COMMISSION DELEGATED REGULATION (EU) No 449/2012
of 21 March 2012
supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regard to regulatory technical standards on information for registration and certification of credit rating agencies
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (1), and in particular points (a) and (b) of Article 21(4) thereof,
Whereas:
(1)
In accordance with the general objectives of Regulation (EC) No 1060/2009, in particular the contribution to the quality of credit ratings issued in the Union, financial stability, consumer and investor protection, this Regulation should ensure that the information to be submitted to the European Securities and Markets Authority (ESMA) during the registration and certification processes, is provided following uniform rules, so that ESMA is able to make an informed decision on the registration or certification of a credit rating agency.
(2)
The longer-term benefits of the additional information are expected to outweigh any potential additional short-term costs of registration, in terms of investor protection and financial stability.
(3)
This Regulation should set out the information that ESMA is to receive as part of an application for registration by a credit rating agency. Certain information requested in this Regulation might not be applicable to a newly established credit rating agency because it might have applied for an exemption, lack previous experience in the credit rating business, or other reasons. This Regulation should not create a barrier of entry to newly established credit rating agencies willing to enter the market. Nevertheless, an applicant should provide a clear explanation for not submitting any specific information contained in that application.
(4)
Any information submitted to ESMA should be provided in a durable medium which enables its storage for future use. In order to facilitate the identification of the information submitted by a credit rating agency, all documents should be identified by a reference number.
(5)
In order for ESMA to assess if any conflicts of interest arising from the activities and business interests of the owners of a credit rating agency might affect the independence of a credit rating agency, a credit rating agency should be required to give information regarding its owners activities and the ownership of its parent undertaking.
(6)
A credit rating agency should provide information on the composition, functioning and independence of its governing bodies in order for ESMA to be able to assess whether the corporate governance structure ensures the independence of the credit rating agency and the avoidance of conflicts of interest.
(7)
In order to allow ESMA to assess the good repute as well as the experience and skills of the senior management, a credit rating agency should provide the curriculum vitae, recent criminal record and self-declarations on the good repute of its senior management.
(8)
For the purposes of assessing how conflicts of interest are eliminated or managed and disclosed, a credit rating agency should provide ESMA with an up-to-date inventory of existing and potential conflicts of interest covering at least the conflicts arising from the carrying out of ancillary services, the outsourcing of rating activities and the interaction with related third parties. When identifying the conflicts of interest for the inventory, a credit rating agency should consider conflicts of interest which might arise from entities which belong to the global group of undertakings to which it belongs. Therefore, intra-group arrangements concerning allocation of tasks and the provision of ancillary services by different entities within the group of undertakings should be taken into consideration.
(9)
Although the branches of a credit rating agency established in the Union are not legal persons, those agencies should provide separate information as regards their branches so as to enable ESMA to clearly identify the position of the branches in the organisational structure, assess the fitness and appropriateness of the senior management of the branches and evaluate whether the control mechanisms, compliance and other functions in place, are considered to be robust enough to identify, evaluate and manage the branches’ risks in an appropriate manner.
(10)
The information requested regarding possible conflicts of interests with ancillary services should refer to all businesses of the credit rating agency which are not part of the rating activities.
(11)
In order to enable ESMA to assess whether a third-country regulatory framework for CRAs may be considered ‘as stringent as’ the Union regime in place, a credit rating agency intending to endorse ratings issued in that third country should provide ESMA with detailed information on the third-country regulatory framework and how it compares to the Union regime in place. Where such information is already available to ESMA, from other applications for endorsement, and ESMA takes the view that the third-country regulatory framework may be considered to be as stringent as the Union regime in place, the applicant credit rating agencies should be exempted from submitting this information. In any case, the applicant credit rating agencies shall demonstrate that the conduct of credit rating activities by the third-country credit rating agency resulting in the issuing of the credit rating to be endorsed fulfils the requirements under the third-country regime and that there are procedures to monitor the conduct of credit rating activities by the third-country credit rating agency.
