5.1

LFIs must implement a comprehensive underwriting process for the acquisition of Credit Risk, consistent with the strategy of the LFI. This process must ensure a thorough understanding of the risk profile of Obligors.
 

5.2

The underwriting process must be supported by adequate policies and procedures covering the key components of the decision process, including, but not limited to, (i) governance of credit approval, (ii) credit limits, (iii) due diligence and financial information from the Obligor, (iv) methodology for Credit Risk analysis, (v) collateral and risk mitigation, (vi) credit file documentation, and (vii) legal documentation.
 

5.3

The credit underwriting policy must incorporate risk-return discipline consistent with the LFI’s Risk Appetite and strategy. Appropriate Risk Limits must be defined at an adequate level of granularity.
 

5.4

LFIs must limit their reliance on external credit assessment. Where external ratings or external credit analysis are employed for a credit decision, LFIs must nevertheless develop their own independent view of the Credit Risk associated with their exposures.
 

5.5

Credit underwriting policies must cover the approval of (i) new exposures, (ii) renewal and (iii) refinancing of existing exposures. The policy must ensure a thorough understanding of the risk profile and characteristics of the borrowers and counterparties driving the performance of these exposures. In the case of securitisations, this includes a thorough understanding of the risk profile of both the underlying assets and the structured investmentvehicle.