Criteria for the adoption of delegated decisions on early implementation of material changes or extensions to rating systems
Article 4
1. Decisions granting permission for an early implementation of material changes or extensions to rating systems shall be taken by means of a delegated decision if all of the following criteria are met: (a) the application package is complete; (b) the application package includes a review or an assessment of the application conducted by the supervised entity’s internal validation function or internal audit function which concludes that: (i) the material change to a rating system as described in the self-assessment questionnaire completed by the supervised entity fulfils the relevant requirements namely that no material deficiencies leading to a material change to a rating system have been detected; and (ii) obligations from past ECB decisions related to the rating system in scope of the application are fulfilled; (c) the supervised entity agrees in writing in the application to apply a limitation, in the form of a floor to its capital requirements as further specified in paragraphs 2 or 3, as applicable; (d) the supervised entity agrees in writing that it is ready to implement the proposed material change or extension within three months after the date of notification of the decision granting the permission. 2. Where a material change is requested, the floor referred to in paragraph 1, point (c), is applied to all exposures belonging to the range of application of the rating system for which the material change permission is requested. The floor is applied at the highest level of consolidation within participating Member States. 3. The floor applies to the ratio between the risk-weighted exposure amount and the underlying exposure value, and is calculated as the higher of: (a) the risk weight calculated using the rating system including the material change; (b) 0,98 times the risk weight determined under paragraph 5. 4. Where a material extension is requested, the floor referred to in paragraph 1 is determined and applied separately at the level of each additional business unit, additional type of product or obligor, or additional exposures related to the lending decision of a third party to the group, to which the range of application of each rating system is requested to be extended. The floor is applied to the ratio between the risk-weighted exposure amount and the underlying exposure value, and is calculated as the higher of: (a) the risk weight calculated for the full rating system, including the business unit for which the material extension is requested; (b) the risk weight determined under paragraph 6. 5. For the purposes of the calculation of the floor described in paragraph 3, the supervised entity informs the ECB, as part of the application package, of the ratio between the risk-weighted exposure amount and the underlying exposure value for each rating system for which the material change is requested at the end of the last quarter preceding the date of submission of the application package to the ECB. 6. For the purposes of the calculation of the floor described in paragraph 4, the supervised entity, at the end of the last quarter preceding the submission of the application package to the ECB and as part of the application package, informs the ECB of the ratio between the risk-weighted exposure amount and the underlying exposure value for each additional business unit, additional type of product or obligor, or additional exposures related to the lending decision of a third party to the group, to which the range of application of each rating system is requested to be extended, according to the calculation method used for the additional exposures prior to the extension. 7. Where the application package consists of both a material change and a material extension on the scope of a rating system, the limitation applied by the supervised entity on that scope will be the higher of the floors determined under paragraphs 3 and 4.