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Policy Statement 1/2013 Guidelines on the recognition of External Credit Assessment Institutions (ECAIs)

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Click herehere to view Appendix — External Credit Assessment Institutions (ECAI's) recognized under the PIB module for the purposes of section 4.11 in PDF format.

Guidelines on the recognition of External Credit Assessment Institutions (ECAIs)

1. The PIBRules in PIB Section 4.11 and PIB 4.12 require Authorised Firms to use external credit ratings issued by External Credit Assessment Institutions (ECAIs), to determine the risk weight of their exposures, provided the ECAIs that produce those ratings have been recognised as eligible for that purpose by the DFSA.
2. The DFSA will grant this recognition only if it assesses an ECAI to meet the recognition criteria laid down in these guidelines. Where an ECAI is registered as a credit rating agency (CRA) in accordance with relevant DFSARules, the DFSA will consider the requirements of objectivity, independence, ongoing review and transparency with respect to its assessment methodology to be satisfied for the purposes of this recognition.
3. The recognition of any ECAI by the DFSA, for the purposes of relevant PIB rules as referred above, does not in any way constitute a form of regulation of ECAIs or a form of licensing of rating agencies to do business in or from the DIFC. Its sole purpose is to provide a basis for capital requirement calculations in the PIBRules.
4. This guideline sets out the DFSA's approach to the recognition of eligible ECAIs. This covers:
•  The recognition process,
•  The recognition criteria, and
•  The criteria for 'mapping' external credit ratings of each of the recognised ECAIs to the Credit Quality Grades (CQG) referred in the PIB rules.
5. The guidelines set out the agreed procedures for the application and assessment process. The DFSA intends to employ two modes of supervisory recognition for ECAIs: direct and indirect recognition. In direct recognition, the DFSA will make its own evaluation of an ECAI's compliance with the recognition criteria detailed under these regulations. In indirect recognition, the DFSA will recognise an ECAI based on its recognition by another jurisdiction with equivalent standards, without carrying out their own evaluation process.
6. The DFSA propose to carry out an overall assessment of an ECAI applying for recognition according to stated recognition criteria. The technical criteria laid out in part 2 of these guidelines, address the concepts of objectivity, independence, ongoing review and transparency.

Background

7. A recognised ECAI is a credit rating agency, other than an Export Credit Agency, that has been assessed and determined by the DFSA as being eligible for recognition under these guidelines. An Authorised Firm must use only the credit ratings issued by a recognised ECAI, apart from cases where the PIBRules allow the use of credit ratings or credit assessment scores from Export Credit Agencies, for the purposes of determining CRWs under the PIBRules.
8. A Registered Credit Rating Agency, registered under relevant DFSARules is also required to apply for, and obtain, the recognition by the DFSA for use of its credit ratings for purposes referred in the PIBRules. All applications from ECAIs for recognition must be supported by reasonable evidence that the credit ratings will be used for regulatory capital purposes under the PIB rules.
9. As part of the recognition process, the DFSA will seek an adequate level and amount of information from every applicant, required for their assessment. Upon receiving the required information, the DFSA will assess the information provided by the applicant for recognition in accordance with the recognition criteria laid out in these guidelines. The purpose of the recognition criteria is to identify ECAIs that produce external credit ratings of sufficiently high quality, consistency and robustness to be used by Authorised Firms for regulatory capital purposes under the PIBRules. The DFSA will publish and maintain a list of all recognised ECAIs at any point in time.
10. Subsequent to the recognition of an ECAI for the purposes of its use under the PIBRules, the DFSA will publish the 'mapping' of its ratings to the Credit Quality Grades referred in the PIBRules. The determination of this mapping will be achieved through an objective and consistent process, and based on both qualitative and quantitative factors. The process followed by the DFSA for determining the mapping is entirely based on the guidance from BCBS, set out in Annex 2 of the Basel II framework published in June 2004. The process incorporates the use of three-year cumulative default rates together with qualitative analysis and appropriate flexibility of supervisory response.
11. The DFSA will carry out a separate mapping of credit ratings for securitisation positions, using both quantitative and qualitative factors, including quantitative factors such as default and loss rates, and qualitative factors such as the methodologies adopted by ECAIs, the range of transactions assessed, and whether market participants view ECAIs' ratings of securitisation products as being equivalent.
12. The guidelines adopt a customised approach to the use of the credit ratings of Collective Investment Funds (CIFs) in the PIBRules, in order to cover the wide variety of funds in the market. As per the guidelines, in order to be recognised for use under the PIBRules, a CIF credit rating must depend primarily on the credit quality of the underlying assets of the CIF. Credit ratings of CIF will be mapped using these guidelines and will not be subject to a separate mapping approach.
13. These guidelines are structured in four parts and an annex:
•  Part 1 describes the process for recognition of an ECAI and the process by which the DFSA will handle applications for recognition from ECAIs;
•  Part 2 sets out the criteria for assessing whether an ECAI qualifies for recognition for the purposes of using its rating under the PIBRules;
•  Part 3 describes the process for determining the mapping of the credit ratings of recognised ECAIs to Credit Quality Grades referred in the PIBRules. This section also addresses specific issues relating to the mapping of credit ratings for short-term instruments and the credit ratings for securitisation positions and CIFs.
•  Part 4 provides clarification on the use of credit ratings from Export Credit Agencies for regulatory capital purposes in accordance with the PIB rules.
•  Annex I lists the information requirements required as part of the application for recognition of ECAIs.

