Response to consultation Paper on ITS on Mapping of ECAIs Credit Assessments
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We think that same level of supervisory judgment should be applied to the SA mapping:
- The vast majority of CRAs have not the track record to undergone the mapping process based on historical default evidence (requiring amongst others 12 years of rating information)
- Would allow consistency in approach in all market segments (both in terms of types of exposures and types of users of ratings)
- Reduces complexity
- Correspond to the requirements of the Article 136 specifically calling for a framework for new, small CRAs
- Creates a level playing field for all ECAIs and thereby contributes to more competition in the rating market
The above comparison shows that two different standards/approaches are being used in the SF and SA mappings.
While consistency between CRR SA mapping and Solvency II mapping was explicitly a target, this is not the case for the SF mapping. To our understanding, the Solvency II mapping also covers securitizations. Therefore 2 different mappings for SF ratings of non-systemic ECAIs under CRR and Solvency II exist: while a AAA rating would map into CQS 1 under CRR, the same transaction would map into CQS 2 under Solvency II. Insurances will be disadvantaged compared to CRR and would most potentially not buy the asset. Insurances would not nominate small CRAs as ECAIs for the calculation of risk factors.
While CRAs may qualify an asset as Structured Finance, banks need to assign exposures according to the definitions of the CRR. Having two different mappings for non-systemic ECAIs additionally increases complexity.
From a more general perspective, the different treatment of non-systemic ECAIs under the SA and SF mapping creates a two-tier system of ECAIs: those having received the “traditional” mapping across all asset classes and users of ratings and the other ECAIs. This will substantially impact on the non-systemic ECAIs and creates a long-term supervisory barrier to more competition in the CRA market.
Q2: Do you agree with the proposed approach to the mapping of securitisation ratings issued by small/more recent ECAIs?
Similar to the SF mapping of the dominant 3 ECAIs, the approach to the mapping of the other ECAIs is based on a qualitative process. As historical rating data are not taken into account, the lack of a high number of ratings does not constrain these ECAIs mappings. The SF mapping is purely based the existence of a specific rating methodology and the meaning of the rating scales. We welcome this approach as it centers on the rating methodologies as a basis for assigning credit ratings.We think that same level of supervisory judgment should be applied to the SA mapping:
- The vast majority of CRAs have not the track record to undergone the mapping process based on historical default evidence (requiring amongst others 12 years of rating information)
- Would allow consistency in approach in all market segments (both in terms of types of exposures and types of users of ratings)
- Reduces complexity
- Correspond to the requirements of the Article 136 specifically calling for a framework for new, small CRAs
- Creates a level playing field for all ECAIs and thereby contributes to more competition in the rating market
Q3: Do you see any adverse market implications/conceptual drawbacks arising from potentially inconsistent mappings being applied to any given ECAI across the standardised approach for credit risk (mapping under Article 136 of the CRR) and the securitisation framework (mapping under Article 270 of the CRR)?
In the attached file, we provide a comparative table of the mapping approaches taken.The above comparison shows that two different standards/approaches are being used in the SF and SA mappings.
While consistency between CRR SA mapping and Solvency II mapping was explicitly a target, this is not the case for the SF mapping. To our understanding, the Solvency II mapping also covers securitizations. Therefore 2 different mappings for SF ratings of non-systemic ECAIs under CRR and Solvency II exist: while a AAA rating would map into CQS 1 under CRR, the same transaction would map into CQS 2 under Solvency II. Insurances will be disadvantaged compared to CRR and would most potentially not buy the asset. Insurances would not nominate small CRAs as ECAIs for the calculation of risk factors.
While CRAs may qualify an asset as Structured Finance, banks need to assign exposures according to the definitions of the CRR. Having two different mappings for non-systemic ECAIs additionally increases complexity.
From a more general perspective, the different treatment of non-systemic ECAIs under the SA and SF mapping creates a two-tier system of ECAIs: those having received the “traditional” mapping across all asset classes and users of ratings and the other ECAIs. This will substantially impact on the non-systemic ECAIs and creates a long-term supervisory barrier to more competition in the CRA market.
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