COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The financial statement accompanying a proposal for Regulation COM(2011) 747 final on credit rating agencies and a proposal for Directive COM(2011) 746 final on excessive reliance on credit ratings
Date: 2012-07-06
Institutions: European Commission
Subjects: administrative transparency, conflict of interest, economic analysis, financial control, financial institution, financial planning, financial solvency, investment company, market supervision, public debt, securities, venture capital

EUROPEAN COMMISSION 

Brussels, 6.7.2012  
COM(2012) 367 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

The financial statement accompanying a proposal for Regulation COM(2011) 747 final 
on credit rating agencies and a proposal for Directive COM(2011) 746 final on excessive 
reliance on credit ratings 

(Text with EEA relevance) 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE 
COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS 

The financial statement accompanying a proposal for Regulation COM(2011) 747 final on credit 
rating agencies and a proposal for Directive COM(2011) 746 final on excessive reliance on credit 
ratings 

(Text with EEA relevance) 

The  Commission  adopted  on  15  November  2011  a  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council amending Regulation (EC) No 1060/2009 on credit rating agencies and a 
proposal  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 (hereafter, 
the CRA3 proposal). 

Regarding the impact on the Union budget, section 4 of the Explanatory Memorandum accompanying 
the proposed Regulation stated: 

‘The  Commission’s  proposal  has  no  impact  on  the  European  Union  budget.  In  particular,  tasks  that 
would  be  entrusted  to  ESMA  [European  Securities  and  Markets  Authority]  as  mentioned  in  the 
proposal would  not entail additional EU funding. It should also be noted  that Article 19  of the CRA 
Regulation  [footnote  11]  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.’ 

Footnote  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.’ 

An  Impact  Assessment  of  the  CRA3  proposal  assessed  cost  implications  of  individual  measures  and 
stated: ‘policy measures would not have an impact on the EU budget’.1 However, it has been estimated 
that  the  CRA3  proposal  would  result  in  a  substantial  increase  in  ESMA’s  workload,  requiring  more 
human resources at the agency. Consequently, in its Draft General Budget of the European Union for 
the  financial  year  2013  (COM(2012)  300)2  (hereafter  —  the  Draft  Budget  2013),  the  Commission 
proposed an increase of 15 posts in the establishment plan for ESMA. They will be fully financed from 
fees  paid  by  credit  rating  agencies,  and  hence,  they  will  have  no  impact  on  the  EU  contribution  to 
ESMA. 

1 

2 

See page 59 of the Impact Assessment 
 http://ec.europa.eu/internal_market/securities/docs/agencies/SEC_2011_1354_en.pdf . 
http://eur-lex.europa.eu/budget/data/DB2013/EN/SEC03.pdf, p. 801. 

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This  Communication  provides  detailed  information  to  the  Budgetary  Authority  in  the  form  of  a 
legislative  financial  statement  for  the  CRA3  proposal,  which  also  includes  information  on  the 
allocation of resources required according to ESMA’s tasks and objectives stemming from the CRA3 
proposal. Finally, a general overview of the impact of all Commission proposals on ESMA’s resources 
for 2013 is provided in annex 2 to this Communication. 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE 

1.1.  Title of the proposal/initiative 

1.2.  Policy area(s) concerned in the ABM/ABB structure 

1.3.  Nature of the proposal/initiative 

1.4.  Objective(s) 

1.5.  Grounds for the proposal/initiative 

1.6.  Duration and financial impact 

1.7.  Management method(s) envisaged 

2. 

MANAGEMENT MEASURES 

2.1.  Monitoring and reporting rules 

2.2.  Management and control system 

2.3.  Measures to prevent fraud and irregularities 

3. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE 

3.1.  Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget  line(s) 
affected 

3.2.  Estimated impact on expenditure 

3.2.1. Summary of estimated impact on expenditure 

3.2.2. Estimated impact on operational appropriations 

3.2.3. Estimated impact on appropriations of an administrative nature 

3.2.4. Compatibility with the current multiannual financial framework 

3.2.5. Third-party participation in financing 

3.3.  Estimated impact on revenue

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE 

1.1. 

Title of the proposal/initiative 

Regulation  of  the  European  Parliament  and  of  the  Council  amending  Regulation  (EC)  No 
1060/2009 on credit rating agencies (CRA) 

1.2. 

