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"Data show that revenues and margins of the three largest CRAs have been growing materially since 2010, with 2013 figures back to the levels last seen before the financial crisis hit in 2008," ESMA said in its annual report on the agencies. The Big Three still dominate, even though far more agencies now operate in Europe to offer competition. "This growth has not had a significant impact on the overall market shares of CRAs, which remain largely unchanged since 2013," ESMA said.
The EU passed three sets of laws on ratings agencies in as many years since the financial crisis. One rule, known as 8d, requires an issuer appointing two agencies to include one with a market share of less than 10 percent, or state why this was not possible. "We do not feel that 8d has been properly monitored or enforced thus far," said Alan Reid, managing director of DBRS agency, which has a 1.3 percent market share, among the two highest outside the Big Three.
Nigel Phipps, managing director of government affairs at Moody's, said its market share reflected the high quality of its ratings and strong track record. "There is also demand out there for a few players who have more of a global view, which takes a lot of upfront investment and expertise," Phipps said.
ESMA Chairman Steven Maijoor said the new rules had aimed to ensure financial stability and a high level of investor protection. "Such objectives remain valid in the current economic and financial environment, where new policy initiatives at European level, like measures to stimulate alternative sources of funding to traditional banking, emphasize the need for high quality credit ratings," Maijoor said in a statement.
The European Commission will set out plans to boost the ability of markets to provide funding for companies, in particular from high-quality securitized debt that applies lessons from the financial crisis. ESMA is consulting on whether more needs to be done to increase competition.