Article 8
Methodologies, models and key rating assumptions
1.
A credit rating agency shall disclose to the public the methodologies, models and key rating assumptions it uses in its credit rating activities as defined in point 5 of Part I of Section E of Annex I.
2.
A credit rating agency shall adopt, implement and enforce adequate measures to ensure that the credit ratings and the rating outlooks it issues are based on a thorough analysis of all the information that is available to it and that is relevant to its analysis according to the applicable rating methodologies. It shall adopt all necessary measures so that the information it uses in assigning credit ratings and rating outlooks is of sufficient quality and from reliable sources. The credit rating agency shall issue credit ratings and rating outlooks stipulating that the rating is the agency’s opinion and should be relied upon to a limited degree.
2a.
Changes in credit ratings shall be issued in accordance with the credit rating agency’s published rating methodologies.
3.
A credit rating agency shall use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing.
4.
Where a credit rating agency is using an existing credit rating prepared by another credit rating agency with respect to underlying assets or securitisation instruments, it shall not refuse to issue a credit rating of an entity or a financial instrument because a portion of the entity or the financial instrument had been previously rated by another credit rating agency.
A credit rating agency shall record all instances where in its credit rating process it departs from existing credit ratings prepared by another credit rating agency with respect to underlying assets or securitisation instruments providing a justification for the differing assessment.
5.
A credit rating agency shall monitor credit ratings and review its credit ratings and methodologies on an ongoing basis and at least annually, in particular where material changes occur that could have an impact on a credit rating. A credit rating agency shall establish internal arrangements to monitor the impact of changes in macroeconomic or financial market conditions on credit ratings.
Sovereign ratings shall be reviewed at least every six months.
5a.
A credit rating agency that intends to make a material change to, or use, new rating methodologies, models or key rating assumptions which could have an impact on a credit rating shall publish the proposed material changes or proposed new rating methodologies on its website inviting stakeholders to submit comments for a period of one month together with a detailed explanation of the reasons for and the implications of the proposed material changes or proposed new rating methodologies.
6.
Where rating methodologies, models or key rating assumptions used in credit rating activities are changed in accordance with Article 14(3), a credit rating agency shall:
(a)
immediately, using the same means of communication as used for the distribution of the affected credit ratings, disclose the likely scope of credit ratings to be affected;
(aa)
immediately inform ESMA and publish on its website the results of the consultation and the new rating methodologies together with a detailed explanation thereof and their date of application;
(ab)
immediately publish on its website the responses to the consultation referred to in paragraph 5a except in cases where confidentiality is requested by the respondent to the consultation;
(b)
review the affected credit ratings as soon as possible and no later than six months after the change, in the meantime placing those ratings under observation; and
(c)
re-rate all credit ratings that have been based on those methodologies, models or key rating assumptions if, following the review, the overall combined effect of the changes affects those credit ratings.
7.
Where a credit rating agency becomes aware of errors in its rating methodologies or in their application it shall immediately:
(a)
notify those errors to ESMA and all affected rated entities explaining the impact on its ratings including the need to review issued ratings;
(b)
where errors have an impact on its credit ratings, publish those errors on its website;
(c)
correct those errors in the rating methodologies; and
(d)
apply the measures referred to in points (a), (b) and (c) of paragraph 6.