EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 2.6.2010 
SEC(2010) 678 
  
COMMISSION STAFF WORKING DOCUMENT 
IMPACT ASSESSMENT  
 
 
Accompanying document to the 
  
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  
 
amending Regulation (EC) No 1060/2009 on credit rating agencies  
  
{COM(2010) 289 final} 
{SEC(2010) 679} 
 
EN 1-2   EN TABLE  OF CONTENTS 
1. Introduction................................................................................................................ .. 3 
2. Procedure ................................................................................................................... .. 5 
3. Problem Definition....................................................................................................... 6 4. The baseline scenario, subsid iarity and proportionality............................................... 7 
5. Objectives.................................................................................................................. . 12 
6. Policy options............................................................................................................. 1 3 
7. Comparing the options ............................................................................................... 15 8. Analysis of impacts.................................................................................................... 26 9. Monitoring and Evaluation ........................................................................................ 36 Annex I – List of CRAs establishe d in the European Union in 2009 38 
  Annex II – Problem tree 37 
 
EN 3   EN 1. INTRODUCTION  
The Regulation on credit rating agencies (Regulation (EC) N° 1060/2009) (hereafter "the 
CRA Regulation") has been publishe d in the Official Journal on 17th November 20091. It 
came as one of the first key regulatory responses of the EU to deal with  the problems in the 
financial markets during the financ ial crisis that started in 2007. During the negotiation of the 
CRA Regulation, for which politi cal agreement was reached on 23rd April 2009, some 
Member States and the European Parliament had requested a centralised direct supervision on 
CRAs at European level in the short term. As a result the CRA Regulation2 provides that by 
7th December 2010 the Commission shall assess the supervisory aspects of the Regulation, in 
particular the cooperation of the competent authorities, the legal status of CESR and 
supervisory practices, in order to presen t proposals for a review of the Regulation. 
The Commission Co mmunication of 27th May 2009, "European financial supervision"3, 
proposed changes to the architecture of European  financial supervision in order to remedy 
shortcomings in the area of financial superv ision revealed by the financial crisis of 2008-
2009. Specifically, it proposed the creation of two new bodies: 
• a European Systemic Risk Council (ESRC)  which should monitor and assess risks to the 
stability of the financial system as a whol e ("macro-prudential supervision"), and should 
provide early warning of systemic risks th at may be building up  and, where necessary, 
recommendations for action to deal with these risks; 
• a European System of Financial Supervisors (ESFS)  for the supervision of individual 
financial institutions ("micro-prudential supervision"), consisting of a network of national financial supervisors working in tandem w ith new European Supervisory Authorities 
(European Supervisory Authorities), created by the transformation of the existing Committees for the banking, securities and insuran ce and occupational pensions sectors
4. 
The Conclusions of the European Council of 18-19th June 2009 supported the creation of an 
ESRC (renamed European Systemic Risk Board, henceforth ESRB) and an ESFS, consisting 
of three new European Supervisory Authoritie s. Moreover, the conclu sions emphasised that 
the European Supervisory Authorities should have  direct supervisory powers for credit rating 
agencies.  
The Commission proposal for a Regulation esta blishing a European Securities and Markets 
Authority5 (ESMA) establishes6 that ESMA shall execute an y exclusive supervisory powers 
over entities with Community-wide reach or economic activities with Community-wide reach 
entrusted to it in the legislation referred to in its scope of acti on. It mentions that "for that 
purpose, the Authority shall have  appropriate powers of investigation and enforcement as 
specified in the relevant legislat ion, as well as the possi bility of charging fees." The "general 
                                                 
1 OJ L 302 of 17.11.2009, p.1. 
2 Article 39(2) and Recital 51. 
3 COM(2009) 252 final 
4 Widely known as the "Lamfalussy level 3 committees": the Committee of European Banking 
Supervisors, the Committee of European Secu rities Regulators and the Committee of European 
Insurance and Occupational Pensions Supervisors. 
5 COM(2009) 503 of 23.9.2009 
6 Article 6(3) 
 
EN 4   EN approach" reached in the ECOFIN Council on 2nd December on the proposal for a Regulation 
establishing ESMA has confirmed the a bovementioned European Council conclusions, 
although restricting its scope only to CRAs. The European Parliament is currently working on 
its opinion; in line with the Framework Ag reement between the two institutions, the 
Commission reserves its position pending the delivery of that opinion. 
The forthcoming amendment of the Regulation on credit rating agencies will deal with the 
modification of the supervisory structure in orde r to adjust it to the new European supervisory 
architecture.  
Available impact assessments 
The Communication from the Commission on European Financial Supervision7 was 
accompanied by an impact assessment analysing the main policy options for establishing the 
European System of Financial Supervisors (E SFS), composed of national supervisors and 
three new European Supervisory Authorities fo r the banking, securities and insurance and 
occupational pensions sectors. Furthermore, a second impact assessment has been executed to 
examine the impact of the proposals related to the new European financial supervisory structure adopted by the Co mmission in September 2009. In that document the Commission 
included an initial analysis of the impacts tr iggered by entrusting exclusive competences in 
direct supervision of entities with EU-wide re ach to the European Securities Market Agency
8. 
That impact assessment included the following observations on this matter: 
Absence of legal arrangements allowing for EU-wide supervision of specific institutions, 
would in the case of credit rating agencies more th an in most other areas of financial services 
lead to the risks of competitive distortions in the Internal Market and – prospectively – to 
regulatory arbitrage9.  
It was found that the supervision of such entities invo lves a clear Community dimension. For 
example, (…) credit rating agencies based in one  country can issue ra tings which affect a 
large number of countries. Consequently, it is  not optimal that a si ngle national authority 
should be entrusted with the task of supervis ing them. From this perspective, granting this 
power to a European body could be more effec tive and coherent than sharing this competence 
with national supervisors. It would also be more  efficient as it would concentrate the costs of 
supervision in only one aut hority avoiding any overlaps10. As a consequence, the possibility 
of granting full supervisory powers only for entities with a Community-wide reach was 
identified as the most suitable solution to ex ercise the public oversi ght of such entities. 
Whilst the impact assessment identified the possi bility of granting full supervisory powers for 
entities with a Community-wide reach as the preferred policy option, it stopped short of 
                                                 
7 Communication from the Commission - European financial supervision, COM/2009/0252 final, 
available at: http://eur-lex.europa.eu/LexUriServ /LexUriServ.do?uri=COM :2009:0252:FIN:EN:PDF 
8 Commission Staff Working Document, accompanying document to the (…) Pr oposal for a Regulation 
of the European Parliament and of the Council establishing a European Securities and Markets 
Authority, 23 September 2009, available at:  
http://ec.europa.eu/internal_market/finances/doc s/committees/supervision/20090923/20090923_impact
_en.pdf  
9 Idem, p. 5.  
10 Idem, p. 26.  
 
EN 5   EN setting out the pros and cons of granting full supervisory powers to the Authorities for any 
particular category of institution (e.g. CRAs)11. 
However, the impact assessment did take into a ccount the needs of this integrated EU-level 
oversight when identifying the optimal solutio ns in terms of organisation, structure and 
financing of the Authorities charged with such  responsibility. In particular, the estimated 
budget of the ESMA in the first year of operati on (2011) already includ ed appropriations for 
"Supervision of entities w ith a Community-wide reach"12, referring to the possi bility of direct 
supervision of CRAs by that Authority. 
This document, building on the existing impact  assessments, is the impact assessment 
accompanying the initiative for the amendment of the Regulation on CRAs; it does not pre-
judge the final form of any decision to be taken by the European Commission.  
2. PROCEDURE  
2.1. Consultation  
Ahead of tabling the proposal to establish a regulatory fram ework for CRAs, the European 
Commission launched a public consultation starting on 31st July and lasting till the beginning 
of September 2008 which sought comments on tw o draft legislative solutions. DG MARKT 
services presented two different options on  both the authorisation procedure and the 
supervisory structure. One of the options envisaged the establishment of a Community 
Agency (CESR or a new Agency) financed from the EU budget and with its own legal personality. Though, notably in the context of the financial crisis  the creation of an agency 
became an appealing idea (CRAs industry was in general in favour of an agency approach), 
this option was rejected at the time of the consultation as it wa s considered not proportionate 
to create a Community agency to deal only with CRAs. On th e contrary, this option emerged 
as a reasonable and politically necessary solutio n within the framework of the De Larosière 
discussions. 
The Commission services received 82 contribut ions: 13 from credit rating agencies, 52 from 
organizations of stakeholders (banks, associat ions, investment funds, savings banks etc) and 
17 from securities regulators and ministri es of finance of Member States. The non-
confidential contributions can be consulted in the Commission website
13.  
2.2. Discussions with Member States and CESR 
The European Commission has consulted the Me mber States in the European Securities 
Committee14. The national regulators in the framework of CESR have been also informed of 
the modifications to be in troduced in several meetings15. During these consultations Member 
States and regulators have suppor ted the idea to entrus t ESMA with exclusive supervisory and 
enforcement powers over CRAs. 
                                                 
11 Idem, p. 14. 
12 Idem, Annex 1, p. 6. 
13 See http://ec.europa.eu/internal_market/securities/agencies/index_en.htm  
14 ESC meetings: 16.12.2009 
15 CESR plenary meetings: 16.10.2009, 11.12.2009 and 10.02.2010. 
 
EN 6   EN 2.3. Steering Group  
The Steering Group for this Impact Assessment wa s formed by representatives of a number of 
services of the European Commission, namely the Directorate General Internal Market and 
Services, the Directorate General Human Res ources and Security, the Directorate General 
Budget, the Directorate General Competitio n, the Directorate General Economic and 
Financial Affairs, the Directorate Genera l Employment, Social  Affairs and Equal 
Opportunities, the Directorate General Health  and Consumers, the Directorate General 
Enterprise, the Directorate General of Justice,  Freedom and Security, the Directorate General 
Trade, the Legal Service and the Secretaria t General. This Group met three times, on 15 
December 2009, on 8 and 25 January 2010. The contributions of the members of the Steering Group have been taken into account in the co ntent and shape of this impact assessment.
16  
2.4. Impact Assessment Board  
DG MARKT services met the Impact Assess ment Board on 24 February 2010. The Board 
analysed this Impact Assessment and delivered its opinion on 26 February 2010. During this meeting the members of the Board provided DG Markt services with comments to improve 
the content of the Impact Assessment that led to some modifications of this final draft. These 
are the most relevant ones:  
– an outline of specificities of the activity of CRAs in terms of "Community-wide reach"; 
– more extended analysis of the subsidiari ty, proportionality and cost-effectiveness of 
centralised supervision by ESMA; 
– expanded justification for th e proposed sanctioning regime; 
– clarification of th e extent of consultation carried out. 
3. P
ROBLEM DEFINITION  
Credit rating agencies issue creditworthiness opinions that help overcome the information 
asymmetry between those issuing debt instrument s and those investing in these instruments. 
CRAs have a major impact on the financial market s, with their rating actions closely followed 
by investors, issuers, borrowers and governments.  It is essential, th erefore, that they 
consistently provide top-quality, inde pendent, and objective credit ratings.  
A brief look at the CRA industry 
The credit rating market is oligopolistic and effectively dominated by three large entities 
operating globally: Standard & Poor's, Moody's Investors Service and Fitch Ratings. The 
three CRAs have a combined market share in excess of 90 % globally17. In Europe a number 
                                                 
16 In accordance with the rules for th e elaboration of impact assessments the minutes of the last meeting of 
the steering group have been submitted to the Impact Assessment Board together with this impact 
assessment. 
17 See Point 1.3 of the Commission Staff Working Do cument accompanying the Proposal for a Regulation 
of the European Parliament and of the Council on Credit Rating Agencies – Impact Assessment, 12 
November 2008, available at:  
http://ec.europa.eu/internal_market/securities/docs/agencies/impact_assesment_en.pdf.  
 
