Documentation of rating systems
Where the institution employs statistical models in the rating process, the institution shall document their methodologies. This material shall:
provide a detailed outline of the theory, assumptions and mathematical and empirical basis of the assignment of estimates to grades, individual obligors, exposures, or pools, and the data source(s) used to estimate the model;
establish a rigorous statistical process including out-of-time and out-of-sample performance tests for validating the model;
indicate any circumstances under which the model does not work effectively.