EIOPA Re-Consults on New Amendments to Standards on Mapping of ECAIs

By Regulatory News

June 07, 2019

Solvency II

EIOPA is re-consulting on the new amendments to the implementing technical standards on the mapping of External Credit Assessment Institutions (ECAIs) for credit risk. In October 2018, ESAs had launched a consultation to amend the Implementing Regulations on the mapping of credit assessments of ECAIs. The amendments were necessary to reflect the outcomes of a monitoring exercise on the adequacy of existing mappings, namely changes to the Credit Quality Steps (CQS) allocation for two ECAIs and the introduction of new credit rating scales for ten ECAIs. This re-consultation is required for the new amendments linked with Solvency II. The consultation period ends on July 10, 2019.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

Related Links

Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

The re-consultation by EIOPA is required for the following two reasons:

The approach chosen in October 2018 for the respondents to share their views related to the amendments linked with Solvency Capital Requirement was not fully functional.
References to the Capital Requirement Regulation (CRR) and elements in the mapping table required an update to take into account the latest assessments.

These draft implementing technical standards specify the allocations that should be used for determining the credit risk for the purpose of calculating the Solvency Capital Requirement with the standard formula. Solvency II allows the use of external credit assessments of ECAIs for purpose of calculating technical provisions and the Solvency Capital Requirement. This provision represents an element of risk-sensitivity and prudential soundness of the credit risk rules. Under the Solvency II Delegated Regulation, external credit assessments can only be used by insurance and reinsurance undertakings if they have been issued or endorsed by an ECAI in accordance with the CRA Regulation.

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Comment Due Date: July 10, 2019

Keywords: Europe, EU, Insurance, Securities, Solvency II, ECAI, Credit Risk, Standardized Approach, CRA, CRA Regulation, ESAs, EIOPA

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EIOPA Re-Consults on New Amendments to Standards on Mapping of ECAIs

By Regulatory News

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