[ParlTrack]

Proposal for a regulation
Recital 6 a (new)

(6a) In order to increase competition in a market which has been dominated by three credit rating agencies, measures should be taken to encourage the use of smaller agencies which do not have more than 10 % of the total market share, measured by revenue. It has been practice in recent times for issuers to seek ratings from two or more rating agencies, and therefore when two or more ratings are sought, at least one of these should be from a registered agency which has less than 10 % of the total market share.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 7

(7) The credit rating market shows that, traditionally, credit rating agencies and rated entities enter into long-lasting relationships. This raises the threat of familiarity, as the credit rating agency may become too sympathetic to the desires of the rated entity. In those circumstances, the impartiality of credit rating agencies over time could become questionable. Indeed, credit rating agencies mandated and paid by a corporate issuer are incentivised to issue overly favourable ratings on that rated entity or its debt instruments in order to maintain the business relationship with such issuer. Issuers are also subject to incentives that favour long-lasting relationships, such as the lock-in effect: an issuer may refrain from changing credit rating agency as this may raise concerns of investors regarding the issuer's creditworthiness. This problem was already identified in Regulation (EC) No 1060/2009, which required credit rating agencies to apply a rotation mechanism providing for gradual changes in analytical teams and credit rating committees so that the independence of the rating analysts and persons approving credit ratings would not be compromised. The success of those rules, however, was highly dependant on a behavioural solution internal to the credit rating agency: the actual independence and professionalism of the employees of the credit rating agency vis- à-vis the commercial interests of the credit rating agency itself. These rules were not designed to provide sufficient guarantee towards third parties that the conflicts of interest arising from the long-lasting relationship would effectively be mitigated or avoided. It therefore appears necessary to provide for a structural response having a higher impact on third parties. This could be achieved effectively by limiting the period during which a credit rating agency can continuously provide credit ratings on the same issuer or its debt instruments. Setting out a maximum duration of the business relationship between the issuer which is rated or which issued the rated debt instruments and the credit rating agency should remove the incentive for issuing favourable ratings on that issuer. Additionally, requiring the rotation of credit rating agencies as a normal and regular market practice should also effectively address the lock-in effect, where an issuer refrains from changing credit rating agency as this would raise concerns of investors regarding the issuer's creditworthiness. Finally, the rotation of credit rating agencies should have positive effects on the rating market as it would facilitate new market entries and offer existing credit rating agencies the opportunity to extend their business to new areas.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 8

(8) Regular rotation of credit rating agencies issuing credit ratings on an issuer or its debt instruments should bring more diversity to the evaluation of the creditworthiness of the issuer that selects and pays that credit rating agency. Multiple and different views, perspectives and methodologies applied by credit rating agencies should produce more diverse credit ratings and ultimately improve the assessment of the creditworthiness of the issuers. For this diversity to play a role and to avoid complacency of both issuers and credit rating agencies, the maximum duration of the business relationship between the credit rating agency and the issuer paying must be restricted to a level guaranteeing regular fresh looks at the creditworthiness of issuers. Therefore, a time period of three years would seem appropriate, also considering the need to provide certain continuity within the credit ratings. The risk of conflict of interest increases in situations where the credit rating agency frequently issues credit ratings on debt instruments of the same issuer within a short period of time. In those cases, the maximum duration of the business relationship should be shorter to guarantee similar results. Hence, the business relationship should stop after a credit rating has rated ten debt instruments of the same issuer. However, in order to avoid imposing a disproportionate burden on issuers and credit rating agencies, no requirement to change credit rating agency within the first 12 months of the business relationship should be imposed. Where an issuer mandates more than one credit rating agency, either because as an issuer of structured finance instruments he is obliged to do so, or on a voluntary basis, it should be sufficient that the strict rotation periods only apply to one of the credit rating agencies. However, also in this case, the business relationship between the issuer and the additional credit rating agencies should not exceed a period of six years.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 9

(9) The rule requiring rotation of credit rating agencies needs to be enforced in a credible manner to be meaningful. The rotation rule would not achieve its objectives if the outgoing credit rating agency were allowed to provide rating services to the same issuer again within a too short period of time. Therefore, it is important to provide for an appropriate period within which such credit rating agency may not be mandated by the same issuer to provide rating services. That period should be sufficiently long to allow the incoming credit rating agency to effectively provide its rating services to the issuer, to ensure that the issuer is truly exposed to a new scrutiny under a different approach and to guarantee that the credit ratings issued by the new credit rating agency provide enough continuity. That period should allow that an issuer cannot rely on comfortable arrangements with only two credit rating agencies that would replace each other on a continuous basis, as this could lead to maintaining the familiarity threat. Hence, the period during which the outgoing credit rating agency should not provide rating services to the issuer should generally be set at four years.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 10

