eacra eu com 17 3 2010 final

8/6/2019 Eacra EU Com 17 3 2010 Final

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itRating

with EU Commission

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PageMission and objectives 2

arc ,

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ociatio

Market review 6

uropean

Contact Details 23

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MISSIONANDOBJECTIVES

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ociatio

uropean

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Ob ectives

OUROUROBJECTIVESOBJECTIVES:TheOb ectivesoftheassociationincludewithoutlimitations:

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ncies

PromotetheinterestsoftheCRAsinthecontextoflegislativemeasures andthecommunication

with

the

relevant

stakeholders (eg regulators,

supervisors,

market

operators

andthefinancialcommunityasawhole);

itRating EnhancetheunderstandingandthefunctioningofCreditRatings tothefinancial

communityandthegeneralpublic;

Promotethecoo erationbetweentheCRAs acrossEuro einordertoenhancecross

nofCre

d

borderknowhowandthespreadofbestpractices;Provideaframeworkofcooperation forCRAswithregardtodevelopmentofcommonstandards(eg Transparencyanddisclosurestandards,ratingmethodologies)inordertoreduce

ss

ociatio transactioncosts relatingfortheusersofratings;

ProvidesupporttoCRAs regardingcomplianceactivities(suchasduetoorganizationalrequirements,ICT,managingofconflictsofinterest,etc)inordertoreducecostsof

uropean

superv s on;

Establishcooperationwithpublicandprivateresearchcentres,inordertocreatesynergieswithacademicinstitutionsaswell.

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Contributetoenhanceknowledgeandskills inthecreditratingindustry.


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Field ofactivities

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ncies

itRating

Public

disseminationCooperation

between Agencies

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d

InstitutionalRelations

Presentation of MembersNewsletterfromEACRA

ParticipationinConferences

Providinganinstitutional

frameworkinorderto

ss

ociatio

CEBS

ECEuropeaninterest groups (eg UNICE,EuropeanIssuers)

onsu a onprocess

issues:Focusfor2010will

betheregistrationprocessduewithintheperiodJune

uropean Europeanstandard settings organisations (eg ISO)

Mediaorganisations

financialcommunity

7th toSeptember7th

SpecialWorkingGroups

onspecifiedtopicscouldbe

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o er ns u ons


5/23

Rectif in the ublico inion

Marketshareofglobalratingagencies Numberofratingsissued

ge

ncies S&P

Moody's

FitchRatings

A.M.Best600800

1000

1200

itRating

0

200

400

S&P FitchRatings Moody's European

Rating

nofCre

d Agencies

MAR

PSR

Assekurata

Creditreform

Whereas the global market for ratings isdominated by the Big Three, consolidatednumbers of European Rating Agencies

ss

ociatio

EuropeanRating

BulgarianCredit

RusRating

CPRequals or surpass each of these players: In terms of local market share in terms of ratings issued

in terms of resources available

uropean

0 200 400 600 800

JCREurasia

CreditRating

EACRAs target is to contribute to a change

in the public opinion.

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Based on pubic information on the website of the agencies. These figures

do not include Private (confidential) ratings nor Unsolicited ratings.Please note that ratings from the Big Three are an educated guess.


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Vision

20142009

ge

ncies S&P

Moody's

FitchRatings

A.M.Best

itRating

nofCre

d

Increase the reach of Ratings by: Utilizing the extended scope of addresses: up to now only

ratings from ECAIs could be used for regulatory purposes. From December 7th, 2010, ratings from

ss

ociatio .

building on the transparency and disclosure requirements in order to foster the understanding

Rating Agencies across Europe and the world need to collaborate in order to reach this common goal.

uropean

as een orme n or er to contr ute to t s goa :Reduce the burden on Rating Agencies through cooperation,cost sharing initiatives,

using economies of scales in order to turn legislative constraints into opportunities

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rov ng n ormat on on rat ngs

Providing cross-selling opportunities for Members by building on in-depth local know-how andpresence


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itRating

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MARKETREVIEW

ss

ociatio

uropean

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8/23

Raisin reachofratin s

ge

ncies ThenewEUlegislationonCreditrating

agenciesextendstheuserofratingsfor

capitalrequirementstoanextendedlistof

re

institutionsRating Agency

PensionFunds

itRating

mar e par c pan s.

ThiswillmakeRatingsmoreattractiveas

morefundscouldbemobilized.

