ESAs published two amended implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs). The amendments reflect the recognition of two new credit rating agencies (CRAs), the outcome of a monitoring exercise on the adequacy of existing mappings, and the deregistration of a number of CRAs. The revised draft implementing technical standards have been developed according to the Capital Requirements Regulation (CRR) and the Solvency II Directive. ESAs also published individual draft mapping reports illustrating how the methodology was applied to produce the amended mappings, in line with a mandate from the CRR.
The implementing technical standards have been amended to reflect the allocation of appropriate risk-weights to the newly established ECAIs and to remove the reference to the de-registered ECAIs. Furthermore, the amendments reflect the outcome of a monitoring exercise on the adequacy of the existing mappings, based on the additional quantitative and qualitative information collected after the original Implementing Regulation entered into force. The details of the key amendments are as follows:
- Introduction of mappings for the two newly established ECAIs (Nordic Credit Rating A.S. and INBONIS S.A.)
- Removal, from the mapping tables, of CRAs that have lost ECAI status following their de‐registration as a CRA under the CRA Regulation
- Reflection of name change of a registered entity
- Amendments due to the re‐allocation of credit quality steps for two ECAIs
- Introduction of new credit rating scales for nine ECAIs
Additionally, ICAP S.A., an ECAI that was already captured by the monitoring exercise through the introduction of a new rating scale implemented changes in its rating scales following the closure of the consultation period. The changes relate to the denomination of the rating categories, to align with international practice. The number of rating categories, their definition, underlying risk profile, and related methodology remain unchanged. ESAs agreed to address the mapping for proportionality reasons, considering this relates strictly to a change in the symbols used to denote the mapped rating categories. Individual mapping reports have been also published on the EBA website, including for those ECAIs that expanded to additional standardized approach exposure classes or credit assessment types within their existing structure of credit rating scales: BCRA‐Credit Rating Agency AD, Capital Intelligence Ratings Ltd, Kroll Bond Rating Agency Europe Limited, Moody’s Investors Service, and Scope Ratings GmbH.
These revised implementing technical standards are part of the EU Single Rulebook for banking and insurance and are aimed at creating a safe and sound regulatory framework that is consistently applicable across EU. The implementing technical standards are intended to ensure that only credit ratings issued by ECAIs—that is, the credit rating agencies registered under Regulation (EC) No 1060/2009 or central banks issuing credit ratings exempt from the application of the same regulation—can be used to calculate capital requirements of financial institutions and insurance undertakings. To this end, ESAs have specified this approach that establishes the correspondence or mapping between credit assessments and the credit quality steps defined in the EU prudential regulation for banking (CRR) and insurance (Solvency II Directive).
Keywords: Europe, EU, Banking, Insurance, CRR, Solvency II, ECAI, Credit Rating Agencies, Implementing Technical Standards, Credit Risk, Standardized Approach, Basel, Regulatory Capital, ESAs
Previous ArticleEC Publishes Regulation on Key Aspects of Implementation of SA-CCR
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.