Defines key terms for the Chapter. A rating system comprises the methods, processes, controls, data collection and IT systems for credit risk assessment, assignment to rating grades or pools, and quantification of default and loss estimates. An exposure class means any class listed in Article 147(2); corporate, retail and regional governments/local authorities/public sector entity exposures are assigned to specified points of Article 147(2). A type of exposures is a homogeneously managed group. A business unit is any separate organisational or legal entity, business line or location. A large regulated financial sector entity meets both: (a) total assets of at least EUR 70 billion (most recent audited statement) and (b) is subject to specified prudential requirements or equivalent third country rules; an unregulated financial sector entity does not meet (b). A large corporate has consolidated annual sales above EUR 500 million, using audited figures averaged over three years or updated every three years.

Further defined terms include obligor grade (risk category on obligor rating scale yielding PD estimates), facility grade (risk category on facility scale yielding LGD estimates), PD/LGD modelling adjustment approach (adjustment of LGD or of both PD and LGD), and protection-provider-RW-floor (risk weight of a comparable direct exposure to the protection provider). For IRB exposures where own LGD estimates are used, unfunded credit protection effects may be taken into account by (a) PD/LGD modelling adjustment approach or (b) substitution of risk parameters under A-IRB as per Article 192(5). SA-CCF is the percentage under Chapter 2 Article 111(2); IRB-CCF are own estimates of credit conversion factor. The Commission may adopt implementing acts on third country equivalence subject to the examination procedure in Article 464(2); absent such a decision, until 1 January 2015 institutions may continue prior approved treatments for third countries approved before 1 January 2014.