Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EC) No 1060/2009 on credit rating agencies
Date: 2011-11-15
Institutions: European Commission
Subjects: administrative transparency, conflict of interest, economic analysis, financial institution, financial solvency, market supervision, public debt

EUROPEAN COMMISSION 

Brussels, 15.11.2011 
COM(2011) 747 final 

2011/0361 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EC) No 1060/2009 on credit rating agencies 

(Text with EEA relevance) 

{SEC(2011) 1354 final} 
{SEC(2011) 1355 final} 

 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Credit rating agencies are important financial market participants and need to be subject to an 
appropriate legal framework. Regulation (EC) No 1060/2009 on credit rating agencies1 (CRA 
Regulation)  entered  into  full  application  on  7  December  2010.  It  requires  credit  rating 
agencies  (CRAs)  to  comply  with  rigorous  rules  of  conduct  in  order  to  mitigate  possible 
conflicts of interest, ensure high quality and sufficient transparency of ratings and the rating 
process. Existing CRAs had to apply for registration and to comply with the requirements of 
the Regulation by 7 September 2010. 

An amendment to the CRA Regulation (Regulation (EU) No 513/2011) entered into force on 
1  June  2011,  entrusting  the  European  Securities  and  Markets  Authority  (ESMA)  with 
exclusive  supervisory  powers  over  CRAs  registered  in  the  EU  in  order  to  centralise  and 
simplify their registration and supervision at European level2. 

Whilst providing a good basis, a number of issues related to credit rating activities and the use 
of ratings have not been sufficiently addressed in the existing CRA Regulation. These relate 
notably to the risk of overreliance on credit ratings by financial market participants, the high 
degree of concentration in the rating market, civil liability of credit rating agencies vis-à-vis 
investors,  conflicts  of  interests  with  regard  to  the  issuer-pays  model  and  CRAs'  shareholder 
structure.  The  specifics  of  sovereign  ratings  which  became  evident  during  the  current 
sovereign debt crisis are also not specifically addressed in the current CRA Regulation. 

The European Commission pointed to these open issues in its Communication of 2 June 2010 
("Regulating  financial  services  for  sustainable  growth")3  and  in  a  consultation  paper  of  the 
Commission services of 5 November 20104 announcing the need for a targeted review of the 
CRA Regulation which is delivered with this proposal. 

On 8 June 2011, the European Parliament issued a non-legislative resolution on CRAs5. The 
report supports the need to enhance the regulatory framework for credit rating agencies and to 
take measures to reduce the risk of overreliance on ratings. More specifically, the European 
Parliament supports, amongst others, enhanced disclosure requirements for sovereign ratings, 
the  establishment  of  a  European  Rating  Index,  increased  disclosure  of  information  on 
structured  finance  instruments  and  civil  liability  of  credit  rating  agencies.  The  European 
Parliament also regarded stimulation of competition as an important task and considered that 
the establishment of an independent European Credit Rating Agency should also be explored 
and assessed by the Commission. 

At  an  informal  ECOFIN  meeting  of  30  September  and  1  October  2010  the  Council  of  the 
European  Union  acknowledged  that  further  efforts  should  be  made  to  address  a  number  of 

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Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 
on credit rating agencies, OJ L 302, 17.11.2009. 
Regulation  (EU)  No  513/2011  of  the  European  Parliament  and  of  the  Council  of  11  May  2011 
amending Regulation (EC) No 1060/2009 on credit rating agencies, OJ L 145, 31.5.2011. 
COM(2010)301 final. 
Available at http://ec.europa.eu/internal_market/consultations/2010/cra_en.htm. 
http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=en&procnum=INI/2010/2302. 

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issues related to credit rating activities, including the risk of overreliance on credit ratings and 
the risk of conflict of interests stemming from the remuneration model of rating agencies. The 
European  Council  of  23  October  2011  concluded  that  progress  is  needed  on  reducing 
overreliance on credit ratings. 

In  addition,  the  European  Securities  Committee  and  the  European  Banking  Committee 
composed  of  representatives  of  Member  States'  ministries  of  finance  discussed  the  need  to 
further strengthen the regulatory framework for credit rating agencies at their meetings of 9 
November 2010 and 19 September 2011. 

At  the  international  level,  the  Financial  Stability  Board  (FSB)  issued  in  October  2010 
principles  to  reduce  authorities’  and  financial  institutions’  reliance  on  CRA  ratings6.  The 
principles  call  for  removing  or  replacing  references  to  such  ratings  in  legislation  where 
suitable alternative standards of creditworthiness are available and for requiring investors to 
make their own credit assessments. Those principles were endorsed by the G20 Seoul Summit 
in November 2010. 

The Commission has recently addressed the question of overreliance on ratings by financial 
institutions in the context of the reform of the banking legislation7. The Commission proposed 
the introduction of a rule requiring banks and investment firms to assess themselves the credit 
risk  of  entities  and  financial  instruments  in  which  they  invest  and  not  to  simply  rely  on 
external ratings in this respect. A similar provision is proposed by the Commission in the draft 
amendment  to  the  Directives  on  UCITS  and  on  managers  of  alternative  investment  funds8, 
which are proposed in parallel to this proposal for a Regulation. 

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

The  European  Commission  conducted  a  public  consultation  from  5  November  2010  to 
7 January 2011 presenting various options to address the issues identified. The Commission 
received  approximately  100  contributions  from  stakeholders  which  have  been  taken  into 
account in drafting this proposal. A summary of the responses to the consultation paper can be 
found at 

http://ec.europa.eu/internal_market/securities/docs/agencies/summary-responses-cra-
consultation-20110704_en.pdf. 

On 6 July, the Commission services held a roundtable in order to obtain further feedback from 
relevant stakeholders on these issues. A summary of the roundtable can be found at 

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http://www.financialstabilityboard.org/publications/r_101027.pdf . 
Commission proposal of 20 July 2011 for a Directive of the European Parliament and of the Council on 
the access to the activity of credit institutions and the prudential supervision of credit institutions and 
investment firms and amending Directive 2002/87/EC of the European Parliament and of the Council 
on the supplementary supervision of credit institutions, insurance undertakings and investment firms in 
a financial conglomerate, COM(2011) 453 final. See point (b) of Article 77. 
Commission  proposal  of  15  November  2011  for  a  Directive  of  the  European  Parliament  and  of  the 
Council  amending  Directive  2009/65/EC  on  the  coordination  of  laws,  regulations  and  administrative 
provisions  relating  to  undertakings  of  collective  investment  in  transferable  securities  (UCITS)  and 
Directive 2011/61/EU on Alternative Investment Funds Managers in respect of the excessive reliance 
on credit ratings, COM(2011) xxx final.  

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http://ec.europa.eu/internal_market/securities/docs/agencies/roundtable_en.pdf. 

An impact assessment has been produced for this proposal. It can be found at 

http://ec.europa.eu/internal_market/securities/agencies/index_en.htm. 

The impact assessment identified the following problems: 

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the  requirements  to  use  external  credit  ratings  in  legislation,  the  excessive  use  of 
external ratings for internal risk management by investors, the investment strategies 
directly linked to ratings as well as the insufficient information on structured finance 
instruments results in overreliance on external credit ratings leading to procyclicality 
and "cliff" effects9 in capital markets; 

insufficient  objectivity,  completeness  and  transparency  on  the  sovereign  rating 
process,  together  with  the  overreliance,  leads  to  "cliff"  and  contagion  effects  of 
sovereign rating changes; 

high concentration in the credit rating market, high barriers to entry into the market 
of  credit  ratings  and  lack  of  comparability  of  ratings  result  in  limited  choice  and 
competition in the credit rating market; 

insufficient right of redress for users of ratings suffering losses due to an inaccurate 
rating issued by a CRA that infringes the CRA Regulation; 

potentially  undermined  independence  of  CRAs  due  to  conflicts  of  interest  arising 
from the "issuer-pays" model, ownership structure and long tenure of the same CRA; 
and 

insufficiently sound credit rating methodologies and processes. 

The general objective of the proposal is to contribute to reducing the risks to financial stability 
and  restoring  the  confidence  of  investors  and  other  market  participants  in  financial  markets 
and ratings quality. Different policy options were considered in order to address the identified 
problems and thus reach the corresponding specific objectives: 

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to  diminish  the  impact  of  "cliff"  effects  on  financial  institutions  and  markets  by 
reducing reliance on external ratings; 

to mitigate the risks of contagion effects linked to sovereign ratings changes; 

to  improve  credit  rating  market  conditions,  since  there  is  limited  choice  and 
competition  in  the  credit  rating  market,  with  a  view  to  improving  the  quality  of 
ratings; 

to ensure a right of redress for investors, since currently there is an insufficient right 
of redress for users of ratings who have suffered losses due to a credit rating issued 
by a CRA that has infringed the CRA Regulation; and 

"Cliff effects" are sudden actions that are triggered by a rating downgrade under a specific threshold, 
where downgrading a single security can have a disproportionate cascading effect. 

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to  improve  the  quality  of  ratings  by  reinforcing  the  independence  of  CRAs  and 
promoting  sound  credit  rating  processes  and  methodologies.  Currently,  the 
independence of CRAs is potentially undermined due to conflicts of interest arising 
from  the  "issuer-pays"  model,  the  ownership  structure  and  long  tenure  of  business 
relations with one and the same CRA. 

The preferred policy options are set out in section 3.4. below and reflected in this proposal. 
These options are expected to reduce overreliance by financial institutions on external ratings 
by  reducing  the  importance  of  external  ratings  in  financial  services  legislation.  In  addition, 
issuers'  disclosure  regarding  the  underlying  asset  pools  of  structured  finance  products  is 
expected to help investors to make their own credit risk assessment, rather than leaving them 
to rely solely on external ratings. 

The  transparency  and  quality  of  sovereign  ratings  will  be  improved  through  verification  of 
underlying  information  and  publication  of  the  full  research  report  accompanying  the  rating. 
Comparison  of  ratings  from  distinct  rating  agencies,  facilitated  by  promoting  common 
standards  for  rating  scales  and  a  European  Rating  Index  (EURIX),  is  expected  to  improve 
choice  and  optimise  rating  industry  structure.  Also,  mandatory  rotation  of  CRAs  would  not 
only  substantially  reduce  the  familiarity  threat  to  CRA  independence  resulting  from  a  long 
business relationship between a CRA and an issuer, but would also have a significant positive 
effect on improving choice in the rating industry by providing more business opportunities for 
smaller CRAs. 

In terms of investor protection, setting up a right of redress for investors against CRAs should 
provide  strong  incentives  for  CRAs  to  comply  with  legal  obligations  and  to  ensure  high 
quality  ratings.  Independence  of  ratings  will  be  improved  by  introducing  a  requirement  for 
issuers  to  change  CRA  periodically  and  enhancing  the  independence  requirements  on  the 
ownership structure of CRAs. Also, a CRA should not be able to provide solicited ratings for 
an issuer and its products simultaneously. 

In addition, transparency and quality of ratings would be improved by strengthening the rules 
on the disclosure of rating methodologies, by introducing a process for the development and 
approval  of  rating  methodologies,  including  the  requirement  for  CRAs  to  communicate  and 
justify the reasons for modifications to their rating methodologies and by requiring CRAs to 
inform issuers sufficiently in advance of the publication of a rating. 

In  terms  of  costs,  there  would  be  additional  costs  for  financial  firms  resulting  from  the 
requirements  to  enhance  internal  risk  management  and  the  use  of  internal  rating  models  for 
regulatory purposes and for issuers due to enhanced disclosure requirements. CRAs will also 
incur  additional  recurring  compliance  costs  to  mitigate  risks  of  contagion  effects  linked  to 
sovereign  ratings.  However,  measures  to  improve  competition  would  not  significantly 
increase  the  costs  for  CRAs.  The  policy  option  related  to  civil  liability  of  CRAs  towards 
investors is expected to cause compliance costs due to the need to insure their civil liability or, 
in the absence of the insurability, to create a financial buffer to cover potential claims from 
investors. Finally, the preferred options dealing with CRA independence are not expected to 
entail any significant costs. 

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3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1. 

Legal basis 

The proposal is based on Article 114 TFEU. 

3.2. 

Subsidiarity and proportionality 

According  to  the  principle  of  subsidiarity  (Article  5(3)  of  the  TEU),  action  at  the  EU  level 
should  be  taken  only  where  the  aims  envisaged  cannot  be  achieved  sufficiently  by  Member 
States  alone  and  can  therefore,  by  reason  of  the  scale  or  effects  of  the  proposed  action,  be 
better achieved by the EU. The business of credit rating agencies is global. Ratings issued by 
a  credit  rating  agency  based  in  one  Member  State  are  used  and  relied  upon  by  market 
participants  throughout  the  EU.  Failures  or  the  lack  of  a  regulatory  framework  for  credit 
rating agencies in one specific Member State could adversely affect market participants and 
financial  markets  EU-wide.  Therefore,  sound  regulatory  rules  applicable  throughout  the  EU 
are  necessary  to  protect  investors  and  markets  from  possible  shortcomings.  Therefore  any 
further actions in the field of CRAs can best be achieved by EU action. 

The proposed amendments are also proportionate, as required by Article 5(4) of the TEU. The 
amendments  do  not  exceed  what  is  necessary  to  achieve  their  objectives.  The  conditions  of 
independence  of  credit  rating  agencies  are  particularly  enhanced:  issuers  are  required  to 
regularly  change  the  credit  rating  agency  they  pay  to  issue  credit  ratings  and  to  appoint 
different credit rating agencies to issue credit ratings on them and on their debt instruments. 
These  obligations,  although  limiting  business  freedom,  are  proportionate  to  the  objectives 
pursued and take account of the regulatory environment. They only apply regarding a service 
in  the  public-interest  (credit  ratings  that  can  be  used  for  regulatory  purposes)  by  certain 
regulated  institutions  (credit  rating  agencies)  under  certain  conditions  (issuer-pays  model) 
and,  in  the  case  of  rotation,  on  a  temporary  basis.  Credit  rating  agencies  are,  however,  not 
prevented  from  continuing  to  provide  credit  rating  services  in  the  market:  a  credit  rating 
agency which is required to refrain from providing credit rating services to a particular issuer 
would  still  be  able  to  provide  credit  ratings  to  other  issuers.  In  a  market  context  where  the 
rotation rule applies across the board, business opportunities will arise since all issuers would 
need to change credit rating agency. Also, credit rating agencies may always issue unsolicited 
credit rating on the same issuer, capitalising on their experience. 

