ESMA identifies deficiencies in CRAs' sovereign ratings processes

02 December 2013

ESMA has published a report identifying numerous deficiencies in the processes for producing and issuing sovereign ratings at the three largest credit rating agencies: Fitch Ratings, Moody's Investors Service and Standard & Poor's.

The report follows an investigation carried out by ESMA into the sovereign rating processes at the three CRAs, between February and October 2013. The investigation was prompted by concerns about potential conflicts of interests, the impact of sovereign ratings on other types of ratings, CRAs’ capacity to cope with the number of rating actions during a period of high volatility, the use of bulk rating actions, and issues around the confidentiality and timing of rating actions.

ESMA identified deficiencies and issues for improvement in the following areas:

• Independence and avoidance of conflicts of interests;
• Confidentiality of sovereign rating information;
• Timing of publication of rating actions; and
• Resources allocated to sovereign ratings.

Steven Maijoor, ESMA Chair, said: “ESMA’s investigation revealed shortcomings in the sovereign ratings process which could pose risks to the quality, independence and integrity of the ratings and of the rating process. The impact which changes in these ratings can have on financial markets, and sovereign states, can be significant. They should speed up their processes and make sure they get their house in order."

ESMA has required the CRAs to put in place remedial action plans to address the issues identified, and will monitor their progress against these plans as part of its ongoing supervision.

Full press release

Full report

Further reporting © Reuters

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