The European Banking Authority published a letter dated December 18, 2015 addressed to the European Commission in which the EBA requests delays to the dates by which the EBA is required to prepare technical standards and reports under the Capital Requirements Directive, the Capital Requirements Regulation, the EU Bank Recovery and Resolution Directive, the European Market Infrastructure Regulation and the Credit Rating Agencies Regulation. The EBA states that for the most part it has not been able to deliver its mandates according to deadlines due to a persistent shortage in resources and the need to prioritize other workstreams. The EBA invites the Commission to request the EBA to fulfil its mandates  within new time limits.
 
View the EBA's letter.

The International Organization of Securities Commissions published its final report on sound practices at large intermediaries relating to the assessment of creditworthiness and the use of external credit ratings. The report analyses responses to the survey conducted by IOSCO and proposes sound practices for regulators of large intermediary firms to consider in supervising such firms. Large intermediary firms may also find the proposed practices useful when they consider implementing their internal credit assessment policies and procedures. The report is intended to enhance the implementation of the Principles for Reducing Reliance on CRA Ratings issued by the Financial Stability Board. The proposed sound practices for regulators include requiring large intermediaries to: (i) establish an independent credit assessment function; (ii) involve senior management in implementing the credit assessment process; (iii) ensure the relevant committees have sufficient information on the credit risks posed to their firms; (iv) establish an appropriate oversight structure to ensure the credit assessment process is properly implemented; (v) avoid exposure to particular credit risks whenever the firm does not have the internal capability to independently and adequately assess the exposure; (vi) incorporate a wide variety of qualitative measures into robust credit assessment processes; and (vii) avoid mechanistically relying on external credit rating agency ratings.

View the report.

The European Securities and Markets Authority published a discussion paper seeking views on the validation and review of Credit Rating Agencies methodologies and on quantitative and qualitative techniques used as part of the validation of CRA methodologies, as required under the Credit Rating Agency Regulation. The CRA Regulation requires CRAs to use rigorous, systematic and continuous methodologies based on historical experience. The discussion paper sets out validation practices in the credit rating industry and notes the good practices perceived by ESMA in its recent supervisory investigation on validation. The discussion paper also seeks views on how CRA methodologies are deemed to be good predictors of credit worthiness and what CRAs should do to meet the requirements under the CRA Regulation to ensure that systemic credit rating anomalies identified through back-testing are addressed in the appropriate way. Responses are due by February 19, 2016.
 
View the discussion paper.

The European Securities and Markets Authority published a final report on the possibility of establishing mappings of credit ratings published on the European Rating Platform (a public website to be launched by ESMA in 2016 which will allow comparability of all ratings given by rating agencies registered and authorized in the EU), as required under the amended Credit Rating Agencies Regulation. Credit rating mapping would assist users of credit ratings in comparing ratings given by different credit agencies for the same entities. ESMA recommends that the European Commission not take any action at this point in terms of mapping and that ESMA should instead focus on constantly updating its information and data which allows users of credit ratings to carry out their own research. ESMA also published two sets of technical advice to the European Commission. The first is on reducing sole and mechanistic reliance on external credit ratings which considers the measures in place to date to reduce reliance on credit ratings and recommends that efforts should focus on removing reliance on credit ratings instead of trying to remove references to credit ratings in all EU legislation. The second is on competition, choice and conflicts of interest in the credit rating industry which considers the impact of certain provisions of the CRA Regulation on competition, conflicts of interest and structured finance instruments which were introduced in 2013. The European Commission must report to the European Parliament and Council by December 31, 2016 on whether references to credit ratings in EU legislation should be removed when the latest provisions of the CRA are implemented. ESMA proposes to reassess the implementation of the CRA Regulation within the next three to five years.
 
View the report and technical advice.

The European Securities and Markets Authority approved the registration of modeFinance S.r.l., as a credit rating agency under the Credit Rating Agencies Regulation. ModeFinance is based in Italy, and its credit ratings may now be used for regulatory purposes within the European Union.
 

View the ESMA press release.

The Board of the International Organization of Securities Commissions approved a project specification for its Committee 6 on Credit Rating Agencies. The goal of the project is to help the Board gain an improved understanding of the credit rating industry as well as CRA products other than those that are disclosed to subscribers, such as private ratings, confidential ratings, scoring and other tools that can be used for risk assessments. The collected data will aid discussions between C6 members, issuers and users of other CRA products and other parties.

View the questionnaire.

View the press release.

The final guidelines on periodic information to be submitted by Credit Rating Agencies to the European Securities and Markets Authority were published on June 23, 2015. The guidelines apply to CRAs registered in the EU, but not to certified CRAs. They set out the information that CRAs should submit to ESMA on a quarterly, semi-annual and annual basis, including for the calculation by ESMA of supervisory fees and CRA market share. The guidelines will apply from August 23, 2015.

View the final guidelines.

The International Organization of Securities Commissions published its final report titled Good Practices on Reducing Reliance on credit rating agencies in Asset Management, which lists a set of eight good practices intended to help asset managers avoid over-reliance on external credit ratings in the industry. To address concerns, IOSCO recommends that the Financial Stability Board consider potential ways to reduce possible investor overreliance on external ratings which are driven by regulatory requirements, such as those in the Basel framework or the Solvency regime applicable to insurers. The report highlights the importance of asset managers having the appropriate expertise and processes in place to evaluate and manage the credit risk associated with their investments.

View the IOSCO Final Report.