The  amendments  also  foresee  that  investors  and  large  credit  rating  agencies  are  limited 
regarding some investment choices. Investors holding a participation of at least 5% in a CRA 
are  prevented  to  hold  more  than  5%  in  any  other  CRA.  This  restriction  is  necessary  to 
guarantee the perception of independence of CRAs, which could be affected should the same 
shareholders  or  members  be  significantly  investing  in  different  credit  rating  agencies  not 
belonging to the same group of credit rating agencies, even if those shareholders or members 
are  not  in  position  to  legally  exercise  dominant  influence  or  control.  This  risk  is  higher 
considering that EU registered CRAs are unlisted, and therefore less transparent, companies. 
Nevertheless, in order to ensure that purely economic investments in credit rating agencies are 
still possible, the prohibition to simultaneously invest in more than one credit rating agency is 
not to be extended to investments channelled through collective investment schemes managed 
by third parties independent from the investor and not subject to his or her influence.  

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3.3. 

Compliance with Articles 290 and 291 TFEU 

On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, 
EIOPA, and ESMA. In this respect the Commission wishes to recall the Statements in relation 
to  Articles  290  and  291  TFEU  it  made  at  the  adoption  of  the  Regulations  establishing  the 
European  Supervisory  Authorities  according  to  which:  "As  regards  the  process  for  the 
adoption  of  regulatory  standards,  the  Commission  emphasises  the  unique  character  of  the 
financial services sector, following from the Lamfalussy structure and explicitly recognised in 
Declaration  39  to  the  TFEU.  However,  the  Commission  has  serious  doubts  whether  the 
restrictions  on  its  role  when  adopting  delegated  acts  and  implementing  measures  are  in  line 
with Articles 290 and 291 TFEU." 

3.4. 

Explanation of the proposal 

Article  1  of  this  proposal  amends  the  CRA  Regulation.  References  in  the  following  sub-
sections refer to the amended or new articles in the CRA Regulation, unless specified. 

3.4.1.  Extension of the scope of application of the Regulation to cover rating outlooks 

In addition to credit ratings, CRAs also publish "rating outlooks" providing an opinion on the 
likely future direction of a credit rating. The Commission proposal extends the scope of the 
rules on credit ratings to also cover, where appropriate, "rating outlooks". The amended text 
requests in particular that CRAs disclose the time horizon during which a change of the credit 
rating  is  expected  (cf.  Annex  I,  Section  D,  Part  II,  point  2(f)).  The  CRA  Regulation  is 
therefore  specifically  adapted  in  different  places:  Articles  3,  6(1),  7(5),  8(2),  and  10(1)  and 
(2); in Annex I, Section B, points 1, 3, and 7; Section C, points 2, 3 and 7; Section D, Part I, 
points  1,  2,  4  and  5;  and  Section  E,  Part  I,  point  3.  In  addition,  the  amendments  described 
below are also adapted, where appropriate, to the introduction of the “rating outlook” concept. 

3.4.2.  Amendments in relation to the use of credit ratings 

The  new  Article  5a  inserted  in  the  CRA  Regulation  requires  certain  financial  institutions  to 
make  their  own  credit  risk  assessment.  They  should  therefore  avoid  relying  solely  or 
mechanistically  on  external  credit  ratings  for  assessing  the  creditworthiness  of  assets. 
Competent  authorities  should  supervise  the  adequacy  of  these  financial  firms'  credit 
assessment  processes  including  monitoring  that  financial  firms  do  not  over-rely  on  credit 
ratings. This rule stems from the Financial Stability Board's principles for reducing reliance 
on CRA Ratings of October 2010. 

Also,  in  accordance  with  the  new  Article  5b,  ESMA,  EBA  and  EIOPA  should  not  refer  to 
credit ratings in their guidelines, recommendations and draft technical standards where such 
references  have  the  potential  to  trigger  mechanistic  reliance  on  credit  ratings  by  competent 
authorities  or  financial  market  participants.  Moreover,  they  should  adapt  their  existing 
guidelines and recommendations accordingly, and by 31 December 2013 at the latest. 

Other  amendments  aim  at  addressing  the  risk  of  over-reliance  on  credit  ratings  by  financial 
market participants as regards structured finance instruments and at increasing the quality of 
the credit ratings regarding such instruments: 

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Article  8a:  this  new  article  requires  issuers  (or  originators  or  sponsors)  to  disclose 
specific information on structured finance products on an ongoing basis, in particular 
on  the  main  elements  of  underlying  asset  pools  for  structured  finance  products 

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necessary for investors to make their own credit assessment and thus avoid the need 
to rely on external ratings. This information is to be disclosed through a centralised 
website operated by ESMA; 

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Article 8b: this new article requires issuers (or their related third parties) who solicit 
a rating to engage two credit rating agencies, independent from each other, to issue 
two independent credit ratings in parallel on the same structured finance instruments. 

Finally,  it  should  be  noted  that  the  Commission  is  proposing  in  parallel  amendments  of 
Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for 
collective  investment  in  transferable  securities  (UCITS)10  and  Directive  2011/61/EU  of  the 
European  Parliament  and  of  the  Council  of  8  June  2011  on  Alternative  Investment  Fund 
Managers  to  make  sure  that  the  principle  of  avoiding  over-reliance  on  credit  ratings  is  also 
integrated into the national legislation implementing those directives. 

3.4.3.  Amendments in relation to the independence of CRAs  

This  group  of  amendments  establishes  stricter  independence  rules  which  aim  at  addressing 
conflicts of interests with regard to the issuer-pays model and CRAs' shareholder structure: 

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Article 6a: this new article prevents any member or shareholder of a CRA that holds 
a participation of at least 5% to hold 5% or more in any other CRA, unless the CRAs 
in question are members of the same group; 

Article  6b:  this  new  article  introduces  a  rotation  rule  for  the  CRAs  engaged  by  the 
issuer (i.e. it does not apply to unsolicited ratings) to either rate the issuer itself or its 
debt instruments. The CRA engaged should not be in place for more than 3 years or 
for more than a year if it rates more than ten consecutive rated debt instruments of 
the issuer. However, this latter rule shall not lead to shortening the permitted period 
of engagement to less than a year. Where the issuer solicits more than one rating for 
itself or for its instrument, be it because of a legal obligation to do so or voluntarily, 
only one of the agencies has to rotate. However, the maximum duration for each of 
these  CRAs  is  fixed  at  a  period  of  six  years.  The  former  CRA  (or  any  other  CRA 
belonging  to  the  same  group  or  having  shareholder  links  with  the  former  CRA) 
should not be able to rate again the same issuer or its instruments until an appropriate 
cooling  off  period  has  elapsed.  This  article  also  foresees  that  the  outgoing  CRA 
provides the incoming CRA with a handover file including relevant information; 

This  rotation  rule  is  expected  to  significantly  mitigate  the  potential  conflicts  of 
interest  issues  relating  to  the  issuer-pays  model.  Moreover,  the  Commission  will 
continue  to  monitor  the  appropriateness  of  credit  rating  agencies'  remuneration 
models and will submit a report thereon to the European Parliament and the Council 
by 7 December 2012, as required by Article 39 (1) of the Regulation. In this context, 
the Commission will also consider more far going solutions to this issue as currently 
assessed in other jurisdictions, including the US. 

Article 6b does not apply to sovereign ratings; 

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OJ L 302, 17.11.2009, p.32. 

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Annex  I,  Section  C,  point  8  in  relation  to  Article  7(4):  the  rules  on  the  internal 
rotation  of  staff  within  a  CRA  have  been  adapted  to  take  account  of  the  new 
Article 6b. The new rules provide that the lead rating analysts should not be involved 
in rating the same entity for more than 4 years, thus preventing those analysts from 
moving  to  another  CRA  with  a  client  file.  Rules  on  internal  rotation  rules  are 
furthermore provided for in the case a CRA provides unsolicited ratings or sovereign 
ratings; 

Annex I, Section B, point 3: the Regulation would prevent a CRA from issuing credit 
ratings (or would require that CRA to disclose that the credit rating may be affected) 
where there are actual or potential conflicts of interests created by the involvement of 
(in addition to the CRA and its staff, already covered by the rules) persons who hold 
more  than  10%  of  the  capital  or  voting  rights  of  the  CRA,  or  are  otherwise  in  a 
position  to  exercise  significant  influence  on  the  business  activities  of  the  CRA,  in 
certain situations, such as investment in the rated entity, being member of the board 
of the rated entity etc;  

Annex I, Section B, point 4: persons who hold more than 5% of the capital or voting 
rights of the CRA, or are otherwise in a position to exercise significant influence on 
the business activities of the CRA should not be allowed to provide consultancy or 
advisory services to the rated entity regarding the corporate or legal structure, assets, 
liabilities or activities of that rated entity. 

3.4.4.  Amendments in relation to the disclosure of information on methodologies of CRAs, 

credit ratings and rating outlooks 

Another group of amendments strengthen the rules on the disclosure of rating methodologies, 
with a view to promoting sound credit rating processes and, in fine, improve rating quality: 

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Articles 8(5a), 8(6)(aa) and 22a(3): these proposed provisions lay down procedures 
for the preparation of new rating methodologies or the modification of existing ones. 
They  require  the  consultation  of  stakeholders  on  the  new  methodologies  or  the 
proposed  changes  and  on  their  justification.  CRAs  should  furthermore  submit  the 
proposed  methodologies  to  ESMA  for  the  assessment  of  their  compliance  with 
existing  requirements.  The  new  methodologies  may  only  be  used  once  they  have 
been  approved  by  ESMA.  The  rules  also  require  the  publication  of  the  new 
methodologies together with a detailed explanation; 

Article  8(7):  each  CRA  will  be  under  the  obligation  to  correct  errors  in  its 
methodologies or in their application, as well as to inform ESMA, the rated entities 
and generally the public of such errors; 

Annex  I,  Section  D,  Part  I,  point  2a:  the  requirement  to  provide  guidance  on 
methodologies  and  underlying  assumptions  behind  ratings  is  extended  from 
structured finance products to all asset classes. The guidance provided by the CRAs 
should be clear and easily comprehensible. 

Other disclosure obligations for CRAs are also reinforced: 

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Annex  I,  Section  D,  Part  I,  point  3:  this  provision  deals  with  the  information  to  be 
provided  by  CRAs  to  issuers  on  the  principal  grounds  on  which  the  rating  or  an 

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outlook  is  based  in  advance  of  the  publication  of  the  rating  or  outlook,  in  order  to 
give an opportunity to the rated entity to detect any errors in the rating. The proposed 
rule requires CRAs to inform issuers during the working hours of the rated entity and 
at least a full working day before publication. This rule applies to all ratings, whether 
solicited or not, and to outlooks; 

– 

Annex  I,  Section  D,  Part  I,  point  6:  CRAs  should  disclose  information  about  all 
entities or debt instruments submitted to it for their initial review or for preliminary 
rating.  Thus,  the  new  rule  extends  this  obligation  beyond  the  ratings  of  structured 
finance  products.  This  amendment  entails  the  corresponding  deletion  of  point  4  in 
Part II of Section D of Annex I. 

3.4.5.  Amendments in relation to sovereign ratings 

Rules  applying  specifically  to  sovereign  ratings  (the  rating  of  a  State,  a  regional  or  local 
authority of a State or of an instrument for which the issuer of the debt or financial obligation 
is a State or a regional or local authority of a State) are particularly reinforced, with a view to 
improving the quality of such ratings: 

– 

– 

– 

Article  8(5),  new  second  subparagraph:  CRAs  are  required  to  assess  sovereign 
ratings more frequently: every six months instead of every twelve months; 

Annex  I,  Section  D:  a  new  Part  III  on  additional  obligations  in  relation  to  the 
presentation  of  sovereign  ratings  is  added.  CRAs  must  in  particular  publish  a  full 
research  report  when  issuing  and  amending  sovereign  ratings,  in  order  to  improve 
transparency  and  enhance  users’  understanding.  Sovereign  ratings  should  only  be 
published  after  the  close  of  business  and  at  least  one  hour  before  the  opening  of 
trading venues in the EU; 

Annex  I,  Section  E,  Part  III,  points  3  and  7:  the  rules  on  the  publication  of  a 
transparency report by CRAs are strengthened by requiring CRAs to be transparent 
as  to  the  allocation  of  staff  to  the  ratings  of  different  asset  classes  (i.e.  corporate, 
structured finance, sovereign ratings). CRAs should also provide disaggregated data 
on  their  turnover,  including  data  on  the  fees  generated  per  different  asset  classes. 
This information should allow assessing to what extent CRAs use their resources for 
the issuance of sovereign ratings. 

3.4.6.  Amendments  in  relation  to  the  comparability  of  credit  ratings  and  fees  for  credit 

ratings 

Enhancing  competition  in  the  credit  rating  market  and  improving  ratings  quality  is  another 
objective  of  this  proposal.  This  objective  is  in  particular  pursued  by  the  following 
amendments,  which  promote  the  comparability  of  credit  ratings  and  provide  for  more 
transparency on fees charged for credit ratings: 

– 

– 

Article  11a:  this  new  article  require  CRAs  to  communicate  their  ratings  to  ESMA, 
which would ensure that all available ratings for a debt instrument are published in 
the form of a European Rating Index (EURIX), freely available to investors; 

Article  21(4a):  this  new  paragraph  empowers  ESMA  to  develop  draft  technical 
standards,  for  endorsement  by  the  Commission,  on  a  harmonised  rating  scale  to  be 
used by CRAs. All ratings would need to follow the same scale standards, ensuring 

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– 

– 

that  ratings  can  be  compared  more  easily  by  investors.  This  provision  would  make 
EURIX more useful for investors and other stakeholders; 

Annex I, Section B, point 3a: fees charged by CRAs to their clients for the provision 
of ratings (and ancillary services) should be non-discriminatory (i.e. based on actual 
cost and the transparency pricing criteria) and not based on any form of contingency 
(i.e. not depend on the result or outcome of the work performed). This new provision 
also aims at avoiding conflicts of interest (e.g. rated entities could pay higher fees in 
exchange of overly favourable ratings); 

Annex  I,  Section  E,  Part  II,  points  2(a)  and  2(aa):  the  amended  point  2(a)  requires 
CRAs  to  annually  disclose  to  ESMA  a  list  of  fees  charged  to  each  client,  for 
individual ratings and any ancillary service. The disclosure on fees is completed by 
the new provision on point 7 of Part III of Section E of Annex I described above. The 
new  point  2  (aa)  requires  CRAs  to  also  disclose  to  ESMA  their  pricing  policy, 
including pricing criteria in relation to ratings for different asset classes. 

Finally,  the  proposed  regulation  requires  ESMA  to  undertake  some  monitoring  activities 
regarding market concentration (cf. Article 21(5)) and the Commission to prepare a report on 
this issue (Article 39(4)). 