(12)
This Regulation should set out the information that a credit rating agency must provide in its application for certification and for the assessment of its systemic importance to the financial stability or integrity of financial markets referred to in Article 5 of Regulation (EC) No 1060/2009. The systemic importance of the credit rating agency and its rating activities to the stability of one or more Member States should be measured in this Regulation in terms of the size of its rating activities and interconnectedness of the users of its credit ratings in the Union.
(13)
This Regulation is based on the draft regulatory technical standards submitted by ESMA to the Commission pursuant to the procedure laid down in Article 10 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (2).
(14)
ESMA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Securities and Markets Stakeholder Group established under Article 37 of Regulation (EU) No 1095/2010,
HAS ADOPTED THIS REGULATION:
CHAPTER 1
SUBJECT MATTER
Article 1
Subject matter
This Regulation lays down the rules which determine the information to be provided to ESMA by a credit rating agency in its application for:
(a)
registration, as set out in Annex II to Regulation (EC) No 1060/2009; or
(b)
certification and for the assessment of its systemic importance to the financial stability or integrity of financial markets referred to in Article 5 of Regulation (EC) No 1060/2009.
CHAPTER 2
REGISTRATION
SECTION 1
General
Article 2
Format of the application
1. An application for registration shall be provided in an instrument which stores information in a way accessible for future reference and which allows the unchanged reproduction of the information stored.
2. A credit rating agency shall give a unique reference number to each document it submits. It shall ensure that the information it submits clearly identifies to which specific requirement of this Regulation it refers and in which document that information is provided. The credit rating agency shall submit the table set out in Annex I as part of its application to clearly identify the document in which information required under this Regulation is provided.
3. If a requirement of this Regulation does not apply to a credit rating agency’s application, it shall state this in the table set out in Annex I and provide an explanation.
4. Where a group of credit rating agencies applies for registration, the application shall clearly identify each credit rating agency to which the information applies. When the same information applies to more than one credit rating agency within the group of credit rating agencies, for the purpose of filling in the table of Annex I, the same reference number shall be given for the common information.
Article 3
Attestation of the accuracy and completeness of the application
Any information submitted to ESMA during the registration or certification process shall be accompanied by a letter signed by a member of the credit rating agency’s senior management or a representative authorised by the senior management, attesting that the submitted information is accurate and complete to the best of their knowledge, as of the date of that submission.
Article 4
Number of employees
Any information regarding the number of employees shall be provided on a full time equivalent basis calculated as the total hours worked divided by the maximum number of hours subject to compensation within a working year as defined by the relevant national law.
Article 5
Class of credit ratings
Any information regarding the class of credit ratings shall use the following ratings classes:
(a)
sovereign and public finance ratings;
(b)
structured finance ratings;
(c)
corporate ratings:
(i)
financial institution including credit institutions and investment firms;
(ii)
insurance undertaking;
(iii)
corporate issuer that is not considered a financial institution or an insurance undertaking.
Article 6
Policies and procedures
1. Policies and procedures provided in an application shall contain or be accompanied by:
(a)
an indication of who is responsible for the approval and maintenance of the policies and procedures;
(b)
a description of how compliance with the policies and procedures will be enforced and monitored and who is responsible for this;
(c)
a description of the measures undertaken in the event of a breach of the policies;
(d)
an indication of the procedure for reporting to ESMA a material breach of the policy or procedure which may result in a breach of the conditions for initial registration or certification.
2. A credit rating agency may fulfil the obligation to provide information regarding its policies and procedures under this Regulation by submitting a copy of the relevant policies and procedures.
Article 7
Identification, legal status and class of credit ratings
A credit rating agency shall provide ESMA with:
(a)
the information listed in Annex II to this Regulation;
(b)
an excerpt from the relevant commercial or court register, or other form of evidence of the place of incorporation and scope of business activity of the credit rating agency, as of the application date.
