Brussels, 29/04/2011 (Agence Europe) - The European financial industry has warned EU and national regulators about the procedure for using ratings by non-EU credit rating agencies when calculating capital requirements, warning that a restricted interpretation of the EU rules by the European Securities Markets Authority (ESMA) could cost European financial institutions dear. ESMA will soon be publishing guidelines in this connection, possibly in the next fortnight.
EU Regulation 1060/2009/EC covers two types of cases: - agencies registered in the EU that are the subsidiary of a big international company and allowed to endorse ratings made by another subsidiary of the same international company located outside the EU (thereby becoming responsible for the rating); and - rating agencies registered outside the EU that can be used in Europe as long as the European Commission has noted equivalence between EU law and the law of the country where the agency is registered and as long as there is a cooperation agreement among supervisors (see EUROPE 9883). This system would apply as at Tuesday 7 June 2011.
In a response to the public consultation organised in the spring by ESMA, the Association for the Financial Markets in Europe (AFME), says it is 'extremely concerned by the approach proposed in the consultation paper (by ESMA) under which requirements for the conduct of credit rating activities which are at least as stringent as those in the EU would need to be established by law or regulation in third country jurisdictions - which is not required by the Regulating and which has the very real potential to prohibit the use of credit ratings for regulatory purposes from major non-EU jurisdictions, including the US. This would result in multiple increases in regulatory capital requirements and significant market distortions.'
In the United States, application measures for the 'Dodd-Frank Act' on rating agencies are being drawn up but will not be passed until June 2011. ESMA is reported to be considering a transition period of three to six months during which the system would not apply. An expert suggests that the date of 7 June 2011 would still apply, but would not be applied until the new US rules come into force.
When the regulation giving ESMA supervisory powers over rating agencies registered in the EU came into force, nine Member States (Austria, Finland, Spain, Hungary, Ireland, Luxembourg, the Netherlands, the United Kingdom and Sweden) said that ESMA should clarify the procedure for endorsing ratings made outside the EU. So far, Japan is the only non-EU country whose legislation is judged to be equivalent to the EU rules. Only three ratings agencies have been registered to date, namely Euler Hermes Rating GmbH, Japan Credit Rating Agency Ltd and Feri EuroRating Services AG. (M.B./transl.fl)