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}
Date: 2010-06-02
Institutions: European Commission
Subjects: administrative transparency, consumer information, credit institution, economic recession, exchange of information, financial control, financial solvency, impact study, investment, operation of the Institutions, securities

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 

   EN 

 
 
 
  
 
 
 
 
 
 
 
 
TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

Introduction .................................................................................................................. 3 

Procedure ..................................................................................................................... 5 

Problem Definition....................................................................................................... 6 

The baseline scenario, subsidiarity and proportionality............................................... 7 

Objectives................................................................................................................... 12 

Policy options............................................................................................................. 13 

Comparing the options ............................................................................................... 15 

Analysis of impacts .................................................................................................... 26 

Monitoring and Evaluation ........................................................................................ 36 

Annex I – List of CRAs established in the European Union in 2009 38 

Annex II – Problem tree 

37 

EN 

1-2 

   EN 

 
 
 
1. 

INTRODUCTION  

The  Regulation  on  credit  rating  agencies  (Regulation  (EC)  N°  1060/2009)  (hereafter  "the 
CRA  Regulation")  has  been  published  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 financial crisis that started in 2007. During the negotiation of the 
CRA  Regulation,  for  which  political  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 present proposals for a review of the Regulation. 

The  Commission  Communication  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  supervision  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  whole  ("macro-prudential  supervision"),  and  should 
provide  early  warning  of  systemic  risks  that  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  with  new  European  Supervisory  Authorities 
(European Supervisory Authorities), created by the transformation of the existing Committees 
for the banking, securities and insurance and occupational pensions sectors4. 

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  Authorities.  Moreover,  the  conclusions  emphasised  that 
the European Supervisory Authorities should have direct supervisory powers for credit rating 
agencies.  

The  Commission  proposal  for  a  Regulation  establishing  a  European  Securities  and  Markets 
Authority5 (ESMA) establishes6 that ESMA shall execute any 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  action.  It  mentions  that  "for  that 
purpose,  the  Authority  shall  have  appropriate  powers  of  investigation  and  enforcement  as 
specified in the relevant legislation, as well as the possibility of charging fees." The "general 

1 
2 
3 
4 

5 
6 

OJ L 302 of 17.11.2009, p.1. 
Article 39(2) and Recital 51. 
COM(2009) 252 final 
Widely  known  as  the  "Lamfalussy  level  3  committees":  the  Committee  of  European  Banking 
Supervisors,  the  Committee  of  European  Securities  Regulators  and  the  Committee  of  European 
Insurance and Occupational Pensions Supervisors. 
COM(2009) 503 of 23.9.2009 
Article 6(3) 

EN 

3 

   EN 

 
                                                 
approach" reached in the ECOFIN Council on 2nd December on the proposal for a Regulation 
establishing  ESMA  has  confirmed  the  abovementioned  European  Council  conclusions, 
although restricting its scope only to CRAs. The European Parliament is currently working on 
its  opinion;  in  line  with  the  Framework  Agreement  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 order 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  (ESFS),  composed  of  national  supervisors  and 
three  new  European  Supervisory  Authorities  for  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 Commission in September 2009. In that document the Commission 
included  an  initial  analysis  of  the  impacts  triggered  by  entrusting  exclusive  competences  in 
direct supervision of entities with EU-wide reach to the European Securities Market Agency8. 
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 than 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 involves a clear Community dimension. For 
example,  (…)  credit  rating  agencies  based  in  one  country  can  issue  ratings  which  affect  a 
large  number  of  countries.  Consequently,  it  is  not  optimal  that  a  single  national  authority 
should  be  entrusted  with  the  task  of  supervising  them.  From  this  perspective,  granting  this 
power to a European body could be more effective 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 authority 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 exercise the public oversight of such entities. 

Whilst the impact assessment identified the possibility of granting full supervisory powers for 
entities  with  a  Community-wide  reach  as  the  preferred  policy  option,  it  stopped  short  of 

7 

8 

9 
10 

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 
Commission Staff Working Document, accompanying document to the (…) Proposal 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/docs/committees/supervision/20090923/20090923_impact
_en.pdf  
Idem, p. 5.  
Idem, p. 26.  

EN 

4 

   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 account the needs of this integrated EU-level 
oversight  when  identifying  the  optimal  solutions  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 operation (2011) already included appropriations for 
"Supervision of entities with a Community-wide reach"12, referring to the possibility 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  framework  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 two 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 was considered not proportionate 
to create a Community agency to deal only with CRAs. On the contrary, this option emerged 
as a reasonable and politically necessary solution within the framework of the De Larosière 
discussions. 

The Commission services received 82 contributions: 13 from credit rating agencies, 52 from 
organizations of stakeholders (banks, associations, investment funds, savings banks etc) and 
17  from  securities  regulators  and  ministries  of  finance  of  Member  States.  The  non-
confidential contributions can be consulted in the Commission website13.  

2.2. 

Discussions with Member States and CESR 

The  European  Commission  has  consulted  the  Member  States  in  the  European  Securities 
Committee14. The national regulators in the framework of CESR have been also informed of 
the modifications to be introduced in several meetings15. During these consultations Member 
States and regulators have supported the idea to entrust ESMA with exclusive supervisory and 
enforcement powers over CRAs. 

11 
12 
13 
14 
15 

Idem, p. 14. 
Idem, Annex 1, p. 6. 
See http://ec.europa.eu/internal_market/securities/agencies/index_en.htm  
ESC meetings: 16.12.2009 
CESR plenary meetings: 16.10.2009, 11.12.2009 and 10.02.2010. 

EN 

5 

   EN 

 
                                                 
2.3. 

Steering Group  

The Steering Group for this Impact Assessment was formed by representatives of a number of 
services  of  the  European  Commission,  namely  the  Directorate  General  Internal  Market  and 
Services,  the  Directorate  General  Human  Resources  and  Security,  the  Directorate  General 
Budget,  the  Directorate  General  Competition,  the  Directorate  General  Economic  and 
Financial  Affairs, 
the  Directorate  General  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  Secretariat  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 content and shape of this impact assessment.16  

2.4. 

Impact Assessment Board  

DG  MARKT  services  met  the  Impact  Assessment  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  subsidiarity,  proportionality  and  cost-effectiveness  of 

centralised supervision by ESMA; 

–  expanded justification for the proposed sanctioning regime; 

–  clarification of the extent of consultation carried out. 