SECTION 2
Ownership structure
Article 8
Owners and parent undertaking of a credit rating agency
1. A credit rating agency shall provide ESMA with:
(a)
a list of each person who directly or indirectly holds 5 % or more of the credit rating agency’s capital or of voting rights or whose holding makes it possible to exercise a significant influence over the management of the credit rating agency;
(b)
the information set out in points 1 and 2 of Annex III in relation to each such person.
2. A credit rating agency shall also provide the following information to ESMA:
(a)
a list of any undertakings in which a person referred to in paragraph 1 holds 5 % or more of the capital or voting rights or over whose management that person exercises a significant influence;
(b)
an identification of their business activity referred to in point 3 of Annex III.
3. Where a credit rating agency has a parent undertaking, it shall:
(a)
identify the country where the parent undertaking is established;
(b)
indicate whether the parent undertaking is authorised or registered and subject to supervision.
Article 9
Ownership chart
A credit rating agency shall provide ESMA with a chart showing the ownership links between any parent undertaking, subsidiaries and any other associated entities established in the Union and their branches. The undertakings shown in the chart shall be identified by their full name, legal status and address of the registered office and head office.
SECTION 3
Organisational structure and corporate governance
Article 10
Organisational chart
A credit rating agency shall provide ESMA with an organisational chart detailing its organisational structure, including a clear identification of significant roles and the identity of the person responsible for each significant role. Significant roles shall include at least senior management, persons who direct the activities of the branches and senior rating analysts. Where the credit rating agency conducts ancillary services, the organisational chart shall also detail its organisational structure in respect of those services.
Article 11
Organisational structure
1. A credit rating agency shall provide to ESMA information regarding its policies and procedures in relation to its compliance function as set out in point 5 of Section A of Annex I to Regulation (EC) No 1060/2009, review function as set out in point 9 of Section A of Annex I to Regulation (EC) No 1060/2009 and information regarding its policies and procedures established to meet the requirements set out in points 4 and 10 of Section A of Annex I to Regulation (EC) No 1060/2009.
The information provided under this paragraph shall include the information set out in Annex IV points 1, 3 and 4.
2. Where the policies and procedures referred to in paragraph 1 are carried out at group of undertakings level, a credit rating agency shall also provide ESMA with the information set out in Annex IV point 2.
3. A credit rating agency shall also provide ESMA with the information set out in Annex X.
Article 12
Corporate governance
1. A credit rating agency shall provide ESMA with information regarding its internal corporate governance policies and the procedures and terms of reference which govern its senior management, including the administrative or supervisory board, its independent members and, where established, committees.
2. Where a credit rating agency adheres to a recognised corporate governance code of conduct, it shall identify the code and provide an explanation for any situations where it deviates from the code.
3. A credit rating agency shall provide the information set out in points 1 and 2 of Annex V on the members of its administrative or supervisory board.
4. A credit rating agency shall provide ESMA with a copy of the documents referred to in point 3 of Annex V.
SECTION 4
Financial resources for the performance of credit rating activities
Article 13
Financial reports
1. A credit rating agency shall provide ESMA with a copy of its annual financial reports, including individual and consolidated financial statements where applicable, for the three financial years preceding the date of the submission of its application to the extent available. Where the financial statements of the credit rating agency are subject to statutory audit within the meaning given in Article 2(1) of Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts (3), the financial reports shall include the audit report on the annual and consolidated financial statement.
2. Where the financial reports referred to in paragraph 1 are not available for the requested period of time, a credit rating agency shall provide ESMA with an interim financial report.
3. Where the credit rating agency is a subsidiary of a group of undertakings, it shall provide the annual financial reports of the parent undertaking for the three financial years preceding the date of the submission of its application.
4. A credit rating agency shall provide ESMA with a description of the measures it has adopted to ensure sound accounting procedure.
