Article 3
Criteria for validating the internal credit quality assessment methodologies referred to in Article 19(3) of Regulation (EU) 2017/1131
1.
Managers of MMFs shall validate the credit quality assessment methodologies referred to in Article 19(3) of Regulation (EU) 2017/1131 provided they fulfil all of the following criteria:
(a)
the internal credit quality assessment methodologies are applied in a systematic way with respect to different issuers and instruments;
(b)
the internal credit quality assessment methodologies are supported by a sufficient number of relevant qualitative and quantitative criteria;
(c)
the internal credit quality assessment methodologies' qualitative and quantitative inputs are reliable, using data samples of an appropriate size;
(d)
past internal credit quality assessments produced using the internal credit quality assessment methodologies have been properly reviewed by the managers of the MMFs in question to determine whether the credit quality assessment methodologies are a suitable indicator of credit quality;
(e)
the internal credit quality assessment methodologies contain controls and processes for their development and related approvals that allow for suitable challenge;
(f)
the internal credit quality assessment methodologies incorporate factors that managers of MMFs deem relevant to determine the credit quality of an issuer or an instrument;
(g)
the internal credit quality assessment methodologies systematically apply key credit quality assumptions and supporting criteria to produce all credit quality assessments, unless there is an objective reason for diverging from this requirement;
(h)
the internal credit quality assessment methodologies contain procedures to ensure that the criteria referred to in points (b), (c) and (g) supporting the relevant factors in the internal credit quality assessment methodologies are of a reliable quality and relevant to the issuer or instrument being assessed.
2.
As part of the validation process of the internal credit quality assessment methodologies, managers of MMFs shall assess the sensitivity of the methodologies to changes in any of their underlying credit quality assumptions and criteria.
3.
Managers of MMFs shall have processes in place to ensure that any anomalies or deficiencies highlighted by the back testing referred to in Article 19(3) of Regulation (EU) 2017/1131 are identified and appropriately addressed.
4.
The internal credit quality assessment methodologies referred to in Article 19(3) of Regulation (EU) 2017/1131 shall:
(a)
continue to be used, unless there are objective reasons to conclude that the internal credit quality assessment methodologies have to be changed or to be discontinued;
(b)
be capable of promptly incorporating any finding from ongoing monitoring or a review, in particular where changes in structural macroeconomic or financial market conditions would potentially affect a credit assessment produced using those internal credit quality assessment methodologies;
(c)
make it possible to compare past internal credit quality assessments.
5.
The internal credit quality assessment methodology referred to in Article 19(3) of Regulation (EU) 2017/1131 shall be promptly improved if any review, including validation, shows that it is not appropriate to ensure systematic credit quality assessment.
6.
The internal credit quality assessment procedure shall specify in advance the situations where the internal credit quality assessment is deemed to be favourable.