Prudential Regulation Authority Rulebook

6.1

Where an assigned asset has a credit rating or internal credit assessment of a comparable standard (within the meaning of 7.1(1)) mapping to credit quality steps 1 to 5 (inclusive), a firm with a matching adjustment permission must make an adjustment to the fundamental spread derived from the credit quality step attributed to that asset in order to reflect the corresponding rating notch, in accordance with 6.3 and 6.4.

6.2

The obligation in 6.1 does not apply in the circumstances described in 6.5.

6.3

A firm must derive the adjustment referred to in 6.1 for at least:

1. (1) the probability of default referred to in 4.5; and
2. (2) the overall fundamental spread,

in each case, applicable to the cash-flows of that asset.

6.4

A firm must:

1. (1) derive the adjustments referred to in 6.3 using linear interpolation of the information published by the PRA under regulation 3(1) of the IRPR regulations;
2. (2) use linear interpolation for each consecutive credit quality step pair; and
3. (3) assume for the purposes of this Chapter that each intermediate rating notch is evenly spread between each consecutive credit quality step pair.

6.5

Where there is no rating notch available for a particular asset falling within the scope of 6.1:

1. (1) a firm must not adjust the fundamental spread, or component thereof, applied to the cash-flows of that asset, other than to account for additions to the fundamental spread in accordance with 4.16 and/or 4.17, as applicable; and
2. (2) a firm must consider the appropriateness of the fundamental spread and matching adjustment in respect of that asset as part of its analysis and verification process and policy under Chapter 10, in relation to the attestation made under Chapter 9.

6.6

By way of derogation, during the period from, and including, 30 June 2024 to, and excluding, 31 December 2024, a firm may, but will not be required, to comply with the obligation in 6.1.