29 June 2005
The Committee of European Banking Supervisors (CEBS) is today presenting for public consultation its guidelines for a common approach to the recognition of External Credit Assessment Institutions (ECAIs) under the proposed Capital Requirements Directive (CRD). The consultation period is three months.
The proposed CEBS guidelines are designed to promote consistent implementation of new EU legislation which seeks to make prudential capital requirements more risk-sensitive. Specifically, the legislation will allow institutions to use external credit ratings to determine the risk weights of their credit exposures, provided the entities in question have been recognised as eligible for these purposes by the supervisory authorities. This does not constitute a form of regulation or licensing of rating agencies to do business in Europe. Its sole purpose is to provide a basis for capital requirement calculations.
The Consultation Paper details the significant convergence that has been achieved among European supervisors over recent months on both procedural and substantive aspects of ECAI recognition. CEBS guidelines set out common procedures which aim at facilitating the recognition of both local and cross-border ECAIs. In addition CEBS has agreed on a common understanding of the criteria for recognition contained in the CRD. These guidelines also provide guidance for supervisors on mapping external credit assessments to the risk weights of the CRD.
CEBS believes that convergence in this area will benefit supervisors, institutions and ECAIs. The joint-assessment process and the common understanding proposed in relation to the substantive aspects of the recognition criteria set out in the guidelines will improve supervisory efficiency and help ensure a level playing field for institutions which will use external credit assessments in the Standardised Approach and in risk-weighting securitisation positions.
In developing these processes, CEBS has benefited from preliminary informal contacts with a number of market participants. CEBS has also taken into account the advice on credit rating agencies that the Committee of European Securities Regulators (CESR) submitted to the European Commission in March 2005. CEBS participated as an observer. The fluid cooperation between the two Committees has continued in order to ensure complementary approaches. CEBS' intention is to issue final guidelines by early 2006.