3. 

PROBLEM DEFINITION 

Credit  rating  agencies  issue  creditworthiness  opinions  that  help  overcome  the  information 
asymmetry between those issuing debt instruments and those investing in these instruments. 
CRAs have a major impact on the financial markets, with their rating actions closely followed 
by  investors,  issuers,  borrowers  and  governments.  It  is  essential,  therefore,  that  they 
consistently provide top-quality, independent, 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 

17 

In accordance with the rules for the 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. 
See Point 1.3 of the Commission Staff Working Document 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 

6 

   EN 

 
                                                 
 
of  distinctly  smaller  CRAs  operate  with  a  clear  focus  on  specific  industry  sectors  (e.g. 
insurance  industry)  or  financial  market  segments  (e.g.  municipal  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  laying  down  conditions  for  the  issuance  of  credit 
ratings  to  recover  markets'  confidence  and  increase  investor  protection.  The  Regulation 
introduces a registration procedure for CRAs to ensure that their credit ratings can be used by 
credit  institutions,  investment  firms,  insurance  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  addressed  (ii)  CRAs  remain  vigilant  on  the  quality  of  the  rating 
methodology and the ratings and (iii) CRAs act in a transparent manner.  

An  essential  element  of  the  CRA  Regulation  is  the  introduction  of  an  external  oversight 
regime whereby European regulators will supervise the issuance of credit ratings by CRAs19. 
The CRA Regulation has introduced a system of supervision based on colleges of competent 
authorities  of  the  Member  States,  which  gives  the  possibility  to  all  concerned  competent 
authorities  to  participate  in  the  process  of  registration  and  supervision  of  a  credit  rating 
agency  or  a  group  of  CRAs;  although  the  final  decision  is  always  taken  by  the  competent 
authority of the home Member States. 

The supervisory 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.  At  the 
same time, the absence of regulation in the field 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  enforceable  substantial  rules  in  this  field.  The  De 
Larosière  report  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 
deal with issues beyond CRAs. The compromise 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 explained above it was not possible to hold up the 
negotiation on the CRAs Regulation pending the supervisory reform, due to our commitments 
at the G-20 level and the need to restore confidence in the markets 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 CRAs20. 

18 
19 

20 

See detailed list in Annex I. 
The CRA Regulation replaced a previous 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 not 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.  
See  Art.  6  (3)  of  the  Presidency  compromise  on the  ESMA  Regulation  (general  approach)  agreed  by 
ECOFIN on 2 December 2009 http://register.consilium.europa.eu/pdf/en/09/st16/st16751-re01.en09.pdf  

EN 

7 

   EN 

 
                                                 
However,  it  is  not  merely  political  sentiment  that  goes  in  favour  of  considering  more 
centralised  EU  oversight  of  CRAs.  There  are  strong  factual  indications  that  such  approach 
would better correspond to the business 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 
teams  are  frequently  multinational  and 
competence  of  a  regulator).  Analytical 
responsibilities for individual ratings are allocated on the basis of specialisation and sector 
knowledge  not  less  frequently  than  on  the  basis  of  geographical  considerations  (e.g. 
because  of  his/her  specialisation  in  the  field  an  analyst  working  in  a  German  CRA 
prepares, in co-operation with a French colleague working for a French CRA belonging to 
the  same  group,  a  rating  on  an  French  insurance  company).  As  a  result,  the  national 
regulators  overseeing  the  credit  rating  activity  within  their  jurisdictions  are  likely  to  find 
themselves in situations of competing supervisory interests. Moreover, for larger CRAs the 
flexibility  in  the  allocation  of  credit  rating  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 the financial market under its surveillance). Ratings may be used 
for  regulatory  purposes  (mainly  by  banks,  insurance  companies  and  investment  firms),  but 
they  are  also  frequently  consulted  by  individuals  and  entities  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 relevant (not only because of predominant use of 
English, as the lingua franca in professional financial services but above all due to the use of 
rating symbology (e.g. AAA for top quality debt) which 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  territorial  attachment  (in  terms  of  physical  presence  or  capital 
engagement) and the impacts over a particular jurisdiction of events concerning a particular 
CRA  can  be  much  less  discernible.  Consequently,  and  though  the  supervisory  framework 
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: 

3.1.  Multiplicity of supervisors involved and 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  ensure  that  interests  of  all  relevant  supervisors 
were well represented and taken into account by those taking the final decision. At the same 
time  it  had  to  take  into  account  the  specific  nature  of  the  rating  activity.  Consequently,  the 
division  lines  between  geographical  competences  of  supervisors  were  not  set  too  firmly, 

EN 

8 

   EN 

 
creating  room  for  potential  intra-EU  disputes21.  Importantly,  this  policy  choice  implies  that 
the CRAs would be faced with the duty to interact with several competent authorities in the 
same  field.  The  main  problem  arising  from  this  situation  is  the  risk  of  conflicts  over 
competences, which may lead to potential gaps (ineffective supervision); overlaps (inefficient 
supervision); or arbitrage/unlevel playing field. 

Table 1 Expected size of supervisory colleges22  
CRA (group) name23  No. of subsidiaries in 

No.  of 
regulators 
with home competent 
authority status 

the EU 

Moody's 
7 
Standard and Poor's 
6 
Fitch 
6 
Coface 
4 
1 
DBRS 
Euler Hermes Rating  1 
Credit Reform Rating 1 
1 
Capp&Capp 
1 
European 
Agency 
AM Best 

Rating 

1 

7 
6 
6 
4 
1 
1 
1 
1 
1 

1 

No.  of  regulators  in 
(including 
college 
home 
competent 
authorities) 
14 
13 
9 
8 
4 
2 
2 
2 
2 

2 

Source: Commission and CESR, based on inputs from its members – December 2009 

The above table offers an early prediction of size of the supervisory colleges, involving more 
than  one  member.  It  indicates  that  not  only  the  largest  CRAs  may  expect  participation  of 
competent authorities from different Member States in their supervision. 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 authorities in the Member States  

Irrespective of several elements triggering close co-operation between individual supervisors 
(e.g.  work  in  colleges),  the  existing  model  for  CRA  supervision  is  ultimately  based  on  the 
exercise  of  supervisory  and  enforcement  powers  by  individual  regulators  in  the  Member 
States.  It  is  possible  for  the  competent  authority  of  the  home  Member  State  to  override  the 

21 

22 

23 

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 competent authority or the college. 
These figures have been prepared with the assumption 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 expressed tentatively by CESR members. 
A  list  of  CRAs  currently  established  in  the  EU,  indicating  the  place  of  establishment  and  in  case  of 
CRA groups, the place of establishment of all subsidiaries, is provided in Annex I.  

