2014年-EBA欧洲银行管理局_JC-CP-2013-02_28Mechanistic_References_to_Credit_Ratings29_32页_413kb

Summary of EBA, EIOPA and ESMA Joint Consultation Paper

(JC-CP-2013-02)

Core Content

This consultation paper, issued by the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA) on 7 November 2013, aims to gather public feedback on the revision and removal of references to credit ratings in their guidelines and recommendations. The objective is to align with the new 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, recommendations, and draft technical standards where such references could lead to sole or mechanistic reliance on credit ratings by competent authorities and financial institutions.

Main Points

1. Definition of "Sole or Mechanistic Reliance"

• The term is not formally defined in current regulations.
• The ESAs propose the following definition:
  There is sole or mechanistic reliance on credit ratings when an action or omission is the consequence of any type of rule solely based on credit ratings, without any additional discretion.

2. Scope of Consultation

• The consultation covers all guidelines and recommendations issued by the ESAs and their predecessors (CEBS, CEIOPS, CESR) since January 2011.
• It also includes provisions from the Solvency II Directive and other relevant legal frameworks.

3. Purpose of the Consultation

• To identify and revise provisions that may lead to sole or mechanistic reliance on credit ratings.
• To reduce the dependence on external credit ratings in regulatory frameworks, thereby promoting more robust and diversified risk assessment methods.

Key Information

1. Current Provisions with Rating References

• The ESAs have identified a number of existing guidelines and recommendations that contain references to credit ratings. These are categorized into those that do not constitute sole or mechanistic reliance and those that do.
• The consultation paper includes a non-exhaustive list of examples, including:
  • EBA: Guidelines on stress testing, risk management, operational risk, and internal governance.
  • EIOPA: Draft Solvency II implementing measures.
  • ESMA: EMIR and prospectus-related guidelines.

2. Proposed Revisions

• Under CRD IV, there is a push to reduce reliance on external ratings by:
  • Encouraging banks to develop internal credit risk assessment capabilities.
  • Requiring supervisors to monitor whether institutions rely solely or mechanistically on credit ratings.
  • Allowing institutions to apply stricter risk weights than those specified in the Standardised Approach.
  • Introducing a biannual report by EBA on the use of external ratings in legislation and supervisory practices.

3. Standardised Approach and Credit Quality Steps (CQS)

• The Standardised Approach (SA) is used by banks to calculate capital requirements based on external credit ratings.
• The Credit Quality Steps (CQS) are a simplified framework used to categorize credit risk, with six steps for general credit exposures and five for securitisation.
• A mapping table links external credit ratings to CQS, which is determined by EIOPA based on the work of the Joint Committee.
• The mapping process considers both quantitative (e.g., historical default rates) and qualitative (e.g., definitions of default, methodologies, treatment of new ECAIs) factors.

4. Concerns with Mechanistic Reliance

• The cliff effect in Solvency II could lead to sudden capital requirements changes due to small rating downgrades.
• The use of external ratings to determine capital charges in the spread risk module could be seen as mechanistic, unless mitigating factors such as internal assessments are applied.

Proposed Actions

• The ESAs will review all current references to credit ratings and remove or revise them if they could lead to sole or mechanistic reliance.
• The final report, incorporating public feedback, will be adopted by the Joint Committee by the end of 2013 and then ratified by the Board of Supervisors.
• The consultation closes on 5 December 2013, and all responses will be published unless confidentiality is requested.

Annexes Overview

• Annex I: List of consultation questions.
• Annex II: Draft Impact Assessment on reducing sole or mechanistic reliance on credit ratings.
• Annex III: References to credit ratings in the Solvency II Directive.
• Annex IV: Recap of draft guidelines and recommendations.

Conclusion

The consultation paper highlights the need to move away from sole or mechanistic reliance on external credit ratings in financial regulation. It outlines the current regulatory framework, identifies areas of concern, and proposes a series of actions to reduce dependence on ratings. The ESAs seek to ensure that financial institutions and supervisors use more robust, diversified, and flexible methods for assessing credit risk, while maintaining consistency across jurisdictions.