_CRE  / V_total

EAD_RESI = EAD × RESI_share
EAD_CRE  = EAD × CRE_share

Each component is then risk-weighted independently using the regulatory RE qualifying gate applied to that component's property:

Worked Example — Mixed-Use Building¶

A GBP 2,000,000 loan is secured by a mixed-use property valued at GBP 2,500,000, comprising:

• Ground-floor retail unit: GBP 1,000,000 (commercial, owner-occupied by the obligor's business)
• Two residential flats above: GBP 1,500,000 (residential, let to third-party tenants, not materially dependent on rental cash flows — the obligor services the debt from its retail business income)

Property-value shares: RESI 60%, CRE 40%. Both parts separately qualify under Art. 124A (legal certainty met, valuation to Art. 124D, independent value, insurance). The RESI part is not materially dependent on the property's own cash flows (Art. 124E(1) default) → Art. 124F loan-splitting. The CRE part is not materially dependent (own-use test, Art. 124E(6)) → Art. 124H(1) loan-splitting.

LTV on the combined exposure: 2,000,000 / 2,500,000 = 80%. The LTV is computed at the aggregate level per Art. 124C, then the secured-portion split is applied separately on each notional component against its own property value.

If either component instead failed Art. 124A (e.g., the retail unit's income became the primary repayment source, breaching Art. 124A(1)(e) independence), both components would drop to Art. 124J and receive 150% (if income-dependent) or the non-income-dependent fallback weights.

Implementation Status¶

The Art. 124(4) pro-rata split is automatically applied by the post-CRM RealEstateSplitter stage. Firms supply real-estate collateral as separate rows in the collateral input table (property_type = "residential" or "commercial"); the hierarchy resolver aggregates them into per-exposure residential_collateral_value and property_collateral_value (RRE+CRE total), and the classifier emits per-component eligibility flags consumed by the splitter.

For each mixed exposure the splitter emits:

• one secured_rre row reclassified to RESIDENTIAL_MORTGAGE, EAD = min(EAD × rre_share, 0.55 × rre_v − prior_charge_ltv × rre_v),
• one secured_cre row reclassified to COMMERCIAL_MORTGAGE, EAD = min(EAD × cre_share, 0.55 × cre_v − prior_charge_ltv × cre_v),
• one residual row that keeps the parent counterparty class (Art. 124L applies via the unsecured RW chain),

all three sharing a split_parent_id for COREP reconciliation. The audit lazyframe re_split_audit carries the per-component breakdown (rre_secured_ead, cre_secured_ead, residual_ead, is_mixed).

Single-component splits (pure RRE or pure CRE) keep the legacy secured role (one secured + one residual row per parent) for backward compatibility — only mixed exposures use the secured_rre / secured_cre role pair.

CRR Comparison¶

CRR Art. 124 (pre-revocation) was a five-paragraph scoping article delegating to Art. 125 (residential) and Art. 126 (commercial). Neither article had an explicit "mixed RE" paragraph — mixed-use collateral was handled under general SA principles via the residential-vs-commercial classification of the predominant security interest. The Basel 3.1 Art. 124(4) mandatory proportional split is new regulatory drafting, although the underlying principle (apportion risk by collateral value) was implicit in prior supervisory practice.

See the CRR Residential Mortgage spec and CRR Commercial RE spec for the legacy treatment.

Real Estate — Qualifying Criteria (Art. 124A)¶

Basel 3.1 introduces a gating requirement for preferential real estate risk weights. An exposure is a regulatory real estate exposure only if it is NOT an ADC exposure (Art. 124K) and meets all six criteria in Art. 124A(1). Exposures failing any criterion are "other real estate" under Art. 124J with less favourable treatment.

Regulatory Reference: PRA PS1/26 Art. 124A (p.51), Art. 124D (pp.52–53)

The Six Qualifying Criteria (Art. 124A(1))¶

Charge Conditions (Art. 124A(2))¶

Criterion (c) is satisfied if any of the following apply:

Valuation Requirements (Art. 124D)¶

Criterion (d) is satisfied only if the property value has been obtained via an Art. 124D "qualifying valuation". The full valuation standard — monitoring obligation, re-valuation triggers (including the GBP 2.6m / 5% own funds threshold), qualified-valuer and statistical-method conditions, the self-build formula, and the transitional rule for pre-2027 exposures — is documented in its own section below:

→ Real Estate — Valuation Requirements (Art. 124D)

Consequence of Failing — Other Real Estate (Art. 124J)¶

Exposures that fail any Art. 124A criterion are "other real estate":

Real Estate — Underwriting Standards (Art. 124B)¶

Article 124B is a one-paragraph governance precondition for originating real estate exposures: institutions must operate an underwriting policy that, at a minimum, requires assessment of the borrower's ability to repay. It sits upstream of the calculator and applies to all real estate exposures regardless of whether they subsequently qualify under Art. 124A — the affordability-assessment obligation is triggered at origination, not at risk-weighting.