SECTION 5
Staffing and compensation
Article 14
Staffing policies and procedures
1. A credit rating agency shall provide ESMA with information regarding the following policies and procedures:
(a)
reporting to the compliance officer of any situations where one of the persons referred to in point 1 of Section C of Annex I to Regulation (EC) No 1060/2009 considers that any other such person has engaged in conduct that he or she considers illegal, pursuant to the provisions of point 5 of Section C of Annex I to Regulation (EC) No 1060/2009;
(b)
the rotation of lead rating analysts, rating analysts and persons approving credit rating;
(c)
the compensation and performance evaluation practices for rating analysts, persons approving credit ratings, senior management and the compliance officer;
(d)
the training and development relevant to the rating process, including any examination or other type of formal assessment required for the conduct of rating activities.
2. A credit rating agency shall also provide ESMA with:
(a)
a description of the measures in place to mitigate the risk of over-reliance on individual employees;
(b)
for each class of credit ratings, information on the size and experience of the quantitative teams responsible for developing and reviewing methodologies and models;
(c)
the name and function of any employee of the credit rating agency who has obligations, either individually or on behalf of the credit rating agency, to any other entity within the group of credit rating agencies;
(d)
the average annual fixed and variable remuneration of the rating analysts, lead analysts and the compliance officer for each of the preceding three financial years.
3. A credit rating agency shall describe the arrangements in place to ensure that it is informed when a rating analyst terminates his or her employment and joins a rated entity as set out in point 6 of Section C of Annex I to Regulation (EC) No 1060/2009. A credit rating agency shall describe the arrangements in place to ensure that the persons referred in point 1 of Section C of Annex I to Regulation (EC) No 1060/2009 are aware of the prohibition established as set out in point 7 of Section C of Annex I to Regulation (EC) No 1060/2009.
Article 15
Fitness and appropriateness
1. A credit rating agency shall provide ESMA with the curriculum vitae, including employment history with relevant dates, identification of positions held and a description of the functions occupied, for each of the following:
(a)
members of senior management;
(b)
persons appointed to direct the business of the branches;
(c)
officers responsible for internal audit, internal control, compliance function, risk assessment and review function.
2. A credit rating agency shall provide ESMA with the following information in respect of each member of its senior management:
(a)
a recent criminal-record file from the country of origin of the relevant person, unless the relevant national authorities do not issue such a file;
(b)
a self-declaration of their good repute including at least the statements set out in Annex VI and signed by the individual.
SECTION 6
Issuance and review of credit ratings
Article 16
Development, validation, review and disclosure of rating methodologies
1. A credit rating agency shall provide ESMA, for each class of credit rating, with a high-level description of the range of core models and methodologies used to determine credit ratings.
2. A credit rating agency shall provide ESMA with the following information regarding its policies and procedures:
(a)
information regarding the development, validation and review of its rating methodologies, including at least the information set out in point 1 of Annex VII;
(b)
information regarding the disclosure of the credit methodologies and descriptions of models and key rating assumptions used in its credit rating activities as set out in point 5 of Part I of Section E of Annex I to Regulation (EC) No 1060/2009.
Article 17
Issuance of credit ratings
1. A credit rating agency shall provide ESMA with the following information:
(a)
the rating nomenclatures used for each class of credit rating;
(b)
the definition of any rating action and statuses used by the credit rating agency;
(c)
its policies and procedures regarding the issuance of credit ratings, including at least the information set out in point 2 of Annex VII;
(d)
the terms of reference of any rating committees;
(e)
a description of the arrangements in place for disclosing a rating decision, including at least the information set out in point 3 of Annex VII;
(f)
a description of the procedures in place to ensure that a methodology is applied and implemented consistently across classes of credit rating, offices and regions.
2. A credit rating agency shall identify any differences between the treatment of unsolicited and solicited ratings in the policies and procedures provided under points (c) and (e) of paragraph 1.
3. Where the rating process is regularly audited by an independent third party, a credit rating agency shall provide ESMA with the last audit report.