3.4.7.  Amendments  in  relation  to  the  civil  liability  of  credit  rating  agencies  vis-à-vis 

investors 

Although this proposal for a Regulation also contains provisions aiming at reducing the risk 
of  excessive  reliance  on  external  credit  ratings  (see  section  3.4.2  of  this  explanatory 
memorandum),  credit  ratings,  whether  issued  for  regulatory  purposes  or  not,  will  in  the 
foreseeable future continue to have an impact on investment decisions. Hence, CRAs have an 
important responsibility towards investors in ensuring compliance with the rules of the CRA 
Regulation. This is reflected in the proposed Article 35a of the CRA Regulation which will 
render  a  CRA  liable  in  case  it  infringes,  intentionally  or  with  gross  negligence,  the  CRA 
Regulation,  thereby  causing  damage  to  an  investor  having  relied  on  a  credit  rating  of  such 
CRA, provided the infringement in question affected the credit rating. 

3.4.8.  Other amendments 

The  text  of  the  Regulation  is  also  adapted  to  clarify  some  obligations  with  regard  to 
"certified" CRAs established in third countries. Thus, Articles 5(8), 11(2), 19(1) and 21(4)(e) 
of the CRA Regulation are amended accordingly. 

The  list  of  infringements  in  Annex  III  and  Article  36a(2)  of  the  CRA  Regulation  have  also 
been adapted following the other changes to the Regulation. 

In  order  to  bring  the  CRA  Regulation  in  line  with  the  terminology  of  the  Lisbon  Treaty, 
references to the "Community" are replaced by references to the "Union". 

3.4.9 

The question of the European Rating Agency 

This proposal is not aimed at setting up a European credit rating agency. As requested by the 
European  Parliament  in  its  report  on  credit  rating  agencies  of  8  June  2011  this  option  was 
assessed  in  detail  in  the  impact  assessment  accompanying  this  proposal.  The  impact 
assessment  found  that  even  if  a  publicly  funded  CRA  may  have  some  benefits  it  terms  of 

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11 

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increasing  the  diversity  of  opinions  in  the  rating  market  and  providing  an  alternative  to  the 
issuer pays model, it would be difficult to address concerns relating to conflicts of interest and 
its  credibility,  especially  if  such  CRA  would  rate  sovereign  debt.  However,  these  findings 
should by no means discourage other actors from setting up new credit rating agencies. The 
Commission will monitor to what extent new private entrants in the credit rating market will 
provide for more diversity. 

A number of measures in the current proposal should contribute to more diversity and choice 
in the credit rating industry: 

– 

– 

the  proposed  rotation  rule  will  require  regular  changes  of  credit  rating  agencies 
which should open up the CRA market for new entrants; and 

the proposed prohibition for large credit rating agencies to acquire other CRAs over a 
period of ten years. 

The  Commission  is  also  exploring  ways  whether  and  to  what  extent  Union  funds  could  be 
used to promote the creation of networks of smaller CRAs which would allow them to pool 
resources and generate efficiencies of scale. 

4. 

BUDGETARY IMPLICATION 

The Commission's proposal has no impact on the European Union budget. In particular, tasks 
that would be entrusted to ESMA as mentioned in the proposal would not entail additional EU 
funding. 

It  should  also  be  noted  that  Article  19  of  the  CRA  Regulation11  provides  that  ESMA's 
expenditure  necessary  for  the  registration  and  supervision  of  CRAs  according  to  the 
Regulation shall be fully covered by fees charged to the credit rating agencies. 

11 

“1.  ESMA  shall  charge  fees  to  the  credit  rating  agencies  in  accordance  with  this  Regulation  and  the 
regulation on fees referred to in paragraph. 
2.  Those  fees  shall  fully  cover  ESMA’s  necessary  expenditure  relating  to  the  registration  and 
supervision of credit rating agencies and the reimbursement of any costs that the competent authorities 
may incur carrying out work pursuant to this Regulation, in particular as a result of any delegation of 
tasks in accordance with Article 30.” 

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2011/0361 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EC) No 1060/2009 on credit rating agencies 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Central Bank1, 

Having regard to the opinion of the European Economic and Social Committee2, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

Regulation  (EC)  No  1060/2009  of  the  European  Parliament  and  of  the  Council  of 
16 September 2009 on credit rating agencies3 requires credit rating agencies to comply 
with  rules  of  conduct  in  order  to  mitigate  possible  conflicts  of  interest,  ensure  high 
quality  and  sufficient  transparency  of  ratings  and  the  rating  process.  Following  the 
amendments introduced by Regulation (EU) No 513/2011 of the European Parliament 
and of the Council4, the European Securities and Markets Authority (ESMA) has been 
empowered  to  register  and  supervise  credit  rating  agencies.  This  amendment 
complements the current regulatory framework for credit rating agencies. Some of the 
issues  addressed  (conflicts  of  interests  due  to  the  issuer-pays  model,  disclosure  for 
structured  finance  instruments)  had  been  identified,  but  not  fully  resolved  by  the 
existing  rules.  The  need  to  review  transparency  and  procedural  requirements 
specifically for sovereign ratings was highlighted by the current sovereign debt crisis. 

1 
2 
3 
4 

OJ C , , p. 
OJ C , , p.  
OJ L 302, 17.11.2009, p.1. 
OJ L 145, 31.5.2011, p.30. 

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(2) 

(3) 

(4) 

(5) 

(6) 

The European Parliament issued a resolution on credit ratings agencies on 8 June 2011 
calling  for  enhanced  regulation  on  credit  rating  agencies5.  At  an  informal  ECOFIN 
meeting  of  September  30  and  October  1,  2010,  the  Council  of  the  European  Union 
acknowledged that further efforts should be made to address a number of issues related 
to credit rating activities, including the risk of over-reliance on credit ratings and the 
risk of conflict of interests stemming from the remuneration model of rating agencies. 
The  European  Council  of  23  October  2011  concluded  that  progress  is  needed  on 
reducing overreliance on credit ratings. 

At  the  international  level  the  Financial  Stability  Board  (FSB)  endorsed  on 
20 October 2010 principles to reduce authorities’ and financial institutions’ reliance on 
CRA  ratings.  Those  principles  were  endorsed  by  the  G20  Seoul  Summit  in 
November 2010. 

The relevance of rating outlooks for investors and issuers and their effects on markets 
are  comparable  to  the  relevance  and  effects  of  credit  ratings.  Therefore,  all  the 
requirements  of  Regulation  (EC)  No  1060/2009  which  aim  at  ensuring  that  rating 
actions are free from conflicts of interest, accurate and transparent should also apply to 
rating outlooks. According to current supervisory practice a number of requirements of 
the  Regulation  apply  to  rating  outlooks.  This  Regulation  introduces  a  definition  of 
rating  outlooks  and  clarifies  which  specific  provisions  apply  to  such  outlooks.  This 
should clarify the rules and provide legal certainty. The definition of rating outlooks 
according  to  this  Regulation  should  also  encompass  opinions  regarding  the  likely 
direction of a credit rating in the short term, commonly referred to as credit watches. 

Credit  rating  agencies  are  important  participants  in  the  financial  markets.  As  a 
consequence, the independence and integrity of credit rating agencies and their credit 
rating  activities  are  of  particular  importance  to  guarantee  their  credibility  vis-à-vis 
market  participants,  in  particular  investors  and  other  users  of  ratings.  Regulation 
1060/2009 provides that credit rating agencies have to be registered and supervised as 
their  services  have  considerable  impact  on  the  public  interest.  Credit  ratings,  unlike 
investment  research,  are  not  mere  opinions  about  a  value  or  a  price  for  a  financial 
instrument  or  a  financial  obligation.  Credit  rating  agencies  are  not  mere  financial 
analysts  or  investment  advisors.  Credit  ratings  have  regulatory  value  for  regulated 
investors,  such  as  credit  institutions,  insurance  companies  and  other  institutional 
investors.  Although  the  incentives  to  excessively  rely  on  credit  ratings  are  being 
reduced,  credit  ratings  still  drive  investment  choices,  notably  because  of  information 
asymmetries  and  for  efficiency  purposes.  In  this  context,  credit  rating  agencies  must 
be independent and perceived as such by market participants. 

Regulation (EC) No 1060/2009 already provided a first round of measures to address 
the  question  of  independence  and  integrity  of  credit  rating  agencies  and  their  credit 
rating  activities.  The  objectives  of  guaranteeing  the  independence  of  credit  rating 
agencies  and  of  identifying,  managing  and,  to  the  extent  possible,  avoiding  any 
conflict of interest that could arise were already underlying several provisions of that 
Regulation in 2009. Whilst providing a sound basis, the existing rules do not appear to 
have  had  a  sufficient  impact  in  this  regard.  Credit  rating  agencies  still  are  not 
perceived  as  sufficiently  independent  actors.  The  selection  and  remuneration  of  the 

5 

2010/2302/INI. 

EN 

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(7) 

credit  rating  agency  by  the  rated  entity  (issuer-pays  model)  engenders  inherent 
conflicts  of  interest,  which  are  insufficiently  addressed  by  the  existing  rules.  Under 
this model, there are incentives for credit rating agencies to issue complacency ratings 
on  the  issuer  in  order  to  secure  a  long-standing  business  relationship  guaranteeing 
revenues or in order to secure additional work and revenues. Moreover, relationships 
between  the  shareholders  of  credit  rating  agencies  and  the  rated  entities  may  cause 
conflicts  of  interest  which  are  not  sufficiently  dealt  with  by  the  existing  rules.  As  a 
result, credit ratings issued under the issuer-pays model may be perceived as the credit 
ratings that suit the issuer rather than the credit ratings needed by the investor. Without 
prejudice to the conclusions of the report to be submitted by the Commission on the 
issuer-pays model by December 2012 pursuant to Article 39(1) of Regulation (EC) No 
1060/2009,  it  is  essential  to  reinforce  the  conditions  of  independence  applying  to 
credit  rating  agencies  in  order  to  increase  the  level  of  credibility  of  credit  ratings 
issued under the issuer-pays model. 

The  credit  rating  market  shows  that,  traditionally,  credit  rating  agencies  and  rated 
entities enter into long-lasting relationships. This raises the threat of familiarity, as the 
credit rating agency may become too sympathetic to the desires of the rated entity. In 
those circumstances, the impartiality of credit rating agencies over time could become 
questionable.  Indeed,  credit  rating  agencies  mandated  and  paid  by  a  corporate  issuer 
are  incentivised  to  issue  overly  favourable  ratings  on  that  rated  entity  or  its  debt 
instruments in order to maintain the business relationship with such issuer. Issuers are 
also  subject  to  incentives  that  favour  long-lasting  relationships,  such  as  the  lock-in 
effect:  an  issuer  may  refrain  from  changing  credit  rating  agency  as  this  may  raise 
concerns  of  investors  regarding  the  issuer's  creditworthiness.  This  problem  was 
already  identified  in  Regulation  (EC)  No  1060/2009,  which  required  credit  rating 
agencies  to  apply  a  rotation  mechanism  providing  for  gradual  changes  in  analytical 
teams and credit rating committees so that the independence of the rating analysts and 
persons  approving  credit  ratings  would  not  be  compromised.  The  success  of  those 
rules, however, was highly dependant on a behavioural solution internal to the credit 
rating  agency:  the  actual  independence  and  professionalism  of  the  employees  of  the 
credit  rating  agency  vis-à-vis  the  commercial  interests  of  the  credit  rating  agency 
itself.  These  rules  were  not  designed  to  provide  sufficient  guarantee  towards  third 
parties  that  the  conflicts  of  interest  arising  from  the  long-lasting  relationship  would 
effectively  be  mitigated  or  avoided.  It  therefore  appears  necessary  to  provide  for  a 
structural  response  having  a  higher  impact  on  third  parties.  This  could  be  achieved 
effectively by limiting the period during which a credit rating agency can continuously 
provide  credit  ratings  on  the  same  issuer  or  its  debt  instruments.  Setting  out  a 
maximum  duration  of  the  business  relationship  between  the  issuer  which  is  rated  or 
which issued the rated debt instruments and the credit rating agency should remove the 
incentive  for  issuing  favourable  ratings  on  that  issuer.  Additionally,  requiring  the 
rotation of credit rating agencies as a normal and regular market practice should also 
effectively  address  the  lock-in  effect,  where  an  issuer  refrains  from  changing  credit 
rating  agency  as  this  would  raise  concerns  of  investors  regarding  the  issuer's 
creditworthiness.  Finally,  the  rotation  of  credit  rating  agencies  should  have  positive 
effects on the rating market as it would facilitate new market entries and offer existing 
credit rating agencies the opportunity to extend their business to new areas. 

(8) 

Regular rotation of credit rating agencies issuing credit ratings on an issuer or its debt 
instruments  should  bring  more  diversity  to  the  evaluation  of  the  creditworthiness  of 

EN 

15 

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the issuer that selects and pays that credit rating agency. Multiple and different views, 
perspectives and methodologies applied by credit rating agencies should produce more 
diverse credit ratings and ultimately improve the assessment of the creditworthiness of 
the issuers. For this diversity to play a role and to avoid complacency of both issuers 
and credit rating agencies, the maximum duration of the business relationship between 
the credit rating agency and the issuer paying must be restricted to a level guaranteeing 
regular fresh looks at the creditworthiness of issuers. Therefore, a time period of three 
years would seem appropriate, also considering the need to provide certain continuity 
within the credit ratings. The risk of conflict of interest increases in situations where 
the  credit  rating  agency  frequently  issues  credit  ratings  on  debt  instruments  of  the 
same issuer within a short period of time. In those cases, the maximum duration of the 
business  relationship  should  be  shorter  to  guarantee  similar  results.  Hence,  the 
business relationship should stop after a credit rating has rated ten debt instruments of 
the  same  issuer.  However,  in  order  to  avoid  imposing  a  disproportionate  burden  on 
issuers  and  credit  rating  agencies,  no  requirement  to  change  credit  rating  agency 
within the first 12 months of the business relationship should be imposed. Where an 
issuer  mandates  more  than  one  credit  rating  agency,  either  because  as  an  issuer  of 
structured finance instruments he is obliged to do so, or on a voluntary basis, it should 
be  sufficient  that  the  strict  rotation  periods  only  apply  to  one  of  the  credit  rating 
agencies. However, also in this case, the business relationship between the issuer and 
the additional credit rating agencies should not exceed a period of six years. 