Regulatory Reference: PRA PS1/26 Art. 124B (ps126app1.pdf p. 52). Effective 1 January 2027.

Scope and Application¶

• All real estate exposures in scope — regulatory RE (Art. 124F–124I), other RE (Art. 124J), and ADC (Art. 124K). There is no exposure-type carve-out; the obligation attaches at the point an institution originates a real estate exposure.
• Governance-level rule, not per-exposure calculation — Art. 124B requires the existence of an underwriting policy, not a per-exposure affordability calculation surfaced through the risk-weight table. Compliance is evidenced by policy documentation, credit-committee approval records, and PRA supervisory review.
• "Ability to repay" is the minimum standard — Art. 124B sets a floor ("at a minimum"). Firms are expected to extend the policy to cover other prudential aspects (collateral adequacy, concentration limits, product-specific affordability tests such as interest-rate stress tests for residential mortgages) per PRA supervisory expectations and CRD Art. 79 credit-risk management obligations.

Relationship to Other Art. 124-Series Provisions¶

Art. 124B is distinct from the measurement rules of Art. 124–124L. It is the origination-side governance counterpart to the calculation-side gates and tables:

A breach of Art. 124B does not reclassify an exposure under Art. 124J — the article is a standalone governance requirement enforced supervisorily, not a risk-weight trigger. A firm that continues to apply Art. 124F–124I preferential weights while breaching Art. 124B would face PRA enforcement (potentially a Pillar 2A capital add-on under SS31/15 ICAAP), not an automatic downgrade of the affected exposures' risk weights.

Relationship to Art. 110A Due Diligence¶

Art. 124B is narrower than the framework-wide due-diligence obligation in Art. 110A:

• Art. 110A applies to every SA exposure (subject to five exemptions) and requires institution-wide processes to ensure "an adequate understanding of the risk profile, creditworthiness and characteristics of exposures to individual obligors and at a portfolio level" (Art. 110A(2)).
• Art. 124B is specific to real-estate origination and zeros in on a single minimum test: the underwriting policy must require the institution to assess the borrower's ability to repay.

The two obligations are cumulative. A compliant firm will satisfy Art. 124B through policy documentation and credit-committee evidence, and satisfy Art. 110A through broader risk-governance and annual review processes covering all SA exposures (including RE).

Implementation Status¶

CRR Comparison¶

CRR had no equivalent single-article underwriting-standards provision. Legacy CRR Art. 125 (residential) and Art. 126 (commercial) set the risk-weight mechanics but did not carry an explicit affordability-assessment obligation as part of the onshored risk-weight rulebook — borrower-repayment governance was instead delivered through:

• CRD Art. 79 — credit-risk management, requiring institutions to have sound credit-granting criteria, including a well-defined target market;
• PRA SS20/15 — Residential Mortgage Risk Weights, which expects firms to apply robust affordability testing at origination;
• PRA SS11/13 — Internal Ratings Based approaches, which extends affordability-test expectations to IRB RE portfolios.

Art. 124B brings the BCBS CRE20.81 origination-standards principle ("banks must have underwriting policies … that include the assessment of the borrower's ability to repay") directly into the PRA CRR rulebook, harmonising the minimum requirement across SA and IRB portfolios at the measurement-framework level rather than leaving it to supervisory statements.

Real Estate — Valuation Requirements (Art. 124D)¶

Article 124D defines the valuation standard that every regulatory real estate exposure must meet to satisfy Art. 124A(1)(d). It is the sole article governing (i) what counts as a "qualifying valuation", (ii) when a fresh valuation must be obtained, (iii) the self-build value floor, and (iv) the transitional rule for exposures incurred before 1 January 2027. Art. 124D applies only to regulatory RE exposures under the Standardised Approach — other RE (Art. 124J) and ADC (Art. 124K) are not subject to these specific mechanics, although firms typically apply equivalent internal governance.

Regulatory Reference: PRA PS1/26 Art. 124D (ps126app1.pdf pp. 52–53). Effective 1 January 2027.

