Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p8
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 20040–23231

responsibilities for any models used in the rating process and have ultimate responsibility for the ongoing review of, and alterations to, the ADI's rating models.
 3.          In order to ensure proper accountability, an ADI's policies must clearly define and document the responsibilities of, and performance standards for, personnel within the credit risk control unit. Personnel must have the appropriate incentives to meet their performance standards and the knowledge, skills, tools and resources necessary to carry out their responsibilities.

Independent review
 1.          An ADI's rating systems and operations must be reviewed at least annually by internal audit or an equally independent function. The review must assess whether the ADI's development, implementation, validation, governance and control processes are effective and operating as designed. The areas of review must include:
        1.           the operations of the credit risk control function;
        2.           the estimation of PD and, where relevant, LGD and EAD; and
        3.           the ADI's adherence to all applicable minimum requirements detailed in this Prudential Standard.
    The findings of this review must be documented.

Asset classes
 1.          For the purpose of deriving the Regulatory Capital requirement under an IRB approach, an ADI must assign its banking book exposures to one of the following IRB asset classes:
        1.           corporate (which includes the four sub-asset classes of specialised lending);
        2.           sovereign;
        3.           financial institution; and
        4.           retail (which consists of four separate sub-asset classes).
 2.          An ADI must ensure that its methodology for assigning credit exposures to different IRB asset classes complies with its IRB approval and is consistent over time.

Definition of corporate exposures
 1.          The corporate IRB asset class includes all credit exposures to corporate counterparties and public sector entities, including exposures within the four specialised lending sub-asset classes of project finance, object finance, commodities finance and IPRE. Public sector entities that meet the definition in paragraph 34 are excluded from this asset class. A corporate exposure means a credit obligation of a corporation, partnership, proprietorship or public sector entity, or any other credit exposure that does not meet the criteria of any other defined IRB asset class.

Income-producing real estate
 1.          IPRE means a method of providing funding for real estate where the prospects for repayment of the exposure depend primarily on the cash flows generated by the asset or other real estate assets owned by the borrower.
 2.          In order to treat an exposure as a general corporate exposure rather than IPRE, an ADI must have recourse to a borrower that meets all of the following criteria:
        1.           the borrower is a corporate entity that is managed by a recognised, professional and reputable management team;
        2.           the ADI's exposure to the borrower is not specifically or substantially financing limited recourse development projects;