The Paris-based European Securities and Markets Authority (ESMA) published a consultation paper targeting the update of the 2011 Guidelines on the application of the endorsement regime under the Credit Rating Agencies (CRAs). According to the CRA Regulation, if the credit ratings made by a third country are endorsed by an EU CRA, they can be used for regulatory purposes in the EU, accordingly, it shall be regarded as if it was made by an EU CRA. The consultation paper takes into account the lessons learnt since the entry into force of the previous guidelines, i.e. ESMA plans to regulate the obligations of the endorsing CRA and ESMA’s supervisory powers over endorsed credit ratings.
According to the consultation paper, the endorsing CRA will be obliged to demonstrate that the conduct of the third-country CRA in practice and on an ongoing basis fulfils requirements that are as strict as the EU requirements. This condition shall be considered as fulfilled if a third-country CRA is based in a country, whose legal and supervisory framework has been positively assessed by ESMA and meets a minimum threshold of investor protection and financial stability. As to the supervisory powers of ESMA, it has the power to request information directly from the endorsing EU CRA about the conduct of the third-country CRA.
The consultation period of the CRA Regulations will close on 3 July 2017 and new requirements under CRA 3 will enter into force on 1 June 2018.