EBA欧洲银行-JC-CP-2013-02-28Mechanistic-References-to-Credit-Ratings29_32页_416kb

Summary of EBA, EIOPA and ESMA Joint Consultation Paper on Mechanistic References to Credit Ratings

Core Content

This consultation paper by the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA) addresses the issue of mechanistic or sole reliance on credit ratings in their guidelines and recommendations. The paper is in response to Article 5b(1) of the Credit Rating Agencies (CRA) Regulation, as amended by the CRA3 Regulation, which prohibits the ESAs from referring to credit ratings in their guidelines if such references could lead to sole or mechanistic reliance by competent authorities, sectoral competent authorities, or financial market participants.

The objective is to gather public input on the proposed revision and removal of such references, with the aim of ensuring that the use of credit ratings is not the sole basis for regulatory decisions. The consultation is open until 5 December 2013, and all responses will be published unless confidentially requested.

Main Points and Key Information

Definition of "Sole or Mechanistic Reliance"

• Definition: Sole or mechanistic reliance on credit ratings is when an action or omission is solely based on credit ratings or credit rating outlooks without any additional discretion.
• Context: This definition is based on the understanding reached during the CRA3 Regulation negotiations but has not been formally included in current regulation.
• Question: The ESAs are seeking feedback on whether this definition is acceptable.

Scope of the Consultation

• The consultation covers guidelines and recommendations from EBA, EIOPA, and ESMA, including those from their predecessor committees (CEBS, CEIOPS, CESR).
• The review includes all guidelines and recommendations adopted since January 2011, as well as those still in force from the predecessor committees.

Examples of Rating References

• The paper provides examples of provisions that may involve rating references, illustrating the concept of sole or mechanistic reliance.

Guidelines and Recommendations Not Considered Mechanistic

• Several guidelines and recommendations are listed that do not constitute sole or mechanistic reliance, and thus are not subject to amendment:
  • EBA: Guidelines on stress testing, risk management, operational risk mitigation, internal governance, and credit valuation adjustment risk.
  • EIOPA: No current guidelines with rating references.
  • ESMA: EMIR and prospectus guidelines do not reference credit ratings directly.

Guidelines and Recommendations Considered Mechanistic

• The Standardised Approach (SA) for credit risk is identified as potentially involving mechanistic reliance due to the use of credit quality steps (CQS) based on external ratings.
• The CRD IV introduces additional tools to reduce reliance on external ratings, such as:
  • Encouraging institutions to develop internal credit risk assessment capabilities.
  • Monitoring to ensure institutions do not solely rely on external ratings.
  • Requiring the EBA to publish biannual reports on the use of external ratings and supervisory convergence.
• Institutions may apply higher risk weights than those required by the SA, or use internal models for particularly high-risk exposures, thus reducing mechanistic reliance.

Impact Assessment

• Annex II provides a draft impact assessment on the reduction of sole or mechanistic reliance on credit ratings, discussing the potential effects on financial markets and the need for a more flexible and resilient framework.

References to Credit Ratings in the Solvency II Directive

• Annex III lists references to credit ratings in the Solvency II Directive, including the use of ratings in solvency capital requirement calculations and spread risk modules.

Next Steps

• The ESAs will consider all responses received and expect to adopt a final report by the end of 2013, which will include final guidelines on the use of credit ratings.
• The final report will be ratified by the Board of Supervisors of the three ESAs.

Conclusion

This consultation paper aims to modernise the regulatory framework by reducing the potential for sole or mechanistic reliance on credit ratings. It outlines the current regulatory stance, provides a definition of the term, and highlights specific provisions that may be subject to revision. The ESAs are seeking public feedback to refine their approach, ensuring that regulatory guidance is consistent, transparent, and less reliant on external ratings.