Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p11
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 28899–32151

aspects of the credit assessment or approval, an ADI must implement appropriate oversight processes of the third party. An ADI must monitor and test the integrity of the third-party assessment and approval on a regular basis, either directly or through operationally independent personnel to ensure it aligns with the ADI's credit assessment and approval criteria.
60.         Where an ADI has direct exposure to credit risk through a third party, such as an on-line lending platform and the platform operator or other third party undertakes the credit assessment and approval of the underlying borrowers under its own credit risk policies and processes, the ADI must perform adequate due diligence on these exposures, including obtaining:
       (a)          a comprehensive understanding of the risk characteristics of the prospective and actual exposures;
       (b)          timely access to and review of performance information on the exposures; and
       (c)          a comprehensive understanding of all structural features of the transaction.

Credit administration, measurement and monitoring
61.         An ADI must have an appropriate system for the ongoing administration of its credit portfolio.
62.         An ADI's credit administration system must have regard to:
       (a)          the efficiency and effectiveness of credit administration operations, including monitoring documentation, contractual requirements, covenants and collateral;
       (b)          the accuracy and timeliness of information provided to management information systems;
       (c)          adequate segregation of duties;
       (d)          the adequacy of controls over all credit administration processes; and
       (e)          compliance with credit risk policies and processes as well as applicable laws and regulations.
63.         An ADI must ensure its credit administration system captures all the information necessary to ascertain the current financial condition of the borrower as well as sufficient information to track all credit decisions made and the history of each exposure. An ADI's credit risk review function must determine that credit administration is complete and that all approvals and other necessary documents have been obtained.
64.         An ADI must have an appropriate system for monitoring the condition of individual exposures, including determining the adequacy of provisions.
65.         An ADI must have in place an appropriate system for monitoring the overall composition and quality of the credit portfolio.
66.         An ADI must have an appropriate information system and analytical techniques that enable management to measure the credit risk inherent in all on- and off-balance sheet activities. The management information system must provide adequate information on the composition of the ADI's credit portfolio, including identification of any concentrations of risk.

Credit risk grading systems
67.         Where appropriate for the scope, scale and complexity of its operations, an ADI must have in place an internal credit risk grading system.
68.         An ADI must have in place prudent policies and processes governing the development, validation, operation and oversight of its credit risk grading