Banks must tighten IFRS 9 data controls and climate models
The Prudential Regulation Authority published thematic feedback on major UK banks' IFRS 9 expected credit loss accounting on September 30, 2026. Executive Director David Bailey called for enhanced data governance, tighter model controls and deeper integration of climate credit risks.
Low coverage meets patchy data controls
Aggregate expected credit loss coverage across major UK deposit takers reached its lowest level since pre-Covid, according to written auditor reports reviewed under Chapter 8 of the PRA Rulebook.
Prudential Policy Executive Director David Bailey emphasized that while lower provisions reflect asset quality indicators, banks must maintain robust governance to identify emerging credit risks.
The review revealed inconsistent data governance across institutions, specifically regarding critical data elements outside core model execution.
Auditors also found unresolved IT control weaknesses, including privileged access issues, and uneven progress in replacing legacy models with granular borrower segmentation.
Climate gaps and private market scrutiny
While no institution reported a material current-period ECL impact from climate risks, the PRA noted that methodologies linking climate scenarios to actual accounting judgements remain underdeveloped.
Lenders also face supervisory expectations to evaluate refinancing risks and physical vulnerabilities at property and corporate level.
For the 2027 review, the PRA asked auditors to assess progress on these fronts alongside an examination of credit risks in complex private market exposures, where leveraged and correlated risks present data aggregation hurdles.
Clean books on borrowed time
Record-low provisions flatter balance sheets but leave banks exposed as volatility persists.
The supervisor rightly challenges data blind spots before overdue revisions force sudden catch-up charges.
Without hard numbers backing climate rhetoric, bank resilience models remain unproven.