Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p35
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 95265–98293

each legal entity to which the ADI is exposed.[11] An ADI must treat transactions in which it has identified specific wrong way risk differently when calculating EAD.

Integrity of the rating process

Requirements for corporate, sovereign and financial institution exposures
 1.          Rating assignments and periodic rating reviews must be completed or approved by a party that does not directly stand to benefit from the extension of credit. An ADI's policies and procedures must document how independence of the rating assignment process is ensured.
 2.          The assignment of borrower and facility ratings must be reviewed and refreshed on at least an annual basis. Certain exposures, especially higher risk borrowers or problem exposures, must be subject to more frequent rating review. In addition, an ADI must initiate a new rating review when material information on the borrower or facility comes to light.
 3.          An ADI must have an effective process for obtaining and updating relevant and material information on the borrower's financial condition and other characteristics that affect assigned estimates of PD, LGD and EAD. The ADI must also have a procedure for updating borrower and facility ratings in a timely fashion when relevant information is received.

Requirements for retail exposures
 1.          An ADI must review the loss characteristics and delinquency status of each identified pool on at least an annual basis. This must include a review of the status of individual borrowers within each pool as a means of ensuring that exposures continue to be assigned to the correct pool.

Overrides
 1.          For rating assignments based on expert judgement, an ADI must clearly document the situations in which officers may override the outputs of the rating process, including how and to what extent such overrides can be made and by whom.
 2.          For model-based ratings, an ADI must have guidelines and processes for monitoring cases where human judgement has overridden the model's rating, variables that were excluded or inputs that were altered. Those guidelines must include identifying personnel who are responsible for approving such overrides.
 3.          An ADI must have systems that identify overrides and separately track their nature and performance.

Data maintenance

Requirements for all exposures
 1.          An ADI must collect and store data, including on key borrower and facility characteristics, of sufficient detail, scope, reliability and consistency to support its internal credit risk measurement and management processes, enable the ADI to meet the requirements of this Prudential Standard and serve as a basis for regulatory reporting and the relevant disclosure requirements detailed in Prudential Standard APS 330 Public Disclosure. The data must be sufficiently detailed to facilitate ongoing improvements to the ADI's rating systems and enable retrospective re-rating of borrowers and facilities when such improvements are envisaged.
 2.          Where