OREANDA-NEWS. March 23, 2015. Following market consultation on three Financial Institutions (FI) criteria exposure drafts, Fitch Ratings has today finalised the following criteria reports: Global Bank Rating Criteria; Global Non-Bank Institutions Rating Criteria and Financial Market Infrastructure Company Rating Criteria for its global FI group.

As highlighted at the exposure draft stage, the changes reflected in the criteria are primarily a function of consolidating a variety of current sector- or topic-specific rating criteria into two consolidated global master rating criteria: one for banks and one for non-bank financial institutions (NBFIs). The Global Financial Institutions Rating Criteria (31 January 2014) has been withdrawn. The Financial Market Infrastructure Company (FMI) criteria are new sector-specific criteria, which will be embedded in the NBFI master criteria in about a year.

Fitch has also published a Special Report entitled 'Feedback Report: 4Q14 FI Criteria Exposure Drafts', which summarises the 10 written responses the agency received on the exposure drafts and its responses to this feedback. No rating changes have arisen as a result of the finalisation of the criteria reports. Fitch would like to thank market participants for their input.

GLOBAL BANK RATING CRITERIA
The Global Bank Rating Criteria report is largely consistent with the previous Global Financial Institutions Rating Criteria. It now consolidates a number of previous sub-sector criteria - Rating FI Subsidiaries and Holding Companies, Rating Financial Institutions above the Sovereign, Banking Structures Backed by Mutual Support Mechanisms, Assessing and Rating Bank Subordinated and Hybrid Securities and Recovery Ratings for Financial Institutions - which have all been withdrawn.
With the exception of a new approach to assigning recovery ratings; refinements in our approach to notching up Issuer Default Ratings (IDRs) above Viability Ratings (VRs) where large junior debt buffers exist; changes to the way we assign ratings to entities within banking groups owned by holding companies; and minor changes to our notching approach for subsidiaries, the finalised bank master criteria report is largely consistent with its antecedents.

Relative to the exposure draft, Fitch has made a small number of changes to the final criteria, partly in response to comments received. These include using 'qualifying junior debt' instead of 'non-equity credit qualifying junior debt' to determine whether to notch up a bank's IDR above its VR due to large cushions of junior debt and capping uplift to one notch unless VRs are in the 'b' range or lower. For more detail, refer to 'Feedback Report: 4Q14 FI Criteria Exposure Drafts'.

GLOBAL NON-BANK FINANCIAL INSTITUTIONS RATING CRITERIA
The Non-Bank Financial Institutions Rating Criteria report consolidates a number of previous sub-sector criteria - Securities Firms Criteria, Investment Manager and Alternative Funds Criteria and Finance and Leasing Companies Criteria - which have been withdrawn. It also includes the NBFI-specific aspects of the previous FI master criteria.

The criteria report is divided into sections covering the four main NBFI sub-sectors: securities firms, investment managers, business development companies and finance and leasing companies (including policy institutions). The primary change is the enhanced clarity on key rating factors by rating category for each of the four sub-sectors, consistent with the approach in the bank master criteria. The criteria also include an expanded recovery rating framework which contemplates both liquidation value and going concern value when determining recovery prospects for NBFI issuers rated 'B+' or below.

In finalising the NBFI master criteria, Fitch did not make material changes to the content of the NBFI exposure draft, but did add clarifying language with respect to potential distinctions with respect to issue level ratings between NBFI holding companies and their operating subsidiaries, particularly if effective ring-fencing is in place.

FINANCIAL MARKET INFRASTRUCTURE COMPANY RATING CRITERIA
The FMI Criteria report is a new sector-specific criteria report within the NBFI criteria that reflects Fitch's analytical approach for rating exchanges, clearinghouses and central securities depositories (CSDs).

The criteria evaluate FMIs based on their operating environment, company profile, management and strategy, risk appetite and financial profile. For exchanges, the quantitative analysis is largely based on cash flow metrics and capital expenditure, given the limited balance sheet risk undertaken and the need for continual technology investment to support trading and minimise operational issues. For clearinghouses, the analysis also considers the sufficiency of counterparty risk management via membership, margining and sizing of guaranty funds. For CSDs, customer and collateral management is the primary focus.

Fitch reviews its rating criteria annually, in line with its policies and procedures and with applicable regulations.