EN 7   EN of distinctly smaller CRAs operate with a clear focus on specific industry sectors (e.g. 
insurance industry) or financia l market segments (e.g. munici pal bonds), thus responding to 
specialised market needs. Altogether , around 50 CRAs are established in the EU18. 
The objective of the CRA Regulation is the establishment and proper functioning of the 
internal market in financial services, by la ying down conditions for the issuance of credit 
ratings to recover markets' confidence and increase investor prot ection. The Regulation 
introduces a registration procedure for CRAs to ensure that their credit ratings can be used by 
credit institutions, investment firms, in surance and assurance undertakings, collective 
investment schemes and pension funds within the Community. Thus, CRAs will have to comply with rigorous rules to make sure that: (i ) the risks of conflicts of interest affecting 
ratings are effectively addre ssed (ii) CRAs remain vigilant on the quality of the rating 
methodology and the ratings and (iii) CRA s act in a transparent manner.  
An essential element of the CRA Regulation is  the introduction of an  external oversight 
regime whereby European regulators will superv ise the issuance of credit ratings by CRAs
19. 
The CRA Regulation has introduced  a system of supervision based on colleges of competent 
authorities of the Member States, which give s the possibility to all concerned competent 
authorities to participate in the process of registration and supervis ion of a credit rating 
agency or a group of CRAs; although the fina l decision is always taken by the competent 
authority of the home Member States. 
The supervisory framework of CRAs was one of th e most difficult subjects in the negotiations 
between the Council and the Parlia ment, successfully concluded on 23rd April 2009. At the 
same time, the absence of regulation in the fiel d of CRAs and the general outcry with respect 
to their role in the financial crisis put a lot of pressure on the EU institutions and Member 
States in adopting rapidly mandatory and enforceab le substantial rules in this field. The De 
Larosière report of March 2009 followed by the Commission Co mmunication of 27th May 
2009 opened at political level the possibility to create a Community Agency which would 
deal with issues beyond CRAs. The compromi se solution on the CRAs Regulation envisaged 
already the need to review the supervisory provisions of the Regulation taking  into account 
the new developments at political level. As e xplained above it was not  possible to hold up the 
negotiation on the CRAs Regulation pending the s upervisory reform, due to our commitments 
at the G-20 level and the need to  restore confidence in the market s in a period of crisis. The 
resulting compromise – creating an admittedly complex and heavy structure – was the best deal achievable at the time in its context, a context that was quickly overtaken however.  
The Commission proposal for a new supervisory structure in Europe establishing three 
European Supervisory Authorities has changed the picture. The Council agreed in December 
2009 to entrust in principle the new ESMA  with direct supervisory powers on CRAs
20. 
                                                 
18 See detailed list in Annex I. 
19 The CRA Regulation replaced a prev ious policy approach in this respect, under which the CRAs were 
expected to incorporate all the provisions of the IOSCO Code into their codes of conduct. However, 
that self-regulatory approach did not deliver on expectations as it had been followed on a voluntary 
basis by CRAs, which were often taking advantage of the "comply or explain" principle. Under that 
approach an in-depth, independent examination of the actual compliance was no t possible. The start of 
the financial crisis shed light on significant weaknesses of the CRAs in their internal organisation, transparency and managing conflicts and thus prompted a new, more exacting EU policy in this matter.  
20 See Art. 6 (3) of the Presidency compromise on the ESMA Regulation (general approach) agreed by 
ECOFIN on 2 December 2009  http://register.co nsilium.europa.eu/pd f/en/09/st16/st16751-re01.en09.pdf  
 
EN 8   EN However, it is not merely political sentim ent that goes in favour of considering more 
centralised EU oversight of CRA s. There are strong fa ctual indications that such approach 
would better correspond to the busine ss specificities of this sector. 
Specificities of the CRA industry from a regulatory perspective 
– 1. In the case of the largest CRAs, it is difficult to establish where a specific credit rating 
has been produced or issued (this information is relevant when establishing territorial 
competence of a regulator). Analytical teams are frequently multinational and 
responsibilities for individual ra tings are allocated on the basis of specialisation and sector 
knowledge not less frequently than on the ba sis of geographical considerations (e.g. 
because of his/her specialisation in the fi eld an analyst working in a German CRA 
prepares, in co-operation with a French coll eague working for a French CRA belonging to 
the same group, a rating on an French insura nce company). As a result, the national 
regulators overseeing the credit rating activity w ithin their jurisdictions are likely to find 
themselves in situations of competing superv isory interests. Moreover, for larger CRAs the 
flexibility in the allocation of credit rati ng activity opens the way to optimise their 
regulatory burden. 
2. It is nearly impossible to delimit with certainty the territorial impact of a credit rating  
in use  (this information is important for a supervisor to determine whether the activity of a 
specific CRA is relevant for th e financial market under its surv eillance). Ratings may be used 
for regulatory purposes (mainly by banks, insu rance companies and investment firms), but 
they are also frequently c onsulted by individuals and entit ies not subject to regulatory 
requirements in this respect. Access to and the use of credit ratings is not restricted by 
geographical limits (they are normally disclosed publicly free of charge or distributed by 
subscription). The language barriers are less releva nt (not only because of predominant use of 
English, as the lingua franca  in professional financial services  but above all du e to the use of 
rating symbology (e.g. AAA for top quality debt) wh ich can be easily processed and viewed 
as an easy-to-apply proxy for quality of financial instruments.  
The activity of CRAs is markedly different from  the one of banks or insurance companies. It 
does not have such a strong terr itorial attachment (in terms of  physical presence or capital 
engagement) and the impacts over a particular ju risdiction of events concerning a particular 
CRA can be much less discernible. Conseque ntly, and though the supervisory framework 
currently prescribed by the CRA Regulation ha s not been put in place yet, it is already 
possible to identify certain shortcomings. Those deficiencies and their main consequences for 
CRAs and supervisors are: 
3.1. Multiplicity of supervisors involved a nd risks of conflicts over competences  
The complex supervisory framework, involving  (i) mandatory close co-operation between 
competent authorities and (ii) actual use of supervisory and enforcement powers by only some 
of them, has been structured in that way to en sure that interests of all relevant supervisors 
were well represented and taken into account by those taking th e final decision. At the same 
time it had to take into account the specific na ture of the rating activity. Consequently, the 
division lines between geogra phical competences of supervis ors were not set too firmly, 
 
EN 9   EN creating room for potential intra-EU disputes21. Importantly, this policy choice implies that 
the CRAs would be faced with the duty to intera ct with several compet ent authorities in the 
same field. The main problem arising from th is situation is the risk of conflicts over 
competences, which may lead to potential gaps (ineffective supervision) ; overlaps (inefficient 
supervision); or arbitrag e/unlevel playing field. 
Table 1 Expected size of supervisory colleges22  
CRA (group) name23 No. of subsidiaries in 
the EU No. of regulators 
with home competent authority status No. of regulators in 
college (including home competent authorities) 
Moody's 7 7 14 
Standard and Poor's 6 6 13 
Fitch 6 6 9 
Coface 4 4 8 
DBRS 1 1 4 
Euler Hermes Rating 1 1 2 
Credit Reform Rating 1 1 2 
Capp&Capp 1 1 2 
European Rating Agency 1 1 2 
AM Best 1 1 2 
Source: Commission and CESR, based on inputs from its members – December 2009  
The above table offers an early prediction of si ze of the supervisory colleges, involving more 
than one member. It indicates that not only th e largest CRAs may expect participation of 
competent authorities from different Member Stat es in their supervisi on. A number of smaller 
CRAs are also likely to attract attention of host supervisors from Member States other than 
that of their establishment in the EU.  
3.2. Risk of divergent and inconsistent application of the CRA Regulation in 
individual acts by competent auth orities in the Member States  
Irrespective of several elements triggering clos e co-operation between individual supervisors 
(e.g. work in colleges), the existing model fo r CRA supervision is ultimately based on the 
exercise of supervisory and enforcement po wers by individual regulators in the Member 
States. It is possible for the co mpetent authority of the home Member State to override the 
                                                 
21 Further to Article 25 of the CRA Regulation, a supervisor other than the home competent authority is – 
after having notified the facilitator and having consulted the relevant college – entitled to take individual decisions on issuing public notices and referring matters for criminal prosecution, take 
measures compelling a CRA to comply with the CRA  regulation within its territory and impose the 
suspension of the use of credit ratings for regulatory  purposes within its jurisdiction. Such measures, 
albeit subject to prior consultation among supervisors, may be eventually taken individually and against 
the views of the home compet ent authority or the college. 
22 These figures have been prepared with the assump tion that group structures of the existing CRAs will 
not be changed and that all of the subsidiaries  will seek registration as mandated by the CRA 
Regulation. Additionally, they reflect early declarations of interest to participate in the specific supervisory colleges, as expresse d tentatively by CESR members. 
23 A list of CRAs currently establis hed in the EU, indicating the place of establishment and in case of 
CRA groups, the place of estab lishment of all subsidiaries, is provided in Annex I.  
 
EN 10   EN views of its partners pa rticipating in the college. It is al so possible for a competent authority 
of the host Member State to take an indivi dual action, not approved by the relevant college. 
This can lead to divergent and inconsistent application of the CRA Regulation in individual 
acts by competent authorities in the Member States. 
3.3. Burdensome and time-consuming  administrative process  
Dealing with several supervisor y authorities across the EU woul d involve substantially higher 
compliance costs for the rating agencies. On the supervisors' side, the demanding co-ordination and consultation rules,  which are a corollary of havi ng all interested authorities 
engaged in the supervisory and enforcement pr ocess, are expected to weigh heavily on the 
ability of the EU supervisory framewor k to produce timely and efficient outcomes
24.  
3.4. Risk of misaligned incentives: can nati onal supervisors cope with the pan 
European dimension of CRAs? 
Competent authorities in the Member States ma y perceive the dimension of CRA supervision 
mainly from a national perspective missing a full picture of the global na ture and impact of a 
CRA's activity. Especially in situations wher e the main impact of a CRA lies outside the 
Member State where it is registered, there is th e risk that the home competent authority does 
not allocate sufficient resources for the supervisi on of this CRA. It could create conflicts that 
the competent home supervisor, which is used to being responsible for its home financial 
market and accountable to its national political in stitutions, has to take the main responsibility 
for CRA activities with pan- European reach a ffecting primarily financial markets outside its 
home jurisdiction. This inherent conflict may necessitate time consuming and costly coordination/enforcement actions by ESMA.  
It is also worth noting that wh ile the activity of CRAs has an  impact throughout the EU, only 
the home competent authority, i.e. the competent authority of the Member State in which the 
CRA is established, will be able to charge re gistration and supervisor y fees. This may have 
the consequence that host competent authorit ies are less committed in participating and 
contributing to the supervisory work. Section 7 analyses the different options that may be 
considered in order to addre ss the above mentioned problems and concludes w ith the choice 
of the preferred option. Since some of the options considered (namely Option 3a and 3b) 
envisage entrusting centralised oversight of credit rating agen cies operating in the EU to 
ESMA, it will be also pertinent to examine how to best allocate certain powers (more 
specifically, the power to recommend sanctions to the Commission), if ultimate supervisory responsibility was transferred to  ESMA so as to ensure e fficient supervision. Section 8 
provides the relevant analysis and comparison of opti ons regarding the allocation of 
sanctioning powers. 
                                                
 
24 For example, in order to take a supervisory measur e (like suspending the use of a rating), the competent 
authority of the home Member State may be expected to notify the college and the college facilitator, then consult the college on a proposed measure, an d if no agreement can be reached consult the CESR, 
and the college again. Only after those iterations are completed, the compet ent authority may take a 
decision. 
 