Part 1: The recognition process

General principles

14. The recognition of an ECAI by the DFSA is restricted to the purpose of qualifying its ratings for use under the PIBRules and should not be taken as indicating suitability for any other purpose, including but not limited to eligibility for registration as a CRA under relevant regulations of the DFSA.
15. The DFSA will accept applications for recognition from ECAIs seeking recognition or from Authorised Firms that intend to use the ECAI's credit ratings for use under the PIBRules. In cases where the application is received from an ECAI, the DFSA will seek confirmation that at least one Authorised Firm intends to use the ECAI's credit ratings for risk-weighting purposes. This could be achieved by including in the application the name of at least one Authorised Firm that proposes or intends to use the ECAI's credit ratings, supported by reasonable evidence of its intention to do so. This will ensure that the DFSA will need to consider applications only from ECAIs whose credit ratings would actually be used under the PIBRules. An Authorised Firm must not apply for recognition on behalf of, or use the credit ratings for the purposes of the PIBRules, from an ECAI which is its subsidiary or is connected to the Authorised Firm.
16. The DFSA will seek all material information it requires to assess whether an ECAI meets the eligibility criteria listed in these regulations. Consequently, irrespective of who makes the application, the recognition process will require the full cooperation of the ECAI, in terms of its willingness and promptness in providing necessary information. The recognition process and the criteria for determining eligibility for recognition apply equally to ECAIs which are registered under the regulation on CRAs.
17. As explained in Part 2 below, an ECAI's application for recognition will be assessed separately for recognition in each of three main market segments: public sector entities, commercial entities (including corporates and financial institutions), and structured finance (including securitisation). Applications must indicate in which market segment recognition is being sought by the applicant, and whether recognition is being sought for use of credit ratings for the risk weighting of securitisation positions.
18. All applications should be supported by comprehensive, transparent, and appropriately concise documentation, as indicated below. When applications are made by Authorised Firms that intend to use an ECAI's credit ratings, it is recommended that the ECAIs ensure provision of all relevant and material information required for the purpose of ECAI recognition, to the DFSA.
19. The recognition of an ECAI may be sought at the group level or at the subsidiary level. The key factor considered by the DFSA in providing recognition at the group or at the subsidiary level, will be whether a given credit rating is assessed as representing the same opinion on the credit quality of a given rated entity, regardless of the level of ECAI at which the credit rating is issued.
20. If an ECAI group can demonstrate that each of the subsidiaries for which it seeks recognition adheres to practices and procedures that are set at a group-wide level, then it will not be required to make separate applications for each subsidiary. However, separate applications will be required if subsidiaries use credit assessment processes, methodologies, and rating benchmarks that are materially different from those of the group. This approach recognises the organisation of certain crossborder ECAIs, which apply the same 'core' credit assessment methodology consistently throughout the group. The assessment will reflect the comparability of credit ratings undertaken in different countries, regardless of the legal structure of the ECAI group and notwithstanding the fact that the process of assigning credit ratings may involve credit analysts and rating committees located in a wide range of geographical locations. However, the DFSA will not permit 'group-level' applications to include 'affiliates' or joint ventures.
21. The DFSA intends to employ two major approaches for recognition of ECAIs:
-   direct recognition, in which the DFSA will carry out its own assessment of the ECAI's compliance with the eligibility criteria as set out in this document; and
-   Indirect recognition, in which the DFSA will rely on the recognition of the ECAI in another jurisdiction with equivalent standards without carrying out its own direct recognition process.
22. The DFSA believes that much of the information called for in the application pack will already be available in ECAIs' existing documentation, and that they should therefore be able to provide concise answers. However, some additional information may be needed, in particular concerning default data and other quantitative tools on which ECAIs base their opinion of the creditworthiness of an entity.

Disclosure by the DFSA

23. The DFSA will disclose the name of each recognised ECAI along with the mapping that the DFSA has established between the ECAI's credit ratings and the Credit Quality Grades referred in PIBRules. The disclosure will also include information on the market segments (where applicable) for which recognition has been provided and the mapping for each of those segments.

On-going review of eligibility

24. To ensure that the credit ratings used by Authorised Firms in calculating their capital requirements remain of sufficiently high quality, the DFSA will assess the continued eligibility of the recognised ECAIs on the basis of the stated eligibility criteria. The ongoing ratings of recognised ECAIs will be limited to ensuring that they continue to meet the criteria that led to their initial recognition.
25. The DFSA may withdraw the recognition of any ECAI that fails to comply with the stated eligibility criteria for recognition.

Part 2: ECAI recognition criteria

Section 1 General principles

26. The DFSA will recognise an ECAI as eligible for the purposes of using its credit ratings under the PIBRules only if it is satisfied that its assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency, and that the resulting credit ratings meet the requirements of credibility and transparency.
27. The main purpose of the recognition criteria is to enable the DFSA to identify ECAIs that produce credit ratings of sufficiently high quality, consistency and robustness so that they can be used by Authorised Firms for determining their regulatory capital requirements under the PIBRules. The DFSA will assess whether an ECAI has adequate processes and procedures in place to ensure that its credit ratings meet the standards stated above.
28. In determining the eligibility of an ECAI for recognition, the DFSA will take into account the technical criteria set out in Section 2 of this part.
29. The DFSA will recognise an ECAI as eligible for the purposes of calculating the risk-weighted assets of a securitisation position, only if it is satisfied that the ECAI has complied with the requirements laid down in these guidelines, taking into account the technical criteria set out in section 2 of this part, and that the ECAI has demonstrated ability in the area of securitisation which may be evidenced by a strong market acceptance. In addition, the credit ratings shall comply with the principles of credibility and transparency.
30. The DFSA will treat all ECAIs equally in assessing their eligibility for recognition. However, given the different business models adopted by individual ECAIs, the DFSA may need to take a differentiated approach to assessing how an ECAI satisfies the stated recognition criteria. Accordingly, the DFSA may place different weights on the various criteria for different ECAIs, if this serves the ultimate objective of establishing whether an ECAI's methodology and credit ratings are appropriate for use in the PIBRules. The DFSA will also take into consideration the ability of the ECAI to produce robust credit ratings, based on quantitative methods and a proven track record. The DFSA will also take account of market indications of the ECAI's standing. For example, strong market acceptance and the existence of a long track record may be viewed as indications that the market has a favourable opinion of the ECAI's methodology and credit ratings. As indicated in paragraphs 26 to 29, the relevant threshold for eligibility is that the ratings are recognised as credible and reliable by market participants and users of ratings.
31. In addition, the extent to which an ECAI adheres to a code of conduct which is in line with market standards or to internationally recognised principles such as the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies, may contribute to satisfying the DFSA that the ECAI conforms to specific eligibility criteria like, the independence criterion. This could reduce the amount of analysis that the DFSA need to undertake in order to verify the ECAI's eligibility in these areas.

