Identification of deficiencies

9.1 Firms should identify all deficiencies related to the estimation of risk parameters that lead to a bias in the quantification of those parameters, or to increased uncertainty that is not fully captured by the general estimation error, and classify each deficiency into one of the following groups:

(a) Group A: identified data and methodological deficiencies; and

(b) Group B: relevant changes to underwriting standards, risk appetite, collection and recovery policies, and any other source of additional uncertainty.

9.2 For the purposes of identifying and classifying all deficiencies referred to in paragraph 9.1, firms should take into account all relevant deficiencies in methods, processes, controls, data, or IT systems that have been identified by the credit risk control unit, validation function, internal audit function, or any other internal or external review, and should analyse at least all of the following potential sources of additional uncertainty in risk quantification:

(a) under Group A:

(i) missing or materially changed default triggers in historical observations, including changed criteria for recognition of materially past due credit obligations;

(ii) missing or inaccurate date of default;

(iii) missing, inaccurate, or outdated rating assignment used for assessing historical grades or pools for the purpose of calculation of default rates or average realised LGDs per grade or pool;