Regulation

EU Watchdog Regulates Use Of Foreign Credit Ratings

In the European Union, use of credit ratings that have their genesis outside the EU is about to get a little more stringent. Reuters reported that rating agencies operating “outside the bloc” must be “endorsed” by a credit rating agency that is in turn authorized by the European Securities and Markets Authority (ESMA).

The “Big Three” agencies – Moody’s, Standard & Poor’s and Fitch – have European operations in London, and as Brexit looms in March 2019, the Authority has adopted new rules that will take effect in January of that year. The new guidelines state that the trio of agencies will be treated as foreign firms that will need to be endorsed by the ESMA. They may need to relocate staff in tandem with Brexit, said the news report.

The guidelines also state that the ESMA can request and receive information about the internal operations of the credit ratings agencies. As noted in a statement by ESMA chair Steven Maijoor, “the updated guidelines make clear that ESMA can, and will, exercise its powers to request information from EU credit rating agencies about endorsed credit ratings” and must “verify” that the non-EU ratings are “at least as stringent” as EU requirements.

Taken together, Moody’s and S&P account for 76 percent of the EU ratings issued. Those agencies said they are reviewing the new guidelines.

The agency also stated that the endorsement procedures will continue to extend to – as listed alphabetically – Argentina, Australia, Brazil, Canada, Hong Kong, Japan, Mexico, Singapore and the United States.

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