HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"L 140/14
EN
Official Journal of the European Union
30.5.2012
COMMISSION DELEGATED REGULATION (EU) No 447/2012
of 21 March 2012
supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council on
credit rating agencies by laying down regulatory technical standards for the assessment of
compliance of credit rating methodologies
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
(5) Article
6(2)
when
read
in
conjunction
with
point
9
of
Section A of Annex I to Regulation (EC) No 1060/2009
requires a credit rating agency to establish a review
Having regard to the Treaty on the Functioning of the European
function responsible for periodically reviewing its
Union,
methodologies, models and key rating assumptions,
such as mathematical or correlation assumptions, and
any significant changes or modifications thereto as well
Having regard to Regulation (EC) No 1060/2009 of the
as the appropriateness of those methodologies, models
European Parliament and of the Council of 16 September
and key rating assumptions where they are used or
2009 on credit rating agencies (
intended to be used for the assessment of new

1 ), and in particular point (d)
of Article 21(4) thereof,
financial instruments.
(6)
This Regulation is based on the draft regulatory technical
Whereas:
standards submitted by ESMA to the Commission for
endorsement by the Commission pursuant to the
procedure laid down in Article 10 of Regulation (EU)
(1) Article
8(3)
of
Regulation
(EC)
No
1060/2009
requires
a
No 1095/2010.
credit rating agency to use credit rating methodologies
that are rigorous, systematic, continuous and subject to
validation based on historical experience, including back-
(7) ESMA
has
conducted
open
public
consultations
on
the
testing.
draft regulatory technical standards on which this Regu
lation is based, analysed the potential related costs and
benefits and requested the opinion of the Securities and
(2) This
Regulation
is
necessary
to
ensure
transparency
in
Markets Stakeholder Group established under Article 37
the assessment carried out by the European Securities
of Regulation (EU) No 1095/2010. In addition, ESMA
and Markets Authority (ESMA) established by Regulation
has launched a call for evidence in May 2011 in order
(EU) No 1095/2010 of the European Parliament and the
to gather information from market participants,
Council of 24 November 2010 establishing a European
Supervisory Authority (European Securities and Markets
Authority), amending Decision No 716/2009/EC and
HAS ADOPTED THIS REGULATION:
repealing Commission Decision 2009/77/EC
( 2 ) and
uniform rules regarding the requirements set out in
Article 1
Article 8(3) of Regulation (EC) No 1060/2009.
Subject matter
This Regulation lays down the rules to be used in the
(3) ESMA
has
to
assess
the
compliance
of
credit
rating assessment of compliance of credit rating methodologies with
agencies with the provision of Article 8(3) of Regulation
the requirements set out in Article 8(3) of Regulation (EC) No
(EC) No 1060/2009 when examining applications for
1060/2009.
registration pursuant to Article 15 of that Regulation.
After the registration ESMA should assess as part of its
ongoing supervision the continuous compliance of credit
Article 2
rating agencies with the provision of Article 8(3)
whenever it considers such assessment necessary.
Demonstration of compliance
A credit rating agency shall at all times be able to demonstrate
to ESMA its compliance with the requirements set out in
(4) Regulation
(EC)
No
1060/2009,
in
particular
Article
23 Article 8(3) of Regulation (EC) No 1060/2009 relating to the
thereof, does not permit ESMA, the Commission or any
use of credit rating methodologies.
public authorities of a Member State to interfere with the
content of credit ratings or methodologies. Accordingly,
this Regulation should lay down the rules by which those
Article 3
methodologies are to be assessed but should not provide
Assessment of compliance by ESMA
for those authorities to decide on the accuracy of a credit
rating produced by those methodologies.
1. In
addition
to
examining
the
compliance
of
credit
rating
agencies with the provision of Article 8(3) of Regulation (EC)
( 1 ) OJ L 302, 17.11.2009, p. 1.
No 1060/2009 in relation to an application for registration
( 2 ) OJ L 331, 15.12.2010, p. 84.
according to Article 15 of that Regulation, ESMA shall

