European Banking Authority Proposes Revised Technical Standards on the Mapping of External Credit Ratings

by Shearman & Sterling LLP
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Shearman & Sterling LLP

The Joint Committee of the European Supervisory Authorities has published a final report setting out revised draft Implementing Technical Standards for the assessment of credit quality under the Capital Requirements Regulation. Under the CRR, firms that use the Standardised Approach to credit risk (rather than the internal ratings based approaches or internal models) can use external credit assessments to determine the credit quality of exposures. Credit quality can be determined by reference to the credit assessments of External Credit Assessment Institutions. The corresponding risk weight to which an exposure's credit quality should be mapped to establish the credit risk of that exposure is set out in an Implementing Regulation published in October 2016. ECAIs are defined as credit rating agencies registered or certified in accordance with the Credit Rating Agency Regulation or any central banks issuing ratings that are exempt from the application of the CRA Regulation.

The ESAs' proposals make amendments to Annex III of the Implementing Regulation to reflect the fact that there have been some changes to the ECAI population. Since the Implementing Regulation entered into force, five additional ECAIs have been recognized and one ECAI has been de-registered. The revised draft ITS therefore amend Annex III of the Implementing Regulation to include mappings for the five newly established ECAIs and to remove the mapping for the deregistered entity. The mappings for the 25 ECAIs comprising the remainder of the ECAI population are unchanged.

The revised draft ITS have been submitted to the European Commission for endorsement, following which they will be published in the Official Journal of the European Union. The ITS will enter into force 20 days after publication.

Revised draft ITS have also been published to reflect the equivalent change under the Solvency II legislation for insurance and reinsurance business.

View final draft ITS under the CRR.

View final draft ITS under Solvency II.

View press release.

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