The rule requiring rotation of credit rating agencies needs to be enforced in a credible 
manner  to  be  meaningful.  The  rotation  rule  would  not  achieve  its  objectives  if  the 
outgoing  credit  rating  agency  were  allowed  to  provide  rating  services  to  the  same 
issuer again within a too short period of time. Therefore, it is important to provide for 
an appropriate period within which such credit rating agency may not be mandated by 
the same issuer to provide rating services. That period should be sufficiently long to 
allow the incoming credit rating agency to effectively provide its rating services to the 
issuer,  to  ensure  that  the  issuer  is  truly  exposed  to  a  new  scrutiny  under  a  different 
approach and to guarantee that the credit ratings issued by the new credit rating agency 
provide  enough  continuity.  That  period  should  allow  that  an  issuer  cannot  rely  on 
comfortable arrangements with only two credit rating agencies that would replace each 
other  on  a  continuous  basis,  as  this  could  lead  to  maintaining  the  familiarity  threat. 
Hence, the period during which the outgoing credit rating agency should not provide 
rating services to the issuer should generally be set at four years. 

(9) 

(10)  The change of credit rating agency inevitably increases the risk that knowledge about 
the  rated  entity  acquired  by  the  outgoing  rating  agency  is  lost.  As  a  result,  the 
incoming credit rating agency would have to make considerable efforts to acquire the 
knowledge  necessary  to  carry  out  its  work.  However,  a  smooth  transition  should  be 
ensured by establishing a requirement on the outgoing credit rating agency to transfer 
relevant  information  on  the  rated  entity  or  instruments  to  the  incoming  credit  rating 
agency. 

(11)  Requiring  issuers  to  regularly  change  the  credit  rating  agency  they  mandate  to  issue 
credit ratings is proportionate to the objective pursued. This requirement only applies 
to  certain  regulated  institutions  (registered  credit  rating  agencies)  which  provide  a 
service  affecting  the  public  interest  (credit  ratings  that  can  be  used  for  regulatory 
purposes)  under  certain  conditions  (issuer-pays  model).  The  privilege  of  having  its 
services  recognised  as  playing  an  important  role  in  the  regulation  of  the  financial 

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services  market  and  being  approved  to  carry  out  this  function,  entails  the  need  to 
respect  certain  obligations  in  order  to  guarantee  independence  and  the  perception  of 
independence  in  all  circumstances.  A  credit  rating  agency  which  is  prevented  from 
providing credit rating services to a particular issuer would still be allowed to provide 
credit ratings to other issuers. In a market context where the rotation rule applies to all 
players, business opportunities will arise since all issuers would need to change credit 
rating  agency.  Moreover,  credit  rating  agencies  may  always  issue  unsolicited  credit 
ratings on the same issuer, capitalising on their experience. Unsolicited ratings are not 
constrained  by  the  issuer-pays  model  and  therefore  are  less  affected  by  potential 
conflicts of interests. For issuers, the maximum duration of the business relationship 
with  a  credit  rating  agency  or  the  rule  on  the  employment  of  more  than  one  credit 
rating  agency  also  represents  a  restriction  on  their  freedom  to  conduct  their  own 
business. However, this restriction is necessary on public-interest grounds considering 
the  interference  of  the  issuer-pays  model  with  the  necessary  independence  of  credit 
rating  agencies  to  guarantee  independent  credit  ratings  that  can  be  used  by  investors 
for regulatory purposes. At the same time, these restrictions do not go beyond what is 
necessary  and  should  rather  be  seen  as  an  element  increasing  the  issuer's 
creditworthiness towards other parties, and ultimately the market. 

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

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

(14)  The  rules  on  independence  and  prevention  of  conflicts  of  interest,  could  become 
ineffective  if  credit  rating  agencies  were  not  independent  from  each  other.  A 
sufficiently high number of credit rating agencies, unconnected with both the outgoing 
credit  rating  agency  in  case  of  rotation  and  with  the  credit  rating  agency  providing 
credit  rating  services  in  parallel  to  the  same  issuer,  is  necessary  for  a  workable 

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application of those rules. In the absence of sufficient choice of credit rating agencies 
for  the  issuer  in  the  current  market,  the  implementation  of  these  rules  aimed  at 
enhancing  independence  conditions  would  risk  becoming  ineffective.  Therefore,  it  is 
appropriate  to  require  a  strict  separation  of  the  outgoing  agency  from  the  incoming 
credit  rating  agency  in  case  of  rotation  as  well  as  of  the  two  credit  rating  agencies 
providing  rating  services  in  parallel  to  the  same  issuer.  The  credit  rating  agencies 
concerned  should  not  be  linked  to  each  other  by  control,  by  being  part  of  the  same 
group  of  credit  rating  agencies,  by  being  shareholder  or  member  of  or  being  able  to 
exercise  voting  rights  in  any  of  the  other  agencies,  or  by  being  able  to  appoint 
members of the administrative, management or supervisory boards of any of the other 
credit rating agencies. 

(15)  The  perception  of  independence  of  credit  rating  agencies  would  be  particularly 
affected  should  the  same  shareholders  or  members  be  investing  in  different  credit 
rating  agencies  not  belonging  to  the  same  group  of  credit  rating  agencies,  at  least  if 
this investment reaches a certain size that could allow these shareholders or members 
to exercise a certain influence on the agency's business. Therefore, in order to ensure 
the independence (and the perception of independence) of credit rating agencies, it is 
appropriate  to  provide  for  stricter  rules  regarding  the  relations  between  the  credit 
this  reason,  no  person  should 
rating  agencies  and 
simultaneously  hold  a  participation  of  5%  or  more  in  more  than  one  credit  rating 
agency, unless the agencies concerned belong to the same group. 

their  shareholders.  For 

(16)  The objective of ensuring sufficient independence of credit rating agencies entails that 
investors should not hold simultaneously investments of 5 % or more in more than one 
credit  rating  agency.  Directive  2004/109/EC  of  the  European  Parliament  and  of  the 
Council  of  15 December 2004 on the harmonisation of transparency requirements in 
relation  to  information  about  issuers  whose  securities  are  admitted  to  trading  on  a 
regulated market6 requests that those persons controlling 5% of the voting rights in a 
listed  company  results  should  disclose  it  to  the  public,  because,  inter  alia,  of  the 
interest for investors to know about changes in the voting structure of such company. 
5%  of  the  voting  rights  is  considered  therefore  to  be  a  major  holding  capable  of 
influencing the voting structure in a company. It is therefore appropriate to use the 5% 
level  for  the  purposes  of  restricting  the  simultaneous  investment  in  more  than  one 
credit  rating  agency.  This  measure  cannot  be  considered  disproportionate,  given  that 
all registered credit rating agencies in the Union are non-listed undertakings therefore 
not subject to the transparency and procedural rules that apply to listed companies in 
the  EU.  Often  unlisted  undertakings  are  governed  by  shareholders'  protocols  or 
agreements  and  the  number  of  shareholders  or  members  is  usually  low.  Therefore, 
even  a  minority  position  in  an  unlisted  credit  rating  agency  could  be  influential. 
Nevertheless,  in  order  to  ensure  that  purely  economic  investments  in  credit  rating 
agencies are still possible, this limitation to simultaneously investments in more than 
one  credit  rating  agency  should  not  be  extended  to  investments  channelled  though 
collective investment schemes managed by third parties independent from the investor 
and not subject to his or her influence. 

(17)  The new rules limiting the duration of the business relationship between an issuer and 
the  credit  rating  agency  would  significantly  reshape  the  credit  rating  market  in  the 

6 

OJ L 390, 31.12.2004, p.38. 

EN 

18 

   EN 

 
                                                 
Union,  which  today  remains  largely  concentrated.  New  market  opportunities  would 
arise  for  small  and  mid-size  credit  rating  agencies,  which  would  need  to  develop  to 
take  up  those  challenges  in  the  first  years  following  the  entry  into  force  of  the  new 
rules.  Those  developments  are  likely  to  bring  new  diversity  into  the  market.  The 
objectives  and  the  effectiveness  of  the  new  rules  would,  however,  be  largely 
jeopardised if, during these initial years, large established credit rating agencies would 
prevent  their  competitors  from  developing  credible  alternatives  by  acquiring  them. 
Further  consolidation  in  the  credit  rating  market  driven  by  large  established  players 
would result in a reduction of the number of available registered credit rating agencies, 
thus  creating  selection  difficulties  for  issuers  at  the  moment  in  which  they  regularly 
need  to  appoint  one  or  more  new  credit  rating  agencies  and  disturbing  the  smooth 
functioning of the new rules. More importantly, further consolidation driven by large 
established  credit  rating  agencies  would  particularly  prevent  the  emergence  of  more 
diversity in the market. 

(18)  The effectiveness of the rules on independence and prevention of conflict of interest 
which require that credit rating agencies should not provide for a long period of time 
credit rating services to the same issuer could be undermined if credit rating agencies 
where  allowed  to  become  directly  or  indirectly  shareholders  or  members  of  other 
credit rating agencies. 

(19) 

It is important to ensure that modifications to the rating methodologies do not result in 
less  rigorous  methodologies.  For  that  purpose,  issuers,  investors  and  other  interested 
parties  should  have  the  opportunity  to  comment  on  any  intended  change  of  rating 
methodologies.  This  will  help  them  to  understand  the  reasons  behind  new 
methodologies  and  for  the  change  in  question.  Comments  provided  by  issuers  and 
investors on the draft methodologies may provide valuable input for the credit rating 
agencies in defining the methodologies. Moreover, ESMA should verify and confirm 
the  compliance  of  new  rating  methodologies  with  Article  8(3)  of  Regulation  (EC) 
No 1060/2009 and the relevant regulatory technical standard before methodologies are 
applied in practice. ESMA should verify that the proposed methodologies are rigorous, 
systematic,  continuous  and  subject  to  validation  based  on  historical  experience, 
including back-testing. However, this verification process should not grant ESMA any 
power to judge the appropriateness of the proposed methodology or the content of the 
credit ratings issued following the application of the methodologies. 

(20)  Due  to  the  complexity  of  structured  finance  instruments,  credit  rating  agencies  have 
not always succeeded in ensuring a sufficiently high quality of credit ratings issued on 
such  instruments.  This  has  led  to  a  loss  of  market  confidence  in  this  type  of  credit 
ratings. In order to regain confidence it would be appropriate to require issuers or their 
related third parties to engage two different credit rating agencies for the provision of 
credit  ratings  on  structured  finance  instruments,  which  could  lead  to  different  and 
competing  assessments.  This  could  also  reduce  the  over-reliance  on  a  single  credit 
rating. 

(21)  Directive  xxxx/xx/EU  of  the  European  Parliament  and  of  the  Council  of  […]  on  the 
access  to  the  activity  of  credit  institutions  and  the  prudential  supervision  of  credit 
institutions  and  investment  firms7  has  introduced  a  provision  requiring  banks  and 

7 

OJ C , , p. 

EN 

19 

   EN 

 
                                                 
investment firms to assess the credit risk of entities and financial instruments in which 
they invest themselves and not to simply rely in this respect on external ratings. This 
rule should be extended to other financial firms regulated under Union law, including 
investment managers. Member States should not be entitled to impose rules that allow 
stricter reliance of these investors on external ratings. 

(22)  Furthermore, the investors' possibilities to make an informed assessment of the credit 
worthiness  of  structured  finance  instruments  would  be  improved  if  investors  were 
provided with sufficient information on these instruments. This will reduce investors' 
dependence on credit ratings. Moreover, disclosing relevant information on structured 
finance  instruments  is  likely  to  reinforce  the  competition  between  credit  rating 
agencies, because it could lead to an increase in the number of unsolicited ratings. 

(23) 

Investors, issuers and other interested parties should have access to up to date rating 
information on a central webpage. A European Rating Index (EURIX) established by 
ESMA should allow investors to easily compare all ratings that exist with regard to a 
specific  rated  entity  and  provide  them  with  average  ratings.  In  order  to  enable 
investors  to  compare  ratings  on  the  same  entity  issued  by  different  credit  rating 
agencies it is necessary that credit rating agencies use a harmonised rating scale, to be 
developed  by  ESMA  and  adopted  by  the  Commission  as  a  regulatory  technical 
standard.  The  use  of  the  harmonised  rating  scale  should  only  be  mandatory  for  the 
publication of the ratings on the EURIX webpage while credit rating agencies should 
be  free  to  use  their  own  rating  scales  when  publishing  the  ratings  on  their  own 
websites.  The  mandatory  use  of  a  harmonised  rating  scale  should  not  have  a 
harmonising  effect  on  methodologies  and  processes  of  credit  rating  agencies,  but 
should  be  limited  to  making  the  rating  outcome  comparable.  It  is  important  that  the 
EURIX webpage shows, in addition to an aggregate rating index, all available ratings 
per  instrument  in  order  to  allow  investors  to  consider  the  whole  variety  of  opinions 
before  taking  their  own  investment  decision.  The  aggregate  rating  index  may  help 
investors  to  get  a  first  indication  of  the  creditworthiness  of  an  entity.  The  EURIX 
should  help  smaller  and  new  credit  rating  agencies  to  gain  visibility.  The  European 
Rating Index would complement the information on historical performance data to be 
published  by  credit  rating  agencies  in  ESMA's  central  repository.  The  European 
Parliament  supported  the  establishment  of  such  European  Rating  Index  in  its 
resolution on credit rating agencies of 8 June 20118. 

(24)  Credit ratings, whether issued for regulatory purposes or not, have a significant impact 
important 
investment  decisions.  Hence,  credit  rating  agencies  have  an 
on 
responsibility  towards  investors  in  ensuring  that  they  comply  with  the  rules  of 
Regulation (EC) No 1060/2009 so that their ratings are independent, objective and of 
adequate  quality.  However,  in  the  absence  of  a  contractual  relationship  between  the 
credit rating agency and the investor, investors are not always in a position to enforce 
the agency's responsibility towards them. Therefore, it is important to provide for an 
adequate right of redress for investors who relied on a credit rating issued in breach of 
the  rules  of  Regulation  (EC)  No  1060/2009.  The  investor  should  be  able  to  hold  the 
credit  rating  agency  liable  for  any  damage  caused  by  an  infringement  of  that 
Regulation  which  had  an  impact  on  the  rating  outcome.  Infringements  which  do  not 

8 

2010/2302(INI). 

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20 

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impact  the  rating  outcome,  such  as  breaches  of  transparency  obligations,  should  not 
trigger civil liability claims. 

(25)  Credit rating agencies should only be held liable if they infringe intentionally or with 
gross negligence any obligations imposed on them by Regulation (EC) No 1060/2009. 
This standard of fault means that credit rating agencies should not face liability claims 
if they neglect individual obligations under the Regulation without disregarding their 
duties  in  a  serious  way.  This  standard  of  fault  is  appropriate  because  the  activity  of 
credit rating involves a certain degree of assessment of complex economic factors and 
the application of different methodologies may lead to different rating results, non of 
which can be qualified as incorrect. 