Valuation Standard (Art. 124D(8))¶

Every valuation relied on under Art. 124D — initial, revaluation, or self-build land value — must meet all four of the following conditions simultaneously. Failing any one disqualifies the valuation from being a "qualifying valuation":

Paragraphs (a)–(d) apply jointly to paragraph 3 (qualifying valuation), paragraphs 5–7 (revaluation), and paragraphs 9–11 (self-build and transitional). Conditions (c) and (d) together prevent a valuer from substituting a higher market estimate for a recent arm's-length purchase price, or from using a distressed purchase price to uplift an otherwise weaker market value — in each case the lower number governs.

Monitoring Obligation (Art. 124D(2))¶

Paragraph (2) imposes a continuous, framework-wide monitoring obligation distinct from the event-driven revaluation triggers in paragraph (5). The obligation sits upstream of the calculator: firms are expected to have a market-monitoring process (e.g., index-based tracking, portfolio-level price-series review) that can detect the >10% decline referred to in Art. 124D(5)(b) without waiting for a revaluation event. Frequency is not fixed in the text — "more frequent" during turbulent markets is a supervisory expectation.

What Counts as the Value of the Property (Art. 124D(3))¶

The "qualifying valuation" is the anchor used by:

• Art. 124C LTV denominator for the 55% secured-portion split
• Art. 124F–124I loan-splitting tables
• Art. 124J 60% floor on commercial non-income-dependent other RE

The "subject to paragraph 9" carve-out defers to the self-build formula (see below) for exposures financing land-plus-construction before completion.

Revaluation Triggers (Art. 124D(4)–(7))¶

When a new valuation is required (Art. 124D(4)–(5))¶

An institution shall obtain a fresh qualifying valuation in any of the following situations:

When a new valuation is permitted but not required (Art. 124D(6))¶

Paragraph (6) is an optional uplift channel — firms may (not shall) revalue upwards when physical property modifications (extension, refurbishment, change of use with planning consent) unequivocally raise market value. The conservative default is to retain the pre-modification qualifying valuation until the next trigger in (5) fires. If the firm exercises the (6) option, the new valuation must still meet Art. 124D(8)(a)–(d).

Clock-reset rule after a (5)(b) market-decline revaluation (Art. 124D(7))¶

Paragraph (7) gives institutions optionality when the 3-year (c) or 5-year (d) clock would be reset by a market-decline revaluation under (5)(b). Without this relief, a firm that revalues a property downwards in response to a market shock would be forced to re-value again three or five years after the reactive date, potentially during another stressed period. Paragraph (7) allows the clock to continue running from the last routine (non-5(b)) qualifying valuation — a firm can elect whichever date yields the more prudent schedule. The choice is per-exposure, not portfolio-wide, and once the (c) or (d) trigger fires the new valuation becomes the anchor for all subsequent paragraph-5 calculations.

Self-Build Valuation (Art. 124D(9) and 124D(10))¶

Three elements of the definition matter for scope: (a) residential only — a mixed-use or purely commercial development cannot be a self-build exposure, so the Art. 124D(9)/(10) land-value floor is unavailable to CRE; (b) ≤ 4 housing units — larger residential schemes fall back to the general Art. 124D(3) qualifying-valuation rule without the 0.8 self-build discount; and (c) primary residence — buy-to-let self-builds, second-homes, and developer-for-sale exposures are excluded. A self-build exposure is the sole category under Art. 124A(1)(a)(iii) that lets an exposure secured by land held for development and construction qualify as regulatory RE before construction is complete — the other two gates in Art. 124A(1)(a)(i)/(ii) both require finished property. The valuation anchor under Art. 124D(9)/(10) departs from the pure qualifying-valuation rule because there may be no finished building to value at origination.

The 0.8 multiplier is the key prudential brake: it guarantees that at least a 20% value buffer is held over the current "completed" valuation until the loan matures or the property is sold, reflecting the residual construction / permitting / market-absorption risk that remains even after the build is complete.

Transitional Rule — Pre-2027 Exposures (Art. 124D(11))¶

Paragraph (11) is the grandfathering bridge for legacy portfolios. Without it, every pre-2027 real-estate exposure would lack a "paragraph-4 valuation" on day one of the new regime and would be forced to Art. 124J (other RE) until the institution obtained a fresh valuation. Instead, Art. 124D(11)(a) deems the old valuation to have been obtained under paragraph 4 retrospectively, and (11)(b) provides three escape hatches where the institution can substitute the most recent pre-2027 valuation outright. Once the 3-year (c) / 5-year (d) clocks in paragraph (5) tick over after 1 January 2027, the transitional relief lapses and the firm must revalue to the forward-looking Art. 124D standard.

