Article 18 | Delegated Regulation 2022/439

Article 18 - General

Article 18

General

1. In order to assess whether an institution is compliant with the requirements on the use of rating systems for the purposes of Article 144(1)(b), Article 145, Article 171(1)(c), Article 172(1)(a), Article 172(1)(c), Article 172(2) and 175(3) of Regulation (EU) No 575/2013, competent authorities shall verify that:

(a)	internal ratings and default and loss estimates of the rating systems used in the calculation of own funds play an essential role in the risk management, credit approval and decision-making process in accordance with Article 19;

(b)	internal ratings and default and loss estimates of the rating systems used in the calculation of own funds play an essential role in the process of the internal capital allocation in accordance with Article 20;

(c)	internal ratings and default and loss estimates of the rating systems used in the calculation of own funds play an essential role in the corporate governance functions in accordance with Article 21;

(d)	data and estimates used by the institution for the calculation of own funds and those used for internal purposes are consistent, and where discrepancies exist, that these are fully documented and reasonable;

(e)

rating systems are broadly in line with the requirements set out in Article 169 to 191 of Regulation (EU) No 575/2013 and have been applied by the institution at least three years prior to the use of the IRB Approach, as set out in Article 145 of Regulation (EU) No 575/2013, in accordance with Article 22.

2. For the purpose of the assessment under paragraph 1 competent authorities shall apply all of the following methods:

(a)	review the institution's relevant internal policies and procedures;

(b)	review the relevant minutes the institution's internal bodies, including the management body, or committees involved in the credit risk management governance;

(c)	review the allocation of powers to take credit decisions, the credit management manuals and the commercial channels schemes;

(d)

review the analysis the institution has made of the credit approvals and the data on rejected credit applications, including all of the following:

(i)	credit decisions deviating from the institution’s credit policy (‘exceptions’);

(ii)	the instances where human judgement results in deviation from the inputs or outputs of the rating systems (‘overrides’) and the justifications for the overrides;

(iii)

the non-rated exposures and the reasons for missing ratings;

(iv)	manual decisions and cut-off points;

(e)	review the institution’s credit restructuring policies;

(f)	review the documented regular reporting on credit risk;

(g)	review the documentation on calculation of internal capital of the institution and the allocation of the internal capital to types of risk, subsidiaries and portfolios;

(h)	review the relevant findings of the internal audit or of other control functions of the institution;

(i)	review the progress reports on the efforts made by the institution to correct shortcomings and mitigate risks detected during relevant audits;

(j)	obtain written statements from or interview the relevant staff and senior management of the institution.

3. For the purpose of the assessment under paragraph 1, competent authorities may also apply any of the following additional methods:

(a)	review the documentation of early warning systems;

(b)	review the credit risk adjustments methodology and the documented analysis of its coherence with the calculation of own funds requirements;

(c)	review the documented analysis of the risk-adjusted profitability of the institution;

(d)	review the pricing policies of the institution;

(e)	review the procedures for the collection and recovery of debts;

(f)	review the planning manuals and reports on budgeting of the cost of risk;

(g)	review the remuneration policy and the minutes of the remuneration committee;

(h)	review other relevant documents of the institution.

Recitals

CHAPTER 1 - GENERAL PROVISIONS ON THE ASSESSMENT METHODOLOGY (Article 1-5)

CHAPTER 2 - ASSESSMENT METHODOLOGY FOR SEQUENTIAL IMPLEMENTATION PLANS AND PERMANENT PARTIAL USE OF THE STANDARDISED APPROACH (Article 6-8)

CHAPTER 3 - ASSESSMENT METHODOLOGY FOR THE FUNCTION OF VALIDATION OF INTERNAL ESTIMATES AND OF THE INTERNAL GOVERNANCE AND OVERSIGHT OF AN INSTITUTION (Article 9-17)

CHAPTER 4 - ASSESSMENT METHODOLOGY FOR USE TEST AND EXPERIENCE TEST (Article 18-22)Article 18 - General Article 19 - Use test in risk management, decision-making and credit approval process Article 20 - Use test in the internal capital allocation Article 21 - Use test in corporate governance functions Article 22 - Experience test

CHAPTER 5 - ASSESSMENT METHODOLOGY FOR ASSIGNMENT OF EXPOSURES TO GRADES OR POOLS (Article 23-25)

CHAPTER 6 - ASSESSMENT METHODOLOGY FOR IDENTIFICATION OF DEFAULTS (Article 26-29)

CHAPTER 7 - ASSESSMENT METHODOLOGY FOR RATING SYSTEMS DESIGN, OPERATIONAL DETAILS AND DOCUMENTATION (Article 30-40)

CHAPTER 8 - ASSESSMENT METHODOLOGY FOR RISK QUANTIFICATION (Article 41-58)

CHAPTER 9 - ASSESSMENT METHODOLOGY FOR ASSIGNMENT OF EXPOSURES TO EXPOSURE CLASSES (Article 59-62)

CHAPTER 10 - ASSESSMENT METHODOLOGY FOR STRESS TEST USED IN ASSESSMENT OF CAPITAL ADEQUACY (Article 63-66)

CHAPTER 11 - ASSESSMENT METHODOLOGY FOR THE CALCULATION OF OWN FUNDS REQUIREMENTS (Article 67-71)

CHAPTER 12 - ASSESSMENT METHODOLOGY FOR DATA MAINTENANCE (Article 72-75)

CHAPTER 13 - ASSESSMENT METHODOLOGY OF INTERNAL MODELS FOR EQUITY EXPOSURES (Article 76-82)

CHAPTER 14 - ASSESSMENT METHODOLOGY FOR MANAGEMENT OF CHANGES TO RATING SYSTEMS (Article 83-84)

CHAPTER 15 - FINAL PROVISION (Article 85)

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Article 18 - General

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