EN 

9 

   EN 

 
                                                 
views of its partners participating in the college. It is also possible for a competent authority 
of the host Member State to take an individual 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 supervisory authorities across the EU would 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  having  all  interested  authorities 
engaged  in  the  supervisory  and  enforcement  process,  are  expected  to  weigh  heavily  on  the 
ability of the EU supervisory framework to produce timely and efficient outcomes24.  

3.4. 

Risk  of  misaligned  incentives:  can  national  supervisors  cope  with  the  pan 
European dimension of CRAs? 

Competent authorities in the Member States may perceive the dimension of CRA supervision 
mainly from a national perspective missing a full picture of the global nature and impact of a 
CRA's  activity.  Especially  in  situations  where  the  main  impact  of  a  CRA  lies  outside  the 
Member State where it is registered, there is the risk that the home competent authority does 
not allocate sufficient resources for the supervision 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 institutions, has to take the main responsibility 
for CRA activities with pan- European reach affecting 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 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.  Section  7  analyses  the  different  options  that  may  be 
considered in order to address the above mentioned problems and concludes with the choice 
of  the  preferred  option.  Since  some  of  the  options  considered  (namely  Option  3a  and  3b) 
envisage  entrusting  centralised  oversight  of  credit  rating  agencies  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  efficient  supervision.  Section  8 
provides  the  relevant  analysis  and  comparison  of  options  regarding  the  allocation  of 
sanctioning powers. 

24 

For example, in order to take a supervisory measure (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, and if no agreement can be reached consult the CESR, 
and  the  college  again.  Only  after  those  iterations  are  completed,  the  competent  authority  may  take  a 
decision. 

EN 

10 

   EN 

 
                                                 
4. 

SUBSIDIARITY AND PROPORTIONALITY  

The problems identified in Section 3 cannot be effectively addressed at Member States level 
as they stem from existing EU legislation and can only be addressed through changes in EU 
legislation in accordance with the subsidiarity and proportionality principles:  

–  Subsidiarity. CRAs business is different from other financial services sectors, 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  introduced  as  a  crucial  element  of  the  EU 
compromise  solution  to  address  the  weaknesses  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  financial  market  for  financial  services.  Whichever 
solution is eventually chosen, the traditional division between the competent authority of 
the home Member State and other competent authorities appears inadequate as a long-term 
answer to the issue of CRAs oversight given that:  

–  credit  ratings  issued  by  the  largest  CRAs  are  already  issued  "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 interrelationships between 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 result 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 considered that as part of the 
debate  on  this  new  framework,  it  may  be  desirable  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 principle of subsidiarity. 

–  Proportionality. In this impact assessment, 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 principle, taking into account 
the right balance of public interests at stake and the cost-efficiency 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 

11 

   EN 

 
5. 

OBJECTIVES 

CRAs have a very significant impact on the operation of the financial markets, as their credit 
ratings are used by investors, borrowers, issuers 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 robust and effective to satisfy 
the general objectives25 of: 

Contributing to the stability of financial markets,  
Enhancing investor protection, 
Facilitating a sustainable development of fair 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 architecture 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  supervision  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 authorities 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, risks of conflicts of 
competences  (both  when  two  or  more  authorities  see  themselves  as  competent  to  act,  and 
when none of them considers itself competent to take action) should be eliminated as much as 
possible. This objective deals with avoiding conflicts of competences. Such conflicts should 
not  be  confused  with  conflicts  of  views  on  supervisory  issues,  which  may  arise  between 
regulators  even  in  an  environment  of  clearly  delimited  and  not  overlapping  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 consistent manner across the EU. The EU supervisory 
framework  should  be  structured  in  a  way  ensuring  consistent  application  of  the  CRA 
Regulation  (both  substantive  and  procedural  provisions)  across  the  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 

12 

   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 deficiencies in the way ratings are elaborated in the group itself that 
cannot  be  assessed  at  the  level  of  each  individual  subsidiary.  Therefore,  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  registration  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 burden 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  optimised.  Availability  of  adequate  supervisory 
skills,  ease  of  interaction  with  CRAs  subject  to  the  CRA  Regulation,  knowledge  of  local 
conditions  should  all  be  secured  (e.g.  through  the  delegation  of  tasks  to  national  competent 
authorities). It should be aimed that the option finally pursued brings benefits to the users of 
ratings and does not involve disproportionate budgetary charges.  

5.4. 

Ensure  better  alignment  of  incentives  for  the  supervisory  authorities  to  cope 
with the pan European activity 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  financial  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  difficult  choices  in  reconciling  various 
objectives laid down in the Treaty amounting to the execution of actual economic policy. On 
the  other  hand,  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.  

6. 

POLICY OPTIONS 

In  relation  to  problems  3.1  through  3.4,  the  following  broad  options  have  been  considered 
prior to the policy choice made by the Commission when tabling this proposal: 

26 

Case 9/56 Meroni [1958] ECR 133 

EN 

13 

   EN 

 
                                                 
6.1. 

