Documents considered by the Committee on 27 October 2010 - European Scrutiny Committee Contents

6 Financial services



+ ADDs 1-2

COM(10) 289

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

Legal baseArticle 114 TFEU; co-decision; QMV
DepartmentHM Treasury
Basis of considerationMinister's letter of 19 October 2010
Previous Committee ReportHC 428-i (2010-11), chapter 16 (8 September 2010)
To be discussed in CouncilNot known
Committee's assessmentLegally and politically important
Committee's decisionNot cleared, further information requested


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.


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  Back

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