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Credit Rating Agencies

Credit Rating Agencies

ESMA is the single direct supervisor of Credit Rating Agencies (CRAs) within the EU.

What is the CRA Regulation and what does it cover?

The CRA Regulation introduced a common approach to the Regulation and Supervision of CRAs within the European Union. This approach was designed to enhance the integrity, responsibility, good governance and independence of credit rating activities to ensure quality ratings and high levels of investor protection.

The CRA Regulation was amended in 2011 and in 2013.

There are also a number of implementing and delegated acts adopted by the European Commission and Technical Standards developed by ESMA within its scope of action, including Technical Standards for implementing the CRA Regulation.

Registration

Registration and certification are core activities within ESMA’s supervisory responsibilities. For ESMA it is vitally important that the gateway to registered status is guarded diligently and applicants are granted registration only if they demonstrate their ability to meet all the regulatory requirements.

The Registration Process Explained

The registration procedure is defined by Articles 14 to 18 of the CRA Regulation. The process is composed of two stages.

In the completeness phase,  the applicant is requested to submit a substantial amount of information on, inter alia, its business plans, resourcing arrangements, governance structures, policies and procedures for ensuring compliance with the CRA Regulation, as well as their rating methodologies. Commission Delegated Regulation 449/2012 with regard to regulatory technical standards on information and certification of credit rating agencies sets out the information that applicants for registration should submit to ESMA.

The completeness phase is then followed by the compliance phase, when ESMA carries out a detailed analysis of whether the applicant’s proposal fully meets the requirements of the CRA Regulation.

The specific timelines for both the completeness and the compliance phases are defined in Articles 15 to 18 the CRA Regulation. Commission Delegated Regulation 447/2012 laying down technical standards for the assessment of compliance of credit rating methodologies is used to assess applicants’ compliance with Article 8(3) of the CRA Regulation.

At the end of the compliance assessment, the decision on whether the applicant is given registered status is made by ESMA’s Board of Supervisors, which consists of senior representatives of the National Competent Authorities (NCAs) from each EU Member State.

A fee will be payable at outset of the registration process. The calculation of fees, as defined by Commission Delegated Regulation EU/272/2012 (the “Fees Regulation”) is based on a several factors such as numbers of employees, whether the applicant has or plans to have branches in another Member State or third country, or whether it intends to issue ratings on structured finance instruments.

If you would like to receive further information on the registration process please contact the Supervision Department at CRA-registration@esma.europa.eu

For further details on the Certification Regime please refer to the Credit Rating Agencies International Section.

Perimeter strategy

Any firm that is established in the EU and is carrying out credit rating activities in the EU without prior registration is operating in breach of Articles 2(1) and 14(1) of the CRA Regulation. Action, leading to supervisory measures and fines will be systematically taken by ESMA against firms that conduct credit rating activities without registration or, where appropriate, certification in the EU. Any firm planning to issue credit ratings should immediately apply to ESMA for registration.

If you have any information which may assist ESMA’s perimeter strategy or are a firm that would like clarification as to whether it is engaging in credit rating activities as defined under Articles 2(1) and 14(1) of the CRA Regulation please contact the Supervision Department at CRA-info@esma.europa.eu.

Ongoing supervision and investigations

The risk-based framework is the pillar of ESMA's supervision for CRAs. Following the registration, ESMA supervises the registered entities through a combination of desk-based supervisory activities and investigation. As part of its desk-based supervisory activities, ESMA:

  • Analyses the periodic information that CRAs submit to ESMA.
  • Analyses complaints received by market participants.
  • Reviews notifications of material changes to the initial conditions from registration.
  • Monitors ratings data submitted to ESMA by CRAs.

As part of its supervisory activity, ESMA also conducts investigations that may or may not involve on-site visits.

ESMA has the power to take appropriate enforcement action where it discovers a breach of the CRA Regulation. These actions can range from the imposition of fines to the withdrawal of registration.

Complaints

If you are an employee or a former employee of a CRA, please visit the Whistleblowers' Corner.  If you do not fall into this category but wish to submit a complaint about a credit rating agency, please fill in this form and email it to CRA-info@esma.europa.eu. In the subject title of your email, please state "Complaint about credit rating agency".

 

Fees paid by CRAs and market share

CRAs whose revenues are higher than 10 millon euros pay an annual supervisory fee to ESMA.

Annual Market Share Calculation

One of the objectives of the CRA Regulation is to increase competition in the markets for credit ratings by encouraging issuers to use smaller credit rating agencies. To this end Article 8d(1) of the CRA Regulation states that where issuers or related third parties intend to appoint at least two CRAs to rate an issuance or entity, they shall consider appointing at least one CRA with no more than 10% of the total market share. They will consider this where the issuer or related third party finds that such a CRA is capable of rating the relevant issuance or entity and there is such a CRA available to rate the issuance or entity in question.

Where an issues does not appoint at least one CRA with no more than 10% of the total market share, the issuer or related third party shall document this. The obligations in Article 8d are supervised and enforced at national level by sectoral competent authorities.

To help issuers and related third parties carry out this evaluation, Article 8d(2) of the CRA Regulation requires ESMA to annually publish on its website a list of CRAs registered in the European Union (EU), indicating their total market share and the types of credit ratings issued by each CRA.