Section 2 The technical criteria

Objectivity

32. Core Criterion: The DFSA will verify that the methodology for assigning credit ratings is rigorous, systematic, continuous, and subject to validation based on historical experience.
33. This criterion aims to ensure that an ECAI's credit rating methodology produces an informed and wellfounded opinion on the creditworthiness of the rated entities, and that its credit ratings are based on all information deemed relevant and available at the time they are issued.
34. In order to meet this criterion, an ECAI will need to demonstrate that its methodology incorporates factors known to be relevant in determining an entity's creditworthiness. This demonstration should, to the fullest extent possible, be supported by statistical evidence that the methodology has produced accurate credit ratings in the past.
35. The ECAI must also implement and follow procedures which ensure that its pre-defined credit rating methodology is applied consistently in the formulation of all credit ratings in a given asset class, such that two identical entities would receive equivalent credit ratings, and different analysts or rating committees within the ECAI would assign equivalent credit rating to any given entity.
36. Some ECAIs do not have a single credit rating. This is to some extent evidenced by their publication of numerous papers describing their credit rating methodologies for different asset classes (e.g. corporates versus financial institutions), for different sub-classes (e.g. real estate companies versus telecom companies) and for different geographical regions (e.g. European healthcare providers versus US healthcare providers).
37. However, ECAIs appear to apply a similar 'core' credit rating methodology within broad asset classes or market segments. The same factors are identified as significant in determining a credit rating for all entities within the broad asset class, although different emphasis may be put on the importance of individual factors when assessing different companies within that broad asset class.
38. In defining broad asset classes and/or market segments, it is not necessary for the core rating factors to be evaluated in an identical and mechanical way for all entities within a group. Indeed, it is expected that an ECAI will place different emphasis on the importance of individual rating factors when assessing different companies and/or markets, and will take such differences into account. It is critically important that the same core rating factors are always considered, to some extent, when assessing an entity within the given asset class and/or market segments.
39. An ECAI may seek recognition for use of its ratings related to a broad asset class or market segment. In such cases, the relevant asset class or market segment will form the basis of the ECAI recognition process with separate assessment of the ECAI's rating methodology for that particular broad asset class or market segment. This is not intended to prevent ECAIs from seeking recognition for a methodology which is more specifically focused, e.g. on retail Asset Backed Securities.
40. When assessing an ECAI's methodology in any of these broad asset classes or market segments, the DFSA will avoid making a direct judgment as to whether an ECAI's methodology is objectively correct. The recognition of an ECAI should not be seen as an endorsement by the DFSA of any particular type of methodology.
41. The DFSA will focus on assessing whether the credit rating processes adopted by the ECAI produces credit ratings that embody a sufficient level of consistency and discrimination to provide the basis for determination of capital requirements under relevant PIBRules.
42. This assessment will focus on three factors:
(a) Quantitative evidence of the discriminatory power of the ECAI's credit rating methodology, using statistical techniques such as default studies and transition matrices to demonstrate the robustness and predictive power of its credit ratings over time and across different asset classes;
(b) The ECAI's demonstration that it has processes in place to identify and assess rating factors driving creditworthiness and to ensure that these rating factors are incorporated into the credit assessment methodology; and
(c) The ECAI's demonstration that it has procedures which ensure that its predefined methodology is applied consistently in the formulation of all credit ratings.
43. Where appropriate, the DFSA will use quantitative evidence of the consistency and predictive power of an ECAI's credit ratings as an indicator of the objectivity of its methodological processes. When ECAIs have a demonstrable track record of producing robust credit ratings using quantitative methods such as default or transition studies, the DFSA will recognise it as a good indication that its methodological processes are sufficiently objective for the purposes of the PIB rules.
44. In cases where there is less quantitative evidence to support the robustness of an ECAI's credit ratings, the DFSA will need to undertake a greater assessment of the ECAI's methodological process in order to satisfy itself that the ECAI's methodology meets the objectivity criterion. The DFSA will not undertake a detailed assessment of the exact methodology used by the ECAI, but will instead satisfy themselves that the credit rating factors used in the ECAI's methodology are sensible predictors of creditworthiness, and that the ECAI's internal procedures ensure that its pre-defined credit rating methodology is applied consistently in the formulation of all credit ratings within each broad asset class or market segment.
45. The DFSA will ensure that recognised ECAIs validate their methodologies based on historical experience. As indicated above, quantitative validation will need to be based on the ECAI's credit ratings rather than on the methodology itself. ECAIs should demonstrate that the methods they use in their quantitative assessment confirm the robustness, discriminatory power, and consistency of their credit ratings over time and across different market segments. In addition, ECAIs should demonstrate that procedures are in place to ensure that systematic rating errors highlighted by back-testing will be incorporated into credit rating methodologies and corrected.

Independence

46. Core Criterion: The DFSA will verify that the methodology is free from external political influences or constraints, and from economic pressures that may influence the credit rating.

Independence of the ECAI's methodology will be assessed by the DFSA on the basis of the following factors:
(a) ownership and organisation structure of the ECAI
(b) financial resources of the ECAI
(c) staffing and expertise of the ECAI
(d) corporate governance of the ECAI
47. This criterion serves to ensure that all credit ratings issued by ECAIs are independent and objective in all circumstances, including when conflicts of interest may arise. Conflicts of interest may arise as a result of external political or economic pressures. Examples include the following situations:
(a) The ECAI is owned by a government, trade association, or political body that has an interest in securing favourable credit ratings for its constituent entities.
(b) The ECAI is owned by a private company which could use its position to secure favourable credit ratings.
(c) The ECAI's financial position depends on revenue from key customers who could seek to leverage their position to secure favourable credit ratings.
(d) The ECAI provides ancillary services to rated entities or has other business relationships with them that could undermine the objectivity of its credit ratings.
(e) An ECAI employee is in a managing position in a rated entity.
(f) The ECAI's staff are compensated in a manner, or they have business relationships with the rated entities, that could lead to non-objective credit ratings.
48. An Authorised Firm will not be allowed to use for its own capital adequacy determination purposes, the credit ratings from an ECAI which is its subsidiary.
49. A recognised ECAI must have adequate procedures in place to ensure that their methodologies are free from political influences or constraints and from economic pressures that may influence the credit ratings. In order to satisfy the DFSA on this aspect, an ECAI will need to demonstrate:
(a) That it has adopted, monitored, and successfully applied internal procedures to ensure that all credit ratings are formulated in a consistent and objective manner, particularly in situations where conflicts of interest may arise and could threaten objectivity;
(b) That they have mechanisms in place to identify actual and potential conflicts of interest and take reasonable measures to prevent, manage and eliminate them, so that they do not impair the production of independent, objective, and high-quality credit ratings.
50. The DFSA considers that ECAIs are in the best position to design for themselves, internal procedures, fee policies, staff management practices, corporate governance rules, and internal codes of conduct that manage potential conflicts of interests and ensure that their credit assessment methodologies are free from political and economic influences. It should be demonstrated that ECAIs have adopted appropriate internal practices and procedures in this respect, and in particular in the following areas:
(a) A recognised ECAI must demonstrate that it has put in place, and apply, adequate safeguards to ensure its independence from ownership, and to prevent external pressure or constraints (either political or economic) from jeopardising the objectivity of the credit rating process.
(b) An ECAI must demonstrate that its organisational structure separates its credit rating business—(operationally, personally and potentially legally)—from any other business, such as consulting services, that undermine the objectivity of the credit ratings.
(c) An ECAI should demonstrate that it has adequate financial resources, and has adequate safeguards in place to ensure independence from key customers and issuers, and prevent nonobjective credit ratings.
(d) In terms of staffing and expertise, an ECAI should demonstrate that its staff has the levels of skills and experience necessary to perform the tasks required of them—for example, that at least one person involved in the rating decision-making process has at least three years of experience as a rating analyst or in a comparable function (e.g. as an analyst in a credit firm). The ECAI should also have enough resources to carry out consistent ratings and to have frequent contacts with the rated companies when this represents a necessary part of their methodology.
(e) A recognised ECAI should have an independent internal audit function or a function that plays the same role and carries out the same tasks.
(f) The integrity of the credit rating process should be ensured by adequate written internal procedures, corporate governance rules, fee policies, and, where relevant, an internal code of conduct.
(g) In order to promote independence through transparency and market scrutiny, an ECAI should consider disclosing situations where conflicts of interest have arisen or may potentially arise, and the mechanisms in place to identify, prevent, manage, and eliminate conflicts of interest.

