APRA
has released draft guidelines setting out the eligibility criteria
by which it will recognise External Credit Assessment Institutions (ECAI’s). The guidelines also provide an
outline of APRA’s proposed process for mapping a recognised ECAI’s
credit assessments to the risk-weights under the standardised approach.

As
part of these proposals, APRA will give automatic recognition to an
ECAI if it is regulated by the US Securities and Exchange Commission as
a ‘nationally recognised statistical rating organisation’. In addition, if an ADI
has an exposure domiciled in any one of 19 specified countries, it will
be able to use the credit assessments of an ECAI recognised by the
national supervisor in that country.

APRA’s
proposed recognition process is not a form of prudential regulation and
does not constitute licensing of ECAIs. APRA’s focus is on ensuring
that an ECAI’s processes and policies are rigorous and systematic, and
produce credit assessments of sufficiently high quality to be used by
ADIs. It will be the responsibility of each ADI to determine whether it
uses the ratings of a particular ECAI.