Issuer

InsuranceReinsurance

UCITS

nofCre

d

e

= All-in CostThe ongoing revision of the Basel 2 guidelines

ss

ociatio

In

terest

Rate

+ Return in Capital

+ Credit Spread

Margin

terestRat

most likely lead to a higher capital requirements:

In order to achieve the same return in capital,

uropean

Maturity

,

+ Liquidity Costs

I.

This in turn will narrow the gap between the

observed credit spreads in the banking market

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.


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Brid in the a

Turnover in EUR

ge

ncies mln

GlobalCompanies500GlobalBigThree

itRating

Medium Companies

Large Companies50

10European Rating Agencies

nofCre

dSmall Companies

Individuals

Credit Scoring Institutions

ss

ociatio

TheEuropeanratingagencieswiththeirfocusonSMEcompaniesbridgethegapbetweenthe

globalcompaniesandsmallcompanies

iven the structure of the Euro ean econom the Euro ean A encies are much better

uropean

preparedtocoverEuropeanratings

similartotheinternalratingprocessesusedbybanksandinordertoreacheconomiesofscale,

thedegreeofanalysisandinformationrequirementdependsonthesizeofthecompany

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ThecombinedmanpowerofEuropeanagenciesiscomparabletothestaffofthebigplayers


10/23

Sco eofEURe ulation

Turnover in EURmln This Regulation does not apply to:

ge

ncies

Medium Companies

LargeCompanies50

CreditRating

a pr va e cre ra ngs(b) credit scores,

(c) credit ratings produced by exportcredit a encies

itRating

Small CompaniesCredit

(d) credit ratings produced by thecentral banks

nofCre

d

Individuals

ss

ociatio

Communityandwhicharedisclosedpubliclyordistributedbysubscription(Article2.1).creditratingmeansanopinionregardingthecreditworthinessofanentity,adebtorfinancial

obli ation debtsecurit referredshareorotherfinancialinstrument orofanissuerofsucha

uropean debtorfinancialobligation,debtsecurity,preferredshareorotherfinancialinstrument,issued

usinganestablishedanddefinedrankingsystemofratingcategories;

OnMarch8th,2010,CESRmembersclarifiedthescopeoftheregulationandstatedthatnonE

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qualitativeratingsdonotcountascreditratingsforthepurposeoftheregulation. Wethinkthat

thisinterpretationistoostrictandmightcreateproblemswithrespecttoUnsolicitedratings.


11/23

ReviewofCRAsinEuro e

NameCountry ofresidence website

AAA Soliditet Sweden www.soliditet.se

Wehaveidentifiedaround

40companiesinEurope

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ncies

Assekurata Assekuranz Rating-Agentur GmbH Germany www.assekurata.de

Axesor Spain www.axesor.esBanque de France Rating France www.banque-france.frBulgarian Credit Rating Agency J.S.C, Bulgaria www.bcra-bg.com

Capital Intelligence Limited Cyprus www.ciratings.comCa &Caa Srl Ital www.ca -ca .com

activeinthefieldofratings.

Theirbusinessmodel

(solicitedandunsolicited,

itRating Coface France www.cofacerating.com

Companhia de Rating Portuguesa Portugal www.cprating.pt

Credit Rating Ukraine www.credit-rating.uaCreditreform Rating AG Germany www.creditreform-rating.deECRAI External Credit Rating and Slovakia www.ecrai.eu

nves orpaysversus ssuer

pays,publicversusprivate

ratingsetc.),theirgeographic

andinvestorsreachmight

nofCred , . .

Euler Hermes Rating GmbH Germany www.eulerhermes.comEuropean Rating Agency, a.s. Slovakia www.euroratings.co.ukFedafin Federalism and Finance AG Switzerland www.fedafin.chFeri EuroRatings Services Germany www.feri.deFitch Ratings UK www.fitchratings.com

differ

substantially.

