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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2021-01-01.

Status: In this content, we have included all amendments made by EU exit-related instruments up to end September 2020. There will be more amendments to be made later this year, further to the September QCP.

ANNEX II Reference meaning of the rating category per credit quality step for the purposes of Article 15

Credit Quality Step

Meaning of the rating category

1

The rated entity has extremely/very strong capacity to meet its financial commitments and is subject to minimal/very low credit risk.

2

The rated entity has strong capacity to meet its financial commitments and is subject to low credit risk but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than rated entities in CQS 1.

3

The rated entity has adequate capacity to meet its financial commitments and is subject to moderate credit risk.

However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the rated entity to meet its financial commitments.

4

The rated entity has the capacity to meet its financial commitments but is subject to substantial credit risk.

It faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the rated entity's inadequate capacity to meet its financial commitments.

5

The rated entity has the capacity to meet its financial commitments but is subject to high credit risk.

Adverse business, financial, or economic conditions will likely impair the rated entity's capacity or willingness to meet its financial commitments.

6

The rated entity is currently vulnerable or highly vulnerable and is subject to very high credit risk, including in or very near to default.

It is dependent upon favourable business, financial, and economic conditions to meet its financial commitments.