(26) 

It  is  important  to  provide  investors  with  an  effective  right  of  redress  against  credit 
rating agencies. As investors do not have close insight in internal procedures of credit 
rating agencies a partial reversal of the burden of proof with regard to the existence of 
an  infringement  and  the  infringement's  impact  on  the  rating  outcome  seems  to  be 
appropriate  if  the  investor  has  made  a  reasonable  case  in  favour  of  the  existence  of 
such  an  infringement.  However,  the  burden  of  proof  as  regards  the  existence  of  a 
damage and the causality of the infringement for the damage, both being closer to the 
sphere of the investor, should fully be on the investor. 

(27)  Regarding matters concerning the civil liability of a credit rating agency and which are 
not  covered  by  this  regulation,  such  matters  should  be  governed  by  the  applicable 
national  law  determined  by  the  relevant  rules  of  International  Private  Law.  The 
competent court to decide on a claim for civil liability brought by an investor should 
be determined by the relevant rules on International Jurisdiction. 

(28)  The fact that institutional investors including investment managers are obliged to carry 
out  their  own  assessment  of  the  creditworthiness  of  assets  should  not  prevent  courts 
from  finding  that  an  infringement  of  this  Regulation  by  a  credit  rating  agency  has 
caused damage to an investor for which that credit rating agency is liable. While this 
Regulation will improve the possibilities of investors to make an own risk assessment 
they will continue to have more limited access to information than the credit agencies 
themselves. Furthermore, in particular smaller investors often will lack the capability 
to critically review an external rating provided by a credit rating agency. 

(29) 

In  order  to  further  mitigate  conflicts  of  interest  and  facilitate  fair  competition  in  the 
credit  rating  market,  it  is  important  to  ensure  that  the  fees  charged  by  credit  rating 
agencies to customers are not discriminatory. Differences in fees charged for the same 
type  of  service  should  only  be  justifiable  by  a  difference  in  the  actual  costs  in 
providing  this  service  to  different  customers.  Moreover,  the  fees  charged  for  rating 
services  to  a  given  issuer  should  not  depend  on  the  results  or  outcome  of  the  work 
performed or on the provision of related (ancillary) services. Furthermore, in order to 
allow for the effective supervision of those rules, credit rating agencies should disclose 
to ESMA the fees received from each of their clients and their general pricing policy. 

(30) 

In order to contribute to the issuance of up to date and credible sovereign ratings and 
to facilitate users' understanding, it is important to regularly review ratings. It is also 
important  to  increase  the  transparency  about  the  research  work  carried  out,  the  staff 
allocated  to  the  preparation  of  ratings  and  the  underlying  assumptions  behind  the 
credit ratings made by credit rating agencies in relation to sovereign debt. 

EN 

21 

   EN 

 
(31)  The  current  rules  already  provide  for  ratings  to  be  announced  to  the  rated  entity 
12 hours  before  their  publication.  In  order  to  avoid  that  this  notification  takes  place 
outside  working  hours  and  to  leave  the  rated  entity  sufficient  time  to  verify  the 
correctness  of  data  underlying  the  rating,  it  should  be  clarified  that  the  rated  entity 
should  be  notified  a  full  working  day  before  publication  of  the  rating  or  of  a  rating 
outlook. 

(32) 

In  view  of  the  specificities  of  sovereign  ratings  and  in  order  to  reduce  the  risk  of 
volatility, it is appropriate to require credit rating agencies to only publish these ratings 
after the close of business of the trading venues established in the Union and at least 
one hour before their opening. 

(33)  Technical  standards  in  financial  services  should  ensure  and  adequate  protection  of 
depositors,  investors  and  consumers  across  the  Union.  As  a  body  with  highly 
specialised expertise, it would be efficient and appropriate to entrust ESMA, with the 
elaboration  of  draft  regulatory  and  implementing  technical  standards  which  do  not 
involve policy choices, for submission to the Commission. 

(34)  The  Commission  should  adopt  the  draft  regulatory  technical  standards  developed  by 
ESMA  regarding  the  content  of  the  handover  file  when  a  credit  rating  agency  is 
replaced  by  another  credit  rating  agency,  the  content,  frequency  and  presentation  of 
the  information  to  be  provided  by  issuers  on  structured  finance  instruments, 
harmonisation  of  the  standard  rating  scale  to  be  used  by  credit  rating  agencies,  the 
presentation  of  the  information,  including  structure,  format,  method  and  timing  of 
reporting,  that  credit  rating  agencies  should  disclose  to  ESMA  in  relation  to  EURIX 
and the content and format of the periodic reporting on fees charged by credit rating 
agencies for the purposes of ongoing supervision by ESMA. The Commission should 
adopt those standards by means of delegated acts pursuant to Article 290 of the Treaty 
and in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 

(35)  Regulation (EU) No 1060/2009 allows ratings issued in third countries to be used for 
regulatory purposes if they are issued by credit rating agencies certified in accordance 
with  Article  5  or  endorsed  by  credit  rating  agencies  established  in  the  Union  in 
accordance  with  Article  4  (3)  of  that  Regulation.  Certification  requires  that  the 
Commission  has  adopted  an  equivalence  decision  regarding  the  third  country's 
regulatory regime for credit rating agencies and endorsement requires that the conduct 
of  the  third  country  credit  rating  agency  fulfils  requirements  which  are  at  least  as 
stringent  as  the  relevant  EU  rules.  Some  of  the  provisions  introduced  by  this 
Regulation should not apply for the equivalence and endorsement assessments: This is 
the case for those provisions that only establish obligations on issuers but not on credit 
rating  agencies.  In  addition,  articles  that  relate  to  the  structure  of  the  rating  market 
within  the  EU  rather  than  establishing  rules  of  conduct  for  credit  rating  agencies 
should  not  be  considered  in  this  context..  In  order  to  grant  third  countries  sufficient 
time to upgrade their regulatory frameworks regarding the remaining new substantive 
provisions,  the  latter  should  only  apply  for  the  purpose  of  the  equivalence  and 
endorsement assessments as of 1 June 2014. It is important to recall in this respect that 
a  third  country  regulatory  regime  does  not  have  to  have  identical  rules  as  those 
provided for in this Regulation. As already spelled out in Regulation No 1060/2009, in 
order  to  be  considered  equivalent  to  or  as  stringent  as  the  EU  regulatory  regime  it 
should  be  sufficient  that  the  third  country  regulatory  regime  achieves  the  same 
objectives and effects in practice.  

EN 

22 

   EN 

 
(36)  Since the objectives of this Regulation, namely to reinforce the independence of credit 
rating  agencies,  to  promote  sound  credit  rating  processes  and  methodologies,  to 
mitigate the risks associated to sovereign ratings, to reduce the risk of over-reliance on 
credit  ratings  by  market  participants,  and  to  ensure  a  right  of  redress  for  investors, 
cannot be sufficiently achieved at the Member State level and can therefore, by reason 
of the pan-Union structure and impact of the credit rating activities to be supervised, 
be better achieved at the Union level, the Union may adopt measures, in accordance 
with  the  principle  of  subsidiarity  as  set  out  in  Article  5  of  the  Treaty  on  European 
Union.  In  accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article, 
this  Regulation  does  not  go  beyond  what  is  necessary  in  order  to  achieve  those 
objectives. 

(37)  Regulation (EC) No 1060/2009 should therefore be amended accordingly, 

HAVE ADOPTED THIS REGULATION: 

Article 1 
Amendments to Regulation (EC) No 1060/2009 

Regulation (EC) No 1060/2009 is amended as follows: 

(1) 

Article 1 is replaced by the following: 

"Article 1 

Subject matter 

This  Regulation  introduces  a  common  regulatory  approach  in  order  to  enhance  the 
integrity,  transparency,  responsibility,  good  governance  and  reliability  of  credit 
rating  activities,  contributing  to  the  quality  of  credit  ratings  issued  in  the  Union, 
thereby contributing to the smooth functioning of the internal market while achieving 
a  high  level  of  consumer  and  investor  protection.  It  lays  down  conditions  for  the 
issuing  of  credit  ratings  and  rules  on  the  organisation  and  conduct  of  credit  rating 
agencies,  including  their  shareholders  and  members,  to  promote  credit  rating 
agencies' independence, the avoidance of conflicts of interest and the enhancement of 
consumer and investor protection. 

This  Regulation  also  lays  down  obligations  for  issuers,  originators  and  sponsors 
established in the Union regarding structured finance instruments." 

in the first paragraph of Article 2, "Community" is replaced by "Union"; 

Article 3(1) is amended as follows:  

(a) 

in point (g), "Community" is replaced by "Union"; 

(b) 

in point (m), "Community" is replaced by "Union"; 

(c) 

the following points are added: 

(2) 

(3) 

EN 

23 

   EN 

 
'(s) 

"issuer"  means  issuer  as  defined  in  point  (h)  of  Article  2  (1)  of 
Directive2003/71/EC; 

(t) 

(u) 

"originator"  means  originator  as  defined  in  point  (41)  of  Article  4  of 
Directive 2006/48/EC; 

"sponsor"  means  a  sponsor  as  defined  in  point  (42)  of  Article  4  of 
Directive 2006/48/EC; 

(v) 

"sovereign rating" means: 

(i) 

(ii) 

a credit rating where the entity rated is a State or a regional or local 
authority of a State, 

a credit rating where the issuer of the debt or financial obligation, 
debt security or other financial instrument is a State or a regional or 
local authority of a State; 

(w)  "rating  outlook"  means  an  opinion  regarding  the  likely  direction  of  a 

credit rating over the short and medium term.'; 

(4) 

Article 4 is amended as follows: 

(a) 

in  the  second  subparagraph  of  paragraph  1,  "Community"  is  replaced  by 
"Union"; 

(b) 

in paragraph 2, "Community" is replaced by "Union"; 

(c) 

paragraph 3 is amended as follows: 

(i) 

in the introductory sentence, "Community" is replaced by "Union"; 

(ii)  point (b) is replaced by the following:  

'the  credit  rating  agency  has  verified  and  is  able  to  demonstrate  on  an 
ongoing  basis  to  the  European  Supervisory  Authority  (European 
Securities  and  Markets  Authority)  established  by  Regulation  (EU)  No 
1095/1060 of  the European Parliament and of the Council (*) (ESMA), 
that the conduct of the credit rating activities by the third-country credit 
rating agency resulting in the issuing of the credit rating to be endorsed 
fulfils requirements which are at least as stringent as the requirements set 
out in Articles 6 to 12, with the exception of Articles 6a, 8a, 8b and 11a. 

(*) 

OJ L 331, 15.12.2010, p.84.'; 

(d) 

in paragraph 4, "Community" is replaced by "Union"; 

(5) 

Article 5 is amended as follows: 

(a) 

in paragraph 1, "Community" is replaced by "Union"; 

(b) 

in  paragraph  6,  point  (b)  of  the  second  subparagraph  is  replaced  by  the 
following: 

EN 

24 

   EN 

 
'(b)  credit rating agencies in that third country are subject to legally binding 
rules  which  are  equivalent  to  those  set  out  in  Articles  6  to  12  and 
Annex I, with the exception of Articles 6a, 8a, 8b and 11a; and'; 

(c) 

paragraph 8 is replaced by the following: 

'Articles  20,  23b  and24  shall  apply  to  certified  credit  rating  agencies  and  to 
credit ratings issued by them.'; 

(6) 

the following Articles 5a and 5b are inserted: 

''Article 5a 

Over-reliance on credit ratings by financial institutions 

Credit  institutions,  investment  firms,  insurance  and  reinsurance  undertakings, 
institutions  for  occupational  retirement  provisions,  management  and  investment 
companies,  alternative  investment  fund  managers  and  central  counterparties  as 
defined  in  Regulation  (EU)  No  xx/201x  of  the  European  Parliament  and  of  the 
Council  of  xx  xxx  201x  on  OTC  derivatives,  central  counterparties  and  trade 
repositories9  shall  make  their  own  credit  risk  assessment  and  shall  not  solely  or 
mechanistically rely on credit ratings for assessing the creditworthiness of an entity 
or  financial  instrument.  Competent  authorities  in  charge  of  supervising  these 
undertakings  shall  closely  check  the  adequacy  of  undertakings  credit  assessment 
processes. 

Article 5b 

Reliance on credit ratings by the European Supervisory Authorities and the European 
Systemic Risk Board 

The  European  Supervisory  Authority  (European  Banking  Authority)  established  by 
Regulation  (EU)  No  1093/2010  of  the  European  Parliament  and  of  the  Council  (*) 
(EBA), the European Supervisory Authority (European Insurance and Occupational 
Pensions Authority) established by Regulation (EU) No 1094/2010 of the European 
Parliament  and  of  the  Council  (**)  (EIOPA)  and  ESMA  shall  not  refer  to  credit 
ratings  in  their  guidelines,  recommendations  and  draft  technical  standards  where 
such references have the potential to trigger mechanistic reliance on credit ratings by 
competent authorities or financial market participants. Accordingly, and at the latest 
by  31  December  2013,  EBA,  EIOPA  and  ESMA  shall  review  and  remove  where 
appropriate  all 
in  existing  guidelines  and 
recommendations. 

references 

to  credit 

ratings 

The  European  Systemic  Risk  Board  (ESRB)  established  by  Regulation  (EU) 
No 1092/2010 of the European Parliament and of the Council of 24 November 2010 
on  European  Union  macro-prudential  oversight  of  the  financial  system  and 
establishing a European Systemic Risk Board (***) shall not refer to credit ratings in 
its  warnings  and  recommendations  where  such  references  have  the  potential  to 
trigger mechanistic reliance on credit ratings. 

9 

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25 

   EN 

 
                                                 
* OJ L , , p. . 