(10) The change of credit rating agency inevitably increases the risk that knowledge about the rated entity acquired by the outgoing rating agency is lost. As a result, the incoming credit rating agency would have to make considerable efforts to acquire the knowledge necessary to carry out its work. However, a smooth transition should be ensured by establishing a requirement on the outgoing credit rating agency to transfer relevant information on the rated entity or instruments to the incoming credit rating agency.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 11

(11) Requiring issuers to regularly change the credit rating agency they mandate to issue credit ratings is proportionate to the objective pursued. This requirement only applies to certain regulated institutions (registered credit rating agencies) which provide a service affecting the public interest (credit ratings that can be used for regulatory purposes) under certain conditions (issuer-pays model). The privilege of having its services recognised as playing an important role in the regulation of the financial services market and being approved to carry out this function, entails the need to respect certain obligations in order to guarantee independence and the perception of independence in all circumstances. A credit rating agency which is prevented from providing credit rating services to a particular issuer would still be allowed to provide credit ratings to other issuers. In a market context where the rotation rule applies to all players, business opportunities will arise since all issuers would need to change credit rating agency. Moreover, credit rating agencies may always issue unsolicited credit ratings on the same issuer, capitalising on their experience. Unsolicited ratings are not constrained by the issuer-pays model and therefore are less affected by potential conflicts of interests. For issuers, the maximum duration of the business relationship with a credit rating agency or the rule on the employment of more than one credit rating agency also represents a restriction on their freedom to conduct their own business. However, this restriction is necessary on public- interest grounds considering the interference of the issuer-pays model with the necessary independence of credit rating agencies to guarantee independent credit ratings that can be used by investors for regulatory purposes. At the same time, these restrictions do not go beyond what is necessary and should rather be seen as an element increasing the issuer's creditworthiness towards other parties, and ultimately the market.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 19

(19) It is important to ensure that modifications to the rating methodologies do not result in less rigorous methodologies. For that purpose, issuers, investors and other interested parties should have the opportunity to comment on any intended significant change of rating methodologies. This will help them to understand the reasons behind new methodologies and for the change in question. Comments provided by issuers and investors on the draft methodologies may provide valuable input for the credit rating agencies in defining the methodologies. Moreover, ESMA should verify and confirm the compliance of new rating methodologies with Article 8(3) of Regulation (EC) No 1060/2009 and the relevant regulatory technical standard before methodologies are applied in practice. ESMA should verify that the proposed methodologies are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing.be notified of new rating methodologies However, this ~~ver~~notification process should not grant ESMA any power to judge the appropriateness of the proposed methodology or the content of the credit ratings issued following the application of the methodologies.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 24

(24) Credit ratings, whether issued for regulatory purposes or not, may have a significant impact on investment decisions. Hence, credit rating agencies have an important responsibility towards investors in ensuring that they comply with the rules of Regulation (EC) No 1060/2009 so that their ratings are independent, objective and of adequate quality. However, in the absence of a contractual relationship between the credit rating agency and the investor, investors are not always in a position to enforce the agency's responsibility towards them. Therefore, it is important to provide for an adequate right of redress for investors who relied on a credit rating issued in breach of the rules of Regulation (EC) No 1060/2009. The investor should be able to hold the credit rating agency liable for any damage caused by an infringement of that Regulation which had an impact on the rating outcome. Infringements which do not impact the rating outcome, such as breaches of transparency obligations, should not trigger civil liability claims.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 25

(25) Credit rating agencies should only be held liable if they infringe intentionally or with gross negligence any obligations imposed on them by Regulation (EC) No 1060/2009. This standard of fault means that credit rating agencies should not face liability claims if they neglect individual obligations under the Regulation without disregarding their duties in a serious way. This standard of fault is appropriate because the activity of credit rating involves a certain degree of assessment of complex economic factors and the application of different methodologies may lead to different rating results, non of which can be qualified as incorrect.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 26