On-going Review

51. Core Criterion: A recognised ECAI's credit ratings are subject to ongoing review and should be responsive to changes in financial conditions. Such reviews should take place after all significant events, and at least annually. Before any recognition, the DFSA will verify that the rating methodology for each market segment is established according to standards such as the following:
(a) The back testing must be established for at least one year.
(b) The regularity of the review process by the ECAI must be able to be monitored by the DFSA.
(c) The DFSA must be able to receive from the ECAI the extent of its contact with the senior management of the entities which it rates.
52. A recognised ECAI must promptly inform the DFSA about any material changes in the methodology they use for assigning credit ratings.
53. The purpose of the ongoing review criterion is to ensure that the ECAI's external credit ratings remain appropriate over different periods of time and through changes in market conditions. The terms 'changes in financial conditions' or 'significant events are linked and they both refer to any event (financial or otherwise) that is large enough to potentially or actually change the credit rating assigned by an ECAI to an entity.
54. The DFSA will not undertake any on-going review of the credit ratings of the ECAI. The DFSA will instead verify that ECAIs have procedures in place to ensure that their credit ratings remain appropriate over different time periods and market conditions. In particular, the DFSA will require ECAIs to demonstrate that they have processes in place that:
(a) Reliably detect changes in conditions facing a rated entity that are large enough to potentially change its assignment to a credit rating category, and
(b) Ensure that a credit rating is indeed revised when the change in operating conditions is large enough to warrant a revision.
55. A recognised ECAI should demonstrate that it reviews each credit rating at least annually (regardless of whether a review has already been undertaken in response to a significant change in financial conditions). The ECAI should provide a detailed summary on how these reviews are conducted, including the extent of contacts with the senior management of the rated entity.
56. A recognised ECAI must satisfy adequate back-testing requirements for achieving recognition. One year of back-testing has been deemed necessary to fulfil the criterion "subject to validation based on historical experience." ECAIs will therefore be required to demonstrate and certify that their back-testing has been in place for at least one year.
57. The term 'back-testing' means an analysis of 'outcomes' vis-à-vis rated entities/issues designed to assess the performance' (e.g. the discriminatory power) of the credit ratings. Back-testing is thus synonymous with the 'validation based on historical experience'. For the sake of consistency, back-testing should be undertaken for each of the 'market segments' for which an ECAI is seeking recognition.
58. The requirement for ECAIs to inform the DFSA of material changes in their credit rating methodology is intended to enable the DFSA to assess whether the methodologies continue to meet the stated criteria on an on-going basis after initial recognition has been granted. The DFSA requires ECAIs to inform them immediately of any significant event that would change their performance on any criteria upon which initial recognition was granted. This should be construed to mean any change in methodology that could change a significant proportion of credit ratings in a given market segment.

Transparency and Disclosure

59. Core Criterion: The DFSA will take the necessary measures to assure that the principles of the methodology employed by the ECAI for the formulation of its credit ratings are publicly available as to allow all potential users to decide whether they are derived in a reasonable way.
60. A recognised ECAI should disclose the principles of their methodology to the public. This shall be an overall yet thorough description of their credit assessment methodologies, presented in a way that is easily understandable to potential users. For this purpose, a recognised ECAI should use appropriate methods of disclosure to ensure public access to the above-mentioned information. These methods could include display in the public area of the ECAIs' Internet website or free of charge distribution of written publications on request.

Section 3 Criteria in respect of Individual credit ratings

Credibility and Market Acceptance

61. Core Criterion: A recognised ECAI's individual credit ratings must be recognised in the market as credible and reliable by the users of such credit ratings. Credibility will be assessed by the DFSA according to following factors:
(a) market share of the ECAI;
(b) revenues generated by the ECAI, and in general financial resources of the ECAI;
(c) whether there is any pricing on the basis of the rating;
(d) in case at least two banks use the ECAI's individual credit rating for bond issuing and/or assessing credit risks;
(e) A credit rating issued by a recognised ECAI may be used for purposes of PIBRules only if the DFSA is satisfied that the ECAI has a demonstrated ability in the area of securitisation, which may be evidenced by a strong market acceptance.
62. For the purposes of this criterion, credibility and market acceptance shall be demonstrated for each market segment in which the ECAI applies for recognition. Evidence of widespread use by market participants indicates that market participants have a favourable opinion of the credibility and reliability of the ECAI's credit ratings. Evidence that a large number of Authorised Firms plan to use an ECAI's credit ratings for purposes of compliance with PIBRules will also be seen as an indication of market credibility for the purpose of their recognition. An additional factor for assessing credibility and market acceptance is the number of years of experience of the ECAI. In order to achieve a reliable level of market credibility and acceptance as a rating agency, an ECAI should have produced ratings for an appropriate period (greater than five years) so that widespread and lasting confidence in such ratings could have developed amongst market participants. This should ensure that the quality, consistency and robustness of ratings which Authorised Firms use for prudential purposes can be assessed by the market (and by the DFSA) by using at least some historical data on the performance of an ECAI's ratings.
63. However, less than five years' experience may be exceptionally deemed adequate in cases where the rating agency can provide a sufficiently broad database that enables market participants to assess the credibility and reliability of the rating agency's ratings. The fact that the market regards an ECAI's credit ratings as credible and reliable may provide the DFSA with a significant degree of confidence as to the appropriateness of the credit ratings as the basis for capital requirement calculations under the PIBRules. In the case of an ECAI applying for recognition with a lower degree of market standing or less than five years of experience in providing ratings, the DFSA will undertake a greater level of assessment before it satisfies itself about the recognition requirements.