Policy area(s) concerned in the ABM/ABB structure3 

Internal Market – Financial markets 

1.3. 

Nature of the proposal/initiative 

(cid:58) The proposal/initiative relates to a new action 

1.4. 

Objectives 

1.4.1.  The Commission's multiannual strategic objective(s) targeted by the proposal/initiative 

Contribute to reducing the risks to financial stability and restoring investor and other market 
participants' confidence in financial markets and ratings quality 

1.4.2. 

Specific objective(s) and ABM/ABB activity(ies) concerned 

Specific objectives: 

In the light of the general objectives above, the following specific objectives are sought: 

• 

reduce reliance on external credit ratings 

•  mitigate the risks of contagion effects linked to sovereign debt 

• 

• 

• 

improve credit rating market conditions 

ensure right of redress for investors 

reinforce CRA independence and improve credit rating methodologies and processes 

1.4.3.  Expected result(s) and impact 

• 

• 

all  references  to  credit  ratings  in  existing  guidelines  and  recommendations  will  be 
reviewed and where appropriate removed by EBA, EIOPA and ESMA 

on-going  disclosure  of  structured  finance  products  will  be  improved;  this  will  provide 
more incentives for investors to perform own due diligence and will reduce overreliance on 

3 

ABM: Activity-Based Management – ABB: Activity-Based Budgeting. 

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external ratings 

• 

transparency  on  sovereign  ratings  will  improve;  investors  will  have  an  increased 
understanding of sovereign ratings; risks of contagion and spill over effects will be reduced 

•  The rating market will become more open to new entrants; the current largest credit rating 
agencies  will  face  more  competition;  issuers  and  investors  will  have  an  increased  choice 
among credit rating agencies 

• 

Investors' damages resulting from the CRAs' intentional behaviour or gross negligence will 
be compensated 

•  Conflicts  of  interest  resulting  from  an  issuer-pays  model  and  from  long  business 

relationship will be mitigated 

•  Market  participants  will  properly  understand  and  will  be  in  a  position  to  scrutinise  CRA 

methodologies for all asset classes 

1.4.4. 

Indicators of results and impact  

•  Number of references to external ratings in documents issued by ESMA 

•  Changes  in  the  use  of  standardised  and  internal  ratings  based  approaches  used  for 

regulatory purposes by financial firms. 

•  The  number  or  proportion  of  solicited  and  unsolicited  rating  issued  for  various  asset 

classes. 

•  The frequency of review and issuance of ratings, particularly sovereign debt ratings. 

•  Frequency and types of changes to CRA methodologies, and how often these were rejected 

or challenged. 

•  Number  of  new  entrants  and  changes  to  the  market  structure.  This  could  include  market 
share  of  existing  players  in  terms  of  both  revenue  and  number  of  outstanding  ratings  in 
various classes. 

1.5. 

Grounds for the proposal/initiative 

1.5.1.  Requirement(s) to be met in the short or long term 

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 agencies4 (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 

4 

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. 

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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 level5. 

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")6  and  in  a  consultation  paper  of  the 
Commission services of 5 November 20107 announcing the need for a targeted review of the 
CRA Regulation which is delivered with a CRA3 proposal on 15 November 2011. 

On 8 June 2011, the European Parliament issued a non-legislative resolution on CRAs8. 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  informal  ECOFIN  meetings  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 
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 

5 

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8 
9 
10 

11 

12 
13 

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. 
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) 746 final.  
OJ L 302, 17.11.2009, p.32. 
OJ L 174, 1.7.2011, p.1. 

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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  ratings9.  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 legislation10. 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 
amendments11  to  the  Directives  on  UCITS12  and  on  managers  of  alternative  investment 
funds13, which are proposed in parallel to this proposal. 

1.5.2.  Added value of EU involvement 

According to the principle of subsidiarity (Article 5.3 of the TEU), EU level-action should be 
taken only when 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. Although all the problems in relation to credit ratings have important implications 
for  individual  Member  States,  their  overall  impact  can  only  be  fully  perceived  in  a  cross-
border context. This is because ratings can be issued in one country for financial instruments 
issued in another, so that action taken on a national level might not have any effect, as ratings 
could  continue  to  be  issued  and  used  if  they  were  produced  in  a  different  EU  or  even  third 
country  jurisdictions.  As  a  result,  national  responses  to  credit  rating  issuance  risk  being 
circumvented or ineffective without EU-level action. Therefore any further actions in the field 
of  CRAs  can  best  be  achieved  by  a  common  effort.  Accordingly,  EU  action  appears 
appropriate in light of the principle of subsidiarity. 

