The European Banking Authority (EBA) has published final draft Implementing Technical Standards (ITS) on the mapping of External Credit Assessment Institutions’ (ECAIs) credit assessments for securitisation positions.
The final draft ITS specify the mapping between credit ratings and credit quality steps that shall determine the allocation of appropriate risk weights’ to ECAIs’ credit ratings issued on securitisations where the Standardised Approach (SA) or the Internal Ratings Based Approach (IRB) for securitisation are used.
The EBA has considered laying down a securitisation–specific systematic mapping methodology mainly based on the historical performance of securitisation ratings. The following elements have been considered to support the proposed qualitative approach to the mappings, including:
- available data on ratings’ historical performance are strongly driven by the crisis performance on very specific securitisation sub-asset classes;
- available data on ratings’ historical performance are not sufficiently representative of current ratings’ credit quality;
- a disproportionate impact, in terms of regulatory capital costs of holding outstanding securitisation positions, would result from worsening the currently applicable mappings; and
- a review of the regulatory framework for capital requirements in under way, which is expected to enter into force in the coming years.
However, the EBA deems that some caution is needed, for the time being, due to a number of factors including the representativeness of the data used and the ongoing review of the regulatory framework for capital requirements on securitisations at both the international and EU levels.
In view of challenges that mapping based on the historical performance of securitisation ratings would pose, these ITS do not exempt investors from their obligation to perform appropriate due diligence with regards to securitisation positions.
Furthermore, these ITS include a proposal to review the mapping of securitisation ratings, , especially where default of securitisation positions are observed and to regularly monitor the performance of issued securitisation ratings by assessing the appropriateness of the mapping for any particular ECAI.