EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 2.6.2010 
SEC(2010) 679 
  
COMMISSION STAFF WORKING DOCUMENT 
SUMMARY OF THE 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) 678} 
EN 2   EN 1. PROBLEM DEFINITION  
An essential element of the CRA Regulation is  the introduction of an  external oversight 
regime whereby European regulators will supe rvise the issuance of credit ratings by CRAs1. 
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 State. The su pervisory framework of  CRAs was one of the 
most difficult subjects in the negotiations  between the Council and the Parliament, 
successfully concluded on 23rd April 2009. The De Larosière re port of March 2009 followed 
by the Commission Communication of 27th May 2009 opened at political  level the possibility 
to create a Community Agency which would d eal with issues beyond CRAs. The compromise 
solution on the CRA Regulation envisaged already the need to review the supervisory 
provisions of the Regulation taki ng into account the new developmen ts at political level. The 
Commission proposal for a new supervisory struct ure in Europe estab lishing three European 
Supervisory Authorities has changed the pict ure. The Council agreed  in December 2009 to 
entrust in principle the new ESMA wi th direct supervisory powers on CRAs2. 
However, it is not merely political sentim ent that goes in favour of considering more 
centralised EU oversight of CRAs. There are str ong factual indications th at such an approach 
would better correspond to the busine ss specificities of this sector:  
(i) mobility of the rating service, which may be easily provided from varying locations 
(e.g. a German analyst operating in a L ondon office of a French CRA producing a 
rating on an Italian company);  
(ii) cross-border impact of ratings on us ers located beyond the ge ographical limits of a 
jurisdiction (e.g. ratings  issued by a Japanese CRA may be used for calculating risk 
capital by banks in various Member States). 
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. 
Consequently, and though the supervisory fr amework currently prescribed by the CRA 
Regulation has 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: 
                                                 
1 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.  
2 See Article 6(3) of the Presiden cy compromise on the ESMA Regulat ion (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 3   EN 1.1. 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, 
creating room for potential intra-EU disputes. Importantly, this policy choice implies that the 
CRAs would be faced with the duty to interact with several comp etent authorities in the same 
field. The main problem arising from this situat ion is the risk of conf licts over competences, 
which may lead to potential gaps (ineffective supervision); overlaps (inefficient supervision); or arbitrage/unlevel playing field. 
1.2. 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 
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. 
1.3. 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
3.  
1.4. 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 
                                                
 
3 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 4   EN home jurisdiction. This inherent conflict may necessitate time consuming and costly 
coordination/enforcement actions  by ESMA and the Commission.  
2. SUBSIDIARITY AND PROPORTIONALITY  
The problems identified in section 1 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. The European Commission consider s that the solutions proposed respect the 
principle of subsidiarity and proportionality, given the specificities  of the credit rating 
agency's sector.  
3. OBJECTIVES  
The amendment of the CRA Regulation aims at: securing effective supe rvision of CRAs in 
the EU; streamlining the supervisory architec ture for the CRA industry and ensuring legal 
certainty for CRAs and market participants. At operational level the objectives are the 
following: (i) ensure a single point of contact an d clear competences; (ii) ensure a consistent 
application; (iii) ensure efficiency gains and (i v) ensure better alignment of incentives for the 
supervisory authorities to cope with the pa n European activity of supervised entities. 
4. POLICY OPTIONS  
With the intention to meet the objectives set out in the previous section, the Commission 
services have analysed different policy options: 
4.1. Option 1 - Status quo (current CRA Regulation)4 
This option would consist in maintaining the ke y elements of the current supervisory set-up, 
agreed in the course of the ne gotiation of the CRA Regulation.  
4.2. Option 2 - College structure and ESMA 
This option reflects the situa tion that the ESMA Regulation is adopted as proposed by the 
Commission on 23rd September 2009 and that the superv isory framework as provided by the 
current CRA Regulation is maintained. 
4.3. 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 agencies operati ng in the EU. ESMA would assume general 
competence in matters relating to the regist ration and on-going supervision of registered 
                                                 
4 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. 
EN 5   EN 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 on periodic penalty payments.  
Within this broad option we may dist inguish two alternat ive scenarios.  
4.3.1.  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.  
4.3.2.  Option 3b - all EU-based CRAs 
Under this sub-Option, ESMA would be the sole supervis or of all EU-based CRAs. 
Moreover, within this framew ork, if ESMA were to assume  exclusive supervisory powers 
over CRAs, ESMA would be entrusted with an a ppropriate authority to investigate breaches 
of the legislation. In order for ESMA to fulfil its new supervisory powers concerning CRAs, it 
is necessary to provide for sanctioning powers. However, it is necessary to assess whether sanctions are to remain in the remit of th e Member States or wh ether the Commission or 
ESMA should be entrusted with the sanctio ning power. The new framework should aim at 
ensuring a level playing field and a consistent application of sanctions within the EU. 
5. A
NALYSING AND COMPARING THE OPTIONS  
The different options are assessed against the criteria of single point of contact and clear 
competences, consistent application, efficiency gains and adequacy of reach of the supervisory authority.  
In view of the conclusions reached in the impact assessment, the European Commission 
considers it appropriate to present a pr oposal amending the Regulation on CRAs. The 
proposal should aim at solving the problem s identified in the 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 out on-site in spections), with ESMA retaining overall 
responsibility for those activities. 
– by entrusting the Commission, acting on ESMA's  request, with sanc tioning powers within 
a well defined framework to be developed by means of delegated acts. Sanctions, including 
fines and periodic penalty payments, will be defined in such a way to provide a proportionate reaction to indi vidual breaches and to cr eate a deterrent effect. The 
Regulation will include a list of breaches of the provisions of the CRA Regulation that can 
be enforced by fines when the CRA act ed intentionally or negligently.  
EN 6   EN 6. ANALYSIS OF IMPACTS  
The impact assessment shows that the preferred options which best addresses the objectives 
set for this Commission initiative are the dire ct oversight by ESMA of all EU-registered 
CRAs and the centralisation of the sanctioni ng 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. 
7. 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 application of 
the legislative measure could take place three year s after the entry into force of the legislative 
measure in the form of a Commission report to  the Council and the European Parliament.  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 (no intermediate step) 
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