4. A credit rating agency shall also provide ESMA with the following information:
(a)
details and criteria for the selection of data providers;
(b)
details on the reliability of internal and external data input into rating models;
(c)
details of the data sources used.
Article 18
Monitoring of credit ratings
A credit rating agency shall provide ESMA with information regarding its policies and procedures concerning:
(a)
the monitoring of ratings, identifying any differences between solicited and unsolicited ratings, and including at least the information set out in point 4 of Annex VII;
(b)
the disclosure of the decision to review or change a rating;
(c)
the monitoring of the impact of changes in macroeconomic or financial market conditions on credit ratings as described in Article 8(5) of Regulation (EC) No 1060/2009.
SECTION 7
Description of issue and review procedures and methodologies
Article 19
Credit rating presentation requirements
A credit rating agency shall provide ESMA with information regarding the following items:
(a)
policies and procedures with respect to the credit rating disclosure requirements laid down in the following provisions of Regulation (EC) No 1060/2009:
(i)
paragraphs 1, 2 and 5 of Article 10;
(ii)
Part I of Section D of Annex 1;
(b)
where the credit rating agency rates structured instruments, policies and procedures with respect to the following provisions of Regulation (EC) No 1060/2009:
(i)
Article 10(3);
(ii)
point 4 of Section B of Annex I;
(iii)
Part II of Section D of Annex I;
(c)
samples of typical credit rating reports or other documents demonstrating how the credit rating agency meets or intends to meet these disclosure requirements; and
(d)
samples of typical rating letters for each class of credit rating produced by the credit rating agency.
SECTION 8
Conflicts of interest
Article 20
Independence and avoidance of conflicts of interest
1. A credit rating agency shall provide ESMA with information regarding its policies and procedures with respect to the identification, management and disclosure of conflicts of interest and the rules on rating analysts and other persons directly involved in credit rating activities covering at least the requirements set out in Annex VIII.
2. A credit rating agency shall describe the process used to ensure that the relevant persons are aware of the policies and procedures referred to in paragraph 1. A credit rating agency shall describe the arrangements in place to ensure that the review function responsible for reviewing the methodologies set out in point 9 of Section A of Annex I to Regulation (EC) No 1060/2009 is independent of the business lines which are responsible for credit rating activities.
3. A credit rating agency shall describe the controls put in place, including the controls implemented through information systems, in order to comply with the requirements of paragraphs (2) and (3) of Article 7 of Regulation (EC) No 1060/2009 on the negotiation of fees and the rules on persons involved in rating activities.
4. A credit rating agency shall describe any other measures and controls put in place to ensure the independence of its rating analysts.
Article 21
Inventory of conflicts of interest
1. A credit rating agency shall provide ESMA with an up-to-date inventory of existing and potential conflicts of interest relevant to it. Where a credit rating agency is part of a group of undertakings, it shall include in the inventory any conflicts of interest arising from other entities which belong to its group of undertakings.
2. The inventory of existing and potential conflicts of interest shall identify the following potential conflicts of interest:
(a)
any potential conflicts of interest with related third parties;
(b)
any potential conflicts of interest arising from the carrying out of ancillary services and the outsourced rating activities;
3. The inventory referred to in paragraph 1 shall explain how the potential conflicts of interest are to be eliminated or managed and disclosed.
Article 22
Conflicts of interest with respect to ancillary services
1. A credit rating agency shall provide ESMA with a description of the resources, both human and technical, shared by the rating and ancillary services of the credit rating agency or shared with the group of undertakings to which it belongs.
2. A credit rating agency shall describe the arrangements in place to prevent, disclose and mitigate any existing or potential conflicts of interest between the rating business and ancillary services.
3. A credit rating agency shall provide ESMA with a copy of the results of any internal assessment performed to identify any existing or potential conflict of interest between the rating business and ancillary services.