** OJ L 331, 15.12.2010, p.48. 

*** OJ L 331, 15.12.2010, p. 1.'; 

(7) 

Article 6(1) is replaced by the following: 

'1.  A credit rating agency shall take all necessary steps to ensure that the issuing of 
a  credit  rating  or  a  rating  outlook  is  not  affected  by  any  existing  or  potential 
conflict  of  interest  or  business  relationship  involving  the  credit  rating  agency 
issuing  the  credit  rating  or  the  rating  outlook,  its  managers,  rating  analysts, 
employees, any other natural person whose services are placed at the disposal 
or  under  the  control  of  the  credit  rating  agency,  or  any  person  directly  or 
indirectly linked to it by control.'; 

(8) 

the following Articles 6a and 6b are inserted: 

'Article 6a 

Conflicts of interest concerning investments in credit rating agencies 

1.  A  shareholder  or  a  member  of  a  credit  rating  agency  holding  at  least  5%  of  the 
capital or the voting rights in that agency shall not 

(a) 

hold  5%  or  more  of  the  capital  of  any  other  credit  rating  agency.  This 
prohibition  does  not  apply  to  holdings  in  diversified  collective  investment 
schemes,  including  managed  funds  such  as  pension  funds  or  life  insurance, 
provided that the holdings in diversified collective investment schemes do not 
put  him  or  her  in  a  position  to  exercise  significant  influence  on  the  business 
activities of those schemes; 

(b)  have the right or the power to exercise 5% or more of the voting rights in any 

other credit rating agency; 

(c) 

have  the  right  or  the  power  to  appoint  or  remove  members  of  the 
administrative,  management  or  supervisory  body  of  any  other  credit  rating 
agency; 

(d)  be  member  of  the  administrative,  management  or  supervisory  body  of  any 

other credit rating agency; 

(e) 

have the power to exercise, or actually exercise, dominant influence or control 
over any other credit rating agency. 

2.  This  Article  does  not  apply  to  investments  in  other  credit  rating  agencies 
belonging to the same group of credit rating agencies. 

Article 6b 

Maximum duration of the contractual relationship with a credit rating agency 

EN 

26 

   EN 

 
1.  Where  a  credit  rating  agency  has  entered  into  a  contract  with  an  issuer  or  its 
related  third  party  for  the  issuing  of  credit  ratings  on  that  issuer,  it  shall  not  issue 
credit ratings on that issuer for a period exceeding three years. 

2.  Where  a  credit  rating  agency  has  entered  into  a  contract  with  an  issuer  or  its 
related  third  party  for  the  issuing  of  credit  ratings  on  the  debt  instruments  of  that 
issuer, the following shall apply: 

(a)  when those credit ratings are issued within a period exceeding an initial period 
of twelve months but shorter than three years, the credit rating agency shall not 
issue any further credit ratings on those debt instruments from the moment that 
ten debt instruments have been rated; 

(b)  when  at  least  ten  credit  ratings  are  issued  within  an  initial  period  of  twelve 
months,  that  credit  rating  agency  shall  not  issue  any  further  credit  ratings  on 
those debt instruments after the end of that period; 

(c)  when less than ten credit ratings are issued, the credit rating agency shall not 
issue  any  further  credit  ratings  on  those  debt  instruments  from  the  moment  a 
period of 3 years have elapsed. 

3. Where an issuer has entered into a contract regarding the same matter with more 
than one credit rating agency, the limitations set out in paragraphs 1 and 2 shall only 
apply  to  one  of  these  agencies.  However,  none  of  these  agencies  shall  have  a 
contractual relationship with the issuer exceeding a period of six years. 

4.  The  credit  rating  agency  referred  to  in  paragraphs  1  to  3  shall  not  enter  into  a 
contract with the issuer or its related third parties for the issuing of credit ratings on 
the  issuer  or  its  debt  instruments  for  a  period  of  four  years  from  the  end  of  the 
maximum duration period of the contractual relationship referred to in paragraphs 1 
to 3. 

The first subparagraph shall also apply to: 

(a) 

(b) 

(c) 

a credit rating agency belonging to the same group of credit rating agencies as 
the credit rating agency referred to in paragraphs 1 and 2; 

a  credit  rating  agency  which  is  a  shareholder  or  member  of  the  credit  rating 
agency referred to in paragraphs 1 and 2; 

a credit rating agency in which the credit rating agency referred to in paragraph 
1 and 2 is a shareholder or member. 

5. Paragraphs 1 to 4shall not apply to sovereign ratings. 

6.  Where  following  the  end  of  the  maximum  duration  period  of  the  contractual 
relationship,  pursuant  to  the  rules  in  paragraphs  1  and  2,  a  credit  rating  agency  is 
replaced  by  another  credit  rating  agency,  the  exiting  credit  rating  agency  shall 
provide  the  incoming  credit  rating  agency  with  a  handover  file.  Such  file  shall 
include  relevant  information  concerning  the  rated  entity  and  the  rated  debt 
instruments  as  may  reasonably  be  necessary  to  ensure  the  comparability  with  the 
ratings carried out by the exiting credit rating agency. 

EN 

27 

   EN 

 
The  exiting  rating  agency  shall  be  able  to  demonstrate  to  ESMA  that  such 
information has been provided to the incoming credit rating agency. 

7.  ESMA  shall  develop  draft  regulatory  technical  standards  to  specify  technical 
requirements on the content of the handover file referred to in paragraph 5. 

ESMA shall submit those draft regulatory technical standards to the Commission by 
1 January 2013. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred to in this paragraph in accordance with the procedure laid down in Articles 
10 to 14 of Regulation (EU) No 1095/2010. 

(9) 

Article 7(5) is replaced by the following: 

'5.  Compensation  and  performance  evaluation  of  rating  analysts  and  persons 
approving the credit ratings or rating outlooks shall not be contingent on the amount 
of revenue that the credit rating agency derives from the rated entities or related third 
parties.'; 

(10) 

Article 8 is amended as follows: 

(a) 

paragraph 2 is replaced by the following: 

A  credit  rating  agency  shall  adopt,  implement  and  enforce  adequate 
'2. 
measures to ensure that the credit ratings and the rating outlooks it issues are 
based  on  a  thorough  analysis  of  all  the  information  that  is  available  to  it  and 
that is relevant to its analysis according to the applicable rating methodologies. 
It shall adopt all necessary measures so that the information it uses in assigning 
credit  ratings  and  rating  outlooks  is  of  sufficient  quality  and  from  reliable 
sources.'; 

(b) 

in paragraph 5, a second subparagraph is added: 

'Sovereign ratings shall be reviewed at least every six months.'; 

(c) 

the following paragraph 5a is inserted: 

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

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

(d)  paragraph 6 is amended as follows: 

(i) 

the introductory sentence is replaced by the following: 

EN 

28 

   EN 

 
'6. When methodologies, models or key assumptions used in credit rating 
activities  are  changed  following  the  decision  of  ESMA  referred  to  in 
paragraph 3 of Article 22a, a credit rating agency shall:'; 

(ii) 

the following point (aa) is inserted: 

'(aa)  immediately publish on its website the new methodologies together 

with a detailed explanation thereof;'; 

(e) 

the following paragraph 7 is added: 

'7. Where a credit rating agency becomes aware of errors in its methodologies 
or in their application it shall immediately: 

(a) 

notify those errors to ESMA and all affected rated entities; 

(b)  publish those errors on its website; 

(c) 

correct those errors in the methodologies; and 

(d) 

apply the measures referred to in points (a) to (c) of paragraph 6.'; 

(11) 

the following Articles 8a and 8b are inserted: 

'Article 8a 

Information on structured finance instruments 

1.  The  issuer,  the  originator  and  the  sponsor  of  a  structured  finance  instrument 
established in the Union shall disclose to the public, in accordance with paragraph 4, 
information on the credit quality and performance of the individual underlying assets 
of  the  structured  finance  instrument,  the  structure  of  the  securitization  transaction, 
the cash flows and any collateral supporting a securitisation exposure as well as any 
information  that  is  necessary  to  conduct  comprehensive  and  well  informed  stress 
tests on the cash flows and collateral values supporting the underlying exposures. 

2. The obligation to disclose information according to paragraph 1 shall not extend to 
the  provision of  such  information  that would breach statutory provisions governing 
the protection of confidentiality of information sources or the processing of personal 
data. 

3. ESMA shall develop draft regulatory technical standards to specify: 

(a) 

the  information  that  the  persons  referred  to  in  paragraph  1  shall  disclose  in 
order to comply with the obligation resulting from paragraph 1; 

(b) 

the frequency with which such information shall be updated; 

(c) 

the  presentation  of  the  information  by  means  of  a  standardised  disclosure 
template. 

ESMA shall submit those draft regulatory technical standards to the Commission by 
1 January 2013. 

EN 

29 

   EN 

 
Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred to in the first subparagraph in accordance with the procedure laid down in 
Articles 10 to 14 of Regulation (EU) No 1095/2010. 

4. ESMA shall set up a webpage for the publication of the information on structured 
finance instruments in accordance with paragraph 1. 

Article 8b 

Double credit rating of structured finance instruments 

1.  Where  an  issuer  or  a  related  third  party  intends  to  solicit  a  credit  rating  of  a 
structured  finance  instrument,  it  shall  mandate  at  least  two  credit  rating  agencies. 
Each credit rating agency shall provide its own independent credit rating. 

2. The credit rating agencies mandated by an issuer or its related third parties referred 
in paragraph 1 shall comply with the following conditions: 

(a) 

the  credit  rating  agencies  shall  not  belong  to  the  same  group  of  credit  rating 
agencies; 

(b)  none of the credit rating agencies shall be a shareholder or member of any of 

the other credit rating agencies; 

(c) 

none of the credit rating agencies shall have the right or the power to exercise 
voting rights in any of the other credit rating agencies; 

(d)  none of the credit rating agencies shall have the right or the power to appoint or 
remove  members  of  the  administrative,  management  or  supervisory  body  of 
any of the other credit rating agencies; 

(e) 

(f) 

none of the members of the administrative, management or supervisory body in 
a credit rating agency is a member of the of the administrative, management or 
supervisory body of any of the other credit rating agencies; 

none of the credit rating agencies shall have the power to exercise, or actually 
exercises,  dominant  influence  or  control  over  any  of  the  other  credit  rating 
agencies.'; 

(12) 

Article 10(1) and (2) are replaced by the following: 

'1. A credit rating agency shall disclose any credit rating or rating outlook, as well as 
any decision to discontinue a credit rating, on a non-selective basis and in a timely 
manner.  In  the  event  of  a  decision  to  discontinue  a  credit  rating,  the  information 
disclosed shall include full reasons for the decision. 

The  first  subparagraph  shall  also  apply  to  credit  ratings  that  are  distributed  by 
subscription. 

2.  Credit  rating  agencies  shall  ensure  that  credit  ratings  and  rating  outlooks  are 
presented and processed in accordance with the requirements set out in Section D of 
Annex I. '; 

EN 

30 

   EN 

 
(13) 

Article 11(2) is replaced by the following: 

'2.  Any  registered  and  any  certified  credit  rating  agency  shall  make  available  in  a 
central  repository  established  by  ESMA  information  on  its  historical  performance 
data  including  the  ratings  transition  frequency  and  information  about  credit  ratings 
issued  in  the  past  and  on  their  changes.  A  credit  rating  agency  shall  provide 
information to that repository on a standard form as provided for by ESMA. ESMA 
shall  make  that  information  accessible  to  the  public  and  shall  publish  summary 
information on the main developments observed on an annual basis.'; 

(14) 

the following Article 11a is inserted: 

'Article 11a 

European Rating Index 

1. Any registered and any certified credit rating agency shall, when issuing a credit 
rating or a rating outlook, submit to ESMA rating information, including the rating 
and  outlook  of  the  rated  instrument,  information  on  the  type  of  rating,  the  type  of 
rating action, and date and hour of publication. The rating submitted shall be based 
upon the harmonised rating scale referred to in point (a) of Article 21(4a). 

2.  ESMA  shall  establish  a  European  Rating  Index  which  will  include  all  credit 
ratings submitted to ESMA pursuant to paragraph 1 and an aggregated rating index 
for  any  rated  debt  instrument.  The  index  and  individual  credit  ratings  shall  be 
published on ESMA’s website.'; 

(15) 

in paragraph 1 of Article 14, "Community" is replaced by "Union"; 

(16) 

Article 18(2) is replaced by the following: 

"2. ESMA shall communicate to the Commission, to EBA, to EIOPA, the competent 
authorities and the sectoral competent authorities, any decision under Articles 16, 17 
or 20." 

(17) 

Article 19(1) is replaced by the following: 

'1.  ESMA  shall  charge  fees  to  the  credit  rating  agencies  in  accordance  with  this 
Regulation  and  the  regulation  on  fees  referred  to  in  paragraph  2.  Those  fees  shall 
fully  cover  ESMA's  necessary  expenditure  relating  to  the  registration,  certification 
and supervision of credit rating agencies and the reimbursement of any costs that the 
competent  authorities  may  incur  carrying  out  work  pursuant  to  this  Regulation,  in 
particular as a result of any delegation of tasks in accordance with Article 30'; 

(18) 

Article 21 is amended as follows: 

(a) 

paragraph 4 is amended as follows: 

(i) 

the introductory sentence is replaced by the following:  

'ESMA shall develop draft regulatory technical standards to specify:' 

EN 

31 

   EN 

 
(ii)  point (e) is replaced by the following: 

'(e) 

the  content  and  format  of  ratings  data  periodic  reporting  to  be 
requested  from  registered  and  certified  credit  rating  agencies  for 
the purpose of ongoing supervision by ESMA.' 

(iii) 

the following subparagraphs are added after point (e): 

'ESMA  shall  submit  those  draft  regulatory  technical  standards  to  the 
Commission by 1 January 2012. 

Power is delegated to the Commission to adopt the regulatory technical 
standards  referred  to  in  the  first  subparagraph  in  accordance  with  the 
procedure  laid  down  in  Articles  10  to  14  of  Regulation  (EU) 
No 1095/2010.' 

(b) 

the following paragraph 4a is inserted: 

'4a. ESMA shall develop draft regulatory technical standards to specify: 

(a) 

(b) 

(c) 

a harmonised standard rating scale to be used, in accordance with Article 
11a,  by  registered  and  certified  credit  rating  agencies,  which  will  be 
based  upon  the  metric  to  measure  credit  risk  and  the  number  of  rating 
categories and cut off values for each rating category;  

the  content  and  the  presentation  of  the  information,  including  structure, 
format,  method  and  timing  of  reporting  that  credit  rating  agencies  shall 
disclose to ESMA in accordance with Article 11a (1); and 

the  content  and  format  of  periodic  reporting  on  fees  charged  by  credit 
rating  agencies  to  be  requested  from  the  credit  rating  agencies  for  the 
purpose of ongoing supervision by ESMA. 