EN 11   EN 4. SUBSIDIARITY AND PROPORTIONALITY  
The problems identified in Section 3 cannot be e ffectively addressed at Member States level 
as they stem from existing EU legislation a nd can only be addressed through changes in EU 
legislation in accordance with the subsid iarity and proportionality principles:  
– Subsidiarity.  CRAs business is different from other fi nancial services sect ors, as it has a 
global nature due to the mobility of the rating service and the cross-border impact of credit ratings. The current supervisory model was in troduced as a crucial element of the EU 
compromise solution to address the weakness es in the CRA sector highlighted by the 
financial crisis. Accordingly, Community action would be required to make changes to the 
current framework or to provide for a new system that would respond better to the objective of a stable and single EU financia l market for financial services. Whichever 
solution is eventually chosen, the traditional division between the competent authority of 
the home Member State and other competent aut horities appears inadequate as a long-term 
answer to the issue of CRA s oversight given that:  
– credit ratings issued by th e largest CRAs are already i ssued "globally", usually 
more than one CRA participates in the issuance of a credit rating; 
– big CRAs are organised not as independent  national companies but as European 
and global groups, with a broad range of in terrelationships be tween the different 
subsidiaries and branches of a group; 
– the rating business can take place not only in the EU, but in various third country 
jurisdictions, being necessary  to facilitate convergence and coordination also at 
international scale;  
– ratings of smaller CRAs – which as a resu lt of uniform EU registration standards 
are expected to gain reputation and be used beyond their traditional local markets 
- will not be any more circumscribed to a national territory and affect more than one jurisdiction within the European Union. 
– Finally, the on-going efforts in the European Parliament and in the Council to adopt a 
Regulation establishing a European Securities and Markets Authority (ESMA) are in essence about putting in place a new post-crisis  model of EU financial supervision. As 
pointed out earlier (see Sections 1 and 3), co-legislators have c onsidered that as part of the 
debate on this new framework, it may be desi rable to reflect on the registration and 
oversight of credit rating agencies and on the merits of centralising those functions at the 
EU level. The solutions discussed in this document aim to produce a response that will be both effective and efficient, and will seek to respect the princi ple of subsidiarity. 
– Proportionality.  In this impact assessm ent, the European Commission takes into account 
the principle of proportionality in the identification and analysis of options. The preferred 
policy options are to be compatible with the proportionality principl e, taking into account 
the right balance of public intere sts at stake and the cost-efficien cy of the measure. In this 
respect the proportionality  of the options identified will be analysed in the context of 
smaller national credit rating agencies. 
 
EN 12   EN 5. OBJECTIVES  
CRAs have a very significant imp act on the operation of the financ ial markets, as their credit 
ratings are used by investors, borrowers, issuer s and governments as part of making informed 
investment and financing decisions . It is therefore essential to ensure that the regulatory and 
supervisory framework in which CRAs operate is sufficiently r obust and effective to satisfy 
the general objectives25 of: 
Contributing to the stability of financial markets,  
Enhancing investor protection, Facilitating a sustainable development of fa ir and transparent financial markets.  
Those general objectives, which are the ones of  the CRA Regulation, translate into more 
sector-focused objectives reflecting the focus of  the current proposals. In this regard the 
following objectives can be identified: 
Securing effective supervision of CRAs in the EU, 
Streamlining the supervisory arch itecture for the CRA industry, 
Ensuring legal certainty for CRAs and market participants. 
Having those overall objectives in  mind, it should be aimed that any proposed changes in the 
organisation and functioning of the supervisi on of CRAs ensure the fulfilment of the 
following, operational-level objectives: 
5.1. Ensuring a single point of contact and clear competences 
The principle of a single point of contact (or "one stop shop") should be reinforced. Risks of 
conflicts over competences must be effectively addressed.  
The territorial competences of supervisory authorit ies need to be structured in a way ensuring 
that CRAs registered in the EU are not expected to interact with more than one supervisory 
authority in matters of compliance with the CRA  Regulation. Moreover, ri sks of conflicts of 
competences (both when two or more authoritie s see themselves as competent to act, and 
when none of them considers itsel f competent to take action) shoul d be eliminated as much as 
possible. This objective deals w ith avoiding conflicts of comp etences. Such conflicts should 
not be confused with conflic ts of views on supervisory i ssues, which may arise between 
regulators even in an environment of clea rly delimited and not ov erlapping territorial 
competences. The need to deal in a timely and consistent manner with the latter type of 
conflicts is addressed by the objectives 5.2, 5.3 and 5.4.  
5.2. Ensure a consistent application 
Rules for CRAs are to be applied in a consis tent manner across the EU. The EU supervisory 
framework should be structured in a way en suring consistent application of the CRA 
Regulation (both substantive and procedural  provisions) across th e Member States. A 
consistent application is a necessary  prerequisite for legal certainty. 
                                                
 
25 Commission Staff Working Document accompanying the  Proposal for a Regulation of the European 
Parliament and of the Council on Credit Rating Agencies, SEC(2008)2745 of 12.11.2008. 
 
EN 13   EN 5.3. Ensure efficiency gains 
The CRAs business is a global one: it is difficult to  establish where a specific credit rating has 
been produced or issued; it is nearly impossible to delimit with certainty the territorial impact 
of a credit rating in use. Moreover, when dealing with a group of  CRAs, there may be 
conflicts of interest and deficien cies in the way ratings are ela borated in the group itself that 
cannot be assessed at the level of each individu al subsidiary. Therefor e, it is necessary to 
develop a holistic approach going beyond the subsidiary level, to set up a single central authority at the EU entrusted with the regi stration and supervision of CRAs to ensure 
efficiency gains.  
This new approach would be both beneficial with regard to the assessment of the CRAs 
business and thus raise efficiency  of the supervisory process and it will also imply significant 
gains in terms of reducing administrative bur den for the supervised CRAs. Lengthy decision-
making procedures among supervisors should be eliminated. The use of supervisory resources 
allocated to supervision of CRAs should be op timised. Availability of adequate supervisory 
skills, ease of interaction w ith CRAs subject to the CRA Regulation, knowledge of local 
conditions should all be secured (e.g. through th e delegation of tasks to national competent 
authorities). It should be aimed that the option finally pursued br ings benefits to the users of 
ratings and does not involve dispro portionate budgetary charges.  
5.4. Ensure better alignment of incentives for the supervisory authorities to cope 
with the pan European activi ty of supervised entities 
The perspective, oversight capacity and reach of  the supervisory authority should match the 
pan European dimension of the activity of the largest CRAs whose ratings have impacts 
across the Member States. The supervisory authority should be committed to ensure the stability and integrity of all European financ ial markets that may be affected by the rating 
activity of such a CRA.  
Case law of the European Court of Justice identifies limits to delegation of powers to 
regulatory agencies (like ESMA) 
According to the "Meroni"
26 case law established by the ECJ, agencies/authorities may not be 
delegated the power to take decisions which require difficu lt choices in r econciling various 
objectives laid down in the Tr eaty amounting to th e execution of actual economic policy. On 
the other hand, clearly defined executive power s can be delegated to an agency including 
powers, that involve the need to interpret Community law provisions to determine their 
application and which leave the authority a certain margin of appreciation in applying these 
rules.  
6. POLICY OPTIONS  
In relation to problems 3.1 through 3.4, the foll owing broad options ha ve been considered 
prior to the policy choice made by the Commission when tabling this proposal: 
                                                 
26 Case 9/56 Meroni [1958] ECR 133 
 
EN 14   EN 6.1. Option 1 - Status quo (current CRA Regulation) 27 
This option would consist in maintaining the ke y elements of the current supervisory set-up, 
agreed in the course of the negotiation of the CRA Regulation. At present, the Regulation 
provides for a college-type of supervision, wh ich gives the possibil ity to all concerned 
competent authorities to participate in the proc ess of registration and su pervision of a credit 
rating agency or a group of CRAs. In practice, it means that most supervisory decisions and 
actions are discussed and agreed within the coll ege of competent authorities. On that basis, 
the competent authority of the home Member St ate (i.e. where the CR A has its registered 
office) implements those decisions in administra tive terms. In certain cases, when agreement 
on the action to be taken cannot be reached with in the college, the opinion of the CESR is 
sought. Should lack of agreement among comp etent authorities pers ist, the competent 
authority of the home Member State has the fi nal say on the decision (except for registering 
CRAs). In some limited situations, the "host" co mpetent authorities are also entitled to take 
individual action with regard to CRAs. The CESR produces guidance on application of the 
rules and operates the so-called central repository , where historical performance data of CRAs 
are collected and made available to the public.  
6.2. Option 2 - College structure and ESMA 
6.3. This option reflects the situ ation that the ESMA Regula tion is adopted as proposed 
by the Commission on 23rd September 2009 and that the supervisory framework as 
provided by the current CRA Regulation is maintained. 
The competent authorities would retain their competence and responsibility to 
register CRAs, to use administrative powers,  measures and sanctions and to exercise 
day-to-day supervision and enforce the CRA Regulation. 
The competent authorities of the Member States would cont inue to work in colleges. 
ESMA would have the right to participate in these colleges (Article 12 of the ESMA 
proposal). In areas where the CRA Regula tion requires cooperat ion, coordination or 
joint decision making (e.g. regarding registra tion of a CRA or s upervisory measures 
towards a CRA) ESMA could be called to  mediate and finally settle a conflict 
between competent aut horities in a college.28 
ESMA would also have the power to mon itor the correct application of the CRA 
Regulation by competent authorities, issu e recommendations towards the competent 
authorities in case of a lleged incorrect applicati on, and could under specific 
circumstance address decisions directly to CRAs.29 
                                                 
27 We are aware that this option which reflects the supervisory framework under the current CRA 
Regulation would not be realistic if ESMA enters into force as envisaged by beginning of 2011. In the latter case, ESMA will have additional powers whic h would also impact on its role regarding the 
registration and supervision of CRAs. Nonetheless, we think it is important to refer to the current CRA 
Regulation as baseline scenario as the content of th e future ESMA Regulation and in particular how the 
current CRA Regulation would be adapted to it are not (yet) fully clear. We describe under option 2 a 
possible scenario how the current CRA Regulation co uld function under the (future) ESMA framework. 
28 The CRA Regulation would have to be slightly amended in order to integrate the settlement procedure 
foreseen in Art 11 ESMA proposal. 
29 See Article 9 (6) but also Article 11 (4) and 10 (3) of the ESMA proposal.  
 