AccordingtotheEU

regulation,existingrating

ssociatio GDUR KMU Rating Agentur Switzerland www.kmuratingagentur.ch

Global Rating Bulgaria www.globalrating.bgICAP Greece www.icap.grIntegrated Rating GmbH Germany www.integrated-rating.de

JCR Eurasia Turkey www.jcravrasyarating.com

agenciesneedtoregister

untilundertheregulation

untilSeptember7th,2010.

uropean

. .PSR Germany www.schneck-rating.de

Rating Allianz Germany www.rating-allianz-online.deRating Evidence GmbH Germany http://www.rating-evidence.com/RusRating Russia www.rusrating.ru

Saha Rating Turkey www.saharating.com

Intheimpactassessment

accompanyingtheproposal,

15companieswereE

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vens ommun a ng we en www. ommunra ng.se

Turkratings Turkey http://www.turkrating.com/en/

UC AB Sweden www.uc.seURA Rating Agentur AG Germany www.ura.de

estimatedtoapplyfor

registration.Whichones?


12/23

DifferentbusinessModels

The EU regulation distinguishes three broad categories of market segments: Public/Sovereign;

ge

ncies

.

onlyveryfewplayerscoverallofthesemarketsegments

thesegmentofCorporates includesfinancialinstitutions,insurancecompaniesandindustrial

itRating

,

onespecificsectoronly.

The business model of the Bi Three can be described as issuer a s solicited subscriber based

nofCred

ratings with the coverage of all market segments.Next to this business model, several alternatives models are applied by European rating agencies:

Investorspaysversusissuerpays

ssociatio

Solicitedversusunsolicitedratings

PublicversusSubscriberbasedversusconfidentialratings

Issuerratin s issueratin s

uropean Provisionofancillaryservices(eg Consultancies)

Changingweightofqualitativefactorsinfinalrating

Size: most Euro ean ratin a encies have less than 50 em lo ees in the ratin business.E

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The

EU

regulation

on

Credit

Rating

Agencies

rather

reflects

the

operations

of

the

Big

Three.


13/23

ECAIsinEuro e

CountryCode

Country F itch Moody's S&P other ECAIindirect

recognition

S&P, Moodys and FitchRatings are

recognised as ECAIs in all Member

ge

ncies BE Belgium x x x JCR, R&I, BdF BdF

BG Bulgaria x x x x

CY Cyprus x x x x

CZ Czeck Republic 2 3 xDE Germany x x x DBRS, JCR JCR

States of the European Economic

Area (EU 27 and Iceland,

Liechtenstein and Norway). Note that

itRating EE Estonia x x x

EL Greece x x x ICAP

ES Spain x x x

FI Finnland x x x DBRS

FR France x x 2 Coface, DBRS, JCR, R&I

n some coun r es mu p e

subsidiaries of the big three might be

recognised.

nofCred

, ,

IE Irland x x x DBRS, JCR x

IT Italy x x x Lince

LT Lithuania x x x x

LU Luxembourg x x x JCR JCR

LV Latvia x x x

,

R&I and JCR) have been recognised insome countries.

Countries having local players (eg

ssociatio

NLTheNetherlands

x x x DBRS

PL Poland x x x x

PT Portugal x x x

Coface Servicos

Portugal

France, Greece, Italy) have also

recognised their national champion.

Some competent authorities have

uropean SE Sweden x x x DBRS x

SI Slovenia x x x Coface France SA Coface

SK Slovakia x x 2 x

UKUnitedKingdom

x x x

use e n rec recogn on

method (without carrying out its

own direct recognition process,

rel in on the reco nition of the ECAIE

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by the competent authority of

another Member State).Overall, 10 ECAIs currently operate in the European Union.Source: supervisory disclosure sites at CEBS


14/23

Latestdevelo ments

TheglobalmarketshareoftheBigThreedidnotsubstantiallychange:

ge

ncies T eirreputation assu ere utmar etissti usingt eratingsasnoa ternativeisperceive

Smallerratingagencieshavelostasubstantialshareoftheirrevenuesasnumberofissues

decreased

itRating ExistingcallsforthebuiltupofapublicsponsoredEuropeanRatingAgencies

Smallerratingagenciesareenvisagingtoclosedowntheactivity:

nofCred

anotheragencyisthinkingofclosingtheiractivities

Agenciesinonecountryareenvisagingtomergeintooneunit

ssociatio omeagenc es ave u tupreputat on utst ac t eresourcestoprov eserv cesona

largerscale.