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EN
30.5.2012 Official
Journal
of
the
European
Union L
140/15
examine compliance by each credit rating agency with
including, where relevant, a description of and justification
Article 8(3) of Regulation (EC) No 1060/2009 on an ongoing
for related weightings assigned to those factors and their
basis as ESMA considers appropriate.
impact on credit ratings;
2. When
examining
the
compliance
of
credit
rating
agencies (b) an assessment of the relationship between the key
with the provision of Article 8(3) of Regulation (EC) No
assumptions used in that credit rating methodology and
1060/2009 ESMA shall use all information relevant to assess
the critical risk factors derived from macroeconomic or
the process of developing, approving, using and reviewing credit
financial data; and
rating methodologies.
(c) an assessment of the relationship between the key
3. In
determining
the
appropriate
level
of
assessment,
ESMA
assumptions used in credit rating methodology and the
shall consider whether a credit rating methodology has a
volatility of credit ratings produced by that methodology
demonstrable history of consistency and accuracy in predicting
over time.
credit worthiness and may have regard to methods of validation
such as appropriate default or transition studies designed to test
that specific methodology.
4. A credit rating agency shall use credit rating method
ologies and their associated analytical models, key credit
rating assumptions and criteria that promptly incorporate
Article 4
findings or outcomes from an internal review or a monitoring
review undertaken by one or more of the following:
Assessing that a credit rating methodology is rigorous
1. A credit rating agency shall use and apply credit rating
methodologies which:
(a) the credit rating agency’s independent members of the
administrative or supervisory board;
(a) contain clear and robust controls and processes for their
developments and related approvals that allow suitable chal
(b) the credit rating agency’s review function;
lenge;
(c) any other relevant person or committee involved in the
(b) incorporate all driving factors deemed relevant in deter
monitoring and reviewing of credit rating methodologies.
mining creditworthiness of a rated entity or a financial
instrument which shall be supported by statistical, historical
Article 5
experience or evidence;
Assessing that a credit rating methodology is systematic
(c) consider the modelled relationship between rated entities or
1. A credit rating agency shall use a credit rating
financial instruments of the same risk factor and risk factors
methodology and its associated analytical models, key credit
to which the credit rating methodologies are sensitive;
rating assumptions and criteria that are applied systematically
in the formulation of all credit ratings in a given asset class or
market segment unless there is an objective reason for diverging
(d) incorporate reliable, relevant and quality related analytical
from it.
models, key credit rating assumptions and criteria where
these are in place.
2. A credit rating agency shall use a credit rating
methodology which is capable of promptly incorporating the
2. A
credit
rating
agency
shall
list
and
provide
a
detailed findings from any review of its appropriateness.
explanation of the following points with regard to the credit
rating methodologies used regarding:
Article 6
Assessing that a credit rating methodology is continuous
(a) each qualitative factor, including the scope of qualitative
judgement for that factor;
A credit rating agency shall use credit rating methodologies
shall that are designed and implemented in a way that
enables them to:
(b) each quantitative factor, including key variables, data
sources, key assumptions, modelling and quantitative tech
niques.
(a) continue to be used unless there is an objective reason for
the credit rating methodology to change or be discontinued;
3. The
detailed
explanation
referred
to
in
paragraph
2
shall
include the following:
(b) be capable of promptly incorporating any finding from
ongoing monitoring or a review, in particular where
changes in structural macroeconomic or financial market
(a) a statement of the importance of each qualitative or quanti
conditions would be capable of affecting credit ratings
tative factor used within that credit rating methodology
produced by that methodology;

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L 140/16
EN
Official Journal of the European Union
30.5.2012
(c) compare credit ratings across different asset classes.
4. A
credit
rating
agency
shall
have
processes
in
place
to
ensure that systemic credit rating anomalies highlighted by
Article 7
back-testing are identified and are appropriately addressed.
Assessing that a credit rating methodology is subject to
validation based on historical experience including back
5. In
the
process
of
reviewing
credit
rating
methodologies,
a
testing
credit rating agency shall include:
1. A
credit
rating
agency
shall
use
credit
ratings
method
(a) regular credit rating and performance reviews on rated
ologies that are supported by quantitative evidence of the
entities and financial instruments;
discriminatory power of the credit rating methodology.
2. A credit rating agency shall use credit rating method
(b) in-sample and out-of-sample testing;
ologies that describe the following:
(c) historic information on validation or back-testing.
(a) the historical robustness and predictive power of credit
ratings issued using the relevant methodology over appro
Article 8
priate time horizons and across different asset classes;
Exemption
(b) the degree to which the assumptions used in the rating
In cases where there is limited quantitative evidence to support
model deviate from the actual default and loss rates.
the predictive power of a credit rating methodology, a credit
rating agency shall be exempt from complying with Article 7 of
3. The
validation
of
a
credit
rating
methodology
shall
be this Regulation if it:
designed to:
(a) ensures that credit rating methodologies are sensible
(a) examine the sensitivity of a credit rating methodology to
predictors of credit worthiness;
changes in any of its underlying assumptions, including
qualitative or quantitative factors;
(b) applies internal procedures in a consistent way and over
time and across different market segments;
(b) perform an adequate and appropriate assessment of historic
credit ratings produced by means of that credit rating
methodology;
(c) has processes in place to ensure that systemic credit rating
anomalies highlighted by back-testing are identified and are
(c) use reliable inputs, including appropriate size of the data
appropriately addressed.
samples;
Article 9
(d) take appropriate account of the main geographical areas of
Entry into force
the rated entities or financial instruments for each of the
credit rating categories rated such as structured finance,
This Regulation shall enter into force on the twentieth day
sovereign, corporates, financial institutions, insurances,
following that of its publication in the Official Journal of the
public finance.
European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 21 March 2012.
For the Commission
The President
José Manuel BARROSO

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