1.5.3.  Lessons learned from similar experiences in the past 

n/a 

1.5.4.  Coherence and possible synergy with other relevant instruments 

Following a wave of “emergency” measures to manage the financial crisis that broke in 2007, 
the Commission launched a programme of reforms which implements the commitments taken 
by the G20 and aims at tackling more structural issues in the EU financial sector and address 
the main sources of its vulnerability as unveiled by the crisis: 

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• 
The  low  levels  of  high  quality  capital  and  insufficient  liquidity  in  the  banking  sector, 
partly  reflecting  inadequate  and  pro-cyclical  prudential  requirements  and  failures  in  risk 
assessment and management;  

Supervisory  shortcomings,  particularly  with  regard  to  the  supervision  of  individual 

• 
institutions operating in a cross-border context and to the unregulated financial sector;  

Corporate  governance  failures  which  contributed  to  excessive  risk  taking  practices  in 

• 
financial institutions; 

Insufficient  market  transparency  and  inadequate  disclosure  of  information  to  the 
• 
authorities  including  supervisors,  particularly  with  reference  to  complex  structured  financial 
products; 

• 

Lack of adequate regulation and supervision of Credit Rating Agencies; 

Insufficient macro prudential surveillance of the financial sector as a whole to prevent 

• 
macro-systemic risks of contagion;  

• 
The  absence  of  a  harmonised  framework  to  facilitate  the  orderly  wind-down  of  banks 
and  financial  institutions  which  has  contributed  to  put  pressure  on  Member  States  to  inject 
public money into banks to prevent a general collapse. 

The  building  blocks  of  this  programme  were  illustrated  in  the  Communication  of  4  March 
2009,  Driving  European  Recovery,  and  the  Communication  of  2  June  2010  'Regulating 
financial  services  for  sustainable  growth"  which  set  out  the  details  of  the  financial  reform 
package. 

The  first  elements  were  put  in  place  in  the  period  2009-2010.  The  most  important  is 
represented by the new architecture for financial supervision which involved the establishment 
of  the  European  Systemic  Risk  Board,  which  will  ensure  that  macro-prudential  and  macro-
economic risks are detected at an early stage, and three new European Supervisory Authorities 
responsible  for  banking  (European  Banking  Authority  or  EBA),  insurance  (European 
Insurance and Occupational Pensions Authority or EIOPA) and securities markets (European 
Securities Markets Authority ESMA) to ensure reinforced supervision and better co-ordination 
among supervisors. 

An  important  gap  in  regulation  has  been  plugged  through  the  Regulations  on  credit  rating 
agencies ('CRA I' and 'CRA II') introducing strict authorisation requirements and supervision 
for  CRAs,  and  entrusting  ESMA  with  the  supervision  on  CRAs.  Moreover  the  Capital 
Requirements  Directive  (CRD)  was  amended  ('CRD  III')  to  reinforce  capital  rules  for  the 
trading book and for complex derivatives and to introduce binding rules on remuneration and 
bonuses  in  financial  institutions.  A  further  regulatory  and  supervisory  gap  has  been  plugged 
with the Directive on managers of alternative investment funds, including hedge funds (AIFM 
Directive)  providing  robust  and  harmonised  regulatory  standards  for  all  managers  and 
enhancing transparency towards investors. 

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1.6. 

Duration and financial impact  

(cid:58) Proposal/initiative of unlimited duration 

–  Implementation with a start-up period from 2013 to 2015, 

–  Followed by full-scale operation. 

1.7.  Management mode(s) envisaged14  

(cid:133) Centralised indirect management with the delegation of implementation tasks to: 

–  (cid:58)  bodies set up by the Communities15 

14 

15 

Details  of  management  modes  and  references  to  the  Financial  Regulation  may  be  found  on  the  BudgWeb  site: 
http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html 
As referred to in Article 185 of the Financial Regulation. 

