[ParlTrack]

Proposal for a regulation
Recital 1

(1) Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies15 requires credit rating agencies to comply with rules of conduct in order to mitigate possible conflicts of interest, ensure high quality and sufficient transparency of ratings and the rating process. Following the amendments introduced by Regulation (EU) No 513/2011 of the European Parliament and of the Council, the European Securities and Markets Authority (ESMA) has been empowered to register and supervise credit rating agencies. This amendment complements the current regulatory framework for credit rating agencies. Some of the ~~issues addressed~~most important issues (conflicts of interests due to the issuer-pays model, disclosure for structured finance instruments) hadve been ~~identified, but not fully resolved by the existing rules. T~~addressed and the framework will need to be reviewed after having been in place for a reasonable period of time to assess whether it fully resolves these issues. Meanwhile the need to review transparency and procedural requirements specifically for sovereign ratings was highlighted by the current sovereign debt crisis.

2012/04/17
Committee: ECON

Burkhard BALZ

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

Burkhard BALZ

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

Burkhard BALZ

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

Burkhard BALZ

Proposal for a regulation
Recital 12

(12) One of the specificities of sovereign ratings is that the issuer-pays model generally does not apply. Instead, the majority of ratings are produced as unsolicited ratings, providing the basis for both solicited and unsolicited ratings of the financial institutions of the country concerned. It is therefore not necessary to require the rotation of credit rating agencies issuing sovereign ratings.deleted

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Recital 13

(13) The independence of a credit rating agency vis-à-vis a rated entity is also affected by possible conflict of interests of any of its significant shareholders with the rated entity: A shareholder of a credit rating agency could be a member of the administrative or supervisory board of a rated entity or a related third party. The rules of Regulation (EC) No 1060/2009 addressed this type of situation only as regards the conflicts of interest caused by rating analysts, persons approving the credit ratings or other employees of the credit rating agency. The Regulation was, however, silent as regards potential conflicts of interest caused by shareholders or members of credit rating agencies. With a view to enhancing the ~~perception of~~ independence of credit rating agencies vis- à-vis the rated entities, it is appropriate to extend the existing rules applying to conflicts of interest caused by employees of the credit rating agencies also to those caused by shareholders or members holding a significant position within the credit rating agency. Hence, the credit rating agency should ~~abstain from issuing credit ratings, or should disclose that the credit rating may be affected,~~immediately disclose where a shareholder or member holding 10% of the voting rights of that agency is also a member of the administrative or supervisory board of the rated entity or has invested in the rated entity. Moreover, where a shareholder or member is in a position to significantly influence the business activity of the credit rating agency, that person should ~~not provide~~disclose any consultancy or advisory services provided to the rated entity or a related third party regarding its corporate or legal structure, assets, liabilities or activities.

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Recital 17 a (new)

(17a) Increased competition in the sector does not automatically imply a better quality of ratings. Therefore, all rating agencies must comply with the highest standards of integrity, disclosure, transparency and conflict of interest management as set out in Regulation (EC) 1060/2009 in order to ensure the high quality of ratings and to avoid 'rating shopping'.

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Article 1 – paragraph 1 – point 6

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

Article 5c Overreliance on credit ratings in Union legislation To reduce the status of credit ratings, the regulatory framework shall refer to external credit ratings only where there is no other option. Existing sectoral legislation shall be amended as appropriate accordingly. ESMA shall provide recommendations on the development of own rating capacities so as to avoid automatic procyclical reactions to changes in ratings.

2012/04/17
Committee: ECON

Burkhard BALZ

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

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Article 1 – point 10 – point c

5a. A credit rating agency that intends to change or use any new rating methodologies, models or key rating assumptions shall publish the proposed changes or proposed new methodologies on its website ~~inviting stakeholders to submit comments for a period not shorter than one month,~~ together with a detailed explanation of the reasons for and the implications of the proposed changes or proposed new methodologies.

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Article 1 – point 10 – point c

(EC) 2009/2060
Article 8 – paragraph 5a – subparagraph 2

~~After expiry of the consultation period referred to in the first subparagraph, the credit rating agency shall notify ESMA~~ESMA shall be notified of the intended changes or proposed new methodologies.

