16 February 2015

ESMA published annual report and supervisory focus for CRAs and TRs

As part of its supervisory work in 2014 ESMA concluded its investigation into the issue of structured finance ratings, completed a review of small and medium-sized CRAs and conducted work regarding sovereign ratings. In addition, ESMA issued its first enforcement decision under the CRA Regulation in respect of internal control failings. ESMA is continuously enhancing its risk-based approach to the supervision of CRAs in order to focus on those risks which could have the highest impact on the quality of credit ratings. The key priorities for 2015-2016 are to tackle the systemic risks posed by CRAs by seeking to minimise conflicts of interest in the rating process.

Following some problems at the start of trade reporting, ESMA’s supervisory focus has shifted to the quality of the reported data and to ensuring appropriate data access by regulators, taking into account the scale and complexity of TR systems and of the data flowing into them.

Steven Maijoor, ESMA Chair, said: “The emphasis in 2015 for ESMA and the EU national regulators will be the improvement of the quality of the data reported to the registered TRs and there are several initiatives already in place. ESMA will continue to exercise its direct supervisory powers in 2015 through on-going supervision and investigations as well as through complaints handling and enforcement work.”

ESMA continues to look at minimising conflicts of interest in the rating process and promoting effective risk management, strong governance and controls and in 2015-16 it will focus on the following issues in this area:

• CRAs’ governance, risk management and internal decision making processes
• CRAs’ business development processes

ESMA will continue a number of major investigations during 2015-16, including investigations into the review and validation of ratings methodologies and into IT internal controls and information security. ESMA will also follow up on recently concluded investigations regarding Structured Finance and SMEs in order to ensure the effective implementation of the remedial action plans. In 2014 ESMA has identified a number of risks and issues regarding data quality; on-boarding and access to data by authorities; systems performance and operation; and confidentiality of data. While measures and action plans were developed and applied in 2014, considering the scale of the work this is expected to continue well into 2015. In terms of thematic reviews and investigations, these will be carried out on the following issues across all TRs:

• Inter-TR reconciliation process
• Business continuity planning
• Cost relatedness of fees

A number of individual reviews and investigations will focus on TR systems software development lifecycle, data availability and regulators’ access to TRs and the confidentiality of TR data.

Full report

Full press release

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