ESMA today extended the transitional period for use of non-EU credit ratings, Australian CRA regime endorsed
First binding standards on CRAs sent to European Commission.
ESMA has decided to extend until 30 April 2012 the initial transitional period of three months for credit ratings issued outside the European Union (EU). This decision allows the use in the EU of credit ratings issued in third countries while the convergence process with the EU requirements and the endorsement process of third countries continue. At the same time, following a careful assessment of its regulatory framework, ESMA has decided to endorse Australia’s regulatory regime on credit ratings (according to Art 4 (3) of the EU Regulation on Credit Rating Agencies, or CRAs1).
Steven Maijoor, ESMA Chair, said:
“ESMA is working actively to assess the regulatory framework for credit rating agencies of several non-EU countries. The extension of the transitional period until 30 April 2012 will allow us to complete the assessment of the countries from which the overwhelming majority of third-country ratings are issued. The assessment requires that the regulatory framework in the third country is „as stringent as‟ the Euro-pean CRA Regulation. Today, we have also added Australia to the list of countries which are already assessed as endorsable.”
Supervisory framework with Australia established, others to be further assessed
As part of the endorsement decision, ESMA and the Australian Securities and Investments Commission (ASIC) concluded on 20 December 2011 the exchange of letters (EOL) establishing the co-operation ar-rangement between the EU and Australia for the supervision of cross-border CRAs.
Having assessed as endorsable Japan2 and now Australia, ESMA is in an advanced state of its assessment for several other non-EU countries, namely Argentina, Canada, Hong Kong, Singapore, and the US. ESMA is also currently examining the regulatory frameworks of Brazil and Mexico.
ESMA will disclose its decision on new endorsable non-EU countries upon adoption of the relevant deci-sion. ESMA is conscious that there could be significant market impact if ahead of the end of April 2012 deadline there will be no clarity about the likely endorsability status of these countries and is therefore actively working to, where possible, finalise the assessments and conclude relevant cooperation agreements in the first quarter of 2012. However, although ESMA expects to be able to adopt its endorsement decision for the majority of such countries – which will allow for the permanent endorsement of the over-whelming majority of the third-country credit ratings currently used in the EU – ESMA cannot guarantee that it will be able to endorse all such countries by 30 April 2012.
As regards all the other countries for which CRAs applied for endorsement,3 it is clear that market partici-pants should take precautionary measures before 30 April 2012 as it is likely that credit ratings issued in these countries will not be endorsed after that date.
First regulatory technical standards on CRAs adopted
On 20 December 2011, ESMA adopted its first four draft Regulatory Technical Standards (RTS) on Credit Rating Agencies (CRAs). In accordance with the CRA Regulation4, these four RTS were sent for endorse-ment to the European Commission. They will be directly applicable in all Member States upon the date of endorsement. The four RTS contribute to the establishment of harmonised standards in financial services, to ensure a level playing field and adequate protection for investors and consumers across the European Union.
The new draft standards complement the CRA Regulation by introducing detailed specifications for CRAs for the information they have to provide to ESMA at the moment of registration, certification, and during their periodic data reporting. Such information will be used by ESMA for its on-going supervision. In addition, the RTS detail the information that will be used for the disclosure on the past performance of credit rating, provided to the public through ESMA's central repository (CEREP) which will be made publically available in January 2012. Finally, the RTS provide detailed specifications on the compliance of credit rating methodologies with the CRA Regulation.
Standards detail requirements for registration, data reporting, and rating methodologies
The four RTSs provide standards of technical nature and cover the following areas:
- the information to be provided by a credit rating agency in its application for registration, for certification, and for the assessment of its systemic importance to the financial stability or in-tegrity of financial markets;5
- the presentation of the information, including structure, format, method and period of reporting, that credit rating agencies shall disclose in accordance with Article 11(2) and point 1 of Part II of Section E of Annex I;
- the assessment of compliance of credit rating methodologies with the requirements set out in Article 8(3);
- the content and format of periodic reporting to be requested from the credit rating agencies for the purpose of on-going supervision by ESMA.