2012/04/17
Committee: ECON

Burkhard BALZ

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

(EC) 1060/2009
Article 8 – paragraph 6 – introductory part

6. When 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:

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Article 1 – point 19 – point b

(EC) 2009/1060
Article 22a – paragraph 3 – subparagraph 1

3. ESMA shall also verify that any intended changes to rating methodologies notified by a credit rating agency in accordance with Article 8(5a) comply with the criteria laid down in Article 8(3) as specified in the regulatory technical standard referred to in point (d) of Article 21(4). ~~The credit rating agency may only apply the new rating methodology after ESMA has confirmed the methodology's compliance with Article 8(3)~~However, ESMA shall ensure that a certain variety of methodologies is maintained in order to encourage competition for the best methodologies between the rating agencies and to avoid harmonisation of methodologies. If ESMA detects any deviation, the credit rating agency shall remove this deviation within one month.

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Article 1 – point 20

(EC) 1060/2009
Article 35a – paragraph 4

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 committedbrings an action against a credit rating agency for damages arising from a credit rating issued in breach of this Article, the burden shall be on thate in~~fringement or~~vestor to prove that thate infringement ~~did not have~~had an impact on the issued credit rating and that this impact influenced the investor's investment decision.

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Annex 1 – point 1 – point b – point ii

Regulation (EC) No 1060/2009
Annex I – Section B – point 3 – paragraph 1 – point aa

(ii) the following point (aa) is inserted after point (a): ‘(aa) a shareholder or member of a credit rating agency holding, directly or indirectly, 10% or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, directly or indirectly owns financial instruments of the rated entity or a related third party or has any other direct or indirect ownership interest in that entity or party, other than holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance, which do not put him in a position to exercise significant influence on the business activities of the scheme;’deleted

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Annex 1 – point 1 – point b – point iii

Regulation (EC) No 1060/2009
Annex I – Section B – point 3 – paragraph 1 – point ba

(iii) the following point (ba) is inserted after point (b): ‘(ba) the credit rating is issued with respect to a rated entity or a related third party which directly or indirectly holds 10% or more of either the capital or the voting rights of that credit rating agency;’deleted

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Annex 1 – point 1 – point b – point iv

Regulation (EC) No 1060/2009
Annex I – Section B – point 3 – paragraph 1 – point ca

(iv) the following point (ca) is inserted after point (c): ‘(ca) a shareholder or member of a credit rating agency holding, directly or indirectly, 10% or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, is a member of the administrative or supervisory board of the rated entity or a related third party;’deleted

2012/04/17
Committee: ECON

Burkhard BALZ

Proposal for a regulation
Annex 1 – point 1 – point b a (new)

Regulation (EC) No 1060/2009
Annex I – Section B – point 3-a (new)

(ba) the following point is inserted after point 3: "3-a. Where a credit rating agency has issued a credit rating or rating outlook it shall disclose the following, within three working days of becoming aware that the credit rating or rating outlook may be affected thereby: (a) where a shareholder or member of a credit rating agency which holds, directly or indirectly, 10% or more of either the capital or of the voting rights of that rating agency or is otherwise in a position to exercise significant influence on the busines activities of the credit rating agency, directly or indirectly owns financial instruments of the rated entity or a related third party or has any other direct or indirect ownership interest in that entity or party, other than holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance, which do not put that shareholder or member in a position to exercise significant influence on the business activities of the scheme; (b) where the rated entity or a related third party directly or indirectly holds 10% or more of either the capital or the voting rights of that credit rating agency; (c) where a shareholder or member of a credit rating agency which holds, directly or indirectly, 10% or more of either the capital or of the voting rights of that credit rating agency or is otherwise in a position to exercise significant influence on the business activities of the credit rating agency, is a member of the administrative or supervisory board of the rated entity or a related third party."

2012/04/17
Committee: ECON

18 Amendments of Burkhard BALZ related to 2011/0361(COD)

ParlTrack - 2011-2024