SECTION 9
Programme of operations
Article 23
Information regarding the programme of operations
A credit rating agency shall provide ESMA with the annual information described in Annex IX covering a period of three years following the date of registration.
SECTION 10
Use of endorsement
Article 24
Expected use of endorsement
Where a credit rating agency intends to endorse credit ratings issued in third countries as set out in Article 4(3) of Regulation (EC) No 1060/2009, it shall provide ESMA with the information set out in Annex XI.
SECTION 11
Outsourcing
Article 25
Outsourcing requirements
1. Where a credit rating agency outsources any important operational functions, it shall provide ESMA with the following information:
(a)
its policies with respect to outsourcing;
(b)
an explanation on how it intends to identify, manage and monitor the risks posed by the outsourcing of important operational functions;
(c)
a copy of the outsourcing agreements between the credit rating agency and the entity to which the activities are outsourced;
(d)
a copy of any internal or external report on the outsourced activities issued in the past five years.
2. For the purposes of paragraph 1, important operational functions shall comprise rating review, lead analyst, rating methodology development and review, rating approval, internal quality control, data storage, IT systems, IT support and accounting.
CHAPTER 3
CERTIFICATION
SECTION 1
Application for certification
Article 26
Information for application for certification
1. A credit rating agency shall provide ESMA with the following information:
(a)
the general information requested in points 1 to 10 of Annex II;
(b)
the information regarding its owners referred to in Article 8;
(c)
the organisational chart referred to in Article 10;
(d)
details on the arrangements in place to prevent, disclose and mitigate any existing or potential conflicts of interest between the rating business and ancillary services;
(e)
the information referred to in Article 13 regarding the credit rating agency’s financial resources.
2. A credit rating agency shall provide ESMA with the following information regarding its business activities:
(a)
for the preceding three years, the number of employees contracted and involved in the rating and ancillary services both permanent and temporary;
(b)
if the applicant has a branch, the number of employees involved in the rating and ancillary business in each branch;
(c)
the number of rating analysts contracted to the applicant including, if the credit rating agency has a branch, the number of rating analysts contracted in each branch;
(d)
if a credit rating agency is planning to establish a new branch, a description of the type of business activities the new branch is expected to conduct, its full name and address and the timeframe for its establishment;
(e)
if a credit rating agency is planning to conduct any new ancillary services, a description of the new services and the timeframe for their commencement;
(f)
the revenue generated over the past three years by the credit rating agency from rating and ancillary services as a proportion of total revenue, presented on a financial year basis;
(g)
if the credit rating agency has one or more branches, the revenue generated over the past three years by each branch as a proportion of total revenue, presented on a financial year basis.
3. A credit rating agency shall also provide ESMA with the following information regarding the credit ratings it issues or proposes to issue:
(a)
the class of credit ratings;
(b)
the rating nomenclatures used for each class of credit rating;
(c)
the definition of any rating action and statuses used by the credit rating agency;
(d)
details of whether the credit rating agency produces solicited or unsolicited ratings or both;
(e)
for each class of credit rating, the number of years of experience it has in producing these ratings;
(f)
for each class of credit rating, the current or expected proportion of public ratings and private ratings.
4. The credit rating agency shall indicate whether it currently holds, or expects to apply for, External Credit Assessment Institution (ECAI) status in one or more Member States and, if so, it shall identify the relevant Member State.
Article 27
General requirements for the application for certification
A credit rating agency shall ensure that its application complies with Articles 2 to 6 regarding the format of its application, the attestation of its accuracy, the class of credit ratings, number of employees and the policies and procedures provided to ESMA.
SECTION 2
Systemic importance
Article 28
Systemic importance
A credit rating agency shall provide ESMA with the information set out in Annex XII regarding the systemic importance of its credit ratings and credit rating activities to the financial stability or integrity of the financial markets of one or more Member States.
CHAPTER 4
FINAL PROVISIONS
Article 29
Entry into force
This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 21 March 2012.