Credit Rating Agencies

The European Supervisory Authorities (ESAs – European Banking Authority, European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) have published a statement in response to industry concerns relating to severe operational challenges both in meeting the transitional provisions of the Securitisation Regulation disclosure requirements, as well as in complying with the EU requirements on risk retention, transparency, re-securitisation and criteria for credit-granting obligations on a consolidated basis by EU credit institutions engaged in local securitisation activities in third countries.

The European Securities and Markets Authority (ESMA) has issued today a public statement in order to raise market participants’ awareness on the readiness of credit rating agencies (CRAs) and trade repositories (TRs) for the possibility of no agreement being reached in the context of the United Kingdom (UK) withdrawing from the European Union (EU).

As there is no assurance that a transition period will be agreed, entities using services provided by CRAs and TRs need to consider the scenario where a no-deal Brexit would take place on 30 March 2019. Derivatives subject to the reporting obligation under the European Market Infrastructure Regulation (EMIR) must be reported to a registered EU-established TR or a recognised third-country TR.

Similarly, CRAs need to have a legal entity registered in the EU and supervised by ESMA, in order for their ratings to be used for regulatory purposes in the EU. In a no-deal Brexit scenario, TRs and CRAs established in the UK will lose their EU registration as of the UK’s withdrawal date.

The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) has launched a public consultation to amend the Implementing Regulations on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk to reflect the outcomes of a monitoring exercise on the adequacy of existing mappings, namely changes to the Credit Quality Steps (CQS) allocation for two ECAIs and the introduction of new credit rating scales for ten ECAIs. 

The Implementing Regulations are part of the EU Single Rulebook for banking and insurance aimed at creating a safe and sound regulatory framework consistently applicable across the European Union (EU). The consultation runs until 31 December 2018. Further information on responding to the consultations can be found on the website of the Joint Committee

The European Securities and Markets Authority (ESMA) has today withdrawn the credit rating agency (CRA) registration of the Polish SPMW Rating Sp z.o.o. (SPMW). 

The withdrawal decision follows the official notification to ESMA by SPMW on 30 August 2018 of its intention to renounce its registration under the conditions set out in Article 20(1)(a) of the CRA Regulation. ESMA confirms that SPMW has effectively stopped its rating activities.

Point (a) of Article 20(1) of the CRA Regulation provides that without prejudice to Article 24, ESMA shall withdraw the registration of a credit rating agency where the credit rating agency expressly renounces the registration or has provided no credit ratings for the preceding six months.

The European Securities and Markets Authority (ESMA), the EU’s direct supervisor of credit rating agencies (CRAs), has registered today Moody’s Investors Service (Nordics) AB as a CRA under the CRA Regulation.

The registration takes effect from 13 August 2018. Moody’s Investors Service (Nordics) AB is based in Sweden and intends to issue sovereign and public finance ratings, structured finance ratings and corporate ratings.

The CRA Regulation seeks to ensure that credit ratings issued in the EU respect minimum standards of quality, transparency and independence by providing that only companies registered by ESMA as CRAs may lawfully issue credit ratings which can be used for regulatory purposes by credit institutions, investment firms, insurance and reinsurance undertakings, institutions for occupational retirement provision, management companies, investment companies, alternative investment fund managers and central counterparties. 

In order to be registered as a CRA, a company must be able to demonstrate to ESMA that it can comply with the requirements of the CRA Regulation, including, most importantly, on:

  • the governance of CRAs and the management of conflicts of interest;
  • the development and application of methodologies for assessing credit risk; and
  • the disclosure of information to ESMA and to market participants. 

Once registered, CRAs are subject to on-going supervision and monitoring by ESMA to ensure that they continue to meet the conditions for registration. ESMA will impose sanctions and/or penalties where it finds that a CRA has failed to meet its obligations under the CRA Regulation. 

The total number of CRAs registered in the EU is 28 CRAs. Amongst the 28 registered CRAs, three operate under a group structure, totalling 16 legal entities in the EU, which means that the total number of CRA entities registered in the EU is 41.

The EFTA Surveillance Authority (EFTA SA) has registered today the Nordic Credit Rating AS (NCR) as a credit rating agency under Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (the CRA Regulation), as incorporated into the Agreement on the European Economic Area (EEA Agreement). This decision comes into effect on 3 August 2018.  NCR is based in Oslo, Norway, with a branch in Stockholm, Sweden. NRC intends to issue corporate ratings. 

The decision was adopted by the EFTA SA on the basis of a draft prepared by the European Securities and Markets Authority (ESMA), which is the EU’s single supervisor for Credit Rating Agencies (CRAs).

The CRA Regulation seeks to ensure that credit ratings issued in the EU respect minimum standards of quality, transparency and independence by providing that only companies registered as CRAs may lawfully issue credit ratings which can be used for regulatory purposes by credit institutions, investment firms, insurance and reinsurance undertakings, institutions for occupational retirement provision, management companies, investment companies, alternative investment fund managers and central counterparties. 

EFTA SA and ESMA will supervise NCR

In order to be registered as a CRA a company must be able to demonstrate that it can comply with the requirements of the CRA Regulation, including on:

  • the governance of CRAs and the management of conflicts of interest;
  • the development and application of methodologies for assessing credit risk; and
  • the disclosure of information to ESMA and to market participants. 

Once registered, CRAs are subject to on-going supervision and monitoring. In this case, NCR will be subject to on-going supervision and monitoring by EFTA SA and ESMA respectively to make sure that the firm continues to meet the conditions for registration. EFTA SA, on the basis of drafts prepared by ESMA, can impose sanctions and/or penalties where it finds that a CRA has failed to meet its obligations under the CRA Regulation as incorporated in the EEA Agreement.