The Joint Committee of the European Supervisory Authorities (consisting of the European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority) have published a Consultation Paper on draft implementing technical standards (ITS) on the mapping of the credit assessments to risk weights of external credit assessment institutions (ECAIs) under Article 136(1) and (3) of the Capital Requirements Regulation (CRR).

The CRR establishes that risk weights under the standardised approach should be based on, among other things, the credit quality of the exposure, which is calculated on the basis of credit assessments provided by ECAIs, as defined under Article 4(98) of the CRR. The draft ITS on which the Joint Committee is consulting specify the elements that should be taken into consideration to determine the correspondence (that is, mapping) between risk weights and credit assessments provided by a particular ECAI.

This mapping has to be provided for all ECAIs, including any credit rating agency (CRA) that is registered or certified in accordance with the CRA Regulation or a central bank issuing credit ratings that are exempt from the application of the CRA Regulation. Various elements have been taken into account in the mapping process, including:

  • establishing specific requirements for the calculation to the default rate, to improve the objectivity and consistency of the mappings;
  • considering the default experience from other sources, including external ratings of other ECAIs or credit scores produced by the ECAIs themselves; and
  • requiring that, where neither internal nor external default data are available, an estimate of the quantitative factor is required, based on the assessment provided by the ECAIs and taking into account the prudential purpose of the CRR.

The deadline for responding to the Consultation Paper is 5 May 2014. The Consultation Paper notes that during the consultation process an addendum will be issued by the Joint Committee which will contain the individual mapping tables of all ECAIs. This will serve as Annex III to the draft ITS.

The EBA is expected to submit the draft ITS to the European Commission by 1 July 2014.

View Consultation Paper: Draft implementing technical standards on the mapping of ECAIs’ credit assessments under Article 136(1) and (3) of Regulation (EU) No 575/2013 (Capital Requirements Regulation—CRR), 5 February 2014