AI Summary of Article 265 Scope and operational requirements for the Internal Assessment Approach
Institutions may calculate risk-weighted exposure amounts for unrated positions in Asset-Backed Commercial Paper (ABCP) programmes using the Internal Assessment Approach, subject to specific conditions being met. These include maintaining rigorous internal assessment processes that reflect external ratings from External Credit Assessment Institutions (ECAIs), as well as ensuring conservative practices and comprehensive performance tracking.
Furthermore, institutions must adhere to robust asset eligibility criteria and perform thorough credit risk analyses of asset sellers. Regular independent reviews and evaluations of the internal assessment process are imperative to ensure compliance and mitigate risks associated with asset quality and concentrations.
Article 265 Scope and operational requirements for the Internal Assessment Approach
1. Institutions may calculate the risk-weighted exposure amounts for unrated positions in ABCP programmes or ABCP transactions under the Internal Assessment Approach in accordance with Article 266 where the conditions set out in paragraph 2 of this Article are met.
Where an institution has received permission to apply the Internal Assessment Approach in accordance with paragraph 2 of this Article, and a specific position in an ABCP programme or ABCP transaction falls within the scope of application covered by such permission, the institution shall apply that approach to calculate the risk-weighted exposure amount of that position.
2. The competent authorities shall grant institutions permission to apply the Internal Assessment Approach within a clearly defined scope of application where all of the following conditions are met:
(a) all positions in the commercial paper issued from the ABCP programme are rated positions;
(b) the internal assessment of the credit quality of the position reflects the publicly available assessment methodology of one or more ECAIs for the rating of securitisation positions backed by underlying exposures of the type securitised;