2017 - YEAR OF RENEWABLE ENERGIES

COMMUNICATION “A” 6343 13/10/2017

TO FINANCIAL ENTITIES:

Reference: Circular LISOL 1‑762
Minimum capital of financial entities. Amendments.

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We address you to inform you that this Institution has adopted the following resolution:

• Replace paragraph 10.1, paragraph 10.2 and paragraphs 10.3.1.1 and 10.3.1.4 of the rules on “Minimum capital of financial entities” with the following:

10.1

“Credit ratings performed by entities that are external credit assessment institutions (“External Credit Assessment Institution”, ECAI) may only be used for the determination of the risk weighting of an exposure when the ECAI that performed them is eligible according to the provisions of this Section. Financial entities, through their risk‑area managers, must inform the chosen ECAIs to the Management of Supervision of Financial Entities of the SEFyC that corresponds, at the e‑mail address: entidades.super@bcra.gob.ar.”

10.2 Eligibility criteria

10.2.1 Eligible ECAIs

• 10.2.1.1 National ECAIs. Entities registered as risk‑rating agents before the National Securities Commission (CNV).
• 10.2.1.2 International ECAIs. Entities registered as ECAIs before the supervisory authorities of any member country of the Basel Committee on Banking Supervision that have adopted, published and adhered to a Code of Conduct in line with the IOSCO‑OICV guidelines.

10.2.2 Conditions

ECAIs must satisfy each of the following six criteria:

• 10.2.2.1 Objectivity. The methodology used to assign credit ratings must be rigorous, systematic and subject to validation based on historical experience. Evaluations must be under constant control and respond to changes in the financial environment. To be recognized, the evaluation methodology for each market segment must have been used for at least one year – preferably three years – and must have undergone rigorous back‑testing of its accuracy.

• 10.2.2.2 Independence. An ECAI must be independent and not subject to political or economic pressures that could influence the ratings it grants. As far as possible, the evaluation process must be free from any restriction that could arise when the composition of the Board (or equivalent governing body) or the shareholding structure of the ECAI gives rise to a conflict of interest.

• 10.2.2.3 International openness / transparency. Individual evaluations, the key elements underlying the evaluations and information on whether the issuer participated in the evaluation process must be publicly available on equal terms, unless they are private evaluations. Moreover, the general procedures, methodologies and assumptions used by ECAIs to obtain the ratings must be public domain.

• 10.2.2.4 Disclosure. ECAIs must disclose the following information: their code of conduct; the general nature of their remuneration agreements with the evaluated entities; their evaluation methods, including the definition of default, the time horizon and the meaning of each rating; the default rates actually recorded in each rating category; and the transition matrix between ratings – i.e., the probability of migrating between ratings.

• 10.2.2.5 Resources. ECAIs must have sufficient resources to carry out high‑quality credit evaluations. These resources must allow them to maintain permanent contact with the Board and Senior Management, as well as with the operational heads of the evaluated entities, in order to add value to their credit evaluations. The evaluations must be based on methodologies that combine qualitative and quantitative approaches.

• 10.2.2.6 Credibility. Credit evaluations of ECAIs must be reliable for independent third parties. In addition, the existence of internal procedures intended to prevent the misuse of confidential information contributes to an ECAI’s credibility. To be recognized, it is not required that an ECAI evaluate companies in more than one country.

10.2.3 Accepted ratings

Only global (international) ratings will be accepted.

10.3.1.1

“The admissible ECAI ratings shall be assigned to the risk‑weight factors provided in the first paragraph of point 2.5.11; that is, financial entities must determine which ratings or evaluation categories correspond to those risk‑weight factors. The mapping process must be objective and provide a distribution of risk‑weight factors consistent with the distribution of credit‑risk levels captured in those ratings. Moreover, it must cover all risk‑weight factors provided in those points.”

10.3.1.4

“Financial entities must report the ECAIs they use to weight the risk of their assets by credit type, the risk‑weight factors associated with each rating, and the aggregated risk‑weighted assets corresponding to each risk‑weight factor according to the evaluations of each admissible ECAI.”

We also inform you that we will subsequently send you the sheets that, in replacement of those previously provided, must be incorporated into the “Minimum capital of financial entities” rules.

Sincerely,

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
Matías A. Gutiérrez Girault – Director of Norm Issuance Darío C. Stefanelli – Senior Director of Issuance and Regulatory Applications

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