EBA outlines roadmap to strengthen the monitoring of ECAIs

18 July 2017

The European Banking Authority (EBA) published today its future work plan on credit assessments issued by External Credit Assessment Institutions (ECAIs). Besides its ongoing work on the mapping of ECAIs' credit assessments, the EBA plans to strengthen the monitoring and quality of such mapping used for the determination of capital requirements, which may be calculated based on the relevant credit assessments produced by the current 25 credit rating agencies (30 in the future).  
The EBA's future work on ECAIs will focus on the following: 
  • Mapping and decision on unsolicited ratings for newly registered or certified ECAIs as well as assessment of ECAIs originally issuing only solicited ratings and subsequently assigning unsolicited ratings;
  • Monitoring the ECAIs' mappings;
  • Monitoring unsolicited credit assessments of ECAIs covered in the EBA Decision on unsolicited credit assessments 
The EBA intends to carry out its work on ECAIs following a step by step approach. The first phase of the work plan, which focuses on the production of mappings and the treatment of unsolicited credit assessments for newly registered or certified ECAIs, is ongoing.  
The second phase, which focuses on the monitoring of existing mappings, has started and will continue over time to ensure that the underlying credit assessments continue to reflect and predict the risks of rated exposures in a consistent manner across rating agencies. Under the umbrella of the Joint Committee, the three European Supervisory Authorities (ESAs) will engage with ECAIs in due course, in particular to gather information on developments registered by ECAIs since their mappings were produced. 

Background information

The Standardised Approach (SA) in the credit risk framework determines the risk weights and thereby capital requirements based on, among other things, the credit quality assessed by ECAIs. In order to ensure a comparable approach across ECAIs, the Joint Committee of the ESAs, led by the EBA, specifies for all ECAIs the correspondence between the relevant credit assessments issued by an ECAI and the Credit Quality Steps set out in the Capital Requirements Regulation (CRR), the so called  ‘mapping'. 
The Commission adopted on 7 October 2016 the Implementing Regulation (EU) 2016/1799 laying down Implementing Technical Standards (ITS) with regard to the mapping (‘the Implementing Regulation'). The Implementing Regulation specified the elements to characterise the degree of risk expressed by a credit assessment of an ECAI (quantitative and qualitative factors) and the levels of risk that should be used to characterise each credit quality step (benchmarks). It also provided mapping tables for 26 ECAIs, which covered all the Credit Rating Agencies (CRAs) registered or certified in accordance with Regulation (EC) No 1060/2009 (CRA Regulation') at the time the ESAs started preparing the draft ITS.
On 17 May 2016 the EBA published the Decision on the Use of Unsolicited Credit Assessments (EBA/DC/2016/151, ‘the Decision'), together with a report providing the underlying analysis. On 22 July 2016, the Decision was published on the Official Journal of the European Union (2016/C 266/05).