On May 17, 2016, the European Banking Authority published a Decision permitting the use of unsolicited credit assessments of certain External Credit Assessment Institutions for calculating firm capital requirements. The Decision aims to harmonize regulation related to the use of solicited and unsolicited credit assessments across the European Union. Under the Capital Requirements Regulation, unsolicited credit assessments of an ECAI can be used to determine the risk weights to be assigned to assets and off-balance sheet items subject to confirmation from the EBA that the unsolicited assessment does not differ in quality from the solicited assessment of that same ECAI. The EBA is required to refuse or revoke this confirmation if the ECAI has used an unsolicited assessment to put pressure on the rated entity to place an order for credit assessment or other services. The Decision confirms that the quality of the unsolicited credit assessments of the ECAIs set out in the annex to the Decision does not differ from the quality of the solicited credit assessments of those ECAIs.
The EBA published a report providing quantitative and qualitative analysis of both solicited and unsolicited credit assessments of ECAIs. The evidence contained in the report formed the basis of the Decision. The analysis did not identify any difference in the quality of unsolicited and solicited credits ratings for a given ECAI. Also, no evidence in the analysis suggested any use of unsolicited ratings by ECAIs had put pressure on rated entities to place an order for a credit assessment or other services. The Decision will enter into force 20 days from publication in the Official Journal of the European Union.
The EBA decision is available at: http://www.eba.europa.eu/documents/10180/1466166/EBA-DC-2016- 151+Decision+on+the+Use+of+Unsolicited+Credit+Assessments.pdf and the EBA Report is available at: http://www.eba.europa.eu/documents/10180/1466166/EBA+Report+on+Unsolicited+Credit+Assessments+%28Article +138+CRR%29.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.