6 Financial services
| (31697)
10827/10
+ ADDs 1-2
COM(10) 289
| Draft Regulation on amending Regulation (EC) No. 1060/2009 on credit rating agencies
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| Legal base | Article 114 TFEU; co-decision; QMV
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| Department | HM Treasury
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| Basis of consideration | Minister's letter of 19 October 2010
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| Previous Committee Report | HC 428-i (2010-11), chapter 16 (8 September 2010)
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| To be discussed in Council | Not known
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared, further information requested
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Background
6.1 The Credit Rating Agency Regulation, Regulation (EC) No 1060/2009,
which came into force on 7 December 2009, established an EU wide
regulatory regime for such agencies. Amongst other matters the
Regulation:
- stated, in a recital, that the current supervisory architecture
should not be considered as the long-term solution for the oversight
of credit rating agencies; and
- requested the Commission to put forward by 1
July 2010 a report on supervisory and regulatory reform and any
legislative proposal needed to tackle the shortcomings identified
as regards supervisory coordination and cooperation arrangements.[51]
6.2 In September and October 2009 the Commission
proposed legislation, which is nearing completion, in relation
to the new relevant supervisory authority, the European Securities
and Markets Authority, and its role in relation to credit rating
agencies.[52]
6.3 In June 2010 the Commission proposed this draft
amending Regulation in order to introduce centralised oversight
of credit rating agencies. It would provide for:
- the European Securities and
Markets Authority to assume general competence in matters relating
to the registration and on-going supervision of registered credit
rating agencies, as well as matters related to the endorsement
of ratings issued by rating agencies established in third countries,
or the certification of such agencies;
- national competent authorities (the Financial
Services Authority in the UK), which currently perform these functions,
to retain some specific supervisory powers;
- replacement, throughout the present Regulation,
of any reference to competent authorities in charge of the registration
and supervision of credit rating agencies by a reference to the
European Securities and Markets Authority;
- powers for the European Securities and Markets
Authority to request information, to launch investigations and
to perform on-site inspections;
- alignment of the current Regulation with the
proposals for the Alternative Investment Fund Managers Directive,[53]
with the objective of treating alternative investment funds in
the same way as other EU financial institutions with regard to
the use of credit ratings — meaning that the credit ratings
used for regulatory purposes by alternative investment fund managers,
including hedge fund managers and private equity managers, must
be issued or endorsed by a credit rating agency registered under
the Regulation, or issued by an agency certified under the Regulation;
and
- the issuer of a structured finance instrument,
such as a credit institution or investment firm, to give access,
upon request, to the information necessary for rating the structured
finance instrument — so providing all other registered or
certified credit rating agencies with access to the information
they need to issue their own unsolicited ratings of the instrument,
the Commission's intention being a more competitive ratings environment
and a better deal for the investor who will be able to rely on
more than one rating for the same instrument.
6.4 When we considered this proposal, in September
2010, we said that how the introduction of centralised oversight
of credit rating agencies is to be arranged is important but we
noted the Government's cautious approach to the proposal and its
planned consultations with a stakeholder group. So, before considering
the document further we asked to hear about:
- first, the Government's further
thoughts about the scope of the European Securities and Markets
Authority's powers in the draft amending Regulation, in relation
to doubts over the legality of delegating broad executive powers
to the European Supervision Authorities;
- secondly, its attitude to significant and unmet
ongoing costs for national authorities implicit in the proposal;
and
- thirdly, the outcome of its consultations.
Meanwhile the document remained under scrutiny.[54]
The Minister's letter
6.5 The Financial Secretary to the Treasury (Mr Mark
Hoban) responds first on the issue of the legality of delegating
broad discretionary powers to the European Supervisory Authorities,
saying that the Government agrees that this could be unlawful.
He comments that:
- it is the Government's understanding
that the 'Meroni principle' applies in such a situation;
- according to the principle, the powers conferred
on any EU agency must not exceed "clearly defined executive
powers the exercise of which can, therefore, be subject to strict
review in the light of objective criteria determined by the delegating
authority" and such powers must not amount to "a discretionary
power, implying a wide margin of discretion, which may make possible
the actual execution of economic policy";
- the Government has sought to ensure that any
powers conferred on the European Securities and Markets Authority
by the draft amending Regulation are subject to as tight a legal
framework as can be secured, in order to ensure that any exercise
of these powers can be subject to strict review in the light of
objective criteria set out in the Regulation itself; and
- given the unique circumstances of credit rating
agencies the Government considers that regulation at EU level
by the Authority, as agreed by the ECOFIN Council in December
2009,[55] is appropriate.
6.6 As for significant and unmet ongoing costs for
national authorities implicit in the proposal the Minister says
that:
- the Government agrees that
the proposed power to delegate specific supervisory tasks to the
European Markets and Securities Authority does imply significant
and unmet costs for national authorities;
- it has been a Government priority in the negotiations
to ensure that the costs resulting from such a delegation are
covered by the Authority itself;
- it has sought suitable amendments to the draft
Regulation in order to secure this objective; and
- the current Council compromise text now clearly
indicates that national authorities need to be covered for any
costs incurred in conducting delegated tasks.
6.7 Finally, on the outcome of the Government's consultations
the Minister says that:
- the Treasury, in conjunction
with the Financial Services Authority, has held regular stakeholder
meetings with credit rating agencies and has held discussions
with trade associations and securities issuers; and
- the industry is broadly supportive of the Government
position.
Conclusion
6.8 We are grateful to the Minister for what he
tells us about unmet costs of national authorities and about the
Government's consultations.
6.9 However in relation to the issue of the legality
of delegating broad discretionary powers to the European Markets
and Securities Authority we observe that the Minister does
not actually say to what extent the Government has been able to
subject such delegation to a tight legal framework. Nor does he
say whether the Government believes that the latest text of the
proposal dispels the doubts about legality. We should be grateful
if the Minister would clarify these points.
6.10 Meanwhile the document remains under scrutiny.
51 See (30168) 15661/08: HC 19-ii (2008-09), chapter
1 (17 December 2008) and Gen Co Debs, European Committee
B, 27 January 2009, cols 3-24. Back
52
See (30954) 13654/09 (30955) 13656/09 (30956) 13657/09 (30957)
13658/09 and (31088) 15093/09: HC 19-xxviii (2008-09), chapter
6 (21 October 2009), HC 19-xxx (2008-09), chapter 2 (4 November
2009, HC 5-i (2009-10), chapters 1 and 2 (19 November 2009 and
HC Deb, 1 December 2009, cols 989-1030. Back
53
(30624) 9494/09 + ADDs 1-2 and (31089) 15162/09: see HC 19-xviii
(2008-09), chapter 9 (3 June 2009), HC 19-xxii (2008-09), chapter
3 (1 July 2009), HC 5-vi (2009-10), chapter 2 (13 January 2010)
and Gen Co Debs, European Committee B, 23 February 2010,
cols. 3-28. Back
54
See headnote. Back
55
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/111706.pdf.
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