HKMA SPM CA-G-4: CA-G-4 Validating Risk Rating Systems under the IRB Approach

Sets the HKMA's approach to validating IRB rating systems and its expectations: the minimum requirements for IRB use, the factors considered in validation (development and implementation of rating systems, ratings of obligors in a connected group, systems and controls, data management, accuracy and forward-looking capability of ratings, stress-testing), corporate governance and oversight, other controls (independence, transparency, accountability, use of ratings, internal and external audit, third-party vendor and group-wide systems) and the validation of estimates. Classification: a statutory guideline issued by the Monetary Authority under the Banking Ordinance §7(3); version V.3, 18.07.25; applies to locally incorporated AIs using or seeking the IRB approach.