Acceptance of credit rating agencies as external credit assessment institutions under the Eurosystem credit assessment framework
Some questions and answers
The Eurosystem credit assessment framework (ECAF) defines the procedures, rules and techniques which ensure that the Eurosystem’s requirement for high credit standards is met for all eligible assets. The details of the ECAF have been published in Title V of Guideline of the ECB of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (recast) (ECB/2014/60) (hereafter referred to as the “General Documentation”).
The ECAF builds on credit assessment information from three sources, with external credit assessment institutions (ECAIs) being one of them. ECAIs refer to credit rating agencies (CRAs) that issue and/or endorse credit assessments about entities and debt instruments in the form of credit ratings. The general acceptance criteria for the use of ECAIs within ECAF are set out in Article 120 and Annexes IXa and IXc of the General Documentation.
To what extent do ratings of assets and issuers which are not rated by any of the ECAF-accepted ECAI count towards the ratings coverage?
In the calculation of the minimum coverage of a candidate ECAI, the Eurosystem also includes relevant credit ratings provided for assets that are not eligible for monetary policy operations because of the lack of a rating from ECAF-accepted ECAIs (see Point 2(3) in Annex IXa to the GD). In practical terms, however, the coverage assessment may take longer if these ratings are included since the assets’ general eligibility has not been assessed yet.
Does the Eurosystem accept retrospective ratings, i.e. ratings that are retrospectively generated, to determine the (historical) coverage?
No, the Eurosystem only accepts ratings that were actually issued or endorsed by the ECAI in accordance with the CRA Regulation at the relevant point in time and that were compliant with all Eurosystem requirements at that time.
How is the compliance of ratings with the ECAF disclosure requirements taken into account for the calculation of the coverage?
Only those ratings that meet all ECAF requirements count towards the compliance with the coverage requirements. For ABS and covered bond ratings only those ratings which are compliant with the ECAF disclosure requirements for these asset classes (see General Documentation, Art. 88 and Art. 84(a)(iii) with Annex IXb) will be considered for the calculation of the coverage. For the historical coverage, only the requirements that were in force at the respective point in time and only ratings that were actually issued or endorsed in accordance with the CRA Regulation at the respective point in time will be considered.
Does the Eurosystem share information on the aggregate volumes per asset class which are necessary for the assessment of compliance with the minimum coverage requirements?
The Eurosystem cannot share such information due its data licensing agreements. ECAIs are expected to obtain this information on their own. For that purpose, the list of eligible marketable assets published on the ECB’s website may be useful.
What are the operational criteria that the candidate ECAI needs to fulfil?
One key operational requirement is the regular, i.e. daily, provision of rating information to the Eurosystem. For this purpose, the candidate ECAI needs to demonstrate that it has robust and efficient systems for the provision of required information not only to the ECB but also to the Eurosystem’s national central banks. As the technical interfaces evolve over time, the concrete technical requirements are specified further during the in-depth assessment of an application.
What information is required for the mapping to the Eurosystem rating scale and does it differ from the ratings data provided for the coverage?
The information request for the purpose of establishing the mapping to the Eurosystem harmonised rating scale goes beyond the one for the minimum rating coverage. In general, the scope, content and time horizon of the request is broader in order to allow an as comprehensive mapping as possible. For example, ratings are required on a global scale instead of eligible assets only and the historical period must be at least three and preferably five years. The ECB will provide the necessary guidelines and templates for this data provision upon initiation of an acceptance procedure.
How long will the application process take?
The Eurosystem cannot commit to a pre-defined timeline as each application requires an in-depth case-by-case assessment. Candidate ECAIs should account for sufficient time for each step of the application procedure, in particular for the in-depth assessment and decision making by the Eurosystem and, in the event of a positive outcome, the adoption of the Eurosystem’s relevant technical systems.
To what extent does the pricing scheme affect ECAF-acceptance?
One condition for the acceptance of ECAIs is the efficient implementation of ECAF. In that regard, operational costs related to fees charged by ECAIs are relevant. Hence, the pricing scheme offered to the Eurosystem should be reasonable and in line with the commercial terms offered to other customers.
To whom shall other questions related to the ECAI acceptance be addressed?
The ECB’s Directorate Risk Management (DRMSecretariat@ecb.europa.eu) is the primary contact point in the Eurosystem for questions related to ECAIs for ECAF purposes.