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2. 

MANAGEMENT MEASURES 

2.1.  Monitoring and reporting rules 

Article  81  of  the  Regulation  establishing  the  European  Securities  and  Markets  Authority 
(ESMA) requires the Commission by 2 January 2014, and every 3 years thereafter, to publish 
a general report on the experience acquired as a result of the operation of ESMA. To this end, 
the  Commission  will  publish  a  general  report  that  will  be  forwarded  to  the  European 
Parliament and to the Council. 

2.2.  Management and control system  

2.2.1.  Risk(s) identified  

A specific risk associated with the management of ESMA appropriations in relation to CRA 
registration and supervision results from the fact that differently from many other bodies set 
up  by  the  Communities,  the  supervision  of  CRA  will  be  exclusively  financed  by  CRA 
themselves. 

Otherwise, in relation to the legal, economical, efficient and effective use of appropriations 
resulting from the proposal it is expected that the proposal would not bring about new risks 
that would not be currently covered by an ESMA existing internal control framework. 

2.2.2. Control method(s) envisaged 

To ensure a transparent and effective use of these resources by ESMA, Commission adopted a 
Delegated Regulation of 7 February 2012 (No 272/2012) with regard to fees charged by the 
European Securities and Markets Authority to credit rating agencies16. 

2.3.  Measures to prevent fraud and irregularities  

For the purposes of combating fraud, corruption and any other illegal activity, the provisions 
of Regulation (EC) No 1073/1999 of the European Parliament and of the Council of 25 May 
1999  concerning  investigations  conducted  by  the  European  Anti-Fraud  Office  (OLAF)  shall 
apply to the ESMA without any restriction. 

ESMA shall accede to the Interinstitutional Agreement of 25 May 1999 between the European 
Parliament,  the  Council  of  the  European  Union  and  the  Commission  of  the  European 
Communities  concerning  internal  investigations  by  the  European  Anti-Fraud  Office  (OLAF) 
and shall immediately adopt appropriate provisions for all ESMA staff. 

The  funding  decisions  and  the  agreements  and  the  implementing  instruments  resulting  from 
them shall explicitly stipulate that the Court of Auditors and OLAF may, if need be, carry out 
on-the-spot checks on the beneficiaries of monies disbursed by ESMA as well as on the staff 
responsible for allocating these monies. 

16 

OJ L 90, 28.3.2012, p. 6–10 

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Articles  64  and  65  of  the  Regulation  establishing  ESMA  set  out  the  provisions  on 
implementation and control of the ESMA budget and applicable financial rules. 

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3. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

3.1. 

Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget  line(s) 
affected  

•  Existing expenditure budget lines 

The increase in ESMA budget expenditure on the supervision of credit rating agencies (CRA) 
will be fully covered by the fees paid by CRA to ESMA17 

Heading of 
multiannual 
financial 
framework 

Budget line 

Type of  
expenditure

Contribution  

Number  
[Description………………………...……….] 

Diff./non-
diff. 
(18) 

from 
EFTA19 
countries 

from 
candidate 
countries20 

from third countries 

12.0404 

ESMA – Subsidy under Titles 1, 2 & 3

Diff 

NO 

NO 

NO 

17 
18 
19 
20 

For more information, see Annex 1 
Diff. = Differentiated appropriations / Non-diff. = Non-Differentiated Appropriations 
EFTA: European Free Trade Association 
Candidate countries and, where applicable, potential candidate countries from the Western Balkans 

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3.2. 

Estimated impact on expenditure  

3.2.1. 

Summary of estimated impact on expenditure  

TOTAL appropriations  
under HEADINGS 1 to 5 
of the multiannual financial framework  

Commitments 

N.A.  N.A.  N.A. 

Payments 

N.A.  N.A.  N.A. 

Year 
201321 

Year 
2014 

Year 
2015 

EUR million (to 3 decimal places) 

TOTAL 

  N.A. 

  N.A. 

21 

Year N is the year in which implementation of the proposal/initiative starts. 

