18 April 2012

ESMA approves credit ratings from Argentina and Mexico for use in the EU

The announcement allows European financial institutions to continue using credit ratings issued in these countries for regulatory purposes after 30 April, 2012.

In order to facilitate regulatory information exchange, and as a precondition to endorsement, ESMA has entered into cooperation agreements for the supervision of CRAs with the national competent authorities of Argentina and Mexico.  Ratings issued under the regulatory frameworks of Australia, Canada, Hong Kong, Japan, Singapore and the United States have already been approved for use in the EU.

ESMA has also published its technical advice to the European Commission on the equivalence of the regulatory regimes for CRAs in the USA, Canada and Australia.

Once the Commission has declared a third country regime to be equivalent to the EU regime, CRAs which are only established in that specific country can submit their application to ESMA to be certified in the EU in accordance with the CRA Regulation. This will allow for their ratings to be directly used by EU financial institutions.

Use of ratings issued from non endorsable countries after 30 April, 2012

Following the various endorsement decisions, the vast majority of non-EU issued credit ratings are now deemed to be subject to EU equivalent regulation. However, there remain a number of jurisdictions whose legal framework does not currently meet EU requirements. From 30 April it will only be possible to use non-EU ratings that are endorsed for regulatory purposes. Therefore ESMA advises European financial institutions to pay particular attention to identifying EU-endorsed ratings among those credit ratings that are issued outside the EU.

In doing so, EU financial institutions should carefully consider all information made available by CRAs regarding the endorsement status of their credit ratings. This must be disclosed by CRAs on their websites and through information providers. Firms also need to consider whether their use of a credit rating falls within the scope of “regulatory purposes” laid out by the Capital Requirements Directive.

Steven Maijoor, ESMA Chair, said: “Today’s decision to allow credit ratings issued by Argentinean and Mexican based CRAs to be endorsed by EU-registered CRAs means that the vast majority of credit ratings issued from third countries can now be used in the EU. This contributes to our goal of protecting investors and promoting stable and well-functioning financial markets. With regard to credit ratings issued from jurisdictions who do not yet meet EU requirements, ESMA is advising European financial institutions to consider both the information provided by CRAs and their regulatory treatment in the EU.”

Press release

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