The outstanding credit ratings of UK-based CRAs will only continue to be usable for regulatory purposes in the EU if the credit ratings are “endorsed” by a CRA which is located in an EU Member State. Where the outstanding credit ratings of UK-based CRAs are not endorsed by an EU27 CRA, these credit ratings will cease to be usable for regulatory purposes in the EU as set out in Article 24(4) of Regulation 1060/2009 on CRAs.
As a part of the necessary contingency planning, ESMA has requested UK-based CRAs to take all the necessary steps to reduce the risk of a cliff-edge in a no-deal Brexit scenario. As a result, UK-based CRAs have in the course of the last two years transfered business and rating activities to existing and in some cases newly established and registered EU27 CRAs.
The CRA Regulation only allows for endorsement of a credit rating where there is an objective reason for elaborating the credit rating outside the Union (e.g. where the rating relates to a non-EU entity or instrument). As part of their preparation for Brexit, UK-based CRAs have been transferring the issuance of credit ratings to an affiliated EU27 CRA with the aim of ensuring that the UK-based CRA only issues credit ratings which would meet this requirement and thus be eligible for endorsement.
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