Transparency and disclosure of individual credit ratings

64. Core Criterion: The individual credit ratings issued by a recognised ECAI should be accessible at equivalent terms at least to all Authorised Firms having a legitimate interest in these individual credit ratings.
65. Credit ratings of securitisation positions should also be available publicly to the market. Credit ratings are considered to be publicly available only if they have been published in a publicly available forum and they are included in the ECAI's transition matrix. Credit ratings that are made available only to a limited number of entities are not considered to be publicly available.
66. The transparency criterion is intended to create a level playing field by ensuring that all Authorised Firms 'having a legitimate interest' in credit ratings published by the recognised ECAI (public credit ratings), have equal and timely access to them.
67. For this purpose, Authorised Firms 'having a legitimate interest' are those Authorised Firms that need to use the ratings for complying with the PIBRules, and that intend to use the credit ratings of the respective ECAI for risk weighting purposes. ECAIs that wish to be recognised as eligible must make their public credit ratings accessible at least to all Authorised Firms fulfilling these criteria.
68. At equivalent terms' does not mean that every Authorised Firm must be provided access to the credit ratings on identical terms—and in particular, that there be no discrimination in terms of the pricing for access—but rather that under the same (economic) circumstances, there should be no undue (price) discrimination.
69. A recognised ECAI should not charge subscribers for access to their public credit ratings to ensure that a full list of their public credit ratings is available and updated whenever a new credit rating is issued or an old rating is revised. A recognised ECAI can meet this requirement by publishing a full list of its public credit ratings in the public section of its Internet website and to update the list whenever such a credit rating is newly issued or revised. The recognised ECAIs that permit only paying subscribers to access their credit ratings must ensure that the complete range of its public credit ratings is available to all subscribing Authorised Firms and that the list is updated as soon as such a credit assessment is newly issued or revised.

Part 3: Mapping

70. When determining which of the Credit Quality Grades the relevant credit ratings of an eligible ECAI are to be associated with, the DFSA will apply the technical criteria laid down in this part. Objectivity and consistency in mapping are necessary in order to ensure appropriate levels of capital under the PIBRules, a level playing field for Authorised Firms, and fairness of treatment for ECAIs.

Section 1 General Principles

71. The mapping process does not imply the imposition of additional eligibility requirements on ECAIs. For the purposes of benchmarking and monitoring ECAIs' credit ratings (other than for securitisation and structured transactions), the DFSA will follow the guidance provided in the Basel II framework published in June 2004.
72. The use of three-year Cumulative Default Rates (CDRs) evaluated over the longer term and on an ongoing basis, is considered to provide an appropriate measure of the predictive power of credit ratings in relation to creditworthiness.
73. Where significant amounts of quantitative data are available, they will form the central basis of the mapping process. However, the mapping process will also take into account qualitative factors which influence the comparability of the credit ratings' CDRs with the benchmark CDRs (e.g. differences in the definition of default, the methodology for calculating CDRs, etc.).
74. Where significant amounts of quantitative data are not available, the DFSA will form their judgement based on both whatever quantitative information is available and an assessment of the meaning of the ECAI's rating scale in comparison with the benchmark. In this situation, the DFSA may take into account the ECAI's own comparison. This judgement will use whatever quantitative information is available, but will be based mainly on a qualitative comparison, incorporating appropriate conservatism where uncertainty remains.
75. The DFSA will base its evaluation on the credit rating models, processes, and methodologies presented by the ECAIs, and will in no way seek to influence or change these models, processes, or methodologies. The granularity of the mapping process is not linked to the granularity of the methodology used by an ECAI. As long as an ECAI uses the same rating scale (i.e. the same interpretation of the different rating categories) for their broad asset classes, the mapping need not be conducted separately.
76. A recognised ECAI must communicate its default rates and the data related to the mapping of securitisation positions annually to the DFSA, in order to enable the DFSA to assess whether the mapping of credit ratings to Credit Quality Grades needs to be updated or changed.

Section 2 Credit ratings of exposures other than securitisation positions

77. The following paragraphs outline the quantitative and qualitative factors to be taken into consideration for the mapping process.

Quantitative factors

78. Quantitative data are the key to ensuring consistency between the credit ratings of different ECAIs and to differentiating between the relative degrees of risk expressed by each credit rating. The DFSA intends to use the long-term default rate associated with all items assigned the same credit rating, as relevant quantitative data. The DFSA may also compare default rates for each credit rating category of a specific recognised ECAI and compare them with a benchmark built on the basis on default rates experienced by other ECAIs on a population of issuers that the DFSA believes to present an equivalent level of credit risk.
79. The DFSA considers the work conducted to date by the Basel Committee on quantitative factors to be both relevant and appropriate, and proposes to adopt the benchmark and monitoring guidance set out in Annex 2 of the Basel II text. In this context, the key variable will be the "cumulative default rates" (CDRs) over a three-year period: that is, the sum of all defaults that have occurred in a given three-year period for all rated items belonging to the same bucket.
80. A recognised ECAI is required to provide the DFSA with two separate measures of CDRs: the ten-year average of the three-year CDR as an indicator of the long-term default experience of its credit ratings, and the two most recent three-year CDRs, where available. Using this data, the DFSA will compare the most recent ten-year average of the three-year CDR with the proposed long-run 'reference' three-year CDRs in Table 2 of Annex 2 of the Basel II text. Additionally, the DFSA will monitor the two most recent three-year CDRs and compare them with the two different CDR levels established in the Basel II text: the 'monitoring level' and the 'trigger level'. The DFSA will follow the methodology laid out in Annex 2 of the Basel II text to assess whether the ECAI's default rates are materially and systematically higher than these benchmarks. Based on this assessment, the DFSA will decide whether to assign a less favourable Credit Quality Grade. If the ECAI can demonstrate that higher observed or estimated CDRs are not due to weaker assessment standards or miscalculations, the DFSA may decide to leave the initial mapping unchanged.
81. For recently established ECAIs and those that have compiled only a short record of default data, the DFSA will ask the ECAI for its two most recent CDRs and a projection of the ten-year average of the three-year CDR, i.e. the value that the ECAI believes to be the long-term default rate associated with all items assigned the same credit rating.
82. The DFSA will review the assessment referred above, on the basis of the availability of data and the methodology used by the ECAI in question, comparing it with the methodology used to calculate the benchmark. Based on the consideration of such qualitative factors, the DFSA may then adjust the mapping of the ECAI accordingly. Where uncertainty remains, the DFSA may incorporate appropriate conservatism into the final mapping.

