ESMA: Technical Advice to European Commission on network of small and medium CRAs
21 November 2013
ESMA has finalised its Technical Advice to the European Commission on the feasibility of a network of small and medium-sized credit rating agencies, in order to increase competition in the market.
The technical advice provides quantitative and qualitative information on small and medium-sized CRAs in the EU, based on the analysis of the periodic reporting obligations of CRAs to ESMA via the central repository CEREP. It also covers some information regarding possible barriers to entry for companies that wish to conduct rating activity in the EU.
The main findings of the advice are:
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The 22 registered CRAs are established in 11 EU Member States;
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None of the small and medium-sized CRAs cover the whole range of the five rating classes considered (corporates (non-financial), financials, insurance, sovereign and public finance, and structured finance). Whilst DBRS and BCRA cover four and three classes respectively, all the remaining small and medium-sized CRAs cover one or two rating classes only. This contrasts with Fitch, Moody’s and S&P that issue ratings for all five possible rating classes;
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Small and medium-sized CRAs are mainly active in issuing corporate ratings. Within this rating type, four small and medium-sized CRAs issue a relatively high number of corporate ratings (CERVED and ICAP) or financial and insurance ratings (GBB and AM Best);
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Only six of the small and medium-sized CRAs provide sovereign ratings (BCRA, Capital Intelligence, DBRS, European Rating, Feri Euro Rating (Feri) and Japan Credit Rating Agency (JCR)), whilst only one (DBRS) issues structured finance ratings;
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As of end 2012, the majority of small and medium-sized CRAs issued solicited ratings only, whilst eight issued unsolicited ratings only. Three small and medium-sized CRAs (DBRS, JCR, and Scope) issued both solicited and unsolicited ratings, as was the case also for Fitch, Moody’s and S&P;
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As regards geographical coverage of the small and medium-sized CRAs, six out of 19 (AM Best, Capital Intelligence, Creditreform, DBRS, JCR and Scope) have a coverage that goes beyond one Member State when referring to corporate ratings. As regards the sovereign ratings type, three of the small and medium-sized CRAs cover more than one Member State (Capital Intelligence, Feri and JCR). In both of these ratings types, Fitch, Moody’s and S&P’s rating activities cover all Member States of the EU;
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In 2013, 96 per cent of the supervisory fees were paid by S&P, Moody’s, and Fitch, while their turnover from rating and ancillary services was equal to 88 per cent of the total turnover of the 20 registered and certified CRAs in 2012: and
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As of July 2013, 14 out of 19 small and medium-sized CRAs have been granted at least one of the regulatory exemptions provided for in the CRA Regulation.
Finally, and with reference to the current situation in the segment of small and medium-sized CRAs, ESMA is not aware of any private networks of small and medium-sized CRAs currently in place.
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