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3.2.2.  Estimated impact on operational appropriations 

–  (cid:58)  The proposal/initiative does not require the use of operational appropriations 

3.2.3.  Estimated impact on appropriations of an administrative nature 

3.2.3.1.  Summary 

–  (cid:58)  The proposal/initiative does not require the use of administrative appropriations 

3.2.3.2.  Estimated requirements of human resources 

–  (cid:58)  The proposal/initiative does not require the use of human resources 

Comment: 

No additional human and administrative resources will be needed in DG MARKT as 
a result of the CRA3 proposal. 

3.2.4.  Compatibility with the current multiannual financial framework  

–  (cid:58)  Proposal/initiative is compatible the current multiannual financial framework. 

3.2.5.  Third-party contributions 

–  (cid:58)  The proposal/initiative does not provide for co-financing by third parties 

3.3. 

Estimated impact on revenue 

–  (cid:58)  Proposal/initiative has no financial impact on revenue. 

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Annex 1.  

The external personnel (CAs and ENDs) required for ESMA in 2014 and 2015 to implement temporary tasks stemming from the CRA3 proposal are 
not meant to lead to a further increase in ESMA's external personnel 

Table 1. Assessed resources needed for ESMA to implement CRA3 proposal 

New tasks for ESMA 

Required human resources 

Additional IT resources 

Tempo-
rary 

Other resources 2014-
2015 in the form of 
seconded national 
experts (ENDs) or 
contract agents (CAs), 
expressed as full-time 
equivalents (fte) 

Comments 

1) 
Reviewing and removing where appropriate 
references  to  ratings  in  all  the  existing 
Guidelines, 
and 
Regulatory Technical Standards (RTS) 

Recommendations 

2)  
Adopting 5 new RTS on: 
- disclosure on structured finance products 
- rotation of CRAs (handover file) 
- harmonised standard rating scale 
- EURIX 
- fees charged by CRAs 
3) 
Adopting 
Recommendations on: 
- coordinating disclosure on CRAs’ fees 
- acquiring market concentration data  

new  Guidelines 

2 

and 

- 0.5 fte 

- 3.5 fte 

- 1.5 fte 

4)  Renew  the  assessment  of  third-country 
endorsability 
5) 

- 3.5 fte 

1.8 fte: 

- 2.3 fte 

Estimate  based  on  the  workload  required 
during 2011 for the preparation of the four 
draft  RTS  and  on  the  advanced  specific 
methodologies that subjects will require. 

Estimate  based  on  the  consultation  and 
adoption  process  required  for  Guidelines 
and  Recommendations 
the 
advanced  specific  methodologies  that  the 
two subjects will require 
Estimate  based  on  the  workload  required 
during 2011 for the endorsement process 

and  on 

Assumption  (1.5  years  project 

EN 

16 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New tasks for ESMA 

Required human resources 

Additional IT resources 

-  Setting  up  and  managing  centralised 
webpage  on  structured  finance  underlying 
asset pools and their ratings’ performance  

Comments 

Other resources 2014-
2015 in the form of 
seconded national 
experts (ENDs) or 
contract agents (CAs), 
expressed as full-time 
equivalents (fte) 

CRA Unit: 1.0 fte 
IT:  1.3  fte  (0.5  project 
manager 
0.5 
architect+0.3 
procurement expert) 

+ 

Tempo-
rary 

CRA 
Unit: 
1.0 fte 

IT:  0.8 
fte 
(product
ion 
+ 
business 
analyst) 

6) 
-  preliminary  assessment  of  CRAs’  new 
methodologies  

6 fte 

- 

This  estimate  represents  an  average  of 
between  2  and  22  fte,  depending  on  the 
final  drafting  of  the  provision,  which 
would require from ESMA either about 50 
or about 500 assessments every year. 

duration): 
1)Software costs: 
300000 euro HT 
2)Hardware cost: 
30000 euro HT 
3)Services: 
Conception  phase:  1  fte  expert 
(6  months*1200  euro  *22) 
=158000 
Testing/Roll  out:  1  fte  junior 
(12 months *700*22) =185000 

TOTAL: 673000 

4.8 fte 

- 

of 

other 

7)  monitoring  of  the  market  developments 
other 
implementation 
and 
requirement CRA will have to comply with: 
- monitoring CRAs’ cross-ownership links 
- monitoring mandatory rotation of CRAs 
and lead analysts 
- monitoring CRAs’ major shareholders 
interests and consultancy services in rated 
entities 
- monitoring respect of double SF ratings 
- monitoring sovereign ratings publication 
(after cob and at least one hour before 