(26) It is important to provide investors with an effective right of redress against credit rating agencies. As investors do not have close insight in internal procedures of credit rating agencies a partial reversal of the burden of proof with regard to the existence of an infringement and the infringement's impact on the rating outcome seems to be appropriate if the investor has made a reasonable case in favour of the existence of such an infringement. However, the burden of proof as regards the existence of a damage and the causality of the infringement for the damage, both being closer to the sphere of the investor, should fully be on the investor.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 27

(27) Regarding matters concerning the civil liability of a credit rating agency ~~and which are not covered by this regulation~~, such matters should be governed by the applicable national law determined by the relevant rules of International Private Law. The competent court to decide on a claim for civil liability brought by an investor should be determined by the relevant rules on International Jurisdiction.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Recital 28

(28) The fact that institutional investors including investment managers are obliged to carry out their own assessment of the creditworthiness of assets should not prevent courts from finding that an infringement of this Regulation by a credit rating agency has caused damage to an investor for which that credit rating agency is liable. While this Regulation will improve the possibilities of investors to make an own risk assessment they will continue to have more limited access to information than the credit agencies themselves. Furthermore, in particular smaller investors often will lack the capability to critically review an external rating provided by a credit rating agency.deleted

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 6

Regulation (EC) No 1060/2009
Article 5 c (new)

Article 5c Overreliance on credit ratings in Union law The Commission shall continue to monitor reliance on the published ratings of credit rating agencies in European standards, law and regulations. The Commission shall report to the European Parliament and the Council in its report pursuant to Article 35(4) on remaining provisions in legal acts of the Union which result in mechanistic reliance on such ratings and on the possibilities of repealing them.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 8

Regulation (EC) No 1060/2009
Article 6b

Article 6b Maximum duration of the contractual relationship with a credit rating agency 1. Where a credit rating agency has entered into a contract with an issuer or its related third party for the issuing of credit ratings on that issuer, it shall not issue credit ratings on that issuer for a period exceeding three years. 2. Where a credit rating agency has entered into a contract with an issuer or its related third party for the issuing of credit ratings on the debt instruments of that issuer, the following shall apply: (a) when those credit ratings are issued within a period exceeding an initial period of twelve months but shorter than three years, the credit rating agency shall not issue any further credit ratings on those debt instruments from the moment that ten debt instruments have been rated; (b) when at least ten credit ratings are issued within an initial period of twelve months, that credit rating agency shall not issue any further credit ratings on those debt instruments after the end of that period; (c) when less than ten credit ratings are issued, the credit rating agency shall not issue any further credit ratings on those debt instruments from the moment a period of 3 years have elapsed. 3. Where an issuer has entered into a contract regarding the same matter with more than one credit rating agency, the limitations set out in paragraphs 1 and 2 shall only apply to one of these agencies. However, none of these agencies shall have a contractual relationship with the issuer exceeding a period of six years. 4. The credit rating agency referred to in paragraphs 1 to 3 shall not enter into a contract with the issuer or its related third parties for the issuing of credit ratings on the issuer or its debt instruments for a period of four years from the end of the maximum duration period of the contractual relationship referred to in paragraphs 1 to 3. The first subparagraph shall also apply to: (a) a credit rating agency belonging to the same group of credit rating agencies as the credit rating agency referred to in paragraphs 1 and 2; (b) a credit rating agency which is a shareholder or member of the credit rating agency referred to in paragraphs 1 and 2; (c) a credit rating agency in which the credit rating agency referred to in paragraph 1 and 2 is a shareholder or member. 5. Paragraphs 1 to 4shall not apply to sovereign ratings. 6. Where following the end of the maximum duration period of the contractual relationship, pursuant to the rules in paragraphs 1 and 2, a credit rating agency is replaced by another credit rating agency, the exiting credit rating agency shall provide the incoming credit rating agency with a handover file. Such file shall include relevant information concerning the rated entity and the rated debt instruments as may reasonably be necessary to ensure the comparability with the ratings carried out by the exiting credit rating agency. The exiting rating agency shall be able to demonstrate to ESMA that such information has been provided to the incoming credit rating agency. 7. ESMA shall develop draft regulatory technical standards to specify technical requirements on the content of the handover file referred to in paragraph 5. ESMA shall submit those draft regulatory technical standards to the Commission by 1 January 2013. Power is delegated to the Commission to adopt the regulatory technical standards referred to in this paragraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010.deleted (This amendment applies throughout the text. Adopting it will necessitate corresponding changes throughout.)

