ESMA announces date of Open Hearing for validation and review of CRA methodologies

The European Securities and Markets Authority (ESMA) will hold an open hearing on the issues set out in its Discussion Paper on the Validation and Review of Credit Rating Agencies’ methodologies published in November 2015.

The discussion paper requests views on how CRAs should demonstrate rating methodologies’ ‘discriminatory power’, ‘historical robustness’, ‘predictive power’ or, where there is limited quantitative evidence, that the methodologies are ‘sensible predictors of credit worthiness’.

In addition, the DP asks how CRAs should meet the requirement in both Articles 7 and 8 of Commission Delegated Regulation (EU) No 447/2012 on rating methodologies that the CRAs shall have ‘processes in place to ensure that systemic credit rating anomalies highlighted by back-testing are identified and are appropriately addressed’.

The purpose of this discussion paper is to help ESMA to develop further its views on the quantitative and qualitative techniques used as part of the validation of methodologies required under the CRA Regulation.

This hearing will be of interest to all credit rating agencies supervised by ESMA. It is will also be of interest to all users of credit ratings, but particularly those with a background in the validation of credit risk models and methodologies.

Link to ESMA statement

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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