Option 1 - Status quo (current CRA Regulation) 27 

This option would consist in maintaining the key 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,  which  gives  the  possibility  to  all  concerned 
competent authorities to participate in the process of registration and supervision 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  college  of  competent  authorities.  On  that  basis, 
the  competent  authority  of  the  home  Member  State  (i.e.  where  the  CRA  has  its  registered 
office) implements those decisions in administrative terms. In certain cases, when agreement 
on  the  action  to  be  taken  cannot  be  reached  within  the  college,  the  opinion  of  the  CESR  is 
sought.  Should  lack  of  agreement  among  competent  authorities  persist,  the  competent 
authority of the home Member State has the final say on the decision (except for registering 
CRAs).  In some limited situations, the "host" competent 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 situation that the ESMA Regulation 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 continue 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 Regulation requires cooperation, coordination or 
joint decision making (e.g. regarding registration of a CRA or supervisory measures 
towards  a  CRA)  ESMA  could  be  called  to  mediate  and  finally  settle  a  conflict 
between competent authorities in a college.28 

ESMA  would  also  have  the  power  to  monitor  the  correct  application  of  the  CRA 
Regulation by competent authorities, issue recommendations towards the competent 
authorities  in  case  of  alleged  incorrect  application,  and  could  under  specific 
circumstance address decisions directly to CRAs.29 

27 

28 

29 

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  which  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 the 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 could function under the (future) ESMA framework. 
The CRA Regulation would have to be slightly amended in order to integrate the settlement procedure 
foreseen in Art 11 ESMA proposal. 
See Article 9 (6) but also Article 11 (4) and 10 (3) of the ESMA proposal.  

EN 

14 

   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 propose technical standards in certain areas to 
be specified in the CRA Regulation. 

6.4. 

Option 3 - ESMA to assume direct oversight of groups of CRAs or all EU-based 
CRAs 

Under  this  option,  the  CRA  Regulation  would  be  revised  in  order  to  introduce  centralised 
oversight  of  credit  rating  agencies  operating  in  the  EU.  The  ESMA  would  assume  general 
competence  in  matters  relating  to  the  registration  and  on-going  supervision  of  registered 
credit  rating  agencies  as  well  as  matters  related  to  ratings  issued  by  rating  agencies 
established  in  third  countries  that  operate  in  the  EU  under  the  certification  or  endorsement 
regimes.  Those  responsibilities  would  involve  the  use  of  administrative  measures  and 
recommendations to the Commission on the use of sanctions.  

Within this broad option we may distinguish two alternative scenarios.  Under either option, 
some specific supervisory powers related to the use 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 supervision of CRAs (groups of CRAs) with legal 
presence  in  more  than  one  Member  State.  The  registration,  supervisory  and  enforcement 
issues of other, typically nationally operating CRAs would fall under the responsibility of the 
relevant  competent  authority  in  its  Member  State.  It  could  be  considered  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  activity  profiles  of  CRAs, 
some of which are strong, global players and 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. 

ANALYSING AND COMPARING THE OPTIONS  

7.1. 

Single point of contact and clear competences 

Maintaining the status quo (Option 1) implies that credit rating agencies may be approached 
on compliance issues not only by the competent authority of the home Member 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 interactions may be involved in the case of a single 
CRA operating in a group structure in the EU. These are: 

EN 

15 

   EN 

 
- interaction with the competent authority 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  the  one  that  normally  has  the  last  word  on  on-
going supervisory actions and decisions with 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  authorities  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.  While  no  qualified  decision-making  power  is  envisaged  for  them 
under the Regulation, their participation in the college and material influence on its decisions 
may push CRAs to discuss with them more critical supervisory issues. 

-  interaction  with  host  competent  authorities  outside  the  college  –  under  specific 
circumstances  the  CRA  Regulation  (cf.  Article  25)  allows  any  competent  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 manner). This exposes CRAs to an additional regulatory risk, which 
they  need  to  address  by  –  at  least  –  being  open  to  engage  in  a  dialogue  with  any  such 
competent authority. 

EN 

16 

   EN 

 
CRA Group 

CRA 1 

CRA 2 

CRA 3 

CRA 4 

CRA 5 

CRA 6 

Sup A 

Sup B1 

Sup Bx 

Sup C1 

Sup Cx 

Sup D1 

Sup Dx 

CESR 

Facilitator 

Home competent authority

Host competent authority

Host  competent  authority 
outside college 

College of supervisors 

Interaction with facilitator 

Interaction with home competent authority

Interaction with host competent authority, college member

Interaction with other host competent authority

Interaction with CESR 

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 supervisory 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  facilitator)  another  authority  is  in  the  college,  4 
different interactions with supervisory authorities may be expected. In the most simple of the 
scenarios possible (i.e. a 1-member college), this number could be only reduced to three. 

30 

Based on information from CESR, this scenario could apply to at least 4 smaller CRAs.  

EN 

17 

   EN 

 
 
                                                 
 
 
 
 
 
 
 
 
CRA 

CESR 

Sup AB 

Sup C 

Sup D1 

Sup Dx 

Facilitator & home 
competent authority 

Host competent 
authority 

Host competent authority 
outside college 

College of supervisors 

Interaction with facilitator and home competent authority

Interaction with host competent authority, college member

Interaction with other host competent authority

Interaction with CESR 

Figure 2 - Interactions with supervisors – a small CRA 

Those other authorities may formulate expectations regarding a CRA's conduct and they have 
administrative  means  to  trigger  a  CRA's  compliance  with  their  orders.  Certainly,  such 
outcome is suboptimal not only because of increased compliance costs and CRAs' resources 
engaged (as signalled further), but also because it puts into question the effective and efficient 
functioning of supervisory arrangements envisaged for this sector. 

For  the  involved  authorities,  the  supervisory  framework  involves  complexity,  as  it  would 
require national authorities to:  

accept that very close co-operation with their fellow supervisors, is necessary even if in legal 
terms the responsibility and authority 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  increasingly  difficult  for  national  authorities,  which  as  a  rule  enjoy 
independence in supervisory matters as a corollary to significant regulatory duties, to satisfy 

EN 

18 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
at  all  times  the  above  conditions.  As  a  consequence,  interdependencies  and  occasional 
overlapping  competences  can  easily  trigger  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  Regulation  by  competent  authorities.  The  ESMA 
would also be in the position to resolve the conflicts 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  State).  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 CRAs. CRAs and groups of 
CRAs would also under this option have to interact with competent authorities from different 
Member States and in addition with ESMA.  

Under Option 3a, responsibilities for supervision of CRAs are distributed between the ESMA 
(groups  of  CRAs)  and  national  competent  authorities  (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  ratings  activity  of  a  locally  acting  CRA  on  other 
financial markets cannot be excluded, other Member States would probably claim a right of 
intervention (similar to the one in Article 25 of the CRA Regulation). Secondly, it is difficult 
to distinguish local CRAs (to be supervised by the national competent authorities) 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 market. Finally, while the fact whether ratings are 
used exclusively/predominantly by  financial firms/other users in  the home  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-tier  approach  might  therefore  bring  further 
complication to the supervisory architecture and create conditions for regulatory arbitrage32. 
Moreover,  the  European  Association  of  Credit  Rating  Agencies,  notably  representing  small 
CRAs, has advocated for a central authority to take decisions on registration and supervision 
and for further integration in the future, i.e. having one single financial services authority. 

