CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

CRD IV for Investment Firms
CP13/6
Exposures secured by mortgages on commercial real estate property
4.49 The Regulation applies a risk weight of 50% for exposures secured by mortgages on commercial
immovable property where specific criteria are met (articles 124 and 126 of the CRR). The risk
weight increases to 100% where those criteria are not met (article 124(1) of the CRR).
4.50 The CRR provides for the following discretions for competent authorities that allow the FCA to:
• derogate from one of the relevant criteria where the FCA publishes evidence of the longestablished
and well-developed nature of the UK commercial mortgage market, and data
showing loss rates on UK commercial real estate to be within certain limits (Article 126(3));
and
• set a higher risk weight or stricter criteria than those set out in article 126(2) of the CRR –
where appropriate – on the basis of financial stability considerations (Article 124(2)).
4.51 Under the current BCD (point 9.2, Part I, Annex VI) there is a similar discretion allowing the
competent authority to apply a 50% risk weight to loans fully and completely secured on
commercial real estate. The FSA did not exercise that discretion, as it was considered that a
risk weight of 50% was not adequate to capture the risk inherent in fully secured commercial
property lending in the UK; therefore a risk weight of 100% currently applies to such exposures.
4.52 We propose to exercise these discretions and, therefore, to maintain a risk weight of 100% for
exposures to UK commercial real estate. Details regarding the application of this risk weight are
included in the relevant rule in the Appendix. As prescribed by article 124(2) of the CRR, the
FCA intends to consult the EBA on its proposed approach.
4.53 It is important to note that the FCA may need to revisit this issue when the EBA issue technical
standards to specify among other items the conditions the competent authorities shall take into
account when determining higher risk weights.
Q20: Do you agree with our proposal to exercise the
discretions in articles 124(2) and 126(3) of the Regulation
to maintain a risk weight of 100% for exposures to UK
commercial real estate, as it is currently the case? If
not, please explain why not and propose alternative
approaches and the rationale for those approaches.
Financial Conduct Authority July 2013
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