New European Credit Rating Agency Approved by ESMA
The European Securities and Markets Authority (ESMA) has formally approved the registration of the Economist Intelligence Unit (EIU), based in the UK, as a credit rating agency (CRA) under Article 16 of the European CRA Regulation.
The registration of EIU as a new credit rating agency takes effect next week from 3 June 2013 onwards when operations will begin. The European CRA Regulation was introduced post-crash to improve the diversity of options available to treasurers and others, and address a perceived bias among Europeans that existing CRAs were unfairly downgrading the sovereign debt status of certain countries and suffered from a lack of transparency.
EIU’s registration as a CRA means that its credit ratings can henceforth be used for regulatory purposes under European Union (EU) legislation. A registered CRA must continue to comply, on a continuing basis, with the regulatory requirements set out under the European CRA Regulation.
There are currently 20 registered and two certified CRAs in the EU. Amongst the 20 registered CRAs, three operate under a group structure, totalling 16 legal entities in the EU, which means that the total number of CRA entities registered in the EU is in effect now 33.
ESMA’s supervisory mandate applies to all credit rating agencies established in the EU that issue credit ratings disclosed publicly or distributed by subscription. The exercise of that supervision includes the possibility to impose sanctions and other forms of penalties in case of breaches of the requirements established by Regulation. Those requirements include the obligation to be registered by ESMA before engaging in rating activities.
ESMA is an independent EU authority that was established on 1 January 2011 and works closely with the main tripartite European supervisory authorities – namely, the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and the European Systemic Risk Board (ESRB). ESMA’s mission is to enhance the protection of investors and promote stable and well-functioning financial markets in the EU.