PART 2U.K.Recognition of ECAIs and mapping of their credit assessments
1.METHODOLOGYU.K.
1.1.ObjectivityU.K.
1.Competent authorities shall verify that the methodology for assigning credit assessments is rigorous, systematic, continuous and subject to validation based on historical experience.U.K.
1.2.IndependenceU.K.
2.Competent authorities shall verify that the methodology is free from external political influences or constraints, and from economic pressures that may influence the credit assessment.U.K.
3.Independence of the ECAI's methodology shall be assessed by competent authorities according to factors such as the following:U.K.
ownership and organisation structure of the ECAI;
financial resources of the ECAI;
staffing and expertise of the ECAI; and
corporate governance of the ECAI.
1.3.Ongoing reviewU.K.
4.Competent authorities shall verify that ECAI's credit assessments are subject to ongoing review and shall be responsive to changes in the financial conditions. Such review shall take place after all significant events and at least annually.U.K.
5.Before any recognition, competent authorities shall verify that the assessment methodology for each market segment is established according to standards such as the following:U.K.
the back-testing must be established for at least one year;
the regularity of the review process by the ECAI must be monitored by the competent authorities; and
the competent authorities must be able to receive from the ECAI the extent of its contacts with the senior management of the entities which it rates.
6.Competent authorities shall take the necessary measures to be promptly informed by ECAIs of any material changes in the methodology they use for assigning credit assessments.U.K.
1.4.Transparency and disclosureU.K.
7.Competent authorities shall take the necessary measures to assure that the principles of the methodology employed by the ECAI for the formulation of its credit assessments are publicly available as to allow all potential users to decide whether they are derived in a reasonable way.U.K.
2.INDIVIDUAL CREDIT ASSESSMENTSU.K.
2.1.Credibility and market acceptanceU.K.
8.Competent authorities shall verify that ECAIs' individual credit assessments are recognised in the market as credible and reliable by the users of such credit assessments.U.K.
9.Credibility shall be assessed by competent authorities according to factors such as the following:U.K.
market share of the ECAI;
revenues generated by the ECAI, and more in general financial resources of the ECAI;
whether there is any pricing on the basis of the rating; and
at least two credit institutions use the ECAI's individual credit assessment for bond issuing and/or assessing credit risks.