EN 15   EN In very limited emergency situations the ESMA could take action towards competent 
authorities and CRAs (Article 10 ESMA Regulation). 
It could also be foreseen that ESMA propos e technical standards in certain areas to 
be specified in the CRA Regulation. 
6.4. Option 3 - ESMA to assume direct oversig ht of groups of CRAs or all EU-based 
CRAs 
Under this option, the CRA Regul ation would be revised in or der to introdu ce centralised 
oversight of credit rating agen cies operating in the EU. The ESMA would assume general 
competence in matters relating to the regist ration and on-going supervision of registered 
credit rating agencies as well as matters re lated to ratings issued by rating agencies 
established in third countries that operate in the EU under the certificat ion or endorsement 
regimes. Those responsibilities would involve  the use of administrative measures and 
recommendations to the Commi ssion on the use of sanctions.  
Within this broad option we ma y distinguish two alternative sc enarios. Under either option, 
some specific supervisory powers related to the us e of credit ratings would remain in the remit 
of national competent authorities. 
6.4.1.  Option 3a - CRAs (groups of CRAs) with legal presence in more than one Member 
State 
ESMA's authority would be limited to the supe rvision of CRAs (groups of CRAs) with legal 
presence in more than one Member State. The registration, supervisory and enforcement 
issues of other, typically nationally operati ng CRAs would fall under the responsibility of the 
relevant competent authority in its Member Stat e. It could be consid ered that, with such 
division of competences between the European and Member States' level in place, the supervisory framework would be more adjusted  to the different activ ity profiles of CRAs, 
some of which are strong, global players a nd some are entities operating locally only.  
6.4.2.  Option 3b - all EU-based CRAs 
Under this sub-Option, the ESMA would be the sole supervisor of all EU-based CRAs.  
7. A
NALYSING AND COMPARING THE OPTIONS  
7.1. Single point of contact and clear competences 
Maintaining the status quo (Option 1) implies that credit ra ting agencies may be approached 
on compliance issues not only by the competent au thority of the home Memb er State, but also 
by other competent authorities and CESR.  
CRA-to-competent authority relationships 
The scheme below aims to demonstrate the complexity of interactions involved in the case of 
supervision of a group of CRAs, as currently provided for by the CRA Regulation. As may be 
observed, as much as 5 different types of intera ctions may be involved in the case of a single 
CRA operating in a group struct ure in the EU. These are: 
 
EN 16   EN - interaction with the competent au thority of the home Member State  – normally this is 
the most intensive relationship, as the home competent authority is the one entitled to 
formally take the registration decision, and th e one that normally has the last word on on-
going supervisory actions and decisions w ith regard to the supervised entity. 
- interaction with the facilitator  – may arise at the moment of processing the registration file 
of a group of CRAs, as well as in other cases, should the college of supervisors decide so.  
- interaction with CESR  – is most visible at the moment of registration, when submission of 
a complete registration file to this body enables the registration process. 
- interaction with host competent author ities members of a relevant college  – those 
authorities may have a supervisory interest in  a specific CRA, which operates a branch on 
their territory or the ratings of which are widely  used or likely to have a significant impact 
within their jurisdiction. Wh ile no qualified decision-making power is envisaged for them 
under the Regulation, their particip ation in the college and materi al influence on its decisions 
may push CRAs to discuss with them  more critical supervisory issues. 
- interaction with host competen t authorities outside the college  – under specific 
circumstances the CRA Regulation (cf. Article 25) allows any competen t authority to take 
supervisory decisions (e.g. to suspend the use of ratings within its jurisdiction, or to compel a 
CRA to act in a specific manne r). This exposes CRAs to an a dditional regulatory risk, which 
they need to address by – at least – being op en to engage in a dialogue with any such 
competent authority. 
 
EN 17   EN  
Figure 1 - Interactions with supervisors – a group of CRAs 
As may be observed on the following scheme, in the case of smaller,  regional or national 
players the matrix of interactions with supervis ory authorities is not significantly simpler in 
relative terms (see Fig. 2). In the scenario presented30, where in addition to the home Member 
State competent authority (acting as the facilit ator) another authority is in the college, 4 
different interactions with supervisory authoritie s may be expected. In the most simple of the 
scenarios possible (i.e. a 1-memb er college), this number coul d be only reduced to three. 
                                                 
30 Based on information from CESR, this scenar io could apply to at least 4 smaller CRAs.  CRA 1 CRA 2 CRA 3 CRA 4 CRA 5 CRA 6 CRA Group 
 
 
Sup A Sup B1 Sup Bx Sup C1 Sup Cx  
 
 
 
  
College of supervisors Facilitator Home com petent authorit y Host com petent authorit ySup D1 Sup Dx 
Host competent authority 
outside college CESR 
Interaction with facilitato r 
Interaction with home com petent authorit y
Interaction with host com petent authorit y,colle ge membe r
Interaction with other host com petent authorit y
Interaction with CESR 
 
EN 18   EN  
Figure 2 - Interactions with supervisors – a small CRA 
Those other authorities may form ulate expectations regarding a CRA's conduct and they have 
administrative means to trigger a CRA's comp liance with their orders. Certainly, such 
outcome is suboptimal not only because of in creased compliance costs and CRAs' resources 
engaged (as signalled further), but also because it puts into question the effective and efficient 
functioning of supervisory arrangeme nts envisaged for this sector. 
For the involved authorities, the supervisor y framework involves complexity, as it would 
require national authorities to:  
accept that very close co-operation with their fello w supervisors, is necessary even if in legal 
terms the responsibility and au thority to act rests with only one (or few) of them; 
recognise the need for greater reliance on the capacity and diligence put in the supervisory 
process by other supervisors. 
In practice, it may be increasi ngly difficult for national authorities, which as a rule enjoy 
independence in supervisory matters as a coroll ary to significant regulat ory duties, to satisfy CRA 
Sup AB Sup C 
Facilitator & home 
competent authority Host competent 
authority Sup D1 Sup Dx 
Host competent authority 
outside college CESR 
Interaction with fac ilitator and home com petent authorit y
Interaction with host com petent authorit y, colle ge membe r
Interaction with other host com petent authorit y
Interaction with CESR  
 
 
 
  
 
  
 
 
College of supervisors 
 
EN 19   EN at all times the above conditions. As a cons equence, interdepende ncies and occasional 
overlapping competences can easily trigge r conflicts leading to highly undesirable 
fragmentation of EU oversight of the CRAs31.  
Under Option 2 the ESMA is able to monitor the co-operation of competent authorities in 
colleges and the application of the CRA Regu lation by competent authorities. The ESMA 
would also be in the position to resolve the co nflicts of competences that may arise between 
co-operating supervisors. As ultima ratio it could also step in and take itself a relevant action (e.g. a decision to an individual CRA that was,  in breach of the CRA Regulation, refused by a 
competent authority of the home Member St ate). While, admittedly, Option 2 would help 
mitigate certain possible frictions and interferences in relations between competent authorities, it would fail to deliver a single point of contact for CR As. CRAs and groups of 
CRAs would also under this option have to interact with compet ent authorities from different 
Member States and in addition with ESMA.  
Under Option 3a, responsibilities for supervisio n of CRAs are distribut ed between the ESMA 
(groups of CRAs) and national competent authoritie s (local CRAs). This  option would not 
bring considerable improvements in terms of clarifying competences. Firstly, even smaller 
CRAs catering to the needs of local financial centres may still have an EU-wide reach and 
may require the setting up of a college involving competent authorities from other Member 
States and also ESMA As impacts of the ra tings activity of a locally acting CRA on other 
financial markets cannot be excluded, other Memb er States would probab ly claim a right of 
intervention (similar to the one  in Article 25 of the CRA Regul ation). Secondly, it is difficult 
to distinguish local CRAs (to be supervised by the national competent au thorities) from other 
CRAs (to be supervised by ESMA).  While the presence in only one Member State is a clear 
criterion this does not necessarily imply that the activity of this CRA is only locally relevant. Also the location of the rated entities in only  one Member State does not imply that these 
ratings are only of relevance to this local ma rket. Finally, while the fact whether ratings are 
used exclusively/predominantly by financial firm s/other users in the ho me market may be a 
relevant criterion, this criterion is difficult to  verify (as ratings are published on the internet) 
and may frequently change over time. A two-ti er approach might therefore bring further 
complication to the supervisory architecture an d create conditions for regulatory arbitrage
32. 
Moreover, the European Association of Cred it Rating Agencies, nota bly representing small 
CRAs, has advocated for a centra l authority to take decisions on registration and supervision 
and for further integration in the future, i.e. having one single financ ial services authority. 
                                                 
31 For example, Fitch Ratings in its submission to the 2008 consultation explicitly stated: Fitch is 
indifferent as to which option is ultimately chosen by the Commission, provided that the result is truly one stop shopping for authorisation of the activities of the entire CRA group members and a 
requirement for the CRA group to deal principally with only one supervisor. The burden of responding 
to duplicative but not identical oversight cannot be overstated.  Cf. Fitch Ratings response to consultation, 5 September 2008, p.3 available at: 
http://circa.europa.eu/Public/irc/markt/markt_con sultations/library?l=/financial_services/credit_agenc
ies/citizens/fitchpdf/_EN_1.0_&a=d  
32 A group of CRAs could restructure itself and provide all its rating activities from one office, with the 
effect that it may legally qualify as "local CRA" wh ich would fall outside the scope of supervision by 
ESMA while actually the activity of this CRA would be very relevant throughout the EU. This risk 
should not be considered as remote, given the ease of  relocating the issuance of ratings from one office 
to another.  
 
EN 20   EN Option 3b direct oversight of all EU-registered  CRAs by the ESMA creat es a clear principle 
that only one authority in the EU is entitled to take action in matters of CRA supervision. 
Risks of disputes over comp etence are thus avoided.  
7.2. Consistent application 
In the existing model for CRA supervision the supervisory and enforcement authority 
normally rests with national regulators, located in the home Member State. This model entails 
a number of safeguards to ensure that common supervisory policies and specific actions are 
developed and agreed upon. Those safeguards incl ude mandatory work in colleges, as well as 
prominent co-ordination and advisory roles of the CESR and the facilitator, in case of group 
supervision. To a certain extent, the prevailing arrangements are expected to mitigate the risk 
of dissent and uncoordinated actions by individual  supervisors. However, they may not offer 
full assurance that, for example, two subsidiari es of the same CRA group will not be treated 
in the same situation differently by two differe nt competent authorities in the EU, or that a 
host competent authority will disregard the pr evailing view in the college and take the 
measures it considers appropriate  individually. Such outcome can be detrimental to the level 
playing field intended by the CRA Regulation.  Option 2 offers a more robust mechanism to 
ensure consistency. ESMA would monitor the s upervisory activity of competent authorities 
and could intervene if a compet ent authority breaches the CR A Regulation. ESMA could also 
settle disagreements between competent aut horities and, under specific conditions and as 
ultima ratio, would be empowered to take a decision directly towards a credit rating agency. Still a risk of inconsistent application of the CRA Regulati on persists, given that some 
conflicts between supervisors or  cases of inconsistent applic ation of the CRA Regulation may 
not come to the attention of ESMA (e.g. a supe rvisor may prefer to downplay the importance 
of certain problems with consistent applic ation for the sake of securing a good working 
relationship with a fellow supervisor concerne d, especially if the issue may trigger only 
limited risks for its own market. In addition, ESMA  may not have the capacity to participate 
in all colleges and therefore there is a risk of inconsistent supervisory practices between colleges). It is also important to note that  according to Article 11 of the proposal for the 
ESMA Regulation, ESMA may only settle conflicts  if requested by one of the authorities 
concerned (but not on its own initiative). 
Option 3b delivers best results in terms of ensu ring consistent applicat ion: with only one, 
European authority responsible for developing  a supervisory policy an d implementing it, the 
risks of inconsistent approach in the application of the CRA regime across the EU are very 
reduced. Option 3a, because of maintaining a tw o-tier system (EU authority for larger CRAs, 
national supervisors for smaller players), does not offer similar advantages and may raise 
level-playing field concerns.  
7.3. Efficiency gains 
Simplification of the supervisory process Under the current supervisory architecture (Opti on 1), the supervised en tities are expected to 
submit their registration application to CESR an d provide it with data  inputs regarding their 
historical performance. They ar e required to co-operate with and to submit to supervisory and 
enforcement actions of the competent authority of the home Member State. In the case of 
organisations operating in a gr oup structure (in legal terms, a group of CRAs, which are 
registered individually in the Member States of th eir legal esta blishment) th is involves 
multiple supervisory relationships concerning substantially the same compliance duties and 
 
