Credit Rating Agencies

The European Securities and Markets Authority (ESMA), the EU’s securities markets’ regulator, has published today its technical advice on sustainability considerations in the credit rating market and its final guidelines on disclosure requirements applicable to credit ratings. 

ESMA, in its advice, has assessed the level of consideration of Environmental, Social and Governance (ESG) factors in both specific credit rating actions, and the credit rating market in general. It found that, while credit rating agencies (CRAs) are considering ESG factors in their ratings, the extent of their consideration can vary significantly across asset classes, according to each CRA’s methodology.

However, given the specific role that credit ratings have in the EU regulatory framework for the purposes of assessing credit risk, it would be inadvisable to amend the CRA Regulation to explicitly mandate the consideration of sustainability characteristics in all rating assessments. Instead, ESMA proposes that the European Commission assesses whether there are sufficient regulatory safeguards in place for other products that will meet the demand for pure sustainability assessments.

Steven Maijoor, Chair, said:

“Climate change is a reality. Financial market regulation needs to reflect this by integrating sustainability considerations. To support the European Commission in this area we have advised on the level of sustainability considerations in the credit rating market, indicating that as demand for sustainability assessments increases, so does the need for vigilance on the levels of investor protection.

“We have also issued guidelines to CRAs to ensure greater transparency around where ESG factors are considered in CRAs’ credit assessments.”

CRAs need to harmonise disclosure of ESG considerations

The guidelines on disclosure requirements for credit ratings are intended to improve the overall quality and consistency of CRAs’ press releases related to their rating activity. The guidelines:

  • provide detailed guidance as to what CRAs should disclose when they issue a credit rating. This will ensure a better level of consistency in terms of the critical information included in CRAs’ press releases; and
  • require greater transparency around whether ESG factors were a key driver of the credit rating action. This will allow the users of ratings to better assess where ESG factors are affecting credit rating actions.

The European Securities and Markets Authority (ESMA) has published today amended enforcement decisions regarding Nordea Bank, Svenska Handelsbanken, SEB, and Swedbank following a decision by the Board of Appeal of the European Supervisory Authorities (BoA).

ESMA, in June 2018, fined the five banks €495,000 each and issued five public notices for negligently infringing the Credit Rating Agencies Regulation (CRAR) by issuing credit ratings without being authorised by ESMA to do so. 

Four of the five banks appealed against ESMA’s decisions in 2018 to the BoA. In February 2019, while upholding all the infringements, the BoA accepted the banks’ claim that they had not acted negligently given the very unusual circumstances of the banks' practice and while applying the high standard care required of the banks. Based on this decision, ESMA decided that the only appropriate supervisory measure in the four banks’ cases were public notices regarding the banks’ infringements and that no fine will be imposed, in accordance with CRAR.

Banks issued shadow ratings lacking registration

Between June 2011 and August 2016, the four banks issued credit research to their clients – and SEB continued to do so until May 2018. This credit research included the issuance of what the banks described as shadow ratings. These reports related to different entities and underlying financial instruments and these reports included opinions, which ESMA found met the definition of a credit rating provided for by the CRAR. However, no bank had acquired the necessary ESMA authorisation to issue ratings and such conduct infringes the CRAR which requires prior authorisation. None of the four banks was registered as a CRA nor had they applied for registration.


Under the CRAR, issuing credit ratings requires authorisation by ESMA to ensure that such ratings are independent, objective and of adequate quality and that Credit Rating Agencies (CRAs) are subject to the same rules and oversight across all EU countries. A firm, in order to be registered as a CRA in the EU, needs to provide proof that it fulfils the necessary organisational requirements and provides adequate safeguards, in particular regarding governance, conflicts of interests, internal controls, rating process and methodologies, business activities and disclosures.

Right of appeal

Any of the four banks mentioned above may appeal against this decision to the Joint Board of Appeal of the European Supervisory Authorities.