UK PRA Dear CFO letter on accounting for IFRS 9 expected credit losses

The UK Prudential Regulation Authority (PRA) has issued a Dear CFO Letter setting out thematic feedback from its annual review of written auditor reports of selected PRA-regulated deposit-takers, covering IFRS 9 expected credit loss (ECL) and accounting for climate risk. The PRA confirms that it has seen continuous improvements in firms' capabilities, controls, and governance in these areas.

The feedback covers:

• Data governance, where the PRA encourages continued enhancements in identifying material ECL data, and strengthening end-to-end accountability, data quality controls, and data lineage.
• Model risk, where the focus is on firms' responsiveness to emerging risks, the completeness of post- model adjustments, and ensuring model monitoring continues to support timely identification of model performance issues and mitigating actions.
• Climate risk, where the PRA encourages continued development of more granular risk assessments, stronger links between scenario analysis and ECL judgements, and the models and data to assess and reflect evolving climate-related credit risks.

Firms are encouraged to review the Annex to the letter, which sets out a range of practices observed by the PRA, together with its areas of focus. The PRA has requested auditors' views on firms' progress in these areas for the 2027 review. Auditors are also asked to report on firms' processes for identifying and monitoring credit risk in private market exposures and for reflecting changes in ECL in a timely manner.

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