Implementation Status¶

CRR Comparison¶

Legacy CRR had no single "Art. 124D". Valuation obligations were spread across:

• Art. 208(3) CRR — annual (CRE) / 3-year (RRE) monitoring cadence and statistical-method permission
• Art. 229 CRR — "prudently conservative mortgage lending value" definition (commercial valuers)
• Art. 125(2)(a) CRR / Art. 126(2)(a) CRR — origination valuation requirement embedded inside the residential / commercial RE criteria

The Basel 3.1 consolidation under Art. 124D: (a) aligns residential and commercial revaluation cadence, (b) introduces the explicit GBP 2.6m / 5% own funds large-exposure trigger (no CRR analogue), (c) introduces the explicit >10% market-decline trigger with a clock-reset option (Art. 124D(7)), (d) codifies the self-build valuation floor, and (e) provides express grandfathering via Art. 124D(11). The 5-year ceiling (Art. 124D(5)(d)) is tighter than legacy CRR's 3-year residential cadence for the subset of exposures below the large-exposure threshold — but looser for commercial exposures below that threshold, which under CRR required annual monitoring.

See the CRR Residential Mortgage spec and CRR Commercial RE spec for the pre-revocation treatment.

Real Estate — ADC Exposures (Art. 124K)¶

ADC (Acquisition, Development, and Construction) exposures are loans to corporates or SPEs financing land acquisition for development and construction, or financing development and construction of residential or commercial real estate. ADC exposures are explicitly excluded from the regulatory real estate framework (Art. 124A) and receive standalone treatment.

Regulatory Reference: PRA PS1/26 Art. 124K (p.58), Glossary definition (p.3)

Risk Weights¶

Qualifying Conditions for 100% (Art. 124K(2))¶

The reduced 100% risk weight is available only for ADC exposures financing land acquisition for residential RE development/construction, or financing residential RE development/construction. Both of the following must be met:

(a) Prudent underwriting (Art. 124K(2)(a)):

• The exposure is subject to prudent underwriting standards, including for the valuation of any real estate used as security for the exposure.

(b) At least one of (Art. 124K(2)(b)):

CRR Comparison¶

Under current UK CRR (pre-2027), Art. 128 (high-risk items including speculative immovable property financing) was omitted by SI 2021/1078 effective 1 Jan 2022. Without Art. 128, ADC-type exposures fall to standard corporate treatment (100% unrated). Basel 3.1 Art. 124K re-introduces explicit ADC treatment at a higher 150% default, with a 100% concession for qualifying residential exposures.

See also: CRR ADC treatment

Implementation¶

The calculator uses two input fields:

Code: b31_adc_rw_expr() in engine/sa/b31_risk_weight_tables.py dispatches on is_presold. ADC sits at priority 4 in the Basel 3.1 SA when-chain (engine/sa/calculator.py), after subordinated debt but before all other RE branches — is_adc=True overrides any LTV-based or income-producing treatment.

Key Scenarios¶

Real Estate — LTV Definition (Art. 124C)¶

Art. 124C defines the regulatory loan-to-value ratio used for all LTV-based real estate risk weights (Art. 124G income-producing residential and Art. 124I income-producing commercial). This definition also underpins the loan-splitting threshold calculations in Art. 124F (residential) and Art. 124H (commercial).

Regulatory Reference: PRA PS1/26 Art. 124C (p.52)

LTV Formula (Art. 124C(1))¶

LTV = loan_amount / property_value

Where: - loan_amount is defined per Art. 124C(2)–(3) - property_value is determined per Art. 124D (see Valuation Requirements)

Loan Amount — Numerator (Art. 124C(2))¶

The loan amount includes:

The single exception to the "no CRM" rule: pledged deposit accounts with the lending institution that meet all requirements for on-balance-sheet netting (Credit Risk Mitigation Part) AND have been unconditionally and irrevocably pledged for the sole purpose of loan repayment. These may reduce the loan amount in the LTV numerator.