EN 

17 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New tasks for ESMA 

Required human resources 

Additional IT resources 

Tempo-
rary 

Other resources 2014-
2015 in the form of 
seconded national 
experts (ENDs) or 
contract agents (CAs), 
expressed as full-time 
equivalents (fte) 

Comments 

opening of EU trading venues) 
- monitoring CRAs informing rated entities 
full working day before publication of 
ratings and outlooks 
- monitoring CRAs disclosing all 
preliminary ratings 
- monitoring fees charged to CRAs 
- developing new methodology and 
monitoring market concentration risks 
8) 
-  establishing  and  managing  the  European 
Rating  Index  (EURIX)  /European  Rating 
and 
Platform, 
establishing 
managing  disclosure  database  on 
fees 
charged by CRAs 

including 

2.4 fte : 

- 

CRA 
Unit: 
1.4 fte; 
IT: 1 fte 
(product
ion 
+ 
business 
analyst) 

Total  

15 

11.3 

Estimate  based  on  the  advanced  specific 
methodologies required 

(1  year  project 
Assumption 
duration;  implementation  based 
on  synergies  with  CEREP  and 
SoCRAT;  EURIX  calculations 
performed by CRAs): 
1)Software costs: 
200000 euro HT 
2)Hardware cost: 
15000 euro HT 
3)Services: 
Conception  phase:  2.25 
fte 
(project  manager,  architect  & 
other  experts;  6  months*1200 
euro *22)=356000 
Testing/Roll out: 1 fte junior (6 
months *700*22)=93000 

TOTAL: 664000 

EN 

18 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
It is assumed the Regulation will enter into force before 2013, and that the additional ESMA 
resources are therefore required from 2013. Additional staff has been estimated only for the 
technical  standards,  guidelines  and  reports  to  be  produced  by  ESMA.  The  proposal  of  the 
Commission  includes  tasks  for  ESMA  that  will  require  the  establishment  of  15  temporary 
posts from 2013. In addition, other tasks as described above will be covered by external staff, 
SNEs and contract agents over the period 2014–2015: 5.8 (man years) for 2014 and 5.5 (man 
years) for 2015. 

Other assumptions: 

•  Average annual salary costs for different categories of personnel are based on DG BUDG 

guidance; 

•  Salary weighting coefficient for Paris of 1.161; 
•  Training costs assumed at €
•  Mission  costs  of  €

 1 000 per full-time equivalent (FTE) per year; 

 10 000,  estimated  based  on  2012  draft  budget  for  missions  per 

headcount; 

•  Recruitment-related  costs  (travel,  hotel,  medical  examinations,  installation  and  other 
 12 700,  based  on  2012  draft  budget  for 

allowances,  removal  costs,  etc.)  estimated  at  €
recruitment per new headcount. 

The  method  of  calculating  the  increase  in  the  required  budget  for  the  next  three  years  is 
presented  in  more  detail  in  the  table  below.  The  calculation  reflects  the  fact  that  all  costs 
related to CRA supervision will come from fees paid to ESMA by CRAs. 

Table 2. Allocation of costs 

Cost type 

Calculation 

Amount (in million Eur) 

2013 

2014 

2015 

Total 

Title 1: Staff expenditure 

11 Salaries and allowances 
- of which temporary agents 

- of which SNEs 

- of which contract agents 

12 Expenditure related to recruitment 

13 Mission expenses 

15 Training 

EN 

2,212 

2,212 

2,212 

6,635 

0 

0 

191 

407  

381 

788 

74 

64 

74 

148 

0 

  255 

150 

208 

205 

563 

15 

21 

21 

56 

=15*127*1,1
61 
=(4.8 for 
2014, 4.5 for 
2015)*73*1,1
61 
=1*64*1,161 

=(15 for 
2013, 5 for 
2014)*12,7 

=(15 for 
2013, 20.8 
for 2014 and 
20.5 for 
2015)*10 

=(15 for 
2013, 20.8 
for 2014 and 
and 20.5 
2015)*1 

19 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Title 1: Staff expenditure 

