An internal audit or a comparable independent auditing unit is mandated to conduct an annual review of the institution's rating systems and operations. This review encompasses the credit function, as well as the estimation of Probability of Default (PD), Loss Given Default (LGD), Expected Loss (EL), and conversion factors.

The scope of the review must include a thorough assessment of compliance with all relevant regulatory requirements to ensure adherence to best practices and to mitigate potential risks effectively.