Prior Charges Stacking (Art. 124C(3))¶

Rules:

1. Identify all charges on the property — any loan secured by a charge that ranks in priority ahead of the institution's charge, or ranks pari passu, must be added to the numerator.
2. Insufficient ranking information — where there is insufficient information to determine the ranking of other charges, the institution must treat those charges as pari passu with its own charge. This is a conservative assumption that increases the reported LTV.
3. Effect on risk weights — prior charge stacking increases LTV, which:
4. Pushes whole-loan exposures (Art. 124G/124I) into higher risk weight bands
5. Reduces the effective loan-splitting threshold (Art. 124F(2)/124H junior charges)
6. May trigger the 1.25× junior charge multiplier (Art. 124G(2)/124I(3))

Example:

Property value:             £400,000
Institution's own loan:     £200,000 (outstanding) + £20,000 (undrawn committed)
Senior charge (other lender): £100,000

LTV = (£200,000 + £20,000 + £100,000) / £400,000 = 80%
    (without prior charge stacking: LTV = £220,000 / £400,000 = 55%)

Property Value — Denominator (Art. 124C(4))¶

The property value is determined in accordance with Art. 124D (Valuation Requirements above).

Implementation¶

The calculator uses two input fields to implement Art. 124C:

The reporting institution is responsible for computing the stacked LTV externally: the calculator consumes the pre-computed property_ltv value and assumes it already incorporates Art. 124C(2)–(3) components. The separate prior_charge_ltv field enables the calculator to determine the junior charge effect on the loan-splitting threshold (55% of property value for both RRE under Art. 124F(1) and CRE under Art. 124H(1)).

Real Estate — Material Dependency Classification (Art. 124E)¶

Art. 124E defines the test that routes residential and commercial real estate exposures between two treatment tracks:

• Not materially dependent on property cash flows → loan-splitting (Art. 124F for residential, Art. 124H for commercial)
• Materially dependent on property cash flows → whole-loan LTV-band tables (Art. 124G Table 6B for residential, Art. 124I for commercial)

This classification is a Basel 3.1 addition with no CRR equivalent. Under CRR, the loan-splitting / whole-loan distinction was less formally defined and did not include quantitative thresholds such as the three-property limit.

Residential RE — Default and Exceptions (Art. 124E(1))¶

A residential RE exposure is materially dependent by default. It is classified as not materially dependent only if it falls into one of five exceptions:

Reassessment Triggers — Residential RE (Art. 124E(5))¶

Art. 124E(5) imposes both a mandatory reassessment trigger and a discretionary update right, and pairs the update right with an anti-gaming proviso.

Commercial RE — Own-Use Test (Art. 124E(6))¶

A commercial RE exposure is materially dependent by default. The sole exception: each property securing the exposure is predominantly used by the borrower for its own business purpose, where the business purpose does not include generating income from the property via rental agreements.

Reassessment Trigger — Commercial RE (Art. 124E(7))¶

Unlike residential RE where the mandatory trigger is event-driven (new loan to obligor), commercial RE reassessment is time-driven with a minimum 12-month cadence. The own-use determination under Art. 124E(6) can shift as tenancy structures, lease agreements, or borrower business models change; annual reassessment ensures a commercial RE exposure routed to Art. 124H (loan-splitting) does not silently stay there after the own-use premise no longer holds.

Implementation¶

The material dependency classification is an input-driven flag — the engine does not evaluate Art. 124E conditions internally. Institutions must determine material dependency upstream and supply it via the is_income_producing field on the collateral record.

The field flows through the pipeline as has_income_cover (renamed during collateral join) and determines the risk weight calculation path:

• False → Art. 124F loan-splitting (residential) or Art. 124H loan-splitting (commercial)
• True → Art. 124G Table 6B whole-loan (residential) or Art. 124I whole-loan (commercial)

Real Estate — Residential (Art. 124F–124G)¶

All residential RE risk weights below require the exposure to meet the Art. 124A qualifying criteria.

General Residential — Loan-Splitting (Art. 124F)¶

Not materially dependent on cash flows. The exposure is split into a secured portion (up to 55% of property value) and a residual portion:

secured_share = min(1.0, 0.55 / LTV)
RW = 0.20 × secured_share + counterparty_RW × (1.0 - secured_share)

Counterparty risk weight (Art. 124L):

Junior charges (Art. 124F(2)): If a prior or pari passu charge exists that the institution does not hold, the 55% threshold is reduced by the amount of the prior charge. This decreases the secured portion, increasing the blended risk weight.

Income-Producing Residential — Whole-Loan (Art. 124G, Table 6B)¶

Materially dependent on cash flows (e.g., buy-to-let, multi-unit rental). Whole-loan approach — single risk weight on entire exposure:

Junior charge multiplier (Art. 124G(2)): Where prior-ranking charges exist that the institution does not hold, the whole-loan risk weight is multiplied by 1.25× for LTV > 50%. The multiplied risk weight is not capped at the table maximum (105%) — it may exceed the highest table band (e.g., 105% x 1.25 = 131.25%).

