1.   When assessing the robustness of the triggers and process of reclassification of a defaulted obligor to a non-default status in accordance with Article 178(5) of Regulation (EU) No 575/2013, competent authorities shall verify that:

(a)	the triggers for reclassification are determined for each trigger of default and that the identification and treatment of credit obligations subject to distressed restructuring are clearly specified;

(b)	reclassification is possible only after all triggers of default have ceased to apply and all relevant conditions for reclassification are met;

(c)

the triggers and process of reclassification are determined in a prudent way, in particular that they ensure that reclassification to a non-default status is not performed where the institution expects the credit obligation not to be paid in full without recourse by the institution to actions such as realising security.

2.   For the purposes of the assessment under paragraph 1, competent authorities shall verify that the institution’s policies and procedures do not allow for reclassification of a defaulted obligor to a non-default status purely as a result of changes in the terms or conditions of the credit obligations, unless the institution has found that those changes enable the obligor to be considered as no longer being unlikely to pay.

3.   Competent authorities shall verify the analysis on which the institution has based its criteria for reclassification. They shall verify that the analysis takes into account the institution’s previous default record and the percentage of the defaulted obligors that, having been reclassified to non-default status, default again within a short period of time.