Entire Section
PIB 4.11 PIB 4.11 Credit Quality Grade and External Credit Assessments
PIB 4.11 Guidance
This section governs credit assessments of
Exposures for the purpose of determining the CRW forCredit Risk (CR)Exposures as provided in PIB Rule 4.8.3 and for securitisation (SE)Exposures as provided in PIB Rule 4.8.4.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.1
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Authorised Firm must assign aCR Exposure to aCredit Quality Grade based on the external credit assessment that is applicable to theCR Exposure in accordance with tables mapping the ratings from anECAI toCredit Quality Grades , which will be published by theDFSA .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.2
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Authorised Firm must only use an external credit assessment which is accessible to the public. AnAuthorised Firm may not use a credit assessment that is made available only to the parties to a transaction.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.3
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Authorised Firm must only use external credit assessments by a recognisedECAI . TheDFSA may impose conditions on the use of such external credit assessments.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.4 PIB 4.11.4
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Authorised Firm must use its chosen recognised external credit rating agencies and their external credit assessments consistently for each type ofExposure , for both risk weighting and risk management purposes. Where anAuthorised Firm has two external credit assessments which map into differentCredit Quality Grades , it must assign theCR Exposure to theCredit Quality Grade associated with the higher risk weight. Where anAuthorised Firm has three or more external credit assessments which map into two or more differentCredit Quality Grades , it must assign theCR Exposure to theCredit Quality Grade associated with the higher of the two lowest risk weights.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.4 Guidance
For illustration, if there are three external credit assessments mapping into
Credit Quality Grades with risk weights of 0%, 20% and 50%, then the applicable risk weight is 20%. If the external credit assessments map intoCredit Quality Grades with risk weights of 20%, 50% and 50%, then the applicable risk weight is 50%.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.5
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Authorised Firm must not recognise the effects ofCredit Risk mitigation if such mitigation is al reflected in the issue-specific external credit assessment of theCR Exposure .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.6
Where a
CR Exposure has an issue-specific external credit assessment from a recognisedECAI , anAuthorised Firm must use such assessment. Where aCR Exposure does not have an issue-specific external credit assessment, anAuthorised Firm must:(a) if there is an issue-specific external credit assessment for anotherExposure to the same obligor, use the issue-specific assessment for the otherExposure only if theExposure without an issue-specific assessment ranks pari passu with or is senior to theExposure with the issue-specific assessment;(b) if the obligor has anIssuer external credit assessment, use theIssuer assessment of the obligor only if theExposure without an issue-specific assessment ranks pari passu with or is senior to any unsecured claim that is not subordinated to any other claim on the obligor; or(c) in all other cases, apply a risk weight equal to the higher of the risk weight that is applicable to an unratedExposure and the risk weight associated with the external credit assessment, if any, of the obligor or anotherExposure to the same obligor.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.7
Where a
CR Exposure is risk-weighted in accordance with PIB Rule 4.11.6(a) or (b), anAuthorised Firm may use a domestic currency external credit assessment only if theCR Exposure is denominated in that domestic currency.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.8
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Authorised Firm may use an external credit assessment to risk weight aCR Exposure only if the external credit assessment has taken into account and reflects the entire amount ofCredit Risk Exposure theAuthorised Firm has with regard to all payments owed to it.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 4.11.9
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Authorised Firm must not use unsolicited external credit assessments to assign anyCR Exposure to aCredit Quality Grade , unless:(a) it has assessed the quality of the unsolicited external credit assessments that it intends to use and is satisfied that these are comparable in performance with solicited external credit assessments and maintains relevant records and documents to be made available to theDFSA upon request; and(b) it uses unsolicited external credit assessments consistently for each type ofExposures , for both risk weighting and risk management purposes.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]