CA-6.4.6
The following operational criteria concerning the use of external credit assessments apply in the standardised approach of the securitisation framework:
(a) To be eligible for risk-weighting purposes, the external credit assessment must take into account and reflect the entire amount of credit risk exposure the conventional bank licensee has with regard to all payments owed to it. For example, if a conventional bank licensee is owed both principal and interest, the assessment must fully take into account and reflect the credit risk associated with timely repayment of both principal and interest;
(b) The external credit assessments must be from an eligible ECAI as recognised by the CBB in accordance with Section CA-3.4 with the following exception. In contrast with Subparagraph CA-3.4.1(c), an eligible credit assessment must be publicly available, on a non-selective basis and free of charge. In other words, a rating must be published in an accessible form and included in the ECAI's transition matrix. Also, loss and cashflow analysis as well as sensitivity of ratings to changes in the underlying ratings assumptions must be publicly available. Consequently, ratings that are made available only to the parties to a transaction do not satisfy this requirement;
(c) Eligible ECAIs must have a demonstrated expertise in assessing securitisations, which may be evidenced by strong market acceptance;
(d) A conventional bank licensee must apply external credit assessments from eligible ECAIs consistently across a given type of securitisation exposure. Furthermore, a conventional bank licensee cannot use the credit assessments issued by one ECAI for one or more tranches and those of another ECAI for other positions (whether retained or purchased) within the same securitisation structure that may or may not be rated by the first ECAI. Where two or more eligible ECAIs can be used and these assess the credit risk of the same securitisation exposure differently, Paragraphs CA-3.4.5 and CA-3.4.6 will apply;
(e) Where CRM is provided directly to an SPSV by an eligible guarantor defined in Paragraph CA-4.5.7 and is reflected in the external credit assessment assigned to a securitisation exposure(s), the risk weight associated with that external credit assessment should be used. In order to avoid any double counting, no additional capital recognition is permitted. If the CRM provider is not recognised as an eligible guarantor in Paragraph CA-4.5.7, the covered securitisation exposures should be treated as unrated; and
(f) In the situation where a credit risk mitigant is not obtained by the SPSV but rather applied to a specific securitisation exposure within a given structure (e.g. ABS tranche), the conventional bank licensee must treat the exposure as if it is unrated and then use the CRM treatment outlined in Chapter CA-4 to recognise the hedge.
January 2015