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This report provides the results of ESMA’s first examination on the three groups of registered CRAs. ESMA has identified several shortcomings and areas for improvement in CRAs internal policies and procedures and addressed specific recommendations to the CRAs in the following areas:
Recording of internal meetings: In ESMA’s view, CRAs should improve the recording of core internal processes, in particular regarding the activities of the Rating Committees. A more rigorous approach to the organisation and recording of Rating Committees and other key internal meetings and committees (i.e. relating to control functions, business lines management meetings etc...) would lead to improved control mechanisms for monitoring the quality and consistency of internal decisions, in particular relating to the rating activities. Further formalisation should also be achieved in order to enhance rigorousness and transparency as regards participation and decision making within key internal meetings and committees, including selection of committees’ members (chair and voting and non-voting members).
Analysis of information: CRAs should ensure that the documentation is distributed in a timely manner to allow RC members to prepare in advance, so as to ensure that the RC decision is based on a thorough analysis of all available information by all the RC members.
Analytical resources: ESMA considers that CRAs should monitor the adequacy of resources devoted to the analytical business lines on an ongoing basis in terms of number of employees and expertise, within the context of market developments and their impact on the organisation.
Governance and control functions: CRAs should ensure that their internal control functions fulfil the duties conferred to them by the Regulation. Therefore, CRAs should:
ESMA would expect the Independent Directors to continue developing their role and involvement in CRAs’ activities and their interactions with internal control functions.
Disclosure of Methodologies and presentation of rating: CRAs should:
In addition, ESMA is of the opinion that CRAs should make all reasonable efforts to ensure adherence to rigorous procedures for the disclosure of rating actions, defining clear roles and responsibilities relating, in particular, to the controls to be performed prior to public announcements on the content, form and timing of the disclosure. More specifically, adequate attention should be placed on each step of the publication process so as to avoid the risks potentially linked to overreliance on purely automatic mechanisms.
IT Systems: CRAs should put in place adequate measures to ensure that the IT environment is properly managed and controlled by:
As of the date of this document, ESMA has not determined whether any of the observations constitutes a breach of the provisions of the Regulation. ESMA will follow-up on the observations related to the individual CRAs in the first half of 2012.