EN 21   EN arrangements. Additionally, any EU-registered CRA may expect being approached also by 
competent authorities from the host Member St ates. The need to operate in this complex 
supervisory environment will have significant cost implications for the CRAs seeking to establish effective and robust di alogue with the supervisors. 
For supervisors themselves, the existing mode l of CRA supervision involves burdensome and 
time-consuming processes of co-ordination and joint decision-making.  
The registration process of an applicant CRA can  take from 2 months (small CRAs) to over 7 
months (esp. in more complicated cases – gr oups of CRAs, CRAs with  endorsement etc.). 
Since all applications would be received a nd would need to be processed by CESR and 
colleges of regulators at the same time, it is quit e likely that the superv isors would tend to use 
the maximum time provided for by the regulation.  
Table 2: Registration of a CRA - also applicable to groups of CRAs (joint 
application)    
  Action  Max time 
for action 
(days)  Min aggregate 
time  
(days) Max 
aggregate 
time 
(days)  
1  CRA submits application to CESR  0 0 0  
2  CESR transfers application to all competent 
authorities (CAs) 5 2 5  
3  CESR advises on completeness of an application 
to home CA  10 5 10  
4  Home CA, college decide whether an application is 
complete  25 10 25*  
5  Home CA, college (1) examine application, (2) do 
all possible to reach consensus on the registration 
decision, (3) transmit draft decision for CESR 
advice  60 30 85  
5a  Additional time granted by facilit ator for actions in 5 above, if 
application complex  30   115  
6  CESR advises on the draft decision  20 35 105 (135)  
7  Home CA takes final decision  15 40 120 (150)  
8  Notification of the decision to the CRA  5 45 125(155)  
 *If application incomplete additional time may be given to an applicant to provide missing documents  
 Table conclusion: Registration process may take up to 7,25 months    
Those heavy procedures have been envisaged to safeguard the interests of all Member States 
in a situation where competent authorities of only some Member  States are granted regular 
supervisory and enforcement powers. At the same time, all Member States are required to designate competent authorities for the pur poses of CRA supervision, which should be 
sufficiently resourced and staffed to perform the ensuing tasks.  
 
EN 22   EN The problems of fragmentation of supervisory resources dedicated to CRA supervision and 
their extensive use for ensuring effective co- operation within the EU supervisory framework 
cannot be fully resolved under Op tion 2. Some relief from this burden may be expected at the 
level of the Member States, as the ESMA woul d have an enhanced ro le in facilitating co-
operation between them. But the CRAs would still need to ensure that their compliance efforts satisfy (at the same time) the expectations of a number of EU supervisors co-operating in a complex network.  
In the case of Option 3a, some significant efficiency gains may be expected as a result of 
introducing EU-level supervision. However, the supervision of some of the "local" rating 
agencies may still require the setting up of colleges and therefore the efficiency gains are in this regard less evident than under option 3b). 
Under option 3b the supervisory process is signifi cantly faster and less complex as under the 
baseline scenario. Many of th e coordinating steps between CESR , the competent authority of 
the home Member State, the facilitator and th e other members of the colleges will not be 
necessary any more and we expect that this will considerably accelerate the registration and 
supervision process. According to the proposal  for the ESMA Regulation decisions are in 
general taken by the board of s upervisors composed of the head s of the competent authorities 
in each Member State (Article 25 of the proposal  for the ESMA Regulati on). As a general rule 
decisions are taken by simple majority of its memb ers, therefore there is no risk that decisions 
are blocked. Decisions will be prepared by ESMA staff with technical expertise in the area of 
CRAs. In order to streamline the decision maki ng process (e.g. for time sensitive supervisory 
measures), the proposal for the ESMA Regulation allows the board of supervisors to delegate 
specific tasks and decisions to internal committees  or panels or to its chairperson (Article 26 
of the proposal for the ESMA Regulation).  
In particular, a CRA panel (composed of CRA experts from national competent authorities) 
could be established within ESMA to take the re gistration/supervisory deci sions in the field of 
CRAs (prepared by the ESMA experts). It shou ld also be noted that ESMA will employ a 
number of national experts sec onded from national competent authorities which will ensure 
the availability and up-to-date knowledge of local conditions. According to the latest estimates submitted by CESR to the Commission in  February 2010 50 % of the staff that will 
be needed for CRA supervision/regulation in  ESMA should be seconded national experts. 
The decisions taken by ESMA coul d be appealed to the board of  appeal of ESMA and to the 
European Courts.  
Efficiency with regard to smaller CRAs 
While efficiency gains under option 3 b are evid ent in the case of (g roups of) larger CRAs 
with a pan European scope it is less evident for smaller CRAs with  a local focus. It may cause 
additional costs for those CRAs to interact with  ESMA (due to the geographical distance and 
possible language barriers
33) and also on the side of ES MA there may be some cost 
implications (translation of applications, mission costs, knowledge of local conditions). 
                                                 
33 However, as the ESMA will qualify as a European  regulatory agency the EU language regime will 
apply so that each CRA may addre ss the ESMA in any of the offici al languages of the EU. In this 
respect there will be less burden for the CRAs as under the current CRA Regulation (option 1) which 
require applications to be sent in addition "in a language customary in the sphere of international 
finance"- see Article 15 (3) of the CRA Regulation.  
 
EN 23   EN However, these costs can to a certain extent be mitigated by providing the option to delegate 
specific tasks to the competent authorities of Member States. In such cases the ESMA may 
delegate specific supervisory tasks (e.g. the organisation of an on site inspection, the 
assessment of an application) to the local competent authority (or mandate a local audit firm with carrying out specific tasks
34). Delegation of tasks would not  affect the responsibility of 
ESMA which could give instructions to the delegated authority. This option should prevent 
disproportional costs for local CRAs and make  use of the knowledge and experience of 
national supervisors with respect to local condi tions while at the same time it would ensure 
the consistent appli cation of the CRA Regulation across Europe. 
It should also be stressed that differently from the situation in the field of banking or 
insurance regulation there are no national regulatory specificities w ith regard to the regulation 
of credit rating agencies. Before the adoption of the CRA Regulation rating activities were 
quasi unregulated in the EU and therefore there is no specific national legi slation to be applied 
in the supervisory process. In addition, the inst rument of a Regulation ensures that identical 
rules apply to CRAs across Europe (and not sli ghtly different national rules implementing a 
EU directive as it is the case in the banking and insurance sector).  
Availability of supervisor y skills and experience with  regard to CRA supervision 
Another aspect to be considered in this respec t is the availability of supervisory skills under 
the different options. Lack of supervisory skills  and experience would reduce the efficiency of 
CRA supervision. While under option 1 and 2 th e responsibility for supervising CRAs lies 
with the staff of national competent authoritie s, the responsibility would be shared among 
ESMA and national competent au thorities under option 3a) a nd only be with ESMA staff 
under option 3b). It is important to note that due to the fact that the CRA Regulation only 
entered into force at the end of 2009 and will be fully applie d only from end of 2010 there is 
not yet relevant supervisory e xperience with regard to CRA s upervision in the EU. Staff of 
national competent authorities therefore does not have much advantage over future ESMA 
staff in this respect. In addition probably so me of the future ESMA CRA staff (including 
national experts seconded from national competen t authorities) will be recruited from the pool 
of supervisors currently dealing with CRAs at national level/ and in the CESR CRA Standing 
Committee.  
In the medium term, option 3 b is preferable to  the other options, as under option 1-3a) certain 
supervisors will only be in charge for the supervision of a small number of CRAs35 which 
makes the gathering of experience more difficu lt, while ESMA staff will be dealing under 
option 3b with all European CRAs (currently around 50) which will  allow its staff to quickly 
acquire expertise and experience. In addition  ESMA staff will also be in charge for 
developing technical standards on CRAs which will further strengthen their CRA expertise. 
Given the relatively small number of CRAs active in  the EU it is more efficient to concentrate 
the CRA expertise in one superv isory authority instead of havi ng several supervisors being in 
charge for a small proportion of the market . Nevertheless also under option 3b national 
supervisors would be involved in CRA superv ision, first through thei r role in ESMA's 
                                                 
34 The option to mandate audit firms with carrying out inspections (under the full responsibility and 
following instructions of the competent authority) is provided for in a number of jurisdictions, eg in Germany.  
35 For instance the Portuguese supervisory authority will be under the current CRA Regulation the home 
supervisor for only one CRA, the Slovakian supervisor for two CRAs. 
 
EN 24   EN decision making process, and second when s upporting ESMA in the supervision of e.g. 
smaller local CRAs.  
Budgetary considerations 
Under option 1 Member States would have to fu lly finance the supervision of CRAs carried 
out by their national competent authorities with the involveme nt of CESR which is also 
funded by Member State contributions. The extent  to which Member States will charge fees 
and/or current contributions to the supervised  CRAs is not yet known and will probably vary 
across Member States. Under opt ion 2 ESMA will assume an enhanced coordination function 
and the power to settle disputes which w ould probably reduce overall coordination costs 
among supervisors. The revenues of ESMA will consist of contributions from the competent authorities and a subsidy from the Community
36. It follows that under option 2 there will be 
an overall reduction of costs, the costs for Memb er States will be redu ced while the costs for 
the EU budget will be higher than under option 1 due to the co-financing of ESMA. Under 
option 3 and especially under sub-option 3 b) we  would expect a further reduction in overall 
cost of supervision since centralising the supervisory activities in ESMA creates some economies of scale which imply an overall reduction of costs in an aggregated level within the 
EU. The decrease in overall cost for CRA supervisi on is also due to the f act that there will be 
less coordination costs (e.g. the fact that unde r the current legal framework CESR has to 
transmit back and forward several documents to  the CRAs and competent authorities creates 
an excessive administrative burden) for national competent authorities and ESMA which will allow to considerably simplify and shorten the registration process. Currently there is no data on the administrative costs in Member States as  they have not yet put in place the supervisory 
regime; however considerable savings are to be  expected for Member States, even if the 
savings will be mitigated by the national cont ribution to the ESMA budget and their role in 
supporting ESMA's investigation activities and carryi ng out specific supervisory tasks under 
ESMA's responsibility. Due to ESMAs re sponsibility for CRA supervision and the 
Community contribution to the ESMA budget, ther e will be an increa se in costs for the 
Community budget under option 3. However, this cost  increase will be mitigated by the fact 
that ESMA will be entitled to charge fees on the supervised entities (see 9.3.)
 37  
7.4. Aligned incentives 
Under the current supervisory framework (opti on 1), competent authorities in the Member 
States may perceive the dimension of CRA su pervision from a nationa l perspective missing 
sometimes a full picture of the global nature and impact of CRA's activities. In some cases the 
impact of a CRA's activity may be much more significant outside the Member State where the 
CRA is located and whose competent authority is primarily responsible for supervision and 
enforcement. While it is true that other member s of the college may cont ribute to the overall 
view of the CRA, it still could create conflicts that a supervisor, which is used to being 
responsible for its home financial market and ac countable to its national political institutions, 
                                                 
36 According to the proposal for the ESMA Regulation, ESMA will be financed through 40 % European 
Union funds and 60 % through contributions from Member States. (Recital 50 of the Presidency 
compromise text dated 7 December 2009, available at: 
http://register.consilium.europa.eu/pdf /en/09/st16/st16751-re01.en09.pdf) 
37 To what extent the amount of fees will cover ES MA's cost for supervising CRAs will depend on the 
implementing measures which will specify situations  when fees are due and the amount of fees. The 
regimes in Member States for charging fees on supervised entities are very divergent. 
 
