PRA Warns Major UK Banks on IFRS 9 Credit Loss Accounting Gaps and Signals Forward-Looking Review of Private Market Exposures

The Prudential Regulation Authority (PRA) published a letter on 30 September 2026 from Executive Director David Bailey to the chief financial officers of selected PRA-regulated deposit-takers, setting out thematic feedback from its annual review of written auditor reports covering IFRS 9 expected credit loss (ECL) accounting. IFRS 9 is the international accounting standard that requires banks to recognise potential credit losses on loans at an early stage, rather than waiting for an actual default. The PRA identified three main areas requiring improvement. On data governance, auditors broadly found effective controls but noted inconsistent application across firms and portfolios, with better practice including sensitivity analysis to identify which data inputs could materially affect loss estimates. On model risk, firms have continued to redevelop and enhance monitoring tools, but implementation remained uneven; the PRA is focused on firms' responsiveness to emerging risks and the completeness of post-model adjustments. On climate risks, the PRA welcomed progress in integrating climate scenarios into ECL processes but called for more granular risk assessments and stronger links between scenario analysis and actual accounting judgements. The letter also signals a forward-looking priority: the PRA has asked auditors for views on firms' processes for identifying and monitoring credit risks in private market exposures, particularly given challenges around aggregating exposures and obtaining timely, reliable data on complex, leveraged, and correlated risks. The PRA described this as work to support wider cross-firm supervisory analysis rather than a current finding. The PRA's September 2026 Regulatory Digest, published on 1 October 2026, confirmed that aggregate ECL coverage across major UK deposit-takers is at its lowest level since before the Covid-19 pandemic.