Data requirements
Article 42
1. When assessing compliance with the overall requirements for estimation laid down in Article 179 of Regulation (EU) No 575/2013, the data used for the quantification of risk parameters and the quality of that data, competent authorities shall verify: (a) the completeness of the quantitative and qualitative data and other information in relation to the methods used for the quantification of risk parameters to ensure that all relevant historical experience and empirical evidence are used; (b) the availability of quantitative data providing a breakdown of the loss experience by the factors which drive the respective risk parameters as referred to in Article 179(1)(b) of Regulation (EU) No 575/2013; (c) the representativeness of the data used to estimate the risk parameters for certain types of exposures; (d) the adequacy of the number of exposures in the sample and the length of the historical observation period referred to in Articles 45, 47 and 53, used for the quantification to ensure that the estimates of the institution are accurate and robust; (e) the justification for and the documentation of all data cleansing, including any exclusions of observations from the estimation and a confirmation that these exclusions do not bias the risk quantification; for PD estimates, in particular, the justification and the documentation of the impact of the data cleansing on the long-run average default rate; (f) the consistency between the data sets used for the risk parameters estimation, in particular with regard to the default definition, treatment of defaults, including multiple defaults as referred to in Articles 46(1)(b) and 49, and the sample composition. 2. For the purposes of the verification under point (c) of paragraph 1, competent authorities shall assess the representativeness of the data used to estimate the risk parameters for certain types of exposures by assessing: (a) the structure of exposures covered by each rating model and the different risk characteristics of the obligors or facilities, and whether the current portfolio is, to the degree required, comparable to the portfolios constituting the reference data set; (b) the comparability of the current underwriting and recovery standards with the ones applied at the time of the reference data set; (c) the consistency of the default definition in the observation period: (i) where the default definition has been changed in the observation period, the description of the adjustments performed in order to achieve the required level of consistency with current default definition; (ii) where default definitions vary across the jurisdictions in which the institution operates, the adequacy of measures and conservatism adopted by the institution; (d) where external data and data pooled across institutions are used in the quantification of risk parameters, the relevance and appropriateness of these data for the institution’s exposures, products and risk profile and the definition of default; (e) where the external or pooled data are not consistent with the institution’s internal default definition, the description of adjustments to the external or pooled data performed by the institution in order to achieve the required level of consistency with the internal default definition. 3. When assessing the quality of the data pooled across institutions that is used for quantification of risk parameters, competent authorities shall apply the assessment methodology laid down in paragraphs 1 and 2 in addition to verifying the compliance with the requirements laid down in Article 179(2) of Regulation (EU) No 575/2013.