Article 39a Report by ESMA
By 31 December 2011, ESMA shall assess the staffing and resources needs arising from the assumption of its powers and duties in accordance with this Regulation and submit a report to the European Parliament, the Council and the Commission.
Amendment rationale: 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 agencies[1] (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 level[2]. 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 2010[4] 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 CRAs[5]. 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 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 ratings[6]. 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 legislation[7]. 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 funds[8], which are proposed in parallel to this proposal for a Regulation. 
Revised version (Article 39a ESMA’s staffing and resources):
By 21 June 2014, ESMA shall assess its staffing and resources needs arising from the assumption of its powers and duties under this Regulation and shall submit a report to the European Parliament, the Council and the Commission.
Article 40 Transitional provision
Credit rating agencies operating in the Community before 7 June 2010 (existing credit rating agencies), which intend to apply for registration under this Regulation, shall adopt all necessary measures to comply with its provisions by 7 September 2010. Credit rating agencies shall submit their application for registration no earlier than 7 June 2010. Existing credit rating agencies shall submit their application for registration by 7 September 2010 Existing credit rating agencies may continue issuing credit ratings which may be used for regulatory purposes by the financial institutions and other entities referred to in Article 4(1) unless registration is refused. Where registration is refused, Article 24(4) and (5) shall apply.
Article 40a Transitional measures related to ESMA
1. All competences and duties related to the supervisory and enforcement activity in the field of credit rating agencies, which were conferred on the competent authorities, whether acting as competent authorities of the home Member State or not, and on colleges where those have been established, shall be terminated on 1 July 2011. However, an application for registration that has been received by the competent authorities of the home Member State or the relevant college by 7 September 2010 shall not be transferred to ESMA, and the decision to register or refuse registration shall be taken by those authorities and the relevant college. 2. Without prejudice to the second subparagraph of paragraph 1, any files and working documents related to the supervisory and enforcement activity in the field of credit rating agencies, including any ongoing examinations and enforcement actions, or certified copies thereof, shall be taken over by ESMA on the date as referred to in paragraph 1. 3. The competent authorities and colleges referred to in paragraph 1 shall ensure that any existing records and working papers, or certified copies thereof, shall be transferred to ESMA as soon as possible and in any event by 1 July 2011. Those competent authorities and colleges shall also render all necessary assistance and advice to ESMA to facilitate effective and efficient transfer and taking-up of supervisory and enforcement activity in the field of credit rating agencies. 4. ESMA shall act as the legal successor of the competent authorities and colleges referred to in paragraph 1 in any administrative or judicial proceedings that result from supervisory and enforcement activity pursued by those competent authorities and colleges in relation to matters that fall under this Regulation. 5. Any registration of a credit rating agency, in accordance with Chapter I of Title III, by a competent authority referred to in paragraph 1 of this Article shall remain valid after the transfer of competences to ESMA. 6. By 1 July 2014 and within the scope of its ongoing supervision, ESMA shall conduct at least one verification of all credit rating agencies falling under its supervisory competences.
Article 41 Entry into force
This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union . It shall apply from its date of entry into force. However: — Article 4(1) shall apply from 7 December 2010 and — points (f), (g) and (h) of Article 4(3) shall apply from 7 June 2011. This Regulation shall be binding in its entirety and directly applicable in all Member States.