in force 2025-01-01 MODIFIED+580 −0§
Amended by Regulation (EU) 2024/1623 32024R1623 · Regulation (EU) 2024/2987 32024R2987 · Regulation (EU) 2024/2795 32024R2795
applies from: unchanged
A new paragraph 3 has been added requiring institutions to use a time horizon longer than one year when assigning ratings, describing an obligor rating as representing the institution's assessment of the obligor's ability and willingness to perform despite adverse conditions or unexpected events.
The added paragraph also states that rating systems shall be designed so that idiosyncratic changes, and industry-specific changes where material, drive migrations between grades or pools, and that business cycle effects may also be a driver of such migrations.
Paragraphs 1 and 2 remain unchanged from the earlier version of the article.
Cited: Art. 171, v2 · Art. 171, v1
text before / after
02013R0575-20240709 → 02013R0575-20250101
Article 171 Assignment to grades or pools 1. An institution shall have specific definitions, processes and criteria for assigning exposures to grades or pools within a rating system that comply with the following requirements: (a) the grade or pool definitions and criteria shall be sufficiently detailed to allow those charged with assigning ratings to consistently assign obligors or facilities posing similar risk to the same grade or pool. This consistency shall exist across lines of business, departments and geographic locations; (b) the documentation of the rating process shall allow third parties to understand the assignments of exposures to grades or pools, to replicate grade and pool assignments and to evaluate the appropriateness of the assignments to a grade or a pool; (c) the criteria shall also be consistent with the institution's internal lending standards and its policies for handling troubled obligors and facilities. 2. An institution shall take all relevant information into account in assigning obligors and facilities to grades or pools. Information shall be current and shall enable the institution to forecast the future performance of the exposure. The less information an institution has, the more conservative shall be its assignments of exposures to obligor and facility grades or pools. If an institution uses an external rating as a primary factor determining an internal rating assignment, the institution shall ensure that it considers other relevant information.3. Institutions shall use a time horizon longer than one year in assigning ratings. An obligor rating shall represent the institution’s assessment of the obligor’s ability and willingness to contractually perform despite adverse economic conditions or the occurrence of unexpected events. Rating systems shall be designed in such a way that idiosyncratic changes and, where they are material drivers of risk for the type of exposure, industry-specific changes are a driver of migrations from one grade or pool to another. Business cycle effects may also be a driver of migrations.