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 8

Regulation (EC) No 1060/2009
Article 6b a (new)

Article 6ba Ensuring competition in the market for credit ratings 1. The Commission shall report annually on competition in the market for credit ratings, and shall publish figures on the percentage of the total market held by registered credit rating agencies, measured by revenue. 2. Where an issuer seeks more than two ratings from registered credit rating agencies, at least one shall be commissioned from a credit rating agency which has less than 10 % of the total market share for credit ratings, as assessed by the Commission

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 10 – point d – point i

Regulation (EC) No 1060/2009
Article 8 – paragraph 6 – introductory part

6. W~~hen methodologies, models or key assumptions used in credit rating activities are changed following the decision of ESMA referred to in paragraph 3 of Article 22a, a credit rating agency shall:~~ithout undue delay, if the change is significant, inform ESMA;

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 11

Regulation (EC) No 1060/2009
Article 8a – paragraph 1

1. The issuer, ~~the~~ originator and ~~the~~ sponsor of a structured finance instrument established in the Union shall disclose to the public, in accordance with paragraph 4, information on the credit quality and performance of the individual underlying assets of the structured finance instrument, the structure of the securitization transaction, the cash flows and any collateral supporting a securitisation exposure as well as any information that is necessary to conduct comprehensive and well informed stress tests on the cash flows and collateral values supporting the underlying exposures. For these purposes, an originator or sponsor which complies with Article 122a(7) of Directive 2006/48/EC, taking into account all guidance provided by the EBA and/or the Committee of European Banking Supervisors concerning such requirements, shall be deemed to meet the disclosure requirements set out in this Article.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 11

Regulation (EC) No 1060/2009
Article 8a – paragraph 3 – subparagraph 2

ESMA shall submit those draft regulatory technical standards to the Commission by 1 January 2013.4. ESMA shall ensure that those technical standards are consistent with those developed by the EBA under Article 399(2) of [CRR when it comes into effect]

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 14

Regulation (EC) No 1060/2009
Article 11a – paragraph 2 a (new)

2a. In carrying out its duties under Articles 11 and 11a, ESMA shall act impartially and fairly. In particular, ESMA shall not express any opinion or observation as to the relative strengths or merits of any of the credit rating agencies concerned.

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 1 – point 20

Regulation (EC) No 1060/2009
Article 35a

(20) The following Title IIIa is inserted after Article 35: 1. Where a credit rating agency has committed intentionally or with gross negligence any of the infringements listed in Annex III having an impact on a credit rating on which an investor has relied when purchasing a rated instrument, such an investor may bring an action against that credit rating agency for any damage caused to that investor. 2. An infringement shall be considered to have an impact on a credit rating if the credit rating that has been issued by the credit rating agency is different from the rating that would have been issued had the credit rating agency not committed that infringement. 3. A credit rating agency acts with gross negligence if it seriously neglects duties imposed upon it by this Regulation. 4. Where an investor establishes facts from which it may be inferred that a credit rating agency has committed any of the infringements listed in Annex III, it will be for the credit rating agency to prove that it has not committed that infringement or that that infringement did not have an impact on the issued credit rating. 5. The civil liability referred to in paragraph 1 shall not be excluded or limited in advance by agreement. Any clause in such agreements excluding or limiting the civil liability in advance shall be deemed null and void.’deleted ‘TITLE IIIa CIVIL LIABILITY OF CREDIT RATING AGENCIES Article 35a Civil liability

2012/04/17
Committee: ECON

Ashley FOX

Proposal for a regulation
Article 2 – paragraph 2

However, ~~points (7), (9), (10), (12), (13) and (25) of Article 1 of this Regulation shall apply from 1 June 2014~~ for the purposes of the assessment referred to in Article 4(3)(b) and in point (b) of the second subparagraph of Article 5(6) of Regulation (EC) No Regulation (EC) No 1060/2009 as to whether third country requirements are at least as stringent as the requirements set out in Articles 6 to 12 of that Regulation: (1) points (9), (10), (12), (13) and (14) of Article 1, and point (11) as regards Article 8a of Regulation (EC) No 1060/2009, shall apply from 1 June 2016; and (2) points (7) and (8) of this Regulation, and point (11), as regards Article 8b of Regulation (EC) No 1060/2009, shall not apply.

2012/04/17
Committee: ECON

Activities of Ashley FOX related to 2011/0361(COD)

Shadow reports (1)

Amendments (21)

ParlTrack - 2011-2024