Qualitative factors

83. For ECAIs that adopt significantly different approaches, the DFSA may adjust its assessment of consistency of the default rates with benchmarks, on the basis of qualitative factors as set out below. The DFSA may consider qualitative factors such as the pool of issuers covered by the ECAI, the range of credit ratings that it assigns, the meaning of each credit rating, and the ECAI's definition of default.
84. Qualitative factors will play a crucial role in the mapping process in the following situations:
(a) When the ECAI uses methodologies (e.g. definition of default, etc.) similar to those used by the international entities upon which the Basel Committee constructed its benchmarks, the DFSA will use qualitative factors to adjust their quantitative assessment before finalising the mapping of each of the ECAI's credit ratings to Credit Quality Grades referred in the PIBRules.
(b) When the ECAI uses different methodologies, it will be required to provide its own assessment of whether and to what extent its methodology differs from that used to calculate the benchmarks specified in the Basel II text. This will help the DFSA to get a better understanding of the ECAI's credit rating in terms of the risk level associated with it. This may lead to the DFSA assigning similar CDR data to different Credit Quality Grades from those set out in the Basel text.
(c) In the case of recently established ECAIs and ECAIs that have compiled only a short record of default data, the DFSA will ask such ECAIs to demonstrate to what extent they believe that the default data they use are a long-term default rate. Qualitative factors would be particularly important in making that demonstration.
85. The DFSA will take into account in its assessment, the following qualitative variables:
(a) The definition of default. An ECAI using a more stringent definition of default than that used in the international benchmark will report more default events, meaning that CDRs could be overstated. The opposite situation could also occur in the case of an ECAI using a less stringent definition of default.
(b) The pool of issuers covered by the ECAI. ECAIs may use a static pool of issuers or adjust the pool periodically, for example for withdrawn credit ratings.
(c) The statistical significance of ECAIs' default rates. In particular, the number of rated issues should be sufficiently large to ensure the statistical significance of CDRs. Particular attention will be paid to situations where the ECAI is sectorally-focused or geographically specialised, or where the ECAI rates portfolios for which default data are very scarce.
(d) The meaning of the credit rating i.e. the substance of the opinion represented by a particular rating.
(e) The variable used to weight default events. Different variables, such as the number of issues, the currency value of exposures rated, or other characteristics, can be used to weight default events. The choice of variable may have an impact on the results.
(f) Geographic coverage: the use of regional or global data.
(g) Dynamic properties and characteristics of the rating system or methodology (a 'point-in-time' rating system or a 'through the cycle' system).
(h) The DFSA may consider the mapping on the basis of additional information and analysis provided by the ECAI.

Section 3 Credit ratings of securitisation positions

86. The mapping of credit ratings for securitisation issues and the mapping of credit ratings discussed above follow the same principles of objectivity and consistency. However, there are likely to be important differences. Securitisation transactions have unique characteristics, and the market is highly innovative and constantly evolving. Unlike the mapping of other ECAI credit assessments, the DFSA does not aim to establish a 'benchmark' for default rate comparison. The DFSA may consider "quantitative factors, such as default rates and loss rates and qualitative factors such as the range of transactions assessed by the ECAI and the meaning of the credit rating."
87. The DFSA will treat structured products as a single market segment for mapping purposes, and the mappings used for securitisation transactions will be those derived for all structured products. In mapping securitisation position credit ratings into the Credit Quality Grades defined under PIBRules, the DFSA will take into consideration quantitative factors and qualitative information, including those set out in the following paragraphs.

Quantitative factors

88. Quantitative factors will be a key consideration in mapping securitisation, as they are in mapping other credit ratings. The DFSA recognises that many potential ECAIs do not target quantitative outcomes for their ratings, seeking instead to achieve consistent rank ordinal ratings. Nonetheless, consideration of quantitative 'performance' studies of those ratings over time, in line with the Basel III benchmarks, is a key element in providing a mapping in a consistent and objective manner.
89. The DFSA will consider data relating to the default/impairment rates associated with different credit ratings. The DFSA is willing to consider the extent to which impairment rates can provide an appropriate proxy for the measurement of the 'performance' of securitisation credit ratings over time in the absence of more complete recovery rate data. The DFSA will also consider transition matrices when this provides additional useful information.
90. In comparing default/impairment rates, the DFSA will work with the ECAIs in question to seek to understand fully the definition of default/impairment on the basis of which they carry out their data analysis. It will be important for the DFSA to understand the ECAI's approach to this issue. In view of the long maturity of many securitisation transactions and the fact that contractual default/impairment may be tied to this long maturity, ECAIs may use varying definitions of default/impairment as alternatives to or proxies for contractual default. It is expected that most ECAIs will produce ratings performance data using a 'cohort' approach, which incorporates the effect of ratings migration in its analysis of ratings performance. While ECAIs may also produce data based on an 'original rating' analysis, the DFSA considers a 'cohort' approach is likely to be the most meaningful for the purposes of mapping securitisation ratings.
91. In considering quantitative factors, the DFSA will also consider the approach of the ECAI to aspects such as 'curing' (the subsequent repayment of missed payments) and withdrawn credit ratings, and how these affect the ECAI's ratings 'performance' studies.
92. 'Seasoning' is another factor that the DFSA will consider. In particular, given the possible difference between the loss-distribution curve for asset-backed securities as compared with corporate and other debt, the period over which rating performance is considered—e.g. three years versus five years—may be significant. Different ECAIs have different approaches to the meaning of their securitisation credit ratings. For example, some seek to produce a rating scale with respect to the loss that may be suffered by the tranche in question, while others base their rating scale on the likelihood of the tranche suffering first instance of impairment. Nonetheless, there seems to be a broad consensus that the question of loss is an important factor to be taken into consideration. At this stage in the development of the market, it seems likely that the amount of loss data available will continue to grow. The DFSA will seek to take into account the loss/recovery rate data that are available in relation to the different ECAIs ratings. It is expected that this data will improve in significance over time and that recovery rate studies will become an increasingly rich source of information.

