15 February 2016

EBA publishes final draft ITS on the mapping of ECAIs credit assessments for securitisation positions

These Implementing Technical Standards (ITS)  specify the correspondence or ‘mapping' between credit ratings and credit quality steps that shall determine the allocation of appropriate risk weights to credit ratings issued by External Credit Assessment Institutions' (ECAIs) on securitisations where the Standardised Approach (SA) or the Internal Ratings Based Approach (IRB) for securitisations are used.

Following its consultation process, the European Banking Authority (EBA) received feedback from a number of market participants who were generally positive with the proposals and raised no material objections. The Authority made minor amendments to these ITS incorporating such feedback received.

In the short-term, these ITS maintain the current mapping in place for all ECAIs. The mapping is supported by the outcome of an impact analysis as well as by qualitative considerations. The EBA is also considering developing a securitisation-specific systematic mapping methodology mainly based on the historical performance of securitisation ratings. However, the EBA deems that some caution is needed, for the time being, due to a number of factors, including the representativeness of the data used and the ongoing review of the regulatory framework for capital requirements on securitisations at both the international and EU levels. It is however the intention of the EBA to review the standards at a later stage, with a view of relying on a higher degree of quantitative information.

In view of the challenges that a mapping based on the historical performance of securitisation ratings would pose, these ITS do not exempt investors from their obligation to perform appropriate due diligence with regard to securitisation positions. When investing in a securitisation position, investors should always take into account historical performance of similar tranches and consider the rating performance of the different asset classes, some of which contributed to very high levels of defaults, contrary to rating agencies statistical expectations. 

Furthermore, these ITS include a proposal to review the mapping of securitisation ratings, especially where default of securitisation positions are observed and to regularly monitor the performance of issued securitisation ratings by assessing the appropriateness of the mapping for any particular ECAI.

Press release

Final draft ITS on ECAI_mapping for securitisation positions

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