On July 18, 2018, ESMA published a final report on the application of the endorsement regime under the EU CRA Regulation. The report contains ESMA's feedback statement for its earlier consultation on draft supplementary Guidelines as well as the final supplementary Guidelines.
The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with ESMA; or (ii) a third-country CRA under the endorsement regime or the equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA to be used for regulatory purposes in the EU provided that the rating has been endorsed by an EU CRA. The CRA Regulation sets out various conditions for such an endorsement.
The supplementary Guidelines add a new section to ESMA's Guidelines on the application of the endorsement regime under the CRA Regulation, published on November 17, 2017. The 2017 Guidelines updated the 2011 version to clarify that ESMA expects an endorsing CRA to verify, and be able to demonstrate, that the third-country CRA has established internal requirements which are at least as stringent as the corresponding requirements in the relevant provisions of the CRA Regulation, or that the third-country CRA fulfills the endorsement requirements under the CRA Regulation.
The supplementary Guidelines aim to help EU CRAs to assess whether the internal requirements of a third- country CRA can be considered as stringent as those in the CRA Regulation. The Guidelines set out the general principles supporting the "as stringent as" test and provide a non-exhaustive list of alternative internal requirements that ESMA considers satisfactory. The identified alternative requirements relate to:
- fees charged by CRAs;
- analyst rotation;
- pre-publication of issuer notification;
- certain rating disclosures, such as the transparency report, initial reviews and preliminary ratings; and
- the treatment of inside information.
The Guidelines will apply to EU CRAs registered with ESMA when they are endorsing or intending to endorse a credit rating issued by a third-country CRA. The Guidelines will apply to credit ratings issued on or after January 1, 2019 and to existing ratings reviewed after that date.
The final report and Guidelines are available at: https://www.esma.europa.eu/sites/default/files/library/esma33-9-246_final_report_supplementary_guidelines_on_endorsement.pdf and details of ESMA's consultation on draft Guidelines are available at: https://finreg.shearman.com/eu-authority-seeks-to-clarify-the-third-country-e.
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