The UK Prudential Regulation Authority has published thematic findings from its 2026 review of auditor reports on International Financial Reporting Standard 9 expected credit loss accounting at major UK headquartered banks and building societies. Auditors generally found effective governance and controls, with no pervasive risk of material misstatement from ECL data, but implementation varied across firms and portfolios. The PRA wants firms to strengthen data governance, model monitoring and the incorporation of climate related credit risks into ECL assessments. Aggregate ECL coverage is at its lowest since before COVID-19, which is consistent with improved asset quality and does not itself indicate underprovisioning, but economic and geopolitical uncertainty increases the need to capture emerging risks promptly. On data, firms should identify all material inputs, including those used in post model adjustments and model monitoring, and improve end to end accountability, lineage and preventative controls. Some firms relied heavily on manual downstream reviews, while unresolved IT control weaknesses included privileged access issues. Model redevelopment and more granular, automated monitoring continued, but progress was uneven. The PRA expects monitoring to align with model segmentation, connect clearly to mitigating actions and test whether post model adjustments remain appropriately calibrated. It also called for faster remediation of legacy models and more consistent validation and governance of automated monitoring tools. Climate risk analysis became more granular, although no firm identified a material current period ECL impact. Weaknesses remained in translating stress tests and climate scenarios into ECL judgments, assessing refinancing risk, embedding climate scorecards in credit decisions and using borrower and collateral level data in probability of default and loss given default estimates. The review also called for better post transaction monitoring and reporting of credit protection in securitisations, and stronger testing of recovery assumptions in loss given default models. For the 2027 review, auditors will assess firms’ progress and examine how they identify, monitor and promptly reflect credit risks in private market exposures, which is a forward looking area of work rather than a finding from the current review.
UK Prudential Regulation Authority identifies uneven IFRS 9 ECL controls and climate risk capabilities
The UK Prudential Regulation Authority found that banks and building societies generally maintained effective IFRS 9 ECL controls, but data governance, model monitoring and climate risk capabilities remained uneven. Firms should improve data lineage and preventative controls, strengthen oversight of post model adjustments and connect more granular climate analysis to ECL judgments. The 2027 review will also examine the timely recognition of risks in private market exposures.