The Cyprus Securities and Exchange Commission ("CYSEC") has recently issued a circular drawing the attention of persons operating credit rating agencies ("CRAs") in Cyprus to Regulation (EC) No 1060/2009 of the European Parliament and of the Council, which puts in place a common regulatory regime for the publication of credit ratings.
Under this regime, which will become fully applicable in December 2010, all CRAs publishing credit ratings in the EU are required to apply for registration. In order to minimise the risk of conflicts of interest affecting ratings and improve transparency CRAs will not be allowed to offer consultancy services and they will be required to disclose the methodology and internal models and key rating assumptions they use to make their ratings.
The competent authority for the licensing and supervision of CRAs in the Republic of Cyprus is CYSEC, and persons established in the Republic which issue credit ratings which are disclosed publicly or distributed by subscription should apply for registration to the Committee of European Securities Regulators (CESR). Only legal persons can be registered as CRAs.
The circular also advises that from 7 December 2010 all Cyprus investment firms, credit institutions, insurance and reinsurance undertakings, undertakings for collective investment in transferable securities (UCITS) and institutions for occupational retirement provision should use only credit ratings issued by CRAs established in the European Community and registered in accordance with the Regulation for regulatory purposes, such as for the calculation of their capital adequacy requirements, for solvency purposes or for calculating risks in their investment activity.
It should be noted that further changes to the regulation of CRAs have been proposed by the European Commission which, if approved, will create a new European supervisory authority, the European Securities and Markets Authority, with exclusive supervisory powers over CRAs registered in the EU, including the European subsidiaries of international CRAs such as Fitch, Moody's and Standard & Poor's.
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