EBA · 2013_240 Final Q&A

How shall an institute explain a rating decision?

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
431, para. 4, 5
Topic
Transparency and Pillar 3
Submitted by
Investment firm
Submitted
2013-09-13
Answered
2013-12-06
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Article 431, paragraph 4 says that "institutions shall, if requested, explain their rating decisions to SMEs and other corporate applicants for loans, providing an explanation in writing when asked." Shall this be interpreted as institutions shall show the exact probability of default for the applicants or the applicants rating on the institutions internal rating scales or in any other way?

Background

Unclear meaning of the paragraph.

Answer

Article 431 (4) (5) of Regulation (EU) No 575/2013 (CRR) requires institutions, if requested, to explain their rating decisions to SMEs and other corporate applicants for loans, providing an explanation in writing when asked. To this end, institutions should take a pragmatic, proportional and common sense approach when dealing with these requests, and provide information such as: the rating, the applied methodology, and, where relevant, information on probability of default or PD bands.

Original source: European Banking Authority, Q&A ID 2013_240

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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