EN 25   EN has to take the main responsibil ity for activities with pan- Eur opean reach affecting primarily 
financial markets outside its home jurisdiction.  
While the activity of CRAs has an impact throughout the EU, only the home competent 
authority, i.e. the competent authority of the Member State in which the CRA is established, 
will be able to charge registration and supervisory fees. This may have the consequence that host competent authorities are less committed in participating and contributing to the 
supervisory work which may further affect the adequacy of the supervisory capacity of the 
home competent authority under Option 1. 
In this regard, neither Option 1 nor Option 2 ma y offer satisfactory results, with the Option 2 
leading to a slightly better outcome in terms of co-ordination of supe rvisory efforts due to 
ESMA's involvement.  
Only Options 3a and 3b fully ensure that th e supervisory authority(ies) in charge for 
supervising CRAs in the EU have sufficient cap acity and leverage to deal with supervisory 
issues arising at the largest CRAs. ESMA w ill have the European perspective which is 
necessary to perform an adequa te supervision with regard to  CRAs with pan-European reach. 
Option 3a may be considered as more proportionate  in the sense that it retains the supervision 
of smaller CRAs at local (national) level.  
7.5. Result 
Criteria 
 Options Single 
point of contact. Clear competences Consistent 
application Efficiency 
gains Adequacy 
1. Baseline 
(current CRA Regulation) 0 0 0 0 
2. College 
structure and ESMA + + + + 
3a. ESMA 
oversees directly some CRAs (except local players) - + ++ +++ 
3b. ESMA 
oversees directly all CRAs  +++ +++ +++ ++ 
After due consideration of the im pacts of all specific policy op tions and their advantages and 
disadvantages compared with the baseline scen ario, it has been concluded that Option 3b 
 
EN 26   EN (direct oversight by ESMA of all EU-registered CRAs) addresses most comprehensively the 
objectives set before this  Commission initiative.  
The analysis in particular show s that direct supervision of CRA s at European level is more 
efficient than Option 2 consisting of a college  structure as foreseen in the current CRA 
Regulation coupled with enhanced ESMA pow ers like monitoring compliance of competent 
authorities and dispute settlement provided by the ESMA Regulation. However, this finding 
does not suggest that supervis ion of other financial institu tions like banks and insurance 
companies could also most efficiently be provide d at European level. As described above, the 
structure and business model of CRAs varies  considerably from the ones of banks and 
insurance companies and therefore a different s upervisory model may be more appropriate for 
other financial sectors.38  
Given the global nature of the rating activity a more consolidated supe rvision of the credit 
rating industry had been considered as more a dvantageous already at the time when the CRA 
Regulation was adopted. However at that moment the creation of such an agency for CRA 
oversight purposes only was eventually cons idered disproportionate. Currently however, 
taking into consideration the position of the Euro pean Parliament during the negotiation of the 
CRA Regulation and the general approach on the text establishing ESMA agreed at the 
ECOFIN on 2nd December, the level of po litical acceptability for this  solution is very high.  
With regard to the proportionality of the prefe rred option, a more central ised oversight of this 
industry would lead to streamlined decision-ma king process and to a public oversight of the 
CRA industry that would cover the EU territory  without the risks of supervisory gaps or 
overlaps between nationa l jurisdictions, existing currentl y. These risks have been more 
evident during the financial crisis ; therefore it is proportionate in comparison to the costs that 
a crisis might entail to fill the supervisory gap.  
At the same time the proposals would not be made  in the areas where e ffective oversight of 
existing regulated entities is already ensured at na tional level. In this respect, in the case of 
use of credit ratings by indivi dual financial entities which are supervised at national level, 
national supervisors would remain responsible for the supervision of the use of credit ratings 
by those individual entities. Moreover, as nati onal supervisors would be able to collect 
specific information about the use of credit ratings, they should  be able, to re quest ESMA to 
examine the withdrawal of a credit rating agency's  registration or the suspension of the use of 
credit ratings. In all, the contemplated pr ovisions would not go beyond what is strictly 
necessary to achieve th e objectives pursued.  
8. FURTHER ANALYSIS OF THE PREFERRED OPTION : THE NEED FOR AN EFFECTIVE 
SANCTIONING REGIME  
As mentioned in Sections 1 and 3, the forthc oming amendment of the CRA Regulation will 
review the supervisory structur e applicable to CRAs to adju st it to the new European 
supervisory architecture. Within this framework, the preferred option chos en above is that the 
ESMA will assume exclusive supervisory po wers over CRAs entrusted to it in the CRA 
Regulation. Accordingly, the ESMA will be en trusted with an appr opriate authority to 
                                                 
38 See above p. 7, 8. The limited number of CRAs, th e mobility of rating services and the cross boarder 
impact of ratings are specific to the rating sector. 
 
EN 27   EN investigate and enforce legislation. ESMA's additional responsibili ties entail additional 
resources. In order for ESMA to fulfil its new supervisory powers co ncerning CRAs, it is 
necessary to entrust it also with the power  to recommend the adoption of sanctions and 
periodic penalty payments by the Commission. 
8.1. Introduction 
Currently, Article 36 of the CRA Regulation mandates Member States to adopt rules on 
penalties applicable in the case of pr ovisions violating th e CRA Regulation by 7th December 
2010, and to take all necessary measures to  ensure that they are implemented.  
The fact that ESMA will be entrusted with exclusive supervisory powers over CRAs implies 
that the sanctioning regime  of the CRA Regulation is to be reviewed and enhanced in order to 
create a transparent and effective system with in which ESMA will be able to deploy all its 
supervisory powers. The sanctioning regime of  the CRA Regulation will not entail the 
assessment of the functioning of a given market  and the market behaviour of the CRA; the 
sanctioning regime will involve only the assessm ent of the individual behaviour of specific 
CRAs. 
The sanctioning regime in the CRA Regulation will have different objectives: First the 
deterrent effect to keep at bay the risk that  CRAs breach the provisions of the Regulation. And 
second, once an offence has been committed, restor ative measures are called in; sanctions are 
to be strong enough to compel the CRA to re store the situation. In order to fulfil these 
objectives, sanctions are to be eff ective, proportionate and dissuasive. 
The CRA Regulation imposes organisational re quirements, operation al requirements and 
disclosure requirements on CRAs. Given the nature  of these requirements it is appropriate that 
breaches of the CRA Regulation are qualified as administrative offences as opposed to more 
serious criminal offences whic h would require nationa l criminal courts i ssuing the sanctions. 
Most Member States qualify breaches of sim ilar types of requirements (e.g. provisions in 
MiFID on organisational requirement s or conflicts of interests) as administrative offences.  
However, some behaviour of persons involved in  rating activity may in  addition to infringing 
the CRA Regulation qualify as criminal offence (e.g. fraud) according to criminal legislation 
of the Member State where the act is committed.  
In order to build an effective sanctioning regi me, apart from pecuniary sanctions (fines) the 
CRA Regulation should provide a number of other enforcemen t measures in case a CRA 
infringes provisions of the CRA Regulation. Thos e measures may be understood as sanctions 
in a broader sense. All in all,  the sanctions to be envisage d in the CRA Regulation are the 
following: 
- Withdrawal of registration . It should be envisaged for the most serious breaches of the 
Regulation, notably "where the CRA has seriously and repeatedly  infringed the provisions of 
the Regulation governing the operating conditions fo r credit rating agencies". As a result of 
the withdrawal the CRA has to stop  immediately its rating activity.  
 
EN 28   EN - Periodic penalty payment . It should be foreseen, as it is  the case in the Council Regulation 
on the implementation of the rules on competition39, in situations in which the CRA is 
compelled by the ESMA to act in a specific manne r at a given deadline for instance to put an 
end to an infringement, supply information or su bmit to an investigation or an inspection. The 
penalty to be imposed by the Commission at ESMA ’s request for each day of delay is to be 
calculated according to the pa rameters established in th e CRA Regulation. If the CRA 
complies with the order by ESMA  within the given deadline, no penalty payment will be 
imposed. Therefore a penalty payment has primarily compelling effect but does not 
sanction/compensate a breach of a substa ntive requirement of the Regulation.  
- Fines . The Commission based on a recommendati on by ESMA may impose a fine on a CRA 
where a CRA infringes, intentionally or negligently, specific provisions containing obligations/prohibitions. All the different sanctions described above are complementary parts 
of an effective enforcement regime. Limiting the sanctioning powers to the power to withdraw a registration would not  be sufficient as this power may only be applied for serious 
or repeated breaches of the CRA Regulation an d would be disproportiona te in most of the 
cases. Also, the power to require a CRA to bring an infringeme nt to an end (Article 24 (1) d) 
CRA Regulation) coupled with the imposition of  periodic penalty payments if the CRA does 
not comply with the order in a given deadline is  not sufficient. While this measure may for the 
short term restore compliance with the CRA Re gulation, it does not ha ve a strong deterrent 
effect. A CRA may at first comply with the order of ESMA, but may after a while commit 
again the same breach, if there are no pecu niary sanctions for th e infringement. The 
possibility of the Commission imposing pecuniar y sanctions at ESMA's request, is therefore 
necessary in order to provide a proportionate reaction to individual br eaches of the Regulation 
which do not justify the immediate withdrawal of the registration and in order to create a 
deterrent effect.  
8.2. Problem definition 
ESMA will execute exclusive supervisory powers over CRAs. It is evident that an effective 
supervision needs to be accompanied by an e ffective sanctioning regime. However, it is 
necessary to assess whether sanctions are to remain in the remit of the Member States or whether the Commission, based on recommendati ons by ESMA, should be entrusted with the 
sanctioning power. The defici encies of the current system are the following:  
8.2.1.  Uneven playing field 
The CRA Regulation constitute s a single rulebook for the act ivities performed by CRAs. 
However, in the current CRA Regulation, each Memb er State is to set up its national system 
of penalties. Where substantial differences exist in the sanctioning regimes, this may result in an uneven playing field, as the same offence can be punished in many different ways in 
different Member States. Such different treat ment can lead to a distortion of competition 
between Member States, as CRAs might choose th e best location for thei r business taking into 
account how sanctions are to be applied. With di fferent sanctioning regimes, there is room for 
regulatory arbitrage, as CRAs will take advantage of a regulatory difference between the markets. 
                                                
 
39 Council Regulation (EC) No 1/ 2003 of 16 December 2002 on the implementation of the rules on 
competition laid down in Articles 81 and 82 of the treaty, OJ L1 of 4.1.2003, p.1. 
 