ESMA  shall  submit  those  draft  regulatory  technical  standards  to  the 
Commission by 1 January 2013. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical 
standards referred to in the first subparagraph in accordance with the procedure 
laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010.'; 

(c) 

a new subparagraph is added to paragraph 5: 

'That report shall also assess the market concentration levels, the risks arising 
from high concentration, and the impact on the overall stability of the financial 
sector.'; 

(19) 

Article 22a is amended as follows: 

(a) 

the title of the Article is replaced by the following: 

'Examination of rating methodologies'; 

EN 

32 

   EN 

 
(b) 

the following paragraph 3 is added: 

'3. ESMA shall also verify that any intended changes to rating methodologies 
notified by a credit rating agency in accordance with Article 8(5a) comply with 
the  criteria  laid  down  in  Article 8(3)  as  specified  in  the  regulatory  technical 
standard referred to in point (d) of Article 21(4). The credit rating agency may 
only  apply  the  new  rating  methodology  after  ESMA  has  confirmed  the 
methodology's compliance with Article 8(3). 

[ESMA  shall  be  able  to  exercise  the  powers  referred  to  in  the  first 
subparagraph  from  the  date  of  entry  into  force  of  the  regulatory  technical 
standard referred to in point (d) of Article 21(4) of Regulation 1060/2009.] 

Where the regulatory technical standard referred to in point (d) of Article 21(4) 
is not in force, ESMA shall not be able to exercise the power referred to in the 
first subparagraph.'; 

(20) 

The following Title IIIa is inserted after Article 35: 

'TITLE IIIa 

CIVIL LIABILITY OF CREDIT RATING AGENCIES 

Article 35a 

Civil liability 

1. Where a credit rating agency has committed intentionally or with gross negligence 
any of the  infringements  listed  in  Annex III having  an  impact  on  a  credit  rating on 
which  an  investor  has  relied  when  purchasing  a  rated  instrument,  such  an  investor 
may bring an action against that credit rating agency for any damage caused to that 
investor. 

2.  An  infringement  shall  be  considered  to  have  an  impact  on  a  credit  rating  if  the 
credit  rating  that  has  been  issued  by  the  credit  rating  agency  is  different  from  the 
rating that would have been issued had the credit rating agency not committed that 
infringement. 

3.  A  credit  rating  agency  acts  with  gross  negligence  if  it  seriously  neglects  duties 
imposed upon it by this Regulation. 

4.  Where  an  investor  establishes  facts  from  which  it  may  be  inferred  that  a  credit 
rating agency has committed any of the infringements listed in Annex III, it will be 
for  the  credit  rating  agency  to  prove  that it  has  not  committed  that  infringement  or 
that that infringement did not have an impact on the issued credit rating. 

5.  The  civil  liability  referred  to  in  paragraph  1  shall  not  be  excluded  or  limited  in 
advance by agreement. Any clause in such agreements excluding or limiting the civil 
liability in advance shall be deemed null and void.'; 

(21) 

Article 36a is amended as follows: 

EN 

33 

   EN 

 
(a) 

in paragraph 2, points (a) to (e) are replaced by the following: 

'(a) 

(b) 

(c) 

(d) 

(e) 

for infringements referred to in points 1 to 5, 11 to 15, 19, 20, 23, 26a to 
26d, 28, 30, 32, 33, 35, 41, 43, 50 and 51 of Section I of Annex III, the 
fines  shall  amount  to  at  least  EUR  500  000  and  shall  not  exceed 
EUR 750 000; 

for the infringements referred to in points 6 to 8, 16 to 18, 21, 22, 24, 25, 
27,  29,  31,  34,  37  to  40,  42,  45  to  49a,  52  and  54  of  Section  I  of 
Annex III, the fines shall amount to at least EUR 300 000 and shall not 
exceed EUR 450 000; 

for the infringements referred to in points 9, 10, 26, 26e, 36, 44 and 53 of 
Section  I  of  Annex  III,  the  fines  shall  amount  to  at  least  EUR  100  000 
and shall not exceed EUR 200 000; 

for the infringements referred to in points 1, 6, 7 and 8 and 9 of Section II 
of Annex III, the fines shall amount to at least EUR 50 000 and shall not 
exceed EUR 150 000; 

for  the  infringements  referred  to  in  points  2,  3a,  3b,  4,  4a  and  5  of 
Section II of Annex III, the fines shall amount to at least EUR 25 000 and 
shall not exceed EUR 75 000;'; 

(b) 

in paragraph 2, points (g) and (h) are replaced by the following: 

'(g) 

(h) 

for the infringements referred to in points 1 to 3a and 11 of Section III of 
Annex III, the fines shall amount to at least EUR 150 000 and shall not 
exceed EUR 300 000; 

for  the  infringements  referred  to  in  points  4,  4a,  4b,  4c,  6,  8  and  10  of 
Section III of Annex III, the fines shall amount to at least EUR 90 000 
and shall not exceed EUR 200 000;'; 

(22) 

in Article 38a, paragraph 1 is replaced by the following: 

'1. The power to adopt delegated acts referred to in the third subparagraph of Article 
5(6),  Article  19(2),  Article  23e(7)and  Article  37  shall  be  conferred  on  the 
Commission  for  a  period  of  four  years  from  1  June  2011.  The  Commission  shall 
draw up a report in respect of the delegated power at the latest six months before the 
end of the four-year period. The delegation of power shall be automatically extended 
for  periods  of  an  identical  duration,  unless  the  European  Parliament  or  the  Council 
revokes it in accordance with Article 38b.'; 

(23) 

in Article 38b, paragraph 1 is replaced by the following: 

'1.  the  delegation  of  power  referred  to  in  the  third  subparagraph  of  Article  5(6), 
Article  19(2),  Article  23e(7)and  Article  37  may  be  revoked  at  any  time  by  the 
European Parliament or by the Council.'; 

(24) 

Article 39 is amended as follows: 

EN 

34 

   EN 

 
(a) 

paragraph 1 is replaced by the following: 

'By  7  December  2012,  the  Commission  shall  make  an  assessment  of  the 
application of this Regulation, including an assessment of the reliance on credit 
ratings  in  the  Union,  the  impact  on  the  level  of  concentration  in  the  credit 
rating  market,  the  cost  and  benefits  of  impacts  of  the  Regulation  and  of  the 
appropriateness  of  the  remuneration  of  the  credit  rating  agency  by  the  rated 
entity  (issuer-pays  model),  and  submit  a  report  thereon  to  the  European 
Parliament and the Council'; 

(b) 

the following paragraph 4 is added: 

'4. By 1 July 2015, the Commission shall assess the situation in the credit rating 
market,  in  particular  the  availability  of  sufficient  choice  in  order  to  comply 
with  the  requirements  set  out  in  Articles  6b  and  8b.  The  review  shall  also 
assess the need to extend the scope of the obligations in Article 8a to include 
other financial products, including covered bonds'; 

(25) 

Annex I is amended in accordance with Annex I to this Regulation; 

(26) 

Annex II is amended in accordance with Annex II to this Regulation; 

(27) 

Annex III is amended in accordance with Annex III to this Regulation. 

Article 2 
Entry into force 

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

However, points (7), (9), (10), (12), (13) and (25) of Article 1 of this Regulation shall apply 
from 1 June 2014 for the purposes of the assessment referred to in Article 4(3)(b) and in point 
(b)  of  the  second  subparagraph  of  Article  5(6)  of  Regulation  (EC)  No 1060/2009  as  to 
whether  third  country  requirements  are  at  least  as  stringent  as  the  requirements  set  out  in 
Articles 6 to 12 of that Regulation. 

Point (8) of Article 1 of this Regulation in relation to Article 6a(1)(a) of Regulation (EC) No 
1060/2009  shall  apply  from  [1  year  after  the  entry  into  force  of  this  Regulation]  as  regards 
any shareholder or member of a credit rating agency which on 15 November 2011 held 5% or 
more of the capital of more than one credit rating agency. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

EN 

35 

   EN 

 
ANNEX I 

Annex I to Regulation (EC) 1060/2009 is amended as follows: 

(1) 

Section B is amended as follows: 

(a) 

point 1 is replaced by the following: 

'1. 
A  credit  rating  agency  shall  identify,  eliminate  or  manage  and  disclose, 
clearly  and  prominently,  any  actual  or  potential  conflicts  of  interest  that  may 
influence the analyses and judgments of its rating analysts, employees, or any other 
natural person whose services are placed at the disposal or under the control of the 
credit  rating  agency  and  who  are  directly  involved  in  credit  rating  activities  and 
persons approving credit ratings and rating outlooks.'; 

(b)  point 3 is amended as follows: 

(i) 

the introductory sentence of the first subparagraph is replaced by the following: 

'3. 
A  credit  rating  agency  shall  not  issue  a  credit  rating  or  a  rating 
outlook  in  any  of  the  following  circumstances,  or  shall,  in  the  case  of  an 
existing credit rating or rating outlook, immediately disclose where the credit 
rating or rating outlook is potentially affected by the following:' 

(ii) 

the following point (aa) is inserted after point (a): 

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

(iii) 

the following point (ba) is inserted after point (b): 

'(ba)  the credit rating is issued with respect to a rated entity or a related third 
party which directly or indirectly holds 10% or more of either the capital 
or the voting rights of that credit rating agency;'; 

(iv) 

the following point (ca) is inserted after point (c): 

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

(v) 

the second subparagraph is replaced by the following: 

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36 

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'A credit rating agency shall also immediately assess whether there are grounds 
for re-rating or withdrawing the existing credit rating or credit outlook.'; 

(c) 

the following point 3a is inserted: 

A  credit  rating  agency  shall  ensure  that  fees  charged  to  its  clients  for  the 
'3a. 
provision  of  rating  and  ancillary  services  are  not  discriminatory  and  are  based  on 
actual  costs.  Fees  charged  for  rating  services  shall  not  depend  on  the  level  of  the 
credit rating issued by the credit rating agency or on any other result or outcome of 
the work performed.'; 

(d) 

in point 4, the first subparagraph is replaced by the following: 

Neither a credit rating agency nor any person holding, directly or indirectly, 
'4. 
at least 5% of the capital or voting rights of the credit rating agency or otherwise in a 
position to significantly influence the business activities of the credit rating agency 
shall  provide  consultancy  or  advisory  services  to  the  rated  entity  or  a  related  third 
party regarding the corporate or legal structure, assets, liabilities or activities of that 
rated entity or related third party.'; 

(e) 

point 7 is amended as follows: 

(i) 

point (a) is replaced by the following: 

'(a) 

for  each  credit  rating  and  rating  outlook  decision,  the  identity  of  the 
rating  analysts  participating  in  the  determination  of  the  credit  rating  or 
rating outlook, the identity of the persons who have approved the credit 
rating or rating outlook, information as to whether the credit rating was 
solicited or unsolicited, and the date on which the credit rating action was 
taken;'; 

(ii)  point (d) is replaced by the following: 

'(d) 

the  records  documenting  the  established  procedures  and  methodologies 
used  by  the  credit  rating  agency  to  determine  credit  ratings  and  rating 
outlooks;'; 

(iii)  point (e) is replaced by the following: 

'(e) 

the internal records and files, including non-public information and work 
papers,  used  to  form  the  basis  of  any  credit  rating  and  rating  outlook 
decision taken;'; 

(2) 

Section C is amended as follows: 

(a) 

in point 2, the introductory sentence is replaced by the following: 

No person referred to in point 1 shall participate in or otherwise influence the 
'2. 
determination of a credit rating or rating outlook of any particular rated entity if that 
person:'; 

(b) 

in point 3, point (b) is replaced by the following: 

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'(b)  do  not  disclose  any  information  about  credit  ratings,  possible  future  credit 
ratings or rating outlooks of the credit rating agency, except to the rated entity 
or its related third party;'; 

(c) 

point 7 is replaced by the following: 

'7. 
A person referred to in point 1 shall not take up a key management position 
with the rated entity or its related third party within six months of the credit rating or 
rating outlook.' 

(d)  point 8 is replaced by the following: 

'8. 

(a) 

(b) 

For the purposes of Article 7(4): 

credit  rating  agencies  shall  ensure  that  the  lead  rating  analysts  shall  not  be 
involved in credit rating activities related to the same rated entity or its related 
third parties for a period exceeding four years; 

credit  rating  agencies  others  than  those  mandated  by  an  issuer  or  its  related 
third party and all credit rating agencies issuing sovereign ratings shall ensure 
that: 

(i) 

(ii) 

the rating analysts shall not be involved in credit rating activities related 
to the same rated entity or its related third parties for a period exceeding 
five years;  

the persons approving credit ratings shall not be involved in credit rating 
activities related to the same rated entity or its related third parties for a 
period exceeding seven years. 

The  persons  referred  to  points  (a)  and  (b)  of  the  first  subparagraph  shall  not  be 
involved  in  credit  rating  activities  related  to  the  rated  entity  or  related  third  parties 
referred  to  in  those  points  within  two  years  of  end  of  the  periods  set  out  in  those 
points.'; 

(3) 

the title of Section D is replaced by the following: 

'Rules on the presentation of credit ratings and rating outlooks'; 

(4) 

Part I of Section D is amended as follows: 

(a) 

point 1 is replaced by the following: 

A credit rating agency shall ensure that any credit rating and rating outlook 
'1. 
states clearly and prominently the  name and job title of the lead rating analyst in a 
given  credit  rating  activity  and  the  name  and  position  of  the  person  primarily 
responsible for approving the credit rating or rating outlook.'; 

(b)  point 2 is amended as follows: 

(i) 

point (a) is replaced by the following: 

'(a)  all  substantially  material  sources,  including  the  rated  entity  or,  where 
appropriate,  a  related  third  party,  which  were  used  to  prepare  the  credit 

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38 

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rating  or  rating  outlook  are  indicated  together  with  an  indication  as  to 
whether the credit rating or rating outlook has been disclosed to that rated 
entity  or  its  related  third  party  and  amended  following  that  disclosure 
before being issued;'; 

(ii)  points (d) and (e) are replaced by the following: 

'(d) 

(e) 

the date at which the credit rating was first released for distribution and 
when  it  was  last  updated  including  any  rating  outlooks  is  indicated 
clearly and prominently; 

information  is  given  as  to  whether  the  credit  rating  concerns  a  newly 
issued financial instrument and whether the credit rating agency is rating 
the financial instrument for the first time; and'; 

(iii) 

the following point (f) is added: 

'(f) 

in case of a rating outlook, the time horizon is provided during which a 
change of the credit rating is expected.'; 

(c) 

the following point 2a is inserted: 

limits  and  uncertainties  surrounding 

'2a. 
A  credit  rating  agency  shall  accompany  the  disclosure  of  methodologies, 
models  and  key  rating  assumptions  with  guidance  which  explains  assumptions, 
rating 
parameters, 
methodologies  used  in  credit  ratings,  including  simulations  of  stress  scenarios 
undertaken by the agency when establishing the ratings, credit rating information on 
cash-flow  analysis  it  has  performed  or  is  relying  upon  and,  where  applicable,  an 
indication of any expected change in the credit rating. Such guidance shall be clear 
and easily comprehensible.'; 

the  models  and 

(d)  point 3 is replaced by the following: 