Real Estate — Commercial (Art. 124H–124I)¶

All commercial RE risk weights below require the exposure to meet the Art. 124A qualifying criteria.

CRE Loan-Splitting (Art. 124H(1))¶

Not materially dependent on cash flows — the borrower uses the property predominantly for its own business purpose (Art. 124E(6)).

CRE Income-Producing (Art. 124I)¶

Materially dependent on cash flows — income from the property (rental, sale proceeds) is the primary repayment source:

PRA Art. 124I — 2-Band Table

Junior Charge Treatment for Income-Producing CRE (Art. 124I(3))¶

Where there are prior-ranking charges not held by the institution, the whole-loan risk weight is replaced by a band-dependent absolute weight (not a multiplier on Art. 124I(1)/(2)):

Verified against PRA PS1/26 Art. 124I(3), ps126app1.pdf p.57 (17 Apr 2026).

Large Corporate CRE (Art. 124H(3))¶

For non-natural-person, non-SME borrowers with non-cash-flow-dependent CRE:

RW = max(60%, min(counterparty_rw, income_producing_rw))

This is a distinct third path alongside loan-splitting and income-producing tables.

SA Specialised Lending (Art. 122A–122B)¶

New exposure class in Basel 3.1. Art. 122A(1) defines a specialised lending exposure as a corporate exposure that is not a real estate exposure and that has the structural characteristics of project finance, object finance, or commodities finance (so income-producing real estate is excluded — it is routed via Art. 124H–124I instead). Art. 122A(2) classifies SA SL into the three sub-types; Art. 122B sets the risk weights.

Rated SA SL (Art. 122B(1))¶

"Where a relevant issue-specific credit assessment by a nominated ECAI is available for a specialised lending exposure, an institution shall apply the risk weight treatment set out in Article 122(2)."

Rated SA SL exposures fall through to the rated corporate ECAI table in Art. 122(2). The type-specific weights below apply only when no eligible issue-specific assessment exists.

Unrated SA SL Risk Weights (Art. 122B(2))¶

Operational Phase Definition (Art. 122B(3))¶

For the purpose of Art. 122B(2)(c) and Art. 122B(4), a project is in the operational phase when the entity created to finance the project has both:

• (a) a positive net cash-flow that is sufficient to cover any remaining contractual obligations relating to the completion of the project; and
• (b) declining long-term debt.

Both limbs are mandatory. Pre-operational PF — including the construction phase and any period before declining long-term debt is established — receives the 130% weight under Art. 122B(2)(c).

High-Quality Operational PF — 80% Weight (Art. 122B(4))¶

"Where a project finance exposure is in the operational phase and is considered high quality in accordance with the criteria in paragraph 5, an institution shall assign a risk weight of 80%."

The 80% preferential weight is conditional on both (i) being in the operational phase per Art. 122B(3), and (ii) satisfying every condition in Art. 122B(5). Failure of any single condition disqualifies the exposure and reverts it to the 100% operational PF weight under Art. 122B(2)(c).

High-Quality PF Criteria (Art. 122B(5))¶

A project finance exposure is high quality only if the chapeau condition (a) and all eight sub-conditions in (b)(i)–(viii) are met:

Art. 122B(5)(a) — Chapeau (Resilience)¶

"It is an exposure to an entity that is able to meet its financial commitments in a timely manner and its ability to do so is robust against adverse changes in the economic cycle and business conditions."

This is a forward-looking assessment of the project entity's resilience under stress, not a historical performance test. The PRA does not prescribe quantitative thresholds; the assessment must be performed by the institution and documented.

Art. 122B(5)(b) — Eight Structural Conditions¶

Art. 122B(5)(b)(iv) — Eligible Main-Counterparty Sub-Types¶

The "main counterparty" in (iv) must be one of the following three categories. Counterparties falling outside these three categories disqualify the exposure from the 80% weight irrespective of how creditworthy they are:

Availability-Based Revenues — Definition (Art. 122B(6))¶

For the purposes of Art. 122B(5)(b)(iii), revenues are availability-based only if all three of the following hold:

• (a) The entity is entitled to payments from its contractual counterparties once construction is completed, as long as contract conditions are fulfilled.
• (b) The revenues are sized to cover operating and maintenance costs, debt service costs, and equity returns as the entity operates the project.
• (c) The revenues are not subject to swings in demand, and are adjusted only for lack of performance or lack of availability of the asset to the public.

