EC Regulation Updates Mapping of ECAI Rating Factors Under Solvency II
EC published the Implementing Regulation 2020/744, which amends the Implementing Regulation 2016/1800 that lays down implementing technical standards with regard to the allocation of credit assessments of external credit assessment institutions (ECAIs) to an objective scale of credit quality steps in accordance with the Solvency II Directive. The regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
The Annex to the finalized Regulation 2020/744 updates an Annex for Regulation 2016/1800, which is the regulation being amended. The Annex specifies the correspondence of the relevant credit assessments issued by an ECAI to the credit quality steps set out in Section 2 of Chapter I of Title I of the Delegated Regulation 2015/35 ("External credit assessments"). Following the latest amendments, by the Implementing Regulation 2018/633 to the Annex to Implementing Regulation 2016/1800, the quantitative and qualitative factors underpinning the credit assessments of some mappings in the Annex to the Implementing Regulation 2016/1800 have changed. In addition, some ECAIs have extended their credit assessments to new market segments, resulting in new rating scales and new credit rating types. It is, therefore, necessary to update the mappings of the ECAIs concerned.
Since the adoption of Implementing Regulation 2018/633, another credit rating agency has been registered in accordance with the EC Regulation No 1060/2009. In accordance with the Solvency II Directive, the allocation of credit assessments of ECAIs to an objective scale of credit quality steps for the purposes of the calculation of the solvency capital requirement needs to be consistent with the use of external credit assessments of ECAIs in the calculation of the capital requirements for credit institutions and financial institutions, as defined in the Capital Requirements Regulation or CRR. As Article 136(1) of the CRR requires the specification of mappings for all ECAIs, it is necessary to provide a mapping for that newly registered ECAI. The credit assessments applied by the newly registered ECAI are based on the same methodology as those applied by its parent company, a third-country ECAI for which a mapping had already been established. It is, therefore, appropriate in this specific case that the mapping for the newly registered ECAI mirrors the mapping established for that third-country ECAI.
Regulation 2020/744 is based on the draft implementing technical standards submitted by ESAs (EBA, ESMA, and EIOPA) to EC. ESAs have conducted open public consultations on the draft implementing technical standards on which this regulation is based, analyzed the potential related costs and benefits and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of the EU Regulation No 1093/2010; the opinion of the Securities and Markets Stakeholder Group established in accordance with Article 37 of the EU Regulation No 1095/2010; and the opinion of the Insurance and Reinsurance Stakeholder Group established in accordance with Article 37 of the EU Regulation No 1094/2010.
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Keywords: Europe, EU, Banking, Insurance, Securities, Credit Risk, Solvency II, CRR, Regulatory Capital, ECAIS, Credit Ratings, Credit Quality Steps, Credit Assessments, Regulation 2020/744, EC
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