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In order to do business in the European Union (EU), the EU Regulation on Credit Rating Agencies ((EC) No 1060/2009 – “the CRA Regulation”) requires CRAs to be registered in compliance with the requirements of the Regulation. Today’s registrations are valid for all European entities of DBRS, Fitch, Moody’s, and S&P respectively.
The registrations of DBRS, Fitch, Moody’s, and S&P follow a careful and coordinated examination of the applications by the colleges of the national competent authorities of the EU Member States. The registration assessments covered, amongst others, issues such as CRAs’ independence, governance, and transparency. The same issues will be subject to ESMA’s ongoing supervision, which will start as of today. Overall, the new legal requirements and ESMA’s supervision will contribute to the quality of ratings.
Steven Maijoor, ESMA chair, said: “In bringing these globally-active credit rating agencies under the umbrella of European supervision today, Europe is taking a major step towards a sounder credit rating market with increased transparency and reliability. By supervising these entities, ESMA will contribute to the quality of ratings which is crucial for the well-functioning of financial markets and investor protection. Their registration allows ESMA to commence on-site inspections and to assess how CRAs meet the requirements in areas such as governance, conflicts of interest and transparency.”
Transitional period for credit ratings issued outside the EU
Given the global scope of the CRAs’ activities, the use of credit ratings issued in a third country needs to comply with the endorsement regime set out in the CRA Regulation, detailed by the ESMA Guidelines on endorsement (ESMA/2011/139) published on 18 May 2011. Careful assessment of the relevant regulatory framework of third countries from which CRAs have indicated their intention to endorse credit ratings is ongoing, with a view to verify compliance with Article 4 of the CRA Regulation. At this moment, ESMA notifies market participants that only the regulatory framework applicable to CRAs in Japan has been recognised to be in line with the requirements of the CRA Regulation, while several other third countries are in advanced state of aligning their regulatory framework to the requirements of the CRA Regulation. Given the ongoing recognition process of other third countries, a transitional period of three months (until 31 January 2012) is granted, which ESMA should very probably be able to extend for three additional months (until 30 April 2012). This transitional period will allow market participants to continue using in the EU credit ratings issued in third countries, while the convergence assessment with the CRA Regulation requirements continues.
Finally, any new decisions on endorsable third countries will be disclosed by ESMA upon adoption.
Press release (incl. list of registered and certified CRAs)