Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (Text with EEA relevance) (c. 36)

TITLE VII U.K. PRUDENTIAL SUPERVISION

CHAPTER 2 U.K. Review Processes

Section II U.K. Arrangements, processes and mechanisms of institutions

Sub-Section 2 U.K. Technical criteria concerning the organisation and treatment of risks

Article 79 U.K. Credit and counterparty risk

Competent authorities shall ensure that:

(a)

credit-granting is based on sound and well-defined criteria and that the process for approving, amending, renewing, and re-financing credits is clearly established;

(b)

institutions have internal methodologies that enable them to assess the credit risk of exposures to individual obligors, securities or securitisation positions and credit risk at the portfolio level. In particular, internal methodologies shall not rely solely or mechanistically on external credit ratings. Where own funds requirements are based on a rating by an External Credit Assessment Institution (ECAI) or based on the fact that an exposure is unrated, this shall not exempt institutions from additionally considering other relevant information for assessing their allocation of internal capital;

(c)

the ongoing administration and monitoring of the various credit risk-bearing portfolios and exposures of institutions, including for identifying and managing problem credits and for making adequate value adjustments and provisions, is operated through effective systems;

(d)

diversification of credit portfolios is adequate given an institution's target markets and overall credit strategy.