Fitch Enhances Review of Structured Finance Rating Models
Fitch Ratings-London/New York-24 August 2009: Fitch Ratings is enhancing its approach to mitigating operational risk exposure within the rating models that Fitch uses in its analysis of structured finance transactions, as outlined in a report released today.
The range of measures Fitch is adopting to further limit the most important areas of risk in its rating models include:
--Independent review of all major rating models supervised by independent Risk Officers;
--Consideration for a reduction in the complexity of rating models at every major review. In conjunction with this, the potential for a reduction in the number of models is also taken into account;
--Standardisation of datasets that form inputs into rating models;
--Greater disclosure of potential exposure to rating model risk and key assumptions in transaction pre-sale reports.
'Rating models offer a deep insight into the structural dynamics and the risks from asset performance in transactions. The use of modelling techniques is an important component in Fitch's analytical approach to structured finance,' says Glenn Costello, Fitch's Risk Officer for Global Structured Finance. 'Therefore, Fitch subjects its use of models to a supervisory framework and procedural scrutiny.'
'Used responsibly, models help to promote consistency in risk assessment across the structured finance transactions Fitch rates. This can only be achieved by keeping models transparent and regularly updated. Fitch puts particular emphasis on these two goals,' says Atanasios Mitropoulos, Senior Director in Fitch's European Structured Finance Risk Group.
'Fitch's Approach to Model Risk in its Structured Finance Analysis' is available at 'www.fitchratings.com' under 'Latest Research'. Fitch welcomes feedback on the content of the report.
Contacts: Atanasios Mitropoulos, Tel: +44 20 7417 4317; Stuart Jennings, +44 20 7417 6271, Glenn Costello, New York, +1 212 908 0307.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com; Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com; Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com; Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.
Fitch's ratings definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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