Qualitative factors

93. The DFSA will take into account qualitative as well as quantitative factors into consideration in mapping securitisation credit ratings into Credit Quality Grades. The DFSA believes that this is likely to be an important aspect, particularly when quantitative data are less than conclusive. In assigning securitisation credit ratings, ECAIs often adopt a 'target rating' approach. That is, they indicate what is required in order for a particular tranche of a transaction to achieve a particular credit assessment level. This means that an ECAI's assignment methodology for ABS credit ratings can provide important insights in the mapping process. A notable feature in the development of the securitisation market over recent years has been the degree to which the market has been 'ratings-driven.' That is, the credit ratings assigned by ECAIs have played an important role in the structuring and marketing of transactions and in the provision of investor information.
94. In this context, the DFSA thinks that it will be highly relevant to consider the way in which market participants view the published credit ratings of different ECAIs. Accordingly, in mapping an ECAI's securitisation credit ratings to credit quality steps, the DFSA will take into account market information concerning the degree to which the published credit ratings of the ECAI in question are regarded as being similar in meaning, as an indicator of creditworthiness, to those of its peers. There is some evidence to indicate that market participants regard the published securitisation credit ratings of a number of relevant ECAIs as being in many respects equivalent. It is expected that studies on market information—e.g. credit spreads on securitisations rated by an ECAI as compared to its peers—will also become an increasingly rich source of information.

Section 4 Short-term credit ratings

95. The DFSA propose to base the mapping of short-term credit ratings on the mapping of long-term credit ratings explained above, and on the internal mapping of short-term to long-term credit ratings undertaken by the ECAI. Should any inconsistencies arise, the DFSA will seek to adjust the mapping accordingly.

Section 5 Credit Ratings of Collective Investment Funds (CIFs)

96. Exposures in the form of CIFs for which a credit rating by a nominated ECAI is available must be assigned a CRW in accordance with the mapping by the DFSA of the credit ratings of recognised ECAIs to the Credit Quality Grades referred in the PIB rules. For CIFs, however, ECAIs usually issue several ratings with distinct meanings (e.g. ratings of the asset quality of a fund, of the quality of the management of the fund, or of the volatility of the fund). It has therefore been deemed necessary to define which of the ratings of a CIF should be eligible for risk weighting purposes in the context of the PIBRules and how they should be mapped to the individual Credit Quality Grades.

Eligible ratings

97. In order to be eligible for the purposes of use under PIBRules, credit ratings for CIFs must fulfil the following criteria:
(a) The assessment of the credit quality of the CIF must depend primarily on the credit quality of the underlying assets.
(b) Where other factors have a significant influence on the assessment, the DFSA will consider the extent and nature of that influence in determining whether the rating remains a credit rating for these purposes and whether any adjustment to the mapping may be required.
(c) Only ratings for fixed-income CIFs should be eligible, since the PIB rules do not allow the use of credit ratings for other asset classes (e.g. equity).

Mapping

98. An assessment of the credit quality of a CIF which meets the criteria set out above can be mapped similarly to the other fundamental credit ratings of the respective ECAI. It is therefore not necessary to develop an alternative mapping approach for CIF ratings.

Part 4: Export Credit Agencies

99. Authorised Firms are allowed to use Export Credit Agency credit ratings to calculate the risk weight of their exposures to central governments and central banks, in addition to ECAI's credit ratings for some categories of exposures as per the PIB rules A4.12 under the Simplified Approach. PIB rules provide that the credit ratings of an Export Credit Agency can be used for calculating capital requirements if either of two conditions are met:
(a) The credit rating is a consensus risk score from an Export Credit Agency participating in the OECD Arrangement on Guidelines for Officially Supported Export Credits, or
(b) The Export Credit Agency publishes its credit ratings and, the Export Credit Agency subscribes to the OECD agreed methodology, and the credit rating is associated with one of the eight minimum export insurance premiums (MEIP) that the OECD agreed methodology establishes.
100. It has not been deemed necessary to set up a recognition process for Export Credit Agencies equivalent to the one required for ECAIs. The DFSA will simply ask the Authorised Firms that wish to use an Export Credit Agency's credit ratings to demonstrate that one of the above conditions is met. Thus, eligible credit ratings are either:
(a) Consensus risk scores from the OECD Arrangements, or
(b) Any credit ratings of participants in the OECD arrangements following the agreed methodology that are not consensus risk scores, regardless of whether the country in question has been assigned a consensus risk score.

Annex 1—Basic Application Pack

GENERAL INFORMATION

•  The type of application—to use ECAI credit ratings for determining capital requirements under PIBRules for credit exposures or for securitised exposures.
•  The market segments for which the applicant is seeking recognition.
•  The type of credit ratings provided: solicited or/and unsolicited, with a brief explanation of the rationale behind the policy.
•  The countries where the applicant is active.

Presentation of the ECAI

•  An overview of the legal structure of the ECAI and the group to which it belongs: ownership, major subsidiaries, ancillary or other services provided, etc. The information on ownership should include a list of shareholders that hold more than, for example, 10 percent of the ECAI's equity. This threshold may vary depending on the ownership structure of the ECAIs.
•  The total number of full-time employees.
•  The total number and percentage of revenues from major customers and/or subscribers (e.g. customers or subscribers accounting for 5% or more of total revenues. The threshold may vary depending on the ECAIs).
•  Financial information demonstrating the financial soundness of the ECAI: the ECAI's financial statements from the past three years and forecasts for the next three years where applicable; alternatively, letter of support from the parent entity.
•  Do you adhere to a code of conduct similar to market accepted standards or which is in line with internationally recognised principles?

Technical criteria

The applicant shall include in its application a description of the core rating process for each market segment or securitisation position and each geographical area in which it is seeking recognition. The applicant is not required to provide duplicate answers and information for this application pack, but will clearly indicate for each recognition criteria what differs from one area of recognition to another. The DFSA are interested only in information that is relevant to the market segments and/or securitisation positions for which the application is made.

METHODOLOGY

1. Objectivity

Question:

How do you ensure that the methodology used for assigning credit ratings is rigorous, systematic and subject to validation based on historical experience?

Minimum information required by the DFSA to verify that the criterion is met:
(a) A high-level description of the credit assessment methodology and processes and how the methodology is determined, implemented, and changed. This description shall include a description of processes in place to ensure the consistent application of the assessment methodologies across all credit ratings, in particular the role of rating committees and guidelines governing them, the extent of input from rated entities, the access to non-public information, etc.
(b) For each of the asset groupings within which a core methodology is applied consistently (for example, structured finance, public finance, or commercial entities, as mentioned above), a high-level description of quantitative inputs: key variables, data sources, assumptions and quantitative techniques used, extent of input from rated entities, etc.
(c) For each of the asset groupings within which a core methodology is applied consistently (for instance structured finance, public finance, commercial entities, as mentioned above), a high-level description of qualitative inputs in particular the scope of qualitative judgement e.g. regarding the strategy, business plans of the rated entities, etc.
(d) A summary by geographical area of the major differences in the core methodologies.
(e) A description of the methodology used to verify the accuracy, consistency, and discriminatory power of the rating systems, with details on the results and conclusions generated by such analysis.
2. Independence

Question:

How do you ensure that the methodology used is free from external political influences or constraints and from economic pressures that could influence the credit assessment?