31 

32 

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 
consultation,  5  September  2008,  p.3  available  at: 
http://circa.europa.eu/Public/irc/markt/markt_consultations/library?l=/financial_services/credit_agenc
ies/citizens/fitchpdf/_EN_1.0_&a=d  
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" which 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.  

response 

to 

EN 

19 

   EN 

 
                                                 
 
Option 3b direct oversight of all EU-registered CRAs by the ESMA creates a clear principle 
that  only  one  authority  in  the  EU  is  entitled  to  take  action  in  matters  of  CRA  supervision. 
Risks of disputes over competence 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 include 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 subsidiaries of the same CRA group will not be treated 
in  the  same  situation  differently  by  two  different  competent  authorities  in  the  EU,  or  that  a 
host  competent  authority  will  disregard  the  prevailing  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  supervisory  activity  of  competent  authorities 
and could intervene if a competent authority breaches the CRA Regulation. ESMA could also 
settle  disagreements  between  competent  authorities  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  Regulation  persists,  given  that  some 
conflicts between supervisors or cases of inconsistent application of the CRA Regulation may 
not come to the attention of ESMA (e.g. a supervisor may prefer to downplay the importance 
of  certain  problems  with  consistent  application  for  the  sake  of  securing  a  good  working 
relationship  with  a  fellow  supervisor  concerned,  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  ensuring  consistent  application:  with  only  one, 
European authority responsible for developing a supervisory policy and 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 two-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 (Option 1), the supervised entities are expected to 
submit their registration application to CESR and provide it with data inputs regarding their 
historical performance. They are 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  group  structure  (in  legal  terms,  a  group  of  CRAs,  which  are 
registered  individually  in  the  Member  States  of  their  legal  establishment)  this  involves 
multiple  supervisory  relationships  concerning  substantially  the  same  compliance  duties  and 

EN 

20 

   EN 

 
arrangements.  Additionally,  any  EU-registered  CRA  may  expect  being  approached  also  by 
competent  authorities  from  the  host  Member  States.  The  need  to  operate  in  this  complex 
supervisory  environment  will  have  significant  cost  implications  for  the  CRAs  seeking  to 
establish effective and robust dialogue with the supervisors. 

For supervisors themselves, the existing model 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  –  groups  of  CRAs,  CRAs  with  endorsement  etc.). 
Since  all  applications  would  be  received  and  would  need  to  be  processed  by  CESR  and 
colleges of regulators at the same time, it is quite likely that the supervisors 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 

1 

 CRA submits application to CESR  

 CESR 
authorities (CAs) 

transfers  application 

to  all  competent 

 CESR  advises  on  completeness  of  an  application 
to home CA  

 Home CA, college decide whether an application is 
complete  

 Home  CA,  college  (1)  examine  application,  (2)  do 
all  possible  to  reach  consensus  on  the  registration 
decision,  (3)  transmit  draft  decision  for  CESR 
advice  

2 

3 

4 

5 

 Additional  time  granted  by  facilitator  for  actions  in  5  above,  if 
application complex  

5a 

6 

 CESR advises on the draft decision  

7 

 Home CA takes final decision  

8 

 Notification of the decision to the CRA  

time 
action 

 Max 
for 
(days) 

 Min aggregate 
time  

(days) 

Max 
aggregate 
time 
(days) 

0

5

10

25

60

30 

20

15

5

0 

2 

5 

0  

5  

10  

10 

25*

30 

85  

115 

35  105 (135) 

40  120 (150) 

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  purposes  of  CRA  supervision,  which  should  be 
sufficiently resourced and staffed to perform the ensuing tasks.  

EN 

21 

   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 Option 2. Some relief from this burden may be expected at the 
level  of  the  Member  States,  as  the  ESMA  would  have  an  enhanced  role  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 significantly faster and less complex as under the 
baseline scenario. Many of the coordinating steps between CESR, the competent authority of 
the  home  Member  State,  the  facilitator  and  the  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 supervisors composed of the heads of the competent authorities 
in each Member State (Article 25 of the proposal for the ESMA Regulation). As a general rule 
decisions are taken by simple majority of its members, 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 making 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 registration/supervisory decisions in the field of 
CRAs  (prepared  by  the  ESMA  experts).  It  should  also  be  noted  that  ESMA  will  employ  a 
number  of  national  experts  seconded  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 could 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  evident  in  the  case  of  (groups  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  barriers33)  and  also  on  the  side  of  ESMA  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  address  the  ESMA  in  any  of  the  official  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 

22 

   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 tasks34). 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 conditions while at the same time it would ensure 
the consistent application 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 with 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 legislation to be applied 
in the supervisory process. In addition, the instrument of a Regulation ensures that identical 
rules apply to CRAs across Europe (and not slightly different national rules implementing a 
EU directive as it is the case in the banking and insurance sector).  

Availability of supervisory skills and experience with regard to CRA supervision 

Another aspect to be considered in this respect 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  the  responsibility  for  supervising  CRAs  lies 
with  the  staff  of  national  competent  authorities,  the  responsibility  would  be  shared  among 
ESMA  and  national  competent  authorities  under  option  3a)  and  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 applied only from end of 2010 there is 
not  yet  relevant  supervisory  experience  with  regard  to  CRA  supervision  in  the  EU.  Staff  of 
national  competent  authorities  therefore  does  not  have  much  advantage  over  future  ESMA 
staff  in  this  respect.  In  addition  probably  some  of  the  future  ESMA  CRA  staff  (including 
national experts seconded from national competent 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  difficult,  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 supervisory authority instead of having several supervisors being in 
charge  for  a  small  proportion  of  the  market.  Nevertheless  also  under  option  3b  national 
supervisors  would  be  involved  in  CRA  supervision,  first  through  their  role  in  ESMA's 

34 

35 

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.  
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 

23 

   EN 

 
                                                 
decision  making  process,  and  second  when  supporting  ESMA  in  the  supervision  of  e.g. 
smaller local CRAs.  