Demand-risk concessions (e.g. shadow toll roads where revenue rises and falls with traffic volume) do not meet condition (c) and therefore cannot satisfy Art. 122B(5)(b)(iii) via the availability-based limb. Such projects must instead rely on rate-of-return regulation or a take-or-pay contract to qualify.

CRR Comparison¶

CRR has no SA specialised lending sub-classes. Under CRR, all unrated corporate exposures (including SL) receive the flat 100% corporate weight under Art. 122(2). The 130% pre-op, 100% operational, and 80% high-quality operational weights are all Basel 3.1 introductions. For rated SL, both frameworks fall through to the rated corporate table — but CRR does so implicitly (no SL distinction at all), while Art. 122B(1) makes the rule explicit.

See CRR sa-risk-weights spec for the unchanged CRR treatment and framework-comparison/key-differences for the side-by-side change summary.

Covered Bond Exposures (Art. 129)¶

PRA PS1/26 modifies Art. 129 in-place — there is no separate "Art. 129A".

Rated Covered Bonds (Art. 129(4), Table 7)¶

PRA PS1/26 Art. 129(4) Table 7 values are identical to the CRR Table 6A values. The PRA did not adopt the BCBS CRE20.28–29 reductions.

Unrated Covered Bonds (Art. 129(5))¶

The derivation table is expanded from 4 to 7 entries to accommodate new institution risk weights from ECRA and SCRA:

Covered Bond Due Diligence CQS Step-Up (Art. 129(4A))¶

Regulatory text. PRA PS1/26 Art. 129(4A) (p. 61) reads:

An institution shall conduct due diligence to ensure that the external credit assessments appropriately and prudently reflect the creditworthiness of the eligible covered bonds to which the institution is exposed. If the due diligence analysis reflects higher risk characteristics than that implied by the credit quality step of the exposure, the institution shall assign a risk weight associated with a credit quality step that is at least one step higher than the risk weight determined by the external credit assessment.

Trigger. The step-up is driven by the credit quality step of the ECAI assessment used under Art. 129(4) Table 7 (rated eligible covered bonds). The trigger is the firm's own DD finding that the CQS mapping understates the bond's credit risk. For unrated covered bonds risk-weighted via the Art. 129(5) institution-RW derivation chain, the step-up still applies indirectly where the underlying institution exposure is itself stepped up under Art. 120(4) — the derivation table at Covered Bonds — Unrated then yields the correspondingly higher covered-bond RW.

Effect. Worked one-step uplifts against Art. 129(4) Table 7 (rated covered bonds):

Like Art. 120(4) for institutions, two CQS→CQS transitions (2→3 and 4→5) yield no numerical change because Table 7 assigns identical RWs to those adjacent steps. The uplift is required regardless — Art. 129(4A) mandates the CQS reassignment, even if the RW happens to coincide. This matters for any downstream process that keys off CQS rather than RW (e.g. disclosure).

Distinction from Art. 110A. Art. 129(4A) is a narrower, rated-covered-bond-only rule with a fixed one-step CQS uplift; Art. 110A applies to every non-exempt SA exposure (including unrated covered bonds) and permits an unbounded uplift. Where both would apply, the final RW is max(RW_Art_129_4A, RW_Art_110A_override, RW_Table_7).

Parallel provisions. Art. 129(4A) is textually near-identical to two other class-specific step-up rules in PS1/26:

All three share the same trigger ("DD reveals higher risk than implied by the CQS") and the same consequence ("at least one CQS step higher"). CRR has no equivalent provision for any of the three classes — the rules are Basel 3.1-only.

Implementation status. The calculator does not yet implement a dedicated Art. 129(4A) branch. Firms currently carry Art. 129(4A) findings through the Art. 110A pathway: set due_diligence_override_rw on the covered-bond facility to the next-CQS-band weight (e.g. CQS 3 → 50% to reflect a stepped-up CQS 4 treatment), and the SA calculator will apply it as a directional floor (see Implementation above). This is functionally equivalent and captured in the output via the due_diligence_override_applied audit column.

Defaulted Exposures (Art. 127)¶

See Defaulted Exposures Specification for the full treatment.

Summary: provision-coverage split — ≥20% provisions → 100% RW, <20% → 150% RW. Secured portion retains collateral-based RW. RESI RE non-income exception: flat 100%.

High-Risk Exposures (Art. 128)¶

PRA PS1/26 re-introduces the high-risk exposure class that was previously omitted from UK onshored CRR. An institution shall assign a 150% risk weight to exposures that are associated with particularly high risk (Art. 128(1)).