2,568 

2,986 

2,893 

8,445 

Title 2: Infrastructure and operating 
expenditure 

=(15 for 
2013, 20.8 
for 2014 and 
20.5 for 
2015)*30 

450 

624 

615 

1,689 

Total Title2: Infrastructure and operating 
expenditure 

450 

624 

615 

1,689 

Title 3: Operational expenditure 

EURIX 
Centralised webpage on structure finance 
ratings' quality 

664 
0 

0 
300 

0 
373 

664 
673 

Total Title 3: Operational expenditure 

664 

300 

373 

1337 

Total 
Of which revenues from registration and 
supervisory fees to be paid by CRAs (100%) 

3,682 
3,682 

3,910 
3,910 

3,881 
3,881 

11,471 
11,471 

Table 3. The proposed establishment plan for the fifteen temporary agent positions. 

Function group and grade 

Temporary 
posts 

AD 8 
AD 7 
AD 6 
AD 5 

AD total 

2 
3 
5 
5 

15 

EN 

20 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 4. Allocation of estimated costs according to objectives and outputs stemming from the CRA3 proposal22  

Year 
2012  

Year 
2013 

Year 
2014 

Year 
2015 

TOTAL 

Objectives and outputs 

(cid:216) 

Type (-
/+) 

Average 
cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Total Cost 

Objective No 1 reduce reliance on external 
credit ratings  

references  to  external  ratings 
in documents issued by ESMA 
have  been  reviewed  and  their 
number has been reduced 

centralised webpage on 
structured finance underlying 
asset pools and their ratings’ 
performance established and 
operational  

New RTS on disclosures in 
relation to structured finance 
instrument is issues  

- 

0 

- 

0 

+ 

67  

+ 

0 

67 

- 

0 

- 

362  

- 

814 

+ 

836 

2012  

- 

0 

- 

0 

+ 

94 

- 

0 

94  

Sub-total for specific objective No 1 

0 

362 

975 

836 

2173 

Objective No 2. Mitigate the risks of contagion 
effects linked to sovereign debt 

22 

Inaccuracies may appear due to rounding. 

EN 

21 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Objectives and outputs 

(cid:216) 

ESMA annually reports on 
compliance by CRAs with 
requirements in respect to 
sovereign ratings 

Sub-total for specific objective No 2 

Objective No 3 improve credit rating market 
conditions 

EURIX (European Rating 
Index/European Rating 
Platform) is established, 
operational and maintained  
New RTS on EURIX, 
harmonised rating scale and 
rotation of CRAs are issued  
New Guidelines and 
Recommendations on: 
- coordinating disclosure on 
CRAs’ fees 
- acquiring market 
concentration data 

ESMA annually reports on 
credit rating market 
developments 

Year 
2012  

Year 
2013 

Year 
2014 

Year 
2015 

TOTAL 

Type (-
/+) 

Average 
cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Total Cost 

- 

0 

- 

241 

+ 

226  

+ 

226 

693 

0 

0 

0 

0 

- 

- 

- 

- 

0 

241 

226 

226 

693 

1147  

+ 

452  

+ 

452  

2051 

0 

0 

+ 

+ 

243  

+ 

37 

202  

- 

0 

280 

202 

483  

+ 

452  

+ 

452  

1387 

1630 

+ 

1349 

+ 

941 

3920 

- 

- 

- 

- 

- 

22 

EN 

Sub-total for specific objective No 3 

0 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year 
2012  

Year 
2013 

Year 
2014 

Year 
2015 

TOTAL 

Objectives and outputs 

(cid:216) 

Type (-
/+) 

Average 
cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Output 

Total 
Cost 

Total Cost 

Objective No 4 ensure right of redress for 
investors 

Sub-total for specific objective No 4 

0 

+ 

0 

+ 

0 

+ 

0 

0 

Objective No 5 reinforce CRA independence 
and improve credit rating methodologies and 
processes 

All CRA's new methodologies 
preliminary assessed by ESMA 

RTS on fees charged by CRAs 

ESMA annually reports on 
independence risks stemming 
from ownership and control 

Sub-total for specific objective No 5 

Sub-output stemming from objectives 2 to 5 –
third-country endorsability reassesed 

TOTAL COST 

- 

- 

- 

- 

1207  

+ 

1131  

+ 

1131  

3469 

0 

241  

- 

+ 

0 

226  

1448 

+ 

1357 

3681  

- 

3907 

+ 

+ 

+ 

+ 

- 

87  

226 

1444 

  433  

87 

693 

4249 

433  

3880  

11468 

0 

0 

0 

0 

0 

- 

- 

- 

- 

23 

EN 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annex  2.  An  overview  of  the  impact  on  ESMA  2013  budget  of  the  legislative  proposals  in 
period of 2011-2013. 

