Sub-Section 5

All material aspects of the rating and estimation processes shall be approved by the institution's management body or a designated committee thereof and senior management. These parties shall possess a general understanding of the rating systems of the institution and detailed comprehension of its associated management reports. Senior management shall be subject to the following requirements: they shall provide notice to the management body or a designated committee thereof of material changes or exceptions from established policies that will materially impact the operations of the institution's rating systems; they shall have a good understanding of the rating systems designs and operations; they shall ensure, on an ongoing basis that the rating systems are operating properly. Senior management shall be regularly informed by the credit risk control units about the performance of the rating process, areas needing improvement, and the status of efforts to improve previously identified deficiencies. Internal ratings-based analysis of the institution's credit risk profile shall be an essential part of the management reporting to these parties. Reporting shall include at least risk profile by grade, migration across grades, estimation of the relevant parameters per grade, and comparison of realised default rates, and to the extent that own estimates are used of realised LGDs and realised conversion factors against expectations and stress-test results. Reporting frequencies shall depend on the significance and type of information and the level of the recipient. The credit risk control unit shall be independent from the personnel and management functions responsible for originating or renewing exposures and report directly to senior management. The unit shall be responsible for the design or selection, implementation, oversight and performance of the rating systems. It shall regularly produce and analyse reports on the output of the rating systems. The areas of responsibility for the credit risk control unit or units shall include: testing and monitoring grades and pools; production and analysis of summary reports from the institution's rating systems; implementing procedures to verify that grade and pool definitions are consistently applied across departments and geographic areas; reviewing and documenting any changes to the rating process, including the reasons for the changes; reviewing the rating criteria to evaluate if they remain predictive of risk. Changes to the rating process, criteria or individual rating parameters shall be documented and retained; active participation in the design or selection, implementation and validation of models used in the rating process; oversight and supervision of models used in the rating process; ongoing review and alterations to models used in the rating process. Institutions using pooled data in accordance with Article 179(2) may outsource the following tasks: production of information relevant to testing and monitoring grades and pools; production of summary reports from the institution's rating systems; production of information relevant to review of the rating criteria to evaluate if they remain predictive of risk; documentation of changes to the rating process, criteria or individual rating parameters; production of information relevant to ongoing review and alterations to models used in the rating process. Institutions making use of paragraph 3 shall ensure that the competent authorities have access to all relevant information from the third party that is necessary for examining compliance with the requirements and that the competent authorities may perform on-site examinations to the same extent as within the institution. Internal audit or another comparable independent auditing unit shall review at least annually the institution's rating systems and its operations, including the operations of the credit function and the estimation of PDs, LGDs, ELs and conversion factors. Areas of review shall include adherence to all applicable requirements.

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Source: EUR-Lex (Cellar) · retrieved 2026-09-25 · Text as adopted (Official Journal); later amendments are not incorporated in this text.