The European Securities and Markets Authority (ESMA) has published a discussion paper on the validation and review of credit rating agencies’ (CRAs) methodologies.

The discussion paper requests views on how CRAs should demonstrate rating methodologies’ ‘discriminatory power’, ‘historical robustness’, ‘predictive power’ or, where there is limited quantitative evidence, that the methodologies are ‘sensible predictors of credit worthiness’. In addition, the discussion paper asks how CRAs should meet the requirement in both Articles 7 and 8 of a Commission Delegated Regulation on rating methodologies that the CRAs shall have ‘processes in place to ensure that systemic credit rating anomalies highlighted by back-testing are identified and are appropriately addressed’.

The deadline for comments on the discussion paper is 19 February 2016. ESMA will hold an open hearing on 25 January 2016.

View ESMA consults on the validation and review of CRAs’ methodologies, 17 November 2015