Regulatory Reference: PRA PS1/26 Art. 128 (ps126app1.pdf p. 59)

Assessment Criteria (Art. 128(3))¶

When assessing whether an exposure is associated with particularly high risk, an institution shall take into account the following risk characteristics:

• (a) there is a high risk of loss as a result of a default of the obligor;
• (b) it is impossible to assess adequately whether the exposure falls under point (a).

Paragraph Status¶

Class Waterfall Position¶

Under the Art. 112 Table A2 exposure class waterfall, high-risk items sit at priority 4, after securitisation positions (1), CIU units (2) and subordinated debt / equity / own funds instruments (3). Equity therefore takes precedence over high-risk treatment — venture capital and private equity exposures are classified as equity under Art. 133, not as high-risk items under Art. 128, even though Art. 128(2) historically listed them.

CRR Comparison¶

Under current UK CRR (pre-2027), Art. 128 was omitted by The Capital Requirements Regulation (Amendment) Regulations 2021 (SI 2021/1078), reg. 6(3)(a), effective 1 January 2022. The high-risk exposure class is a dead letter under current UK CRR; exposures that would otherwise be classified as high-risk fall through to their counterparty's standard exposure class. PS1/26 reintroduces Art. 128 from 1 January 2027 with paragraphs 1 and 3 only.

See also: CRR high-risk treatment.

CIU Exposures (Art. 132)¶

Under Basel 3.1, CIU (Collective Investment Undertaking) exposures that cannot be looked through receive a 1,250% fallback risk weight (Art. 132(2)). This is a significant increase from the CRR treatment and differs from the equity risk weights (250%/400%) that might otherwise apply.

Equity (Art. 133)¶

See Equity Approach Specification for the full treatment.

Summary: exchange-traded/listed/unlisted 250%, higher-risk (unlisted + business < 5yr) 400%, subordinated debt 150%, central bank 0%, government-supported 250%. Transitional phase-in 2027–2030. The end-state risk weights apply from 1 January 2030:

Basel 3.1 Changes Summary¶

• Institution ECRA (Art. 120): CQS 2 reduced to 30% — Done
• Institution SCRA (Art. 121): New grade-based approach with Grade A enhanced 30% — Done
• Corporate sub-categories (Art. 122(4)–(11)): SME 85%, IG 65%, non-IG 135% — Done
• RE qualifying criteria (Art. 124A): 6-criteria gate for preferential RE weights — Done
• Other RE fallback (Art. 124J): 150% / counterparty RW / max(60%, cpty RW) — Done
• RRE loan-splitting (Art. 124F–124G): Secured 20% / unsecured counterparty — Done
• CRE loan-splitting (Art. 124H): Secured 60% / unsecured counterparty — Done
• CRE income-producing (Art. 124I): PRA 2-band (100%/110%) — Done
• SA Specialised Lending (Art. 122A–122B): Type-specific weights, incl. 80% high-quality PF — Done
• Currency mismatch (Art. 123B): 1.5× multiplier, 150% cap — Done
• Defaulted provision-coverage (Art. 127): 100%/150% split — Done
• High-risk re-introduced (Art. 128): 150% RW reactivated by PS1/26 (paragraphs 1 & 3 only; para 2 left blank); reverses the SI 2021/1078 omission under UK CRR — Documented
• Art. 131 left blank (Short-term ECAI for institutions/corporates): PS1/26 leaves Art. 131 blank; short-term treatment is now embedded in Art. 120(2B) Table 4A and Art. 122(3) Table 6A
• Retail threshold (Art. 123): Changed to GBP 880,000 — Done
• CIU fallback (Art. 132(2)): 1,250% for non-look-through CIUs — Documented
• Short-term ECAI (Art. 120(2B), Art. 122(3)): New Tables 4A / 6A for short-term assessments — Schema gap
• SCRA trade finance (Art. 121(4)): ≤6m trade goods exception for short-term weights — Documented
• Supporting factors removed (Art. 501/501a): SME replaced by 85% class — Done
• Covered bonds rated (Art. 129(4), Table 7): PRA retains CRR values — spec correct; code bug P1.113
• Covered bonds unrated (Art. 129(5)): Expanded 7-entry derivation table for SCRA weights — Done
• Non-UK unrated PSE/RGLA: Sovereign CQS-derived weights apply; flat 100% incorrect — code bug P1.112

Key Scenarios¶

Acceptance Tests¶