EN 29   EN 8.2.2.  Inconsistent application 
Within the current CRA Regulation, each Member State, after having set up its national 
system of penalties, will have to assess each  breach by a CRA of the provisions of the CRA 
Regulation and impose a fine. This situation might lead to a different application of sanctions 
in the different Member States, as the competen t authorities to assess the individual breach 
committed by a CRA will be different in each case . The rules of equality and proportionality 
that the sanctioning authority will apply may not be the same in all Member States. 
8.3. Objectives 
The sanctioning regime should be aimed at ensuring that the following objectives are met: 
8.3.1.  Ensure a level playing field 
Given the global nature of the CRA business and th e use of a credit rating at the same time in 
several Member States, it is particularly important to submit CRAs to the same level of sanctions within all the Member States of the EU. Otherwise, CRAs could choose as their 
place of establishment the Member State in wh ich the lowest level of sanctions exists. 
8.3.2.  Ensure a consistent application 
As credit ratings are used by financial institutio ns and governments in all Member States, if a 
CRA breaches one of the provisions of the CRA Regulation, the CRA's misbehaviour will 
have consequences in a number of Member St ates. Therefore, the assessment of the CRA's 
misbehaviour and the consequent imposition of  a sanction should be consistent in the 
different individual cases. 
8.4. Options 
The following policy options have been considered: 
8.4.1.  Option 1 – Sanctions at national level 
This option would consist in maintaining the sa nctioning powers at nationa l level, as it is 
envisaged in the current CRA Regulation. As  according to our preferred option (see 7.5. 
above) ESMA would be allocate d the exclusive supervisory powers over CRAs, it would be 
in the remit of ESMA to determine whether a CRA has breached the provisions of the CRA Regulation. Once a breach by a CRA would have  been determined, the competent national 
authority of the Member State in which the CR A is established will be the one imposing a 
sanction in conformity with the national sancti oning rules (i.e. rules of  procedure, appeals, 
etc). 
8.4.2.  Option 2 – Sanctions at the level of ESMA 
This option would imply that ESMA is entrus ted not only with the exclusive supervisory 
powers, but also with the ultimate power to im pose sanctions to CRAs in case they commit a 
breach of a provision of the CRA Regulation. 
 
EN 30   EN 8.4.3.  Option 3 – Sanctions at Commission level 
This option would imply that after the performance by ESMA of its supervisory 
responsibilities on a given case of breach of  a provision of the CRA Regulation by a CRA, 
ESMA would transmit the file  with its recommendations to  the Commission, which would 
take a decision on imposing a fine on the CRA. 
8.5. Comparing the options 
The impacts of identified policy options should be  considered in the context of the objectives 
set in point 8.3. 
8.5.1.  Ensure a level playing field 
In the case of Option 1, as Member States wi ll remain responsible for issuing pecuniary 
sanctions, no level playing field within the EU on CRAs will be ensured. Even if the CRA Regulation introduces a complete list of sanctions th at are to be applied and sets detailed rules 
how to determine the amount of a fine, there w ould still be some discretion by each national 
authority in determining a fine  In addition, separati ng the authority which supervises from the 
one which sanctions would make the system  more complex and less efficient as the 
sanctioning authority may be required to reassess the breach (including its gravity, duration, 
mitigating/aggravating circumstances). The fact that sanctioning decisions could be appealed 
to different national courts would add anothe r source of potential divergence regarding the 
amount of fines but also the determination of a breach. 
In the case of Option 2, ESMA would be entrusted with sanc tioning powers and the 
Commission would keep the possibility to cont rol the decisions taken by ESMA in imposing 
fines on credit rating agencies. Therefore,  the CRA Regulation should establish: 
- a list of breaches of the provisions of the CRA Regulation that can be enforced by fines 
when the CRA acted intentionally or negligently;  
- minimum and maximum amounts of fines for each breach, taking into account the 
seriousness and gravity of the infringement co mmitted and the effect on the credit ratings 
issued by the CRA; 
- objective parameters to be taken into account  by ESMA in determining the amount of the 
fine; 
- the Commission should adopt rules specifying further detailed criteria for ESMA for the 
establishment of the amount of a fine. Moreover, ESMA will have to stick in all cases to the 
same rules of equality and proportionality.  
However, this option could raise some concerns  of consistency with the Community acquis 
and notably the jurisprudence of the European Court of Justice in the Meroni case
40.  
                                                 
40 Case 9/56 Meroni [1958] ECR 133 according to which agencies/aut horities may not be delegated the 
power to take decisions which require difficult choices in reconciling various objectives laid down in 
the Treaty amounting to the execution of actual economi c policy. Clearly defined executive powers can 
be delegated to an agency including powers, that involve the need to interpret Community law 
provisions to determine their application and which leave the authority a certain margin of appreciation 
in applying these rules. 
 
EN 31   EN According to option 3 the same legal framewor k should be applied by the Commission to take 
a decision on a sanction, at ESMA's request. The exercise of sanctioning powers by the 
Commission should in principle satisfy the objective of ensuri ng a level playing field for 
supervised entities, and would be fully consiste nt with the jurisprudence of the Court in the 
Meroni case. Nonetheless, the resulting split between supervisory activity of the ESMA (on-site inspections, hearings of stakeholders, fi nding of a breach) and the sanctioning itself 
would make the entire process more complex, as the file would need to be re-examined by the 
Commission before a deci sion could be taken.  
8.5.2.  Ensure a consistent application 
Concerning Option 1, even in the case where th e sanctions would be harmonised in the CRA 
Regulation, if they are applied by the national competent authori ties, it is very difficult to 
ensure that they are applied in a fully c onsistent way throughout the EU. This risk of 
divergence could to a certain extent be mitigated by the issuance of guidance by ESMA; however, as the sanction would be imposed by  a national authority, this authority would 
legally be responsible for the finding of a breach and setting the right amount of fine. In addition, the right of appeal by the CRA would be exercised in  the relevant court of the 
Member State which might assess the cases in a different way than othe r national courts in 
other Member States. 
ESMA (Option 2) would be better placed than na tional regulators to exercise the sanctioning 
powers over credit rating agencies, since differe nt national regulators could take different 
sanctions concerning the same breach of law. These national discrepanc ies would be harmful 
to an effective EU supervision and, precisely, reduce the effects of  a single set of rules. The 
general rules of proced ure that ESMA would apply would be the ones set in the Regulation 
establishing ESMA. Finally, the European Court of Justice would have jurisdiction to fully review the measures taken by ESMA, including cance lling, increasing or reducing a fine or 
periodic penalty payment imposed by ESMA. Howe ver, this option could raise some concerns 
of consistency with the Community acquis and notably the jurisprude nce of the European 
Court of Justice in the Meroni case. 
In the case of Option 3, the CRA framewor k should be ultimately enforced by the 
Commission, which would be empowered to take  decisions on fines and periodic penalty 
payments, at ESMA's request. This option woul d ensure consistent sanctions at European 
level, which would be subject to review by the ECJ, and would be consistent with the 
Community acquis and notabl y the Meroni caselaw. 
It seems therefore appropriate  to grant the power to impos e fines and periodic penalty 
payments to the Commission, acting at ESMA's request. 
Criteria 
Options Level playing field C onsistent application 
1. Sanctions at 
national level + + 
2. Sanctions at the 
level of ESMA  +++ +++ 
 
EN 32   EN 3. Sanctions at the 
level of the Commission +++ +++ 
 
Therefore, the best solution to ensure an efficient sanctioning regi me is to grant the 
Commission the necessary sanctioning powers to be exercised under a well defined 
framework and based on the recommendations of  ESMA. This framework should include all 
necessary elements to allow the Commissi on to exercise its sanctioning powers under 
transparent and objec tive parameters.  
9. ANALYSIS OF IMPACTS  
It has been shown that the solution which best addresses the objectives set for this 
Commission initiative is the direct oversight  by ESMA of all EU-registered CRAs and the 
centralisation of the sanctio ning power with the Commission, acting on a recommendation by 
ESMA. 
 
As the current initiative aims to streamline s upervision of credit rating agencies, its potential 
benefits can be deduced from the cost implicat ions of the financial crisis, in which credit 
rating agencies played a non-neglig ible role. Even when attribut ing to credit rating agencies 
only a fraction of the direct and indirect losses ca used by the crisis, the be nefits of an effective 
and efficient supervisory system are vast. Advantages Disadvantages 
1 Streamlined decision making process – 
no conflicts over competence  1 Need to build oversight capacity from 
scratch 
2 No risk of incoherent application of EU 
law across the Member States 2 Local CRAs expected to deal with an EU-
level supervisor  
3 Clear efficiency gains – heavy co-
ordination procedures are avoided and resources and expert ise are pooled in 
one organisation 
4 Supervisor's perspe ctive, capacity and 
mandate corresponds to the EU-wide reach of main players 
5 Level playing field for the deterrent 
effect of sanctions and fully consistent application of sanc tions throughout the 
EU 
 
EN 33   EN 9.1. Impacts on the credit rating agencies 
CRAs would operate in a much simpler supe rvisory environment, with only one public 
authority – the ESMA – assuming overall comp etence for their supe rvision and one public 
authority, the Commission, responsible for sa nctions under the CRA regulation. Significant 
efficiency gains may be expected in terms of  the use of CRAs' resources on compliance with 
the CRA Regulation. The more efficient supervis ory structure also means that decisions in 
individual cases would be take n in a timely manner; the risks of incoherent application or 
conflicting competences would be eliminated. 
Certain smaller CRAs may feel disadvantaged by the fact that the ESMA will not have a 
presence in the Member State of their esta blishment. Certain arrangements, like accepting 
documentation in any of the EU official languages or delegating some specific tasks (e.g. hearing of a person, carrying out on-site inspecti ons) to the supervisory authority at national 
level, would be used to mitigate this difficulty. 
9.2. Impacts on the users of ratings 
The interests of the users of ra tings, in terms of hi gher quality of ratings, greater independence 
and transparency of CRAs, are going to be mo re effectively protected as a result of 
establishing centralised EU supervision of all CR As. It will be possible to report breaches of 
and deficient compliance with th e CRA Regulation to a single ove rsight authority in Europe 
specialised in dealing with cases involving rating activity and fully prepared to pursue cross-border cases.  
Both rated entities and users of credit ratings will be better protected as there will be a fully 
coherent and consistent application throughout the EU of the CRA Regulation. 
9.3. Impacts on the ESMA - resources and funding 
The ESMA will become responsible for direct s upervision of credit ratin g agencies. This will 
require building its supervisory capacity. The ESMA will need to be sufficiently funded and staffed to fully exercise its aut hority in this field. It should be  able to make effective use of 
supervisory powers (like examining reco rds and launching investigations).  
Staffing and other operational expenditure 
According to current estimations from the CESR secretariat and an assessment of DG Internal 
Market and Services the CRA oversight acti vity will require 12 new staff members (6 
temporary agents and 6 seconded national experts) in addition to the 3 st aff that are currently 
working on CRAs in CESR and that are cove red by the budget for ESMA already provided 
for in the ESMA Regulation. Following this appro ach estimated staffing costs of this proposal 
would amount to 1.574 Million Euro  in the first year of the ES MA activity (2011). In addition 
to staffing costs 628.000 Euro  expenditure is foreseen for building, equipment and 
administrative costs (including rental of building, IT cost s, telecommuni cation costs, 
meeting/travelling expenses and translation co sts) and 300.000 Euro fo r operational costs (in 
particular the organisation of on-site inspections and the set up of a collaborative environment 
to work with national competent authorities  on enforcement cases). According to these 
estimates total expenditure of  ESMA on CRA supervision would amount to ca. 2,502 Million 
Euro in 2011. This expenditure was not included in the estimated ESMA budget 
accompanying the proposal for setting up the ESMA  as it is caused by entrusting ESMA with 
 