Budgetary considerations 

Under option 1 Member States would have to fully finance the supervision of CRAs carried 
out  by  their  national  competent  authorities  with  the  involvement  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 option 2 ESMA will assume an enhanced coordination function 
and  the  power  to  settle  disputes  which  would  probably  reduce  overall  coordination  costs 
among supervisors. The revenues of ESMA will consist of contributions from the competent 
authorities and a subsidy from the Community36. It follows that under option 2 there will be 
an overall reduction of costs, the costs for Member States will be reduced 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 supervision is also due to the fact that there will be 
less  coordination  costs  (e.g.  the  fact  that  under  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 contribution to the ESMA budget and their role in 
supporting ESMA's investigation activities and carrying out specific supervisory tasks under 
ESMA's  responsibility.  Due  to  ESMAs  responsibility  for  CRA  supervision  and  the 
Community  contribution  to  the  ESMA  budget,  there  will  be  an  increase  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  (option  1),  competent  authorities  in  the  Member 
States may perceive the dimension of CRA supervision from a national 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 members of the college may contribute 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 accountable to its national political institutions, 

36 

37 

EN 

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 
at: 
http://register.consilium.europa.eu/pdf/en/09/st16/st16751-re01.en09.pdf) 
To what  extent  the  amount  of  fees will  cover  ESMA'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. 

December 

available 

2009, 

dated 

text 

7 

24 

   EN 

 
                                                 
has to take the main responsibility for activities with pan- European 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 may offer satisfactory results, with the Option 2 
leading  to  a  slightly  better  outcome  in  terms  of  co-ordination  of  supervisory  efforts  due  to 
ESMA's involvement.  

Only  Options  3a  and  3b  fully  ensure  that  the  supervisory  authority(ies)  in  charge  for 
supervising  CRAs  in  the  EU  have  sufficient  capacity  and  leverage  to  deal  with  supervisory 
issues  arising  at  the  largest  CRAs.  ESMA  will  have  the  European  perspective  which  is 
necessary to perform an adequate 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 

of 

Single 
point 
contact. 
Clear 
competen
ces 

1. 
(current 
Regulation) 

Baseline 
CRA 

0 

2. 
structure 
ESMA 

College 
and 

+ 

- 

3a. 
ESMA 
oversees  directly 
CRAs 
some 
local 
(except 
players) 

Consistent 
applicatio
n 

Efficiency 
gains 

Adequacy 

0 

+ 

+ 

0 

+ 

0 

+ 

++ 

+++ 

ESMA 
3b. 
oversees  directly 
all CRAs  

+++ 

+++ 

+++ 

++ 

After due consideration of the impacts of all specific policy options and their advantages and 
disadvantages  compared  with  the  baseline  scenario,  it  has  been  concluded  that  Option  3b 

EN 

25 

   EN 

 
 
(direct oversight by ESMA of all EU-registered CRAs) addresses most comprehensively the 
objectives set before this Commission initiative.  

The  analysis  in  particular  shows  that  direct  supervision  of  CRAs  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 powers like monitoring compliance of competent 
authorities and dispute settlement provided by the ESMA Regulation. However, this finding 
does  not  suggest  that  supervision  of  other  financial  institutions  like  banks  and  insurance 
companies could also most efficiently be provided 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 supervisory model may be more appropriate for 
other financial sectors.38  

Given  the  global  nature  of  the  rating  activity  a  more  consolidated  supervision  of  the  credit 
rating industry had been considered as more advantageous 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  considered  disproportionate.  Currently  however, 
taking into consideration the position of the European 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 political acceptability for this solution is very high.  

With regard to the proportionality of the preferred option, a more centralised oversight of this 
industry would lead to streamlined decision-making 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  national  jurisdictions,  existing  currently.  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 effective oversight of 
existing regulated entities is already ensured at national level. In this respect, in the case of 
use  of  credit  ratings  by  individual  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  national  supervisors  would  be  able  to  collect 
specific information about the use of credit ratings, they should be able, to request 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  provisions  would  not  go  beyond  what  is  strictly 
necessary to achieve the objectives pursued.  

8. 

FURTHER  ANALYSIS  OF  THE  PREFERRED  OPTION:  THE  NEED  FOR  AN  EFFECTIVE 
SANCTIONING REGIME 

As mentioned in Sections 1 and 3, the forthcoming amendment of the CRA Regulation will 
review  the  supervisory  structure  applicable  to  CRAs  to  adjust  it  to  the  new  European 
supervisory architecture. Within this framework, the preferred option chosen above is that the 
ESMA  will  assume  exclusive  supervisory  powers  over  CRAs  entrusted  to  it  in  the  CRA 
Regulation.  Accordingly,  the  ESMA  will  be  entrusted  with  an  appropriate  authority  to 

38 

See above p. 7, 8. The limited number of CRAs, the mobility of rating services and the cross boarder 
impact of ratings are specific to the rating sector. 

EN 

26 

   EN 

 
                                                 
investigate  and  enforce  legislation.  ESMA's  additional  responsibilities  entail  additional 
resources.  In  order  for  ESMA  to  fulfil  its  new  supervisory  powers  concerning  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 provisions violating the 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  within  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  assessment  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, restorative measures are called in; sanctions are 
to  be  strong  enough  to  compel  the  CRA  to  restore  the  situation.  In  order  to  fulfil  these 
objectives, sanctions are to be effective, proportionate and dissuasive. 

The  CRA  Regulation  imposes  organisational  requirements,  operational  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 which would require national criminal courts issuing the sanctions. 
Most  Member  States  qualify  breaches  of  similar  types  of  requirements  (e.g.  provisions  in 
MiFID on organisational requirements 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 regime, apart from pecuniary sanctions (fines) the 
CRA  Regulation  should  provide  a  number  of  other  enforcement  measures  in  case  a  CRA 
infringes provisions of the CRA Regulation. Those measures may be understood as sanctions 
in  a  broader  sense.  All  in  all,  the  sanctions  to  be  envisaged  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 for credit rating agencies". As a result of 
the withdrawal the CRA has to stop immediately its rating activity.  

EN 

27 

   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 manner at a given deadline for instance to put an 
end to an infringement, supply information or submit 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  parameters  established  in  the  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 substantive requirement of the Regulation.  