The International Organization of Securities Commissions published a consultation on sound practices at large intermediaries, discussing alternatives to the use of credit ratings in assessing creditworthiness. The report lists thirteen draft practices to be considered by large market intermediaries when developing internal credit assessment policies. These aim to encourage the implementation of efficient alternative methods to assess creditworthiness and reduce the overreliance on credit rating agencies. These draft practices are to be considered also by regulators when overseeing market intermediaries. The draft sound practices include: (i) establishing independent credit assessment functions separate from other business units; (ii) incorporating diverse qualitative and quantitative measures into robust assessment processes; and (iii) improving credit risk assessment practices to ensure that firms remain well informed on the latest developments that might have an adverse effect on the firm. A final report will be prepared after responses to the consultation have been considered. Responses to the consultation are due by July 8, 2015.

View the consultation.

The European Securities and Markets Authority announced that the latest set of statistical data on the performance of credit ratings is available in the Central Ratings Repository. CEREP contains information on credit ratings issued by credit rating agencies which are either registered or certified in the European Union and is intended to assist investors in assessing the performance and reliability of credit ratings on different types of ratings, asset classes and geographical regions.

View ESMA's announcement.

The International Organization of Securities Commissions published its revised Code of Conduct Fundamentals for Credit Rating Agencies as part of a report on the issue. IOSCO consulted in 2012 on revisions to the Code to take into account the number of credit rating agencies that have become subject to supervision by national or regional authorities since the recent financial crisis. The updated Code (i) aims to enhance provisions on protecting the integrity of the credit rating process, managing conflicts of interest, providing transparency and safeguarding non-public information; (ii) adds measures on governance, training and risk management; and (iii) adds new definitions for key terms and revising existing definitions and terminology. The revised Code of Conduct Fundamentals for Credit Rating Agencies is intended to synchronize with the national and regional frameworks for supervision and oversight of credit rating agencies whilst remaining the international standard for credit rating agency self-governance.
 

View the revised Code.

The European Securities and Markets Authority published a final report including guidelines on the periodic information that is to be submitted by Credit Rating Agencies to ESMA in the context of ESMA’s ongoing supervision. The guidelines detail the kind of information that CRAs should regularly submit to ESMA on a quarterly, semi-annual and annual basis, so that ESMA can carry out its ongoing supervision of CRAs consistently. This includes information related to: (i) financial revenues and costs; (ii) staff turnover, vacancies and key promotions; and (iii) board minutes, court, arbitration and other dispute resolution proceedings. The guidelines will enter into force two months after they have been published on ESMA’s website.

View the guidelines

The European Securities and Markets Authority issued a call for evidence on the disclosure obligations required for Structured Finance Instruments under the Credit Ratings Agency Regulations and extending those requirements to private and bilateral SFI transactions. The call for evidence seeks to gather information on whether ESMA should make a distinction between private and bilateral transactions when considering the extension of the requirements, and if so, how the two terms should be defined. ESMA will then seek to ascertain whether the disclosure requirements can be used in their entirety for both private and bilateral SFI transactions or whether any additional issues should be taken into account to adapt the requirements to each type of transaction. An extension of the disclosure requirements would then be phased in for private and bilateral transactions. ESMA will analyze the evidence it has received to revise the current Regulatory Technical Standards under the Credit Ratings Agency Regulations. Comments on the consultation may be submitted until May 20, 2015.

View the call for evidence

The European Securities and Markets Authority published its annual report on its supervision of credit rating agencies and trade repositories. In the report, ESMA sets out its work plan for credit rating agencies in 2015 which will focus on credit rating agency’s governance, risk management and internal decision making processes and their business development processes. ESMA aims to gain a better understanding of how these processes influence the process of issuing credit ratings. ESMA also intends to continue with the thematic and individual investigations that it is already conducting such as the review and validation of rating methodologies and IT internal controls and information security.

View ESMA's report.

The International Organization of Securities Commissions announced the launch of a project aiming to obtain greater understanding of the credit rating industry and certain other products or services available other than traditional credit ratings publicly disclosed by credit rating agencies. The project will consider products such as other ratings provided by credit rating agencies (for example, private, one-time or regional ratings), scoring, credit and rating assessments and research. Relevant parties are requested to respond to the request for information by March 23, 2015.

View the announcement.

The European Securities & Markets Authority published a call for evidence on the impact of the EU Credit Rating Agencies Regulation on the credit rating industry and the development of markets for structured finance instruments. ESMA is seeking evidence of how the Credit Rating Agencies Regulation is achieving the objectives of stimulating competition between credit rating agencies, improving the choice of credit rating agencies available and minimizing conflicts of interests in the industry. The evidence received will be analyzed by ESMA in its development of technical advice to the European Commission as required under the Credit Rating Agencies Regulation. Evidence is required by March 31, 2015 and ESMA must provide its advice by September 2015.

View documents relating to call for evidence.

Three Delegated Regulations of Regulatory Technical Standards required under the Credit Ratings Agencies Regulation were published in the Official Journal of the European Union:

1. Delegated Regulation for the periodic reporting on fees charged by credit rating agencies for the purpose of ongoing supervision by the European Securities and Markets Authority. This applies from January 26, 2015. 

2. Delegated Regulation for the presentation of the information that credit rating agencies make available to ESMA. This applies from June 21, 2015. 

3. Delegated Regulation on disclosure requirements for structured finance instruments. This applies from January 1, 2017.

The objectives of the CRA Regulation include strengthening the existing EU legislation on credit rating agencies, reducing financial institution reliance on external credit ratings and improving competition in the credit ratings industry.

View the Regulations.