EN 34   EN direct supervisory powers over CRAs as proposed  by this amendment to the CRA Regulation. 
The evolution of the expenditure in subseque nt years depends among  other things on the 
number of supervised entities but from today' s perspective we would not expect significant 
changes. 
According to the estimations of DG Internal Ma rket and Services, the role of the Commission 
in sanctioning breaches of the CRA Regulatio n based on recommendations of ESMA will 
require 4 officials. This role would includ e the adoption of fining and periodic penalty 
payments decisions on CRAs, carrying out own enquiries, hearing of the CRAs and persons 
concerned, responding to requests for access to file, defending fining and periodic penalty 
payments decision before the C ourts and collecting the fines. 
Funding 
According to Article 48 (1) of the proposal fo r the ESMA Regulation, the revenues of ESMA 
shall consist in particular of a) contributions  from the national competent authorities, b) a 
subsidy of the European Union a nd c) any fees paid to the Authority in the cases specified in 
relevant legislation.  
Consequently, the CRA oversight activity woul d be funded from the overall ESMA revenues, 
including proceeds from fees charged from CRA s by the ESMA. It remains to be determined 
in secondary legislation to what extent superv isory fees could cover th e costs incurred by the 
ESMA in the CRA supervision. Also full fina ncing of ESMA's expend itures related to CRA 
supervision by the CRA industr y should be considered. 
Fees to be charged 
ESMA should be entitled to ch arge fees for registration and other supervisory measures. The 
matters for which fees are due and the amount of  the fees should be se t in legislation. The 
power to adopt an act specifyi ng the fees could be conferre d in the CRA Regulation upon the 
Commission, which would also allow for a le ss time-consuming adaptation of fees if 
needed.41 In general terms, the fees would be propo rtional to the costs incurred by ESMA and 
to the size and economic strengths  of the credit rating agency. Implementing measures on fees 
will be subject to a separate IA.  
Fines and periodic penalty payments 
The fines and periodic penalty payments that the Commission will impose on credit rating 
agencies will become part of the EU general budget.  
In cases when CRAs fail to pay the amounts due as fees, fines or peri odic penalty payments 
decisions imposing the obligation to pay (e.g. a deci sion to register or to withdraw registration 
or a fining decision) would be directly enforceable in accord ance with the rules of civil 
procedure in force in the territory wher e enforcement is to be carried out.  
Other impacts 
                                                 
41 The process would be that during the negotiations of the amendments to the CRA Regulation, the 
Commission would start working (with the involvement of CESR) on the implementing measures 
specifying the fees.  
 
EN 35   EN The ESMA will need to put in place effectiv e co-operation arrangements with relevant 3rd 
country supervisors of CRAs to enable the functio ning of rules allowing the use in the EU of 
the ratings produced in those 3rd jurisdictions. Last but not least,  it will also need to develop 
close co-operation with supervisory authorities in the Member States, as their assistance on 
specific supervisory matters (e.g. during on-site in spections or in the c ontext of supervising 
smaller CRAs) may be crucial.  
9.4. Impacts on the Member States 
Member States would not be expected to maintain comprehensive supervisory structures for 
the oversight of CRAs. Some supervisory capa city at the individual Member States' level 
would need to be secured for the issu es related to the use of ratings.  
9.5. Impacts on the comp etent authorities 
Competent authorities would not be responsible for the supervision of the CRAs. They would 
nonetheless be expected to offer all necessa ry assistance to the ESMA and fulfil tasks 
delegated by ESMA. They would be entitled in some clearly de fined circumstances to request 
the ESMA to take a concrete enforcement action.  
9.6. Administrative burden 
No additional administrative burden to CRAs is to  be envisaged as this proposal is not going 
to modify the substantive requirements in troduced by Regulation (EC) N°1060/2009. On the 
contrary, an immediate conseque nce of the centralization of supervision for CRAs is that the 
administrative burden will be reduced. No increas e of administrative burden is expected in 
comparison to the baseline scenario. 
The time for registration will be reduced from th e current 2 to 7 months  to a maximum of 65 
working days. This will imply a substantial reduction of costs for CRAs as they will be able to start issuing credit ratings under the new regime earlier than under the old system.  
Moreover, CRAs will no longer have to deal w ith several supervisors. The number of 
reporting obligations and other contacts will be reduced as CRAs will have to deal only with 
one supervisor.  
There will be an increase in administrative burd en for ESMA due to the fact that it will have 
to issue recommendations to the Commissi on when fines should be imposed on CRAs. 
However, the increase in burden will be limited as the information on which it bases such recommendations does not have to be collected  only for that purpose but is anyway required 
in order for the Commission to justify a fine vis-à-vis the addressed CRA. In addition, there 
will be a decrease in administrative burden for ES MA due to the fact that some notification 
obligations (e.g. transmission of application copies to competen t authorities) will not be 
necessary any more.  
9.7. Impacts on the environment and employment  
It is not expected that the changes in the CRA  Regulation are going to have any impact on the 
natural environment or on the gender policy of the EU. 
Concerning employment, as ESMA  will be responsible for the registration and oversight of 
CRAs, the national supervisory au thorities will have to devote  fewer personnel to deal with 
 
EN 36   EN CRAs issues. ESMA will of course create new pos ts and some of the posts are offered to 
national experts seconded from national competen t authorities. In the CRAs themselves, as 
the process of registration and supervision will be simplified and they will have to deal only 
with one supervisor, it is expected that they w ill slightly reduce the number of staff dealing 
with these issues. 
9.8. Impacts on third countries 
The Commission proposals to modify the s upervisory architecture for the CRA industry 
would come at a time, when some non-EU jurisd ictions are making effort s to either put in 
place or to strengthen their regulatory fr ameworks for the credit rating activity42. The 
forthcoming EU action is to fo cus on the supervisory architect ure for CRAs – this area is 
traditionally determined by the legislative br anch in response to national or regional 
specificities and it is rarely a subject of in ternational debate or controversy, unless major 
problems of co-operation or effectiveness arise. 
In this regard, it should be expected that th e changes in the CRA Re gulation would have a 
positive impact on EU relationships with third count ries, as instead of having to deal with 27 
competent authorities, third countries' supervisory authorities will deal only with one authority, ESMA, for any issue related to th e supervision of CRAs . Moreover, as CRAs 
operate in a global manner and us ually several subsidiaries a nd branches of the same CRA 
group participate in the issuance of a given credit rating, it is essential that third countries' 
authorities have a single cont act in the EU. ESMA would be the European authority signing 
any future Memorandum of Understanding on the exchange of information or the 
coordination of supervisory activities, thus si mplifying and strengthenin g the operational ties 
with supervisors from 3
rd countries. Currently CESR is already negotiating with third 
countries' supervisory authorities the develo pment of Memoranda of Understanding, which 
under the current legal framework would have  to be signed by the national competent 
authorities.  
9.9. Summary of the final outcome 
In view of the conclusions reached in this impact asse ssment, the European Commission 
considers appropriate to pres ent a proposal amending the Re gulation on CRAs. The proposal 
should aim at solving the problems iden tified in this impact assessment:  
– by entrusting ESMA with exclusive oversight  powers over CRAs. ESMA will be granted 
powers to request information, to launch inve stigations, and perfor m on-site inspections. 
Where necessary, ESMA might require assistance of national securities  regulators in those 
supervisory activities. The la tter may also be delegated sp ecific supervisory tasks (e.g. 
hearing of a person, carrying ou t on-site inspections), with  the ESMA retaining overall 
responsibility for those activities. 
                                                 
42 Some form of legal framework for the oversight an d supervision of the CRAs is already in place or 
should be established in due time in Argentina,  Brazil, China, Hong-Kong , India, Israel, Mexico, 
Russia, Singapore, South Africa, Un ited Arab Emirates. International regulatory activity in this field is 
due to the G20 commitment to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good pr actice, particularly to prevent unacceptable conflicts 
of interest. Cf. the official comm uniqué issued at the close of the G20 London Summit,  available at: 
http://www.londonsummit.gov. uk/resources/en/news/15766232/communique-020409.  
 
EN 37   EN – by entrusting the Commission, on a reco mmendation from ESMA, with sanctioning 
powers within a well defined framework. Sanc tions, including fines and periodic penalty 
payments, will be defined in such a way to provide a proportionate reaction to individual 
breaches and to create a deterrent effect. The Commission's decisions in this field would be 
subject to judicial review by the ECJ.  
10. MONITORING AND EVALUATION  
The Commission is the guardian of the Treaty a nd therefore will monitor how the Regulation 
on CRAs is implemented by ESMA.  
The evaluation of the consequences of the app lication of the legislative measure could take 
place three years after the entry into force of  the legislative measure in the form of a 
Commission report to the Council and the Eur opean Parliament. The Commission will be 
monitoring the application of the Regulation on CRAs, as amended, through ESMA and an 
extensive and continuous dialogue with all majo r stakeholders, including financial institutions 
and market participants (issuers, intermed iaries and investors), and consumers. The 
assessment will be carried out along the following criteria: investor protection, effectiveness, 
market efficiency, legal certa inty, administrative burdens.  
 
EN 38   EN 11. ANNEX I - LIST OF CRA S ESTABLISHED IN THE EUROPEAN UNION IN 2009 
Standard& Poor’s with subsidia ries in: FR, DE, IT, ES, SE, UK 
Moody’s with subsidiaries in: CY, CZ, FR, DE, IT, ES, UK Fitch with subsidiaries in: FR, DE, IT, PL, ES, UK Coface with subsidiaries  in: FR, BE, LUX, UK 
DBRS (to be established, UK) Creditreform (AT) Kreditschutzverband von 1870 (AT) Bulgarian Credit Rating Agency (BG) National Credit Rating Agency (BG) Global Ratings (BG) Capital Intelligence Limited (CY) Euler Hermes Rating (DE) ASSEKURATA (DE) URA Rating Agentur AG (DE) Prof. Dr. Schneck Rating (DE) Creditreform Rating AG (DE) 
RS Rating Services AG (DE) 
MAR-Rating GmbH (DE) Lince Spa (IT) Capp&CAPP Srl (IT) Companhia Portuguesa de Rating (POR) European Rating Agency (SK) ECRAI (SK) AM Best (UK) 
 
EN 39   EN 12. ANNEX II PROBLEM TREE  
 
EN 40   EN