Monday, October 13, 2014

Standards Adopted Implementing E.U. Credit Rating Agency Regulation

The European Commission adopted three proposed standards needed to implement key provisions of the Regulation on Credit Rating Agencies. The standards, which were proposed by the European Securities and Markets Authority (ESMA) set out the disclosure requirements for issuers, originators and sponsors on structured finance instruments; reporting requirements to credit rating agencies for the European Rating Platform; and reporting requirements for rating agencies by ESMA. Financial Services Commissioner Michel Barnier stated that implementing the revised Regulation on credit rating agencies by setting out reporting and disclosure requirements in three important areas marks another step in improving transparency and restoring confidence in the financial system.

The standard requiring enhanced disclosure around structured finance instruments is designed to improve investors’ ability to make an informed assessment of the risks related to such complex financial instruments. This disclosure obligation aims in particular at reducing investors’ dependence and reliance on credit ratings and reinforcing competition between credit rating agencies.

Another standard determines the content and the presentation of the information, including structure, format, method and timing of reporting that credit rating agencies must disclose to ESMA for the purpose of the European Rating Platform. ESMA will set up this Platform, which will allow investors to consult and easily compare all available credit ratings for all rated instruments.

Finally, the Commission approved a standard setting out the content and format of data on fees charged by credit rating agencies to their clients to be periodically reported to ESMA for the purpose of its ongoing supervision of rating agencies. The information collected under this standard will allow for the verification by ESMA of whether pricing practices are discriminatory and thereby facilitate fair competition and mitigate conflicts of interest.