'3. 
The credit rating agency shall inform the rated entity during working hours of 
the rated entity and at least a full working day before publication of the credit rating 
or the rating outlook. This information shall include the principal grounds on which 
the  rating  or  outlook  is  based  in  order  to  give  the  entity  an  opportunity  to  draw 
attention of the credit rating agency to any factual errors.'; 

(e) 

the first subparagraph of point 4 is replaced by the following: 

'4. 
A  credit  rating  agency  shall  state  clearly  and  prominently  when  disclosing 
credit ratings or rating outlooks any attributes and limitations of the credit rating or 
rating  outlook.  In  particular,  a  credit  rating  agency  shall  prominently  state  when 
disclosing  any  credit  rating  or  rating  outlook  whether  it  considers  satisfactory  the 
quality of information available on the rated entity and to what extent it has verified 
information  provided  to  it  by  the  rated  entity  or  its  related  third  party.  If  a  credit 
rating  or  an  outlook  involves  a  type  of  entity  or  financial  instrument  for  which 
historical  data  is  limited,  the  credit  rating  agency  shall  make  clear,  in  a  prominent 
place, such limitations.'; 

(f) 

the first subparagraph of point 5 is replaced by the following: 

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'5. 
When  announcing  a  credit  rating  or a  rating  outlook,  a  credit  rating  agency 
shall  explain  in  its  press  releases  or  reports  the  key  elements  underlying  the  credit 
rating or the rating outlook.'; 

(g) 

the following point 6 is added: 

'6. 
A  credit  rating  agency  shall  disclose  on  its  website,  on  an  ongoing  basis, 
information  about  all  entities  or  debt  instruments  submitted  to  it  for  their  initial 
review  or  for  preliminary  rating.  Such  disclosure  shall  be  made  whether  or  not 
issuers contract with the credit rating agency for a final rating.'; 

(5) 

(6) 

points 3 and 4 of Part II of Section D are deleted; 

in Section D, the following Part III is added: 

'III. Additional obligations in relation to sovereign ratings  

1. Where a credit rating agency issues a sovereign rating or a related rating outlook, it shall 
accompany  the  rating  or  rating  outlook  with  a  detailed  research  report  explaining  all  the 
assumptions, parameters, limits and uncertainties and any other element taken into account 
in determining that rating or outlook. That report shall be clear and easily comprehensible. 

2. A research report accompanying a change compared to the previous sovereign rating or 
related rating outlook shall include the following elements: 

(a)  A  detailed  evaluation  of  the  changes  of  the  quantitative  assumption  justifying  the 
reasons  for  the  rating  change  and  their  relative  weight.  The  detailed  evaluation 
should  include  a  description  of  the  following  elements:  per  capita  income,  GDP 
Growth,  inflation,  fiscal  balance,  external  balance,  external  debt,  an  indicator  for 
economic development,  an  indicator for default and  any other relevant  factor taken 
into account. This should be complemented with the relative weight of each factor; 

(b)  A  detailed  evaluation  of  the  changes  of  the  qualitative  assumption  justifying  the 

reasons for the rating change and their relative weight; 

(c)  A  detailed  description  of  the  risks,  limits  and  uncertainties  related  to  the  rating 

change; and 

(d)  A  summary  of  meeting  minutes  of  the  rating  committee  that  decided  of  the  rating 

change. 

3. Where a credit rating agency issues sovereign ratings or related rating outlooks, it shall 
publish  these  ratings  or  outlooks  only  after  the  close  of  business  of  trading  venues 
established in the Union and at least one hour before their opening. Point 3 of Section D.I. 
remains unaffected.'; 

(7) 

Part I of Section E is amended as follows:  

(a) 

point 3 is replaced by the following: 

the  policy  of  the  credit  rating  agency  concerning  the  publication  of  credit 

'3. 
ratings and other related communications including rating outlooks;'; 

(b)  point 6 is replaced by the following: 

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'6. 

any material modification to its systems, resources or procedures; 

(8) 

the first subparagraph of point 2 of Part II of Section E is amended as follows: 

(a) 

point (a) is replaced by the following: 

'(a) 

list  of  fees  charged  to  each  client  for  individual  rating  and  any  ancillary 
services;' 

(b) 

the following point (aa) is inserted: 

'(aa)  its  pricing  policy,  including  the  fees  structure  and  pricing  criteria  in 

relation to ratings for different asset classes;'; 

(9) 

Part III of Section E is amended as follows: 

(a) 

point 3 is replaced by the following: 

'3. 
statistics  on  the  allocation  of  its  staff  to  new  credit  ratings,  credit  rating 
reviews,  methodology  or  model  appraisal  and  senior  management,  and  on  the 
allocation  of  staff  to  rating  activities  with  regard  to  the  different  asset  classes 
(corporate - structured finance - sovereign);'; 

(b)  point 7 is replaced by the following: 

'7.  financial  information  on  the  revenue  of  the  credit  rating  agency,  including  total 
turnover,  divided  into  fees  from  credit  rating  and  ancillary  services  with  a 
comprehensive description of each, including the revenues generated from ancillary 
services provided to clients of rating services and the allocation of fees to ratings of 
different asset classes. Information on total turnover shall also include a geographical 
allocation  of  that  turnover  to  revenues  generated  in  the  Union  and  revenues 
worldwide;'. 

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In point 1 of Annex II to Regulation (EC) 1060/2009, "Community" is replaced by "Union". 

ANNEX II 

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ANNEX III 

Annex III to Regulation (EC) 1060/2009 is amended as follows: 

(1) 

Part I is amended as follows: 

(a) 

points 19, 20 and 21 are replaced by the following: 

'19.  The  credit  rating  agency  infringes  Article  6(2),  in  conjunction  with  point  1  of 
Section  B  of  Annex  I,  by  not  identifying,  eliminating  or  managing  and  disclosing, 
clearly or prominently, any actual or potential conflicts of interest that may influence 
the  analyses  or  judgments  of  its  rating  analysts,  employees,  or  any  other  natural 
person  whose  services  are  placed  at  the  disposal  or  under  the  control  of  the  credit 
rating  agency  and  who  are  directly  involved  in  the  issuing  of  a  credit  rating  or 
persons approving credit ratings and rating outlooks.  

20.  The  credit  rating  agency  infringes  Article  6(2),  in  conjunction  with  the  first 
paragraph  of  point  3  of  Section  B  of  Annex  I,  by  issuing  a  credit  rating  or  rating 
outlook in any of the circumstances set out in the first paragraph of that point or, in 
the  case  of  an  existing  credit  rating,  by  not  disclosing  immediately  that  the  credit 
rating or rating outlook is potentially affected by those circumstances.  

21.  The  credit  rating  agency  infringes  Article  6(2),  in  conjunction  with  the  second 
paragraph of point 3 of Section B of Annex I, by not immediately assessing whether 
there  are  grounds  for  re-rating  or  withdrawing  an  existing  credit  rating  or  rating 
outlook.'; 

(b) 

the following new points 26a to 26f are inserted: 

'26a.  The  credit  rating  agency  which  entered  into  a  contract  with  an  issuer  or  its 
related  third  party  for  the  issuing  of  credit  ratings  on  the  issuer  infringes  Article 
6b(1) by issuing credit ratings on this issuer for a period exceeding three years. 

26b.  The  credit  rating  agency  which  entered  into  a  contract  with  an  issuer  or  its 
related  third  party  for  the  issuing  of  credit  ratings  on  the  debt  instruments  of  the 
issuer infringes Article 6b(2) by issuing credit ratings on at least ten debt instruments 
of the same issuer during a period exceeding 12 months or by issuing credit ratings 
on the debt instruments of the issuer for a period exceeding 3 years.  

26c. The credit rating agency which entered into a contract with an issuer alongside 
at least one more credit rating agency infringes Article 6b(3) by having a contractual 
relationship with the issuer for a period exceeding six years. 

26d.  The  credit  rating  agency  which  entered  into  a  contract  with  an  issuer  or  its 
related third party for the issuing of credit ratings on the issuer or its debt instruments 
of the issuer infringes Article 6b(4) by not respecting the prohibition to issue credit 
ratings on the issuer or its debt instruments for a period of four years from the end of 
the  maximum  duration  period  of  the  contractual  relationship  referred  to  in 
paragraphs1 to 3 of Article 6b. 

26e.  The  credit  rating  agency  which  entered  into  a  contract  with  an  issuer  or  its 
related third party for the issuing of credit ratings on the issuer or its debt instruments 
of  the  issuer  infringes  Article  6b(6)  by  not  making  available  at  the  end  of  the 

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maximum duration period of the contractual relationship with the issuer or its related 
third party a handover file with the required information to an incoming credit rating 
agency contracted by the issuer or its related third party to issue credit ratings on this 
issuer or its debt instruments.'; 

(c) 

point 33 is replaced by the following: 

'The  credit  rating  agency  infringes  Article  7(3),  in  conjunction  with  point  2  of 
Section  C  of  Annex  I,  by  not  ensuring  that  a  person  referred  to  in  point  1  of  that 
Section  does  not  participate  in  or  otherwise  influence  the  determination  of  a  credit 
rating or rating outlook as set out in point 2 of that Section.'; 

(d)  point 36 is replaced by the following: 

'36.  The  credit  rating  agency  infringes  Article  7(3),  in  conjunction  with  point  7  of 
Section  C  of  Annex  I,  by  not  ensuring  that  a  person  referred  to  in  point  1  of  that 
Section  does  not  take  up  a  key  management  position  with  the  rated  entity  or  its 
related third party within six months of the credit rating or rating outlook.'; 

(e) 

points 38, 39 and 40 are replaced by the following: 

'38. The credit rating agency infringes Article 7(4), in conjunction with point (i) of 
point (b) of the first paragraph of point 8 Section C of Annex I, by not ensuring that, 
where it provides unsolicited credit ratings, a rating analyst is not involved in credit 
rating activities related to the same rated entity or its related third parties for a period 
exceeding five years. 

39. The credit rating agency infringes Article 7(4), in conjunction with point (ii) of 
point (b) of the first paragraph of point 8 of Section C of Annex I, by not ensuring 
that, where it provides unsolicited credit ratings, a person approving credit ratings is 
not  involved  in  credit  rating  activities  related  to  the  same  rated  entity  or  its  related 
third parties for a period exceeding seven years. 

40.  The  credit  rating  agency  infringes  Article  7(4),  in  conjunction  with  the  second 
paragraph of point 8 of Section C of Annex I, by not ensuring that a person referred 
to in points (a) and (b) of the first paragraph of that point is not  involved in credit 
rating activities related to the rated entity or related third parties referred to in those 
points within two years of the end of the periods set out in those points.'; 

(f) 

point 42 is replaced by the following: 

'The  credit  rating  agency  infringes  Article  8(2)  by  not  adopting,  implementing  or 
enforcing  adequate  measures  to  ensure  that  the  credit  ratings  and  rating  outlooks  it 
issues are based on a thorough analysis of all the information that is available to it 
and that is relevant to its analysis according to its rating methodologies.';  

(g)  point 46 is replaced by the following: 

'The  credit  rating  agency  infringes  the  first  sentence  of  the  first  subparagraph  of 
Article 8(5) by not monitoring its credit ratings other than sovereign ratings or by not 
reviewing  its  credit  ratings  other  than  sovereign  ratings  or  methodologies  on  an 
ongoing basis and at least annually.' 

(h) 

the following point 46a is inserted: 

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'46a.  The credit rating agency infringes the second subparagraph of Article 8(5) in 
conjunction  with  the  first  sentence  of  the  first  subparagraph  of  Article  8(5)  by  not 
monitoring  its  sovereign  ratings  or  by  not  reviewing  its  sovereign  ratings  on  an 
ongoing basis and at least every 6 months.'; 

(i) 

the following point 49a is inserted: 

'49a. The credit rating agency infringes point (c) of Article 8(7) in conjunction with 
point  (c)  of  Article  8(6)  by  not  re-  rating  a  credit  rating  where  errors  on  the 
methodologies or in their application affected the issuance of that credit rating.'; 

(2) 

Part II is amended as follows: 

(a) 

the following points 3a and 3b are inserted: 

'3a.  The  credit  rating  agency  infringes  the  second  subparagraph  of  Article  8(5a)  by 
not notifying ESMA of the intended changes to the rating methodologies, models or 
key assumptions or of the proposed new methodologies, models or key assumptions. 

3b.  The  credit  rating  agency  infringes  point  (a)  of  Article  8(7)  by  not  notifying 
ESMA of discovered errors in its methodologies or in their application.'; 

(b) 

the following point 4a is inserted: 

'4a.  The  credit  rating  agency  infringes  Article  11a(1)  by  not  making  available  the 
required information or by not providing that information in the required format as 
referred to in that paragraph.';  

(3) 

Part III, is amended as follows: 

(a) 

the following point 3a is inserted: 

'3a. The credit rating agency infringes the first subparagraph of Article 8(5a) by not 
publishing on its website the proposed changes to the methodologies, models or key 
rating  assumptions  or  the  proposed  new  methodologies,  models  or  key  rating 
assumptions  together  with  a  detailed  explanation  of  the  reasons  for  and  the 
implications of the proposed changes.'; 

(b) 

the following points 4a, 4b and 4c are inserted: 

'4a. The credit rating agency infringes point (aa) of Article 8(6), where it intends to 
use  new  methodologies,  by  not  publishing  immediately  on  its  website  the  new 
methodologies together with a detailed explanation thereof. 

4b.  The  credit  rating  agency  infringes  point  (a)  of  Article  8(7)  by  not  notifying 
affected  rated  entities  of  discovered  errors  in  its  methodologies  or  in  their 
application.  

4c. The credit rating agency infringes point (b) of Article 8(7) by not publishing on 
its website discovered errors in its methodologies or in their application.'; 

(c) 

points 6 and 7 are replaced by the following: 

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'6. The credit rating agency infringes Article 10(2), in conjunction with point 1 or 2, 
2a, the first paragraph of point 4 or points 5 or 6, of Part I of Section D of Annex I, 
or  Parts  II  or  III  of  Section  D  of  Annex  I,  by  not  providing  the  information  as 
required by those provisions when presenting a credit rating or a credit outlook. 

7.  The  credit  rating  agency  infringes  Article  10(2),  in  conjunction  with  point  3  of 
Part  I  of  Section  D  of  Annex  I,  by  not  informing  the  rated  entity  during  working 
hours  of  the  rated  entity  and  at  least  a  full  working  day  before  publication  of  the 
credit rating or the rating outlook. 

EN 

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