Larger

agencies

are

a

loss

making

entity

to

the

mother

companies

(usually

involved

in

credit

uropean

,

StatusofmembershipsinEACRAreflecttheaboveproblems:Foundingmembershavedifferentprofiles

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AffordabilityofMembershipfeeisanissue


15/23

Em owerin Euro e

EuropeanAgenciesprovide:

ge

ncies

oca un ers an ngan now owan m n m ze n ercu ura pro ems

Trackrecordofratings

Acceptanceby(local)marketparticipantsforthequalityoftheassessments

itRating

A iversityo usinessmo e san approac es

Acompetitivepricingschemefortheratingservices

nofCred ByconnectingandempoweringtheexistingagenciesinEurope,theEuropeanUnionwillreceive

aplatformforratingsatamuchlowercostthanbythesetupofapublicagency.

InordertosurvivethecurrentcrisisaffectingtheCreditRatingindustry,tocopewiththe

ssociatio ,

EUshouldprovideforbasicfinancialsupporttotheagencies

Inordertomakeratingsmoreaffordabletoissuers,theEUcouldprovidesupporttoissuers.

Suchamodelisusedb ratin initiative www.ratin initiative.or whichtar etstoex and

uropean theuseofratingsinmicrofinanceindevelopingcountries.Usingasimilarapproachbut

applyingittoEuropeanissuercouldbeanalternative.

AccordingtoEUlegislation,theCommissionshouldproposealternativestotheissuerpays

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modellatestby2012.Wewouldproposeadvancingtheproposalandtomakeratings

mandatoryatleastforanyissuanceoncapitalmarkets.


16/23

ge

ncies

itRating

nofCred

SOMECONCERNS

ssociatio

uropean

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17/23

Re istration rocess

TheEUregulationforeseesawindowforregistrationforExistingRatingAgenciesintheperiodth th

ge

ncies

, ,

WhoaretheExistingRatingAgencies?

When

can

we

expect

CESR

to

publish

the

guidance

as

referred

to

in

article

21(2)

and

21(3)

as

itRating

Compositionofthesupervisorycollege:

nofCred

.

CouldyouprovideanindicationtotheratingagenciesonwhichcompetentAuthoritieswilloptin?OrmightthecompetentAuthoritiesusetheindirectrecognitionmethodasinthe

caseoftheECAIdirective?

ssociatio

Article19providesforthepossibilitytochargeregistrationandsupervisoryfees.Couldyou

provideanindication?

HowwilltheevolvingsupervisoryframeworkfromCESRtoESMAaffecttheregistration

uropean

process?

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18/23

UnsolicitedRatin

RatingAgenciesmightassignUnsolicited Credit

ge

ncies at ngsas:

Itcorrespondstotheirbusinessmodel(eg

Itenableseconomiesofscalewhile

PensionFunds

itRating

Itiskeentoenterintoamarketandassigns

referenceratings

ssuer

InsuranceReinsurance

UCITS

nofCred

intoansolicitedone(againstafee)

TheEURegulationstates:

ssociatio ,

ratedentity,shouldbeclearlyidentifiedassuchandshouldbedistinguishedfromsolicited

creditratingsbyappropriatemeans.

TheEURegulationdoesnotprohibitunsolicitedratings.CESRmembersintheirMarch8th 2010

uropean

statementruleoutratingsnotinitiatedattherequestoftheissuerorratedentityand

therebyneglectstheinvestorpaysapproachfromsomeagencies.NotethatCESRisawarethat

agreyareaexists.

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,

takeawiderapproachandclearlystatethatUnsolicitedratingsaresubjecttotheregulation


19/23

Administrativeburden

AdministrativeburdenontoEuropeanAgenciesishigh:

ge

ncies

e g reenee a rea y ocomp yw superv s on reques ngs m ar n orma onasEuropeansupervisors) theadditionalcostsoutofEuropeansupervisiontothese

agencieswillbelimited.

itRating

. ,

thefirstyearandtoEUR1.500, thereafter.Weproceedfromtheassumptionthatthe

costsofcomplianceforsmalleragencieswillbesubstantiallyhigheras:

SomeRatingagenciesneedtoformalizeproceduresandmethodologies,

nofCred

Some

Rating

Agencies

might

need

to

modify

their

business

model

and

might

loose

furtherrevenues,

SomeRatingAgenciesmightneedtointroduceanindependentboardmemberoran

ssociatio complianceofficer.

TherecurringcostsofDisclosuresrequirements(includingTransparencyreport)and

of

compliance

with

the

regulation

will

easily

surpass

the

estimate

of

EUR

1.500,

uropean

Thecostsofsupervisionwillbebornebytheratingagencies.Atthisstage,theexactamounthasnotyetbeencommunicated.

