On Friday 17 November, the European Securities and Markets Authority (ESMA) made changes to its guidelines on the application of the endorsement procedure for ratings issued outside the EU by European credit ratings agencies (CRA), which are agencies that issue independent opinions on the credit quality of an entity, debt, financial obligation or financial instrument.
Readers may recall that the endorsement procedure allows ratings issued outside the EU by a third-country CRA to be used in the EU, further to approval by a European CRA.
The main changes introduced by the European supervisor include the requirement for European CRAs to be able to demonstrate, when endorsing a credit rating issued outside the EU, that the third-country CRA met requirements at least as strict as those of the EU when putting together the rating. Although this condition has to date been considered automatically met by third-country CRAs located in a jurisdiction with a legal and supervisory framework that has been positively assessed by ESMA, the authority has now decided to move away from this presumption of automatic compliance.
Furthermore, ESMA's guidelines point out that its mandate gives it the right to ask European CRAs endorsing a rating issued outside the EU directly for regular information.
On the same day, ESMA also published a technical opinion addressed to the European Commission, assessing whether the legal and supervisory frameworks of nine jurisdictions (Argentina, Australia, Brazil, Canada, Hong Kong, Japan, Mexico, Singapore and the United States) that have up to now been eligible for endorsement and equivalence regimes of the EU continued to meet the criteria under the third European regulation on CRAs of 2013 (known as 'CRA 3'), the endorsement and equivalence provisions of which will start to apply on 1 June 2018.
As regards the endorsement regime, ESMA confirms that the nine jurisdictions continue to meet the requirements set out and will therefore be able to continue to benefit from this regime after 1 June 2018. As regards equivalence, on the other hand, ESMA concluded that only the United States, Canada, Japan, Mexico and Hong Kong continued to meet the requirements. As equivalency falls within the exclusive remit of the Commission, ESMA calls upon it to look into the possibility of granting a transition period to allow the competent authorities of the four jurisdictions that do not fully meet these requirements to develop their regulatory regimes.
The guidelines will apply from 1 January 2019, the authority states in a press release, in order to give the CRAs enough time to bring their procedures into line with these additions. (Original version in French by Marion Fontana)