Since ESMA's establishment, the continuing EU response to the financial and economic crisis 
required  the  adoption  of  a  series  of  important  new  proposals,  several  of  which  required 
significant increases in the powers of ESMA and therefore the reinforcement of the staffing of 
the authority as set out in the tables below. 

The revision of the Markets in Financial Instruments Directive (MIFID) aims to ensure more 
robust  and  efficient  market  structures,  to  take  account  of  technological  innovations,  to 
improve the transparency of trading activities, to reinforce supervisory powers and a ensure 
stricter framework for commodity derivatives markets and to strengthen investor protection. 
ESMA  was  given  a  major  role  in  developing  most  of  the  technical  implementing  measures 
necessary to ensure the full functioning of the regulatory framework and specific supervisory 
tasks, for example an increased role in determining the conformity with MiFID of individual 
cases where venues propose to waive pre-trade transparency ("dark pools"). 

The  revision  of  the  Market  Abuse  Directive  (MAD)  aims  to  strengthen  the  fight  against 
market  abuse  across  commodity  and  related  derivative  markets,  reinforce  the  sanctioning 
powers of regulators and  reduce  administrative burdens on small and medium-sized issuers. 
ESMA was tasked, inter alia, with ensuring the coordination of rules with respect to technical 
means for ensuring the appropriate disclosure of inside information, procedures for exchange 
of  information  among  EU  and  foreign  competent  authorities,  and  coordinating,  on  request, 
investigations and inspections for cross-border cases of market abuse. 

The  proposal  on  Central  Securities  Depositories  aims  to  harmonise  both  the  timing  and 
conduct  of  securities  settlement  in  Europe  and  the  rules  governing  Central  Securities 
Depositories  (CSDs)  which  operate  the  infrastructures  enabling  settlement.  With  regard  to 
settlement, the proposal harmonises timing and discipline of securities settlement in the EU. 
Regarding  CSDs,  it  creates,  for  the  first  time  at  European  level,  a  common  authorisation, 
supervision and regulatory framework for CSDs. 

ESMA's  role  under  the  CSD  Regulation  includes  drafting  technical  standards  for  the 
application  of  the  CSDR  –  in  total  22  regulatory  and  implementing  technical  standards; 
providing guidelines/best supervision practices for settlement discipline and CSD measures – 
in  total  3  guidelines;  ensuring  consistent  application  of  the  CSDR;  recognition  of  third 
country  CSDs  and  reporting  requirements  (annual  report  on  market  developments,  in 
particular on settlement efficiency, internalised settlement, cross-border activity). 

The role of ESMA in the context of the revised Regulation on Credit Rating Agencies (CRA 
III) is set out in the main body of the Legislative Financial Statement. 

EN 

24 

   EN 

 
Table 1. An overview of the staff request and the financial impact 

An overview of the staff request 

estimated statutory staff necessary 

estimated external staff necessary 

TOTAL estimated staff necessary 

2013 

2014 

2015 

2013 

2014 

2015 

2013 

2014 

2015 

I. 8 

II. 3 

III. 4 

IV. 15 

8

3

4

15

8 

3 

4 

15 

3

3

2

0

3

3

2

3

3

2

11 

6 

6 

11 

6 

6 

11

6

6

5.8

5.5

15 

20.8 

20.5

where: 

I – a proposal on Markets in Financial Instruments Directive (MiFID) COM(2011) 656 final 
[2011/0298 (COD)] 

II – a proposal on Market Abuse Directive (MAD) COM(2011) 651 final [2011/0295 (COD)] 

III  –  a  proposal  on  Central  Securities  Depositories  (CSD)  COM(2012)  73  final  [2012/0029 
(COD)] 

IV  –  a  proposal  on  Regulation  on  credit  rating  agencies  (CRA3)  COM(2011)  747  final  and 
746 final [0361 (COD) and 0360 (COD)] 

EN 

25 

   EN