CP10 (Full Document) - European Banking Authority

organisational point of view (e.g., a Credit Risk Control Unit
composed of only a handful of officers).
379. In these cases, national supervisors can decide to make specific
adjustments to these guidelines, taking into account the nature, size,
and level of complexity of the business performed by the institutions
applying for the use of the IRB approach.
380. However, such adjustments must not undermine the principle of
independence of the CRC function or the overall soundness of the
control environment. For example, in some small institutions, the
Credit Risk Control function is also responsible for the rating
assignment process for specific obligors. This may be due to staff
scarcity, or because staff in the CRC function who are directly
involved in model building and review are more skilled in the
assignment of ratings, especially to counterparties whose
creditworthiness is difficult to assess (e.g., Specialised Lending, large
and complex groups).
381. In this case, a lack of objectivity may arise because the ‘model
builder’ may have an excessive degree of confidence in the model
output, and may become more tolerant towards potential failures or
biases. Therefore, depending on the circumstances, the coexistence
of the two tasks may be regarded either as an exceptional
(permanent) or a transitional solution, in the latter case to be
overcome as soon as possible. The coexistence should be made
transparent in any case.
Location of CRC function within the organisational structure
382. Any attempt to specify where in the organisational structure of an
institution the CRC function should be located could be to some
extent counterproductive, for the following reasons:
· The activities of the CRC function span multiple areas or business
units.
· Institutions will choose a structure that fits their management
and oversight frameworks.
383. A minimum requirement, however, could be to make the CRC
function depend directly on the management body (management
function), wherever the unit is located within the organisation. Part
of the duties of Internal Audit should be to review whether the
location of the CRC function could reduce its independence.
384. The CRC function must always have high standing within the
organisation, and should be staffed by individuals possessing the
requisite stature, skills, and experience.
Independence of the CRC function from the functions responsible
for originating or renewing exposures
385. Lack of independence of the Credit Risk Control function and
pressures from relationship managers could seriously undermine the
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