On November 17, 2015, ESMA published a discussion paper seeking views on the validation and review of Credit Rating Agencies’ methodologies and on quantitative and qualitative techniques used as part of the validation of CRA methodologies, as required under the Credit Rating Agency Regulation. The CRA Regulation requires CRAs to use rigorous, systematic and continuous methodologies based on historical experience. The discussion paper sets out validation practices in the credit rating industry and notes the good practices perceived by ESMA in its recent supervisory investigation on validation. The discussion paper also seeks views on how CRA methodologies are deemed to be good predictors of credit worthiness and what CRAs should do to meet the requirements under the CRA Regulation to ensure that systemic credit rating anomalies identified through back-testing are addressed in the appropriate way. Responses are due by February 19, 2016.
The discussion paper is available at: https://www.esma.europa.eu/news/ESMA-consults-validation-and-reviewCRAs%E2%80%99-methodologies.