- Fines. The Commission based on a recommendation 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  and  would  be  disproportionate  in  most  of  the 
cases. Also, the power to require a CRA to bring an infringement 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 Regulation, it does not have 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  pecuniary  sanctions  for  the  infringement.  The 
possibility of the Commission imposing pecuniary sanctions at ESMA's request, is therefore 
necessary in order to provide a proportionate reaction to individual breaches 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  effective  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 recommendations by ESMA, should be entrusted with the 
sanctioning power. The deficiencies of the current system are the following:  

8.2.1.  Uneven playing field 

The  CRA  Regulation  constitutes  a  single  rulebook  for  the  activities  performed  by  CRAs. 
However, in the current CRA Regulation, each Member 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  treatment  can  lead  to  a  distortion  of  competition 
between Member States, as CRAs might choose the best location for their business taking into 
account how sanctions are to be applied. With different 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 

28 

   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  competent  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 the 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 which the lowest level of sanctions exists. 

8.3.2.  Ensure a consistent application 

As credit ratings are used by financial institutions 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  States.  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  sanctioning  powers  at  national  level,  as  it  is 
envisaged  in  the  current  CRA  Regulation.  As  according  to  our  preferred  option  (see  7.5. 
above) ESMA would be allocated 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  CRA  is  established  will  be  the  one  imposing  a 
sanction  in  conformity  with  the  national  sanctioning  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  entrusted  not  only  with  the  exclusive  supervisory 
powers, but also with the ultimate power to impose sanctions to CRAs in case they commit a 
breach of a provision of the CRA Regulation. 

EN 

29 

   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  will  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 that are to be applied and sets detailed rules 
how to determine the amount of a fine, there would still be some discretion by each national 
authority in determining a fine In addition, separating 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  another  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  sanctioning  powers  and  the 
Commission would keep the possibility to control 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  committed  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 case40.  

40 

Case 9/56 Meroni [1958] ECR 133 according to which agencies/authorities  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 economic 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 

30 

   EN 

 
                                                 
According to option 3 the same legal framework 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  ensuring  a  level  playing  field  for 
supervised entities, and would be fully consistent 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,  finding  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 decision could be taken.  

8.5.2.  Ensure a consistent application 

Concerning Option 1, even in the case where the sanctions would be harmonised in the CRA 
Regulation,  if  they  are  applied  by  the  national  competent  authorities,  it  is  very  difficult  to 
ensure  that  they  are  applied  in  a  fully  consistent  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  other  national  courts  in 
other Member States. 

ESMA (Option 2) would be better placed than national regulators to exercise the sanctioning 
powers  over  credit  rating  agencies,  since  different  national  regulators  could  take  different 
sanctions concerning the same breach of law. These national discrepancies would be harmful 
to an effective EU supervision and, precisely, reduce the effects of a single set of rules. The 
general rules of procedure 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 cancelling, increasing  or reducing a  fine or 
periodic penalty payment imposed by ESMA. 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. 

In  the  case  of  Option  3,  the  CRA  framework  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  would  ensure  consistent  sanctions  at  European 
level,  which  would  be  subject  to  review  by  the  ECJ,  and  would  be  consistent  with  the 
Community acquis and notably the Meroni caselaw. 

It  seems  therefore  appropriate  to  grant  the  power  to  impose  fines  and  periodic  penalty 
payments to the Commission, acting at ESMA's request. 

Criteria 

Level playing field  Consistent application 

Options 

Sanctions 

1. 
national level 

at 

+ 

2.  Sanctions  at  the 
level of ESMA  

+++ 

EN 

+ 

+++ 

31 

   EN 

 
3.  Sanctions  at  the 
level 
the 
of 
Commission 

+++ 

+++ 

Therefore,  the  best  solution  to  ensure  an  efficient  sanctioning  regime  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  Commission  to  exercise  its  sanctioning  powers  under 
transparent and objective 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 sanctioning power with the Commission, acting on a recommendation by 
ESMA. 

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 

2 Local CRAs expected to deal with an EU-

law across the Member States 

level supervisor  

3  Clear  efficiency  gains  –  heavy  co-
ordination  procedures  are  avoided  and 
resources  and  expertise  are  pooled  in 
one organisation 

4 

Supervisor's  perspective,  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  sanctions  throughout  the 
EU 

As the current initiative aims to streamline supervision of credit rating agencies, its potential 
benefits  can  be  deduced  from  the  cost  implications  of  the  financial  crisis,  in  which  credit 
rating agencies played a non-negligible role. Even when attributing to credit rating agencies 
only a fraction of the direct and indirect losses caused by the crisis, the benefits of an effective 
and efficient supervisory system are vast. 

EN 

32 

   EN 

 
 
 
9.1. 

Impacts on the credit rating agencies 

CRAs  would  operate  in  a  much  simpler  supervisory  environment,  with  only  one  public 
authority  –  the  ESMA  –  assuming  overall  competence  for  their  supervision  and  one  public 
authority,  the  Commission,  responsible  for  sanctions  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  supervisory  structure  also  means  that  decisions  in 
individual  cases  would  be  taken  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  establishment.  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 inspections) 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 ratings, in terms of higher quality of ratings, greater independence 
and  transparency  of  CRAs,  are  going  to  be  more  effectively  protected  as  a  result  of 
establishing centralised EU supervision of all CRAs. It will be possible to report breaches of 
and deficient compliance with the CRA Regulation to a single oversight 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 supervision of credit rating agencies. This will 
require building its supervisory capacity. The ESMA will need to be sufficiently funded and 
staffed to fully exercise its authority in this field. It should be able to make effective use of 
supervisory powers (like examining records 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  activity  will  require  12  new  staff  members  (6 
temporary agents and 6 seconded national experts) in addition to the 3 staff that are currently 
working on CRAs in CESR and that are covered by the budget for ESMA already provided 
for in the ESMA Regulation. Following this approach estimated staffing costs of this proposal 
would amount to 1.574 Million Euro in the first year of the ESMA activity (2011). In addition 
to  staffing  costs  628.000  Euro  expenditure  is  foreseen  for  building,  equipment  and 
administrative  costs  (including  rental  of  building,  IT  costs,  telecommunication  costs, 
meeting/travelling expenses and translation costs) and 300.000 Euro for operational costs (in 
particular the organisation of on-site inspections and the setup 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 

33 

   EN 

 
direct supervisory powers over CRAs as proposed by this amendment to the CRA Regulation. 
The  evolution  of  the  expenditure  in  subsequent  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 Market and Services, the role of the Commission 
in  sanctioning  breaches  of  the  CRA  Regulation  based  on  recommendations  of  ESMA  will 
require  4  officials.  This  role  would  include  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 Courts and collecting the fines. 