Minimum information required by the DFSA to verify that the criterion is met:
(a) A description of the procedures aimed at ensuring fair and objective credit ratings: mechanisms to identify, prevent, manage and eliminate actual or potential conflicts of interest.
(b) A detailed description of the safeguards in place when shareholders, subsidiaries, or other entities belonging to the group are rated.
(c) Demonstration and self-certification of the existence of an internal audit function and/or that there are means to ensure that internal procedures are implemented effectively.
(d) Demonstration and self-certification that members of the rating teams and committees have appropriate and requisite skills—including quantitative expertise—and experience in credit rating, and that these skills are maintained or improved over time through adequate training programmes.
(e) A description of the main features of the ECAI's internal code of conduct.
(f) Demonstration and self-certification that the remuneration policy of the staff involved in credit assessment does not affect the production of independent and objective credit ratings: e.g. certification that analysts' remuneration is not tied to credit rating decisions, fees from issuers, or revenues from investors or subscribers.
(g) Details of the ECAI's fee policy.
(h) Self-certification that the staff involved in the credit rating process are not engaged in any business relationships with rated entities which could hinder the issuance of independent and high-quality credit ratings.
3. On-going review

Questions:
(a) Are your credit ratings subject to on-going review which is carried out at least annually and after all significant events?
(b) To what extent are your credit ratings responsive to changes in the financial conditions?
(c) Do you have procedures in place that ensure that the DFSA are promptly informed of material changes, and if so, what are they?
Minimum information required by the DFSA to verify that the criterion is met:
(a) General information on rating reviews: e.g. the process in place, main characteristics, scope, frequency, people/teams involved, means used, treatment, main phases of the monitoring process, data updates, information from rated entities taken into account, automatic warning systems, mechanisms that allow systematic errors in credit ratings to feedback into potential changes in ratings method, etc.
(b) A summary of the outcome of the reviews carried out
(c) Demonstration that a back-testing system is in place and has been up and running for at least one year.
(d) The extent of contacts with the senior management of the rated entities (this information is to be provided upon request of the DFSA).
4. Transparency and disclosure

Question:

How (by what means and in what language) and to whom do you disclose the principles of the methodology you use?

Minimum information required by the DFSA to verify that the criterion is met:
(a) A demonstration that the principles of the methodology employed by the ECAI for the formulation of its credit ratings are disclosed.
(b) Descriptions of the ways used to make methodologies publicly available, and of the terms of access to the credit ratings by all potential users.
(c) A description of transparency policy with regard to the types of credit assessment: solicited or unsolicited.

Individual Credit Ratings

5. Credibility and market acceptance

Question:

How could you prove your credibility and market acceptance?

Minimum information required by the DFSA to verify that the criterion is met:

Any evidence demonstrating market reliance on the credit ratings, such as market share, number of issuers, how long the ECAI has been active in the market, the revenues generated by the rating activities, or any other proof.
6. Transparency and disclosure Questions:
(a) How do you ensure that credit ratings are accessible at equivalent terms at least to all Authorised Firms having a legitimate interest in them?
(b) In particular, how do you ensure that credit ratings are accessible at equivalent terms to both domestic and non-domestic parties having a legitimate interest?
Minimum information to be provided to the DFSA to enable them to verify that the criterion is met:

A high-level description of the disclosure procedures in place.
7. Mapping

Minimum information required by the DFSA to perform the mapping the credit ratings of exposures other than securitisation positions:
(a) The definition of default.
(b) The CDR over a three-year period for each credit rating category (to be provided annually if the ECAI is recognised as eligible), at least the two most recent CDRs, if available.
(c) The ten-year average of the three-year CDR. If not available, an indication of the ECAI's expectation concerning the long term default rate.
(d) If a target probability of default is used, the target probability of default for each credit rating category.
(e) Description of the methodology to calculate the CDRs: selection of pool (static versus dynamic/adjusted), definition of default, aggregation of defaults (weighting mechanism).
(f) The statistical significance of the default rates.
(g) Dynamic characteristics of the rating methodology (point-in-time or through the cycle).
(h) The meaning of the credit rating categories.
(i) The range of credit ratings that the ECAI assigns.
(j) The time horizon of the credit rating.
(k) Transition matrices.
(l) Geographic coverage.
Minimum information required by the DFSA to perform the mapping of securitisation positions
(a) the definition of default/impairment on the basis of which the default/impairment rates are computed.
(b) Ratings' performance data, accompanied by an explanation of its main features (e.g. the reasons underlying the determination of the time horizon over which the study has been carried out and how curing and withdrawn credit ratings impact the rating performance studies; how seasoning is taken into account).
(c) loss/recovery data.
(d) Information referred to point 8 to 12 in the previous paragraph.
Additional information for CIFs
(a) Presentation of the CIF ratings considered as assessing primarily the credit quality of the underlying assets.
(b) Description of the factors and the extent to which they have been taken into account.
(c) Information referred to point 8 to 12 above.

Appendix — External Credit Assessment Institutions (ECAI's) recognized under the PIB module for the purposes of section 4.11

Long-term mapping

Credit Quality Step Fitch's
assessment
Moody's
assessment
S&P's
assessment
1 AAA to AA- Aaa to Aa3 AAA to AA-
2 A+ to A- A1 to A3 A+ to A-
3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB-
4 BB+ to BB- Ba1 to Ba3 BB+ to BB-
5 B+ to B- B1 to B3 B+ to B-
6 CCC+ and below Caa1 and below CCC+ and below

Short Term mapping process

Credit quality step Fitch Moody's S&P
1 F1+, F1 P-1 A-1+, A-1
2 F2 P-2 A-2
3 F3 P-3 A-3
4 Below F3 NP Below A-3

Long-term mapping for securitization Exposures as required under 4.14.31

Credit Quality Step Fitch's
assessment
Moody's
assessment
S&P's
assessment
1 AAA to AA- Aaa to Aa3 AAA to AA-
2 A+ to A- A1 to A3 A+ to A-
3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB-
4 BB+ to BB- Ba1 to Ba3 BB+ to BB-
5 B+ and below B1 and below B+ and below

Short Term mapping process for Securitization exposures

Credit quality step Fitch Moody's S&P
1 F1+, F1 P-1 A-1+, A-1
2 F2 P-2 A-2
3 F3 P-3 A-3
4 Below F3 NP Below A-3