5.ECAI’s should have a methodology for assigning credit ratings that is rigorous and systematic, and is subject to validation based on historical experience. Ratings assessments should be based on methodologies combining qualitative and quantitative approaches. Moreover, assessments must be subject to ongoing review and responsive to changes in financial condition. To establish that an ECAI fulfils this primary component of eligibility criteria, it must demonstrate that it meets the following minimum standards:

1. (i)The ECAI has established rating definitions, criteria, and methodologies, and apply them consistently;
2. (ii)The ECAI should have a robust procedure of rating assignment based on published information, market data, interviews with management, and/or other sources of information that provide a sound basis for purposes of assigning the ratings;
3. (iii)When assigning risk ratings, the ECAI should take into account all major features of credit quality that are relevant under the ECAI’s applicable methodology, and should ensure that the ratings are assigned taking into account all risk factors of the rated entity or issue relevant under the ECAI’s applicable methodology;
4. (iv)The ECAI should demonstrate that rating methodologies are subject to quantitative back testing. For this purpose, the ECAI should calculate and publish default studies, recovery studies, rating transition matrices, or other analyses as relevant to the ECAI’s rating methodology. The analysis should reflect a definition of default that is consistent with international standards, subject to possible adjustments to take into account local practices or institutional or market conditions;
5. (v)The rating methodology for each market segment, including rigorous back testing, must have been established for at least one year and preferably three years;
6. (vi)All rating decisions should be made based on the ECAI’s established criteria and methodologies, subject to documented variations approved in accordance with the ECAI’s procedures;
7. (vii)The ECAI should have a mechanism to review its procedures and methodologies to adapt them to a potentially changing environment; and
8. (viii)The ECAI should maintain adequate systems and internal records to support its assigned ratings.