Funding 

According to Article 48 (1) of the proposal for 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 and c) any fees paid to the Authority in the cases specified in 
relevant legislation.  

Consequently, the CRA oversight activity would be funded from the overall ESMA revenues, 
including proceeds from fees charged from CRAs by the ESMA. It remains to be determined 
in secondary legislation to what extent supervisory fees could cover the costs incurred by the 
ESMA in the CRA supervision. Also full financing of ESMA's expenditures related to CRA 
supervision by the CRA industry should be considered. 

Fees to be charged 

ESMA should be entitled to charge fees for registration and other supervisory measures. The 
matters  for  which  fees  are  due  and  the  amount  of  the  fees  should  be  set  in  legislation.  The 
power to adopt an act specifying the fees could be conferred in the CRA Regulation upon the 
Commission,  which  would  also  allow  for  a  less  time-consuming  adaptation  of  fees  if 
needed.41 In general terms, the fees would be proportional 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 periodic penalty payments 
decisions imposing the obligation to pay (e.g. a decision to register or to withdraw registration 
or  a  fining  decision)  would  be  directly  enforceable  in  accordance  with  the  rules  of  civil 
procedure in force in the territory where 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 

34 

   EN 

 
                                                 
The  ESMA  will  need  to  put  in  place  effective  co-operation  arrangements  with  relevant  3rd 
country supervisors of CRAs to enable the functioning 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  inspections  or  in  the  context  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  capacity  at  the  individual  Member  States'  level 
would need to be secured for the issues related to the use of ratings.  

9.5. 

Impacts on the competent authorities 

Competent authorities would not be responsible for the supervision of the CRAs. They would 
nonetheless  be  expected  to  offer  all  necessary  assistance  to  the  ESMA  and  fulfil  tasks 
delegated by ESMA. They would be entitled in some clearly defined 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 introduced by Regulation (EC) N°1060/2009. On the 
contrary, an immediate consequence of the centralization of supervision for CRAs is that the 
administrative  burden  will  be  reduced.  No  increase  of  administrative  burden  is  expected  in 
comparison to the baseline scenario. 

The time for registration will be reduced from the 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  with  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 burden for ESMA due to the fact that it will have 
to  issue  recommendations  to  the  Commission  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 ESMA due to the fact that some notification 
obligations  (e.g.  transmission  of  application  copies  to  competent  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 authorities will have to devote fewer personnel to deal with 

EN 

35 

   EN 

 
CRAs  issues.  ESMA  will  of  course  create  new  posts  and  some  of  the  posts  are  offered  to 
national  experts  seconded  from  national  competent  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 will slightly reduce the number of staff dealing 
with these issues. 

9.8. 

Impacts on third countries 

The  Commission  proposals  to  modify  the  supervisory  architecture  for  the  CRA  industry 
would  come  at  a  time,  when  some  non-EU  jurisdictions  are  making  efforts  to  either  put  in 
place  or  to  strengthen  their  regulatory  frameworks  for  the  credit  rating  activity42.  The 
forthcoming  EU  action  is  to  focus  on  the  supervisory  architecture  for  CRAs  –  this  area  is 
traditionally  determined  by  the  legislative  branch  in  response  to  national  or  regional 
specificities  and  it  is  rarely  a  subject  of  international  debate  or  controversy,  unless  major 
problems of co-operation or effectiveness arise. 

In  this  regard,  it  should  be  expected  that  the  changes  in  the  CRA  Regulation  would  have  a 
positive impact on EU relationships with third countries, 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  the  supervision  of  CRAs.  Moreover,  as  CRAs 
operate  in  a  global  manner  and  usually  several  subsidiaries  and  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 contact 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 simplifying and strengthening the operational ties 
with  supervisors  from  3rd  countries.  Currently  CESR  is  already  negotiating  with  third 
countries'  supervisory  authorities  the  development  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  assessment,  the  European  Commission 
considers appropriate to present a proposal amending the Regulation on CRAs. The proposal 
should aim at solving the problems identified in this impact assessment:  

–  by entrusting ESMA with exclusive oversight powers over CRAs. ESMA will be granted 
powers  to  request  information,  to  launch  investigations,  and  perform  on-site  inspections. 
Where necessary, ESMA might require assistance of national securities regulators in those 
supervisory  activities.  The  latter  may  also  be  delegated  specific  supervisory  tasks  (e.g. 
hearing  of  a  person,  carrying  out  on-site  inspections),  with  the  ESMA  retaining  overall 
responsibility for those activities. 

42 

Some  form  of  legal  framework  for  the  oversight  and  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, United 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 practice, particularly to prevent unacceptable conflicts 
of  interest.  Cf.  the  official  communiqué  issued  at  the  close  of  the  G20  London  Summit,  available  at: 
http://www.londonsummit.gov.uk/resources/en/news/15766232/communique-020409.  

EN 

36 

   EN 

 
                                                 
–  by  entrusting  the  Commission,  on  a  recommendation  from  ESMA,  with  sanctioning 
powers within a  well defined framework.  Sanctions, 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 and 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  years  after  the  entry  into  force  of  the  legislative  measure  in  the  form  of  a 
Commission  report  to  the  Council  and  the  European  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 major stakeholders, including financial institutions 
and  market  participants  (issuers,  intermediaries  and  investors),  and  consumers.  The 
assessment will be carried out along the following criteria: investor protection, effectiveness, 
market efficiency, legal certainty, administrative burdens.  

EN 

37 

   EN 

 
11. 

ANNEX I - LIST OF CRAS ESTABLISHED IN THE EUROPEAN UNION IN 2009 

Standard& Poor’s with subsidiaries 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 

38 

   EN 

 
12. 

ANNEX II PROBLEM TREE 

EN 

39 

   EN 

 
EN 

40 

   EN