InlightoftheEUtargettoreducetheadministrativeburdeninEuropeby25%,thisRegulation

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.


20/23

O ento ics

ExemptionforsmallerRatingagenciesaccordingtoArt6.3

ge

ncies

r c e . .a e nesa res o o emp oyees. oware eseemp oyeesaccoun e or

DotheserefertoFullTimeemployees?

Doemployeesincompanies,whichcarriedoutoutsourcedservicesonbehalfofa

itRating

,

AsArticle7.2(analystsnotallowedtoparticipateinthesalesprocess)isnotcoveredby

theexemption,Dotheytakeintoaccountonlythenumberofratinganalystsand

ersonsim liedintheratin assi nment?

nofCred

HowshouldRatingAgenciesdemonstratethattherequirementsoftheregulationarenotproportionateinviewofeg theirscale?

GiventheadministrativeandcompliancecostsoftheRegulation,itisquiteclearthatRating

ssociatio

Agenciescannotcopewithallrequirements!

Ancillaryservices

uropean

, ,

andothergeneraldataanalysisaswellasrelateddistributionservices.Thekeyissueisthe

avoidanceofconflictofinterestwithratingservices.

ArethesetheonlyAncillaryservicesaRatingAgencymayprovide?OrmayotherservicesE

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beprovidedifconflictofinterestareproperlymanaged?Woulditsufficetoseparaterating

servicesandotherservicesindifferentlegalentities?


21/23

O ento ics

Outsourcing(Article9):

ge

ncies

ear c ere ers o mpor an opera ona unc ons o ara ngagency. ou you e nemorepreciselywhichactivitiesarereferredto?

itRating

Theregulationhasnotdefinedtheratingscalesandsymbolsintermsofprobabilityofdefault,underlyingtimehorizont norexpectedloss.Anadditionalmandatoryscalemigth

hel fosterthetrans arenc andcom arabilit ofratin s.

nofCred

s

sociatio

uropean

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22/23

ECAIsandCRAsCredit Rating Agencies (CRA) External Credit Assessment Institutions

(ECAIs)

legal basis Regulation 1060/2009 on credit rating Directive 2006/48/EC on Credit Institutions

ge

ncies

agenc es

definition ofcredit quality

credit rating means an opinion regarding thecreditworthiness of an entity, a debt orfinancial obligation, debt security, preferred

share or other financial instrument, or of anissuer of such a debt or financial obli ation

not specified

itRating debt security, preferred share or other

financial instrument, issued using anestablished and defined ranking system ofrating categories

criteria for integrity, responsibility and good governance objectivity, independence, ongoing review

nofCr

ed me o o og es an ransparecny

target independence, objective and adequate quality credibility and transparency of ratings

users ofratings

Credit institutions, investments firms,insurance and reinsurance undertakings,UCTIS and institutions for occupationalretirement provision may use for regulatory

Credit insitutions

s

sociatio purposes

how shouldratings beused

The users of credit ratings should not relyblindly on credit ratings but should takeutmost care to perform own analysis ()

consistently for all exposures of a class in acontinuous and consistent way over time

recognition by competent Authorities on request at least two credit institutions need to state

uropean

AccordingtoArticle2(3)oftheEURegulationonCRAs,acreditratingagencyshallapplyforregistration

underthisregulationasaconditionforbeingrecognisedasanExternalCreditAssessmentInstitution.

ThestatusofCRAisthereforeanentrygatetotheECAI,whichismeaningfulgiventhedifferent

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targetsandmethodologies.Inordertoallowcompaniestoexpandtheirbusinessmodeltowards

ECAIs,

the

entry

gate

should

be

widely

open.ifasamecompanyisaCRAandanECAI,howwillcreditinstitutionsneedtoapplytheratingsissued?


23/23

Contacts

ge

ncies

EuropeanAssociation of Credit RatingA encies EACRA

itRating

PostalAddress: 84,AvenuedelaRepublique,

75011Paris,France

nofCr

ed

ThomasMissong [email protected]+436763807344

s

sociatio

. .

+393471396175

GianniZorzi [email protected]+393476996476

uropean

GeneralMail [email protected]+43125330334958

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eacra eu com 17 3 2010 final

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