Documents considered by the committee on 10 November 2010, including the following recommendation for debate: Safety of offshore oil and gas activities - European Scrutiny Committee Contents

13   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) and HC 428-v (2010-11), chapter 6 (27 October 2010)
To be discussed in CouncilNot known
Committee's assessmentLegally and politically important
Committee's decisionCleared


13.1  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.[28]

13.2  In September and October 2009 the Commission proposed legislation in relation to the new relevant supervisory authority, the European Securities and Markets Authority, and its role in relation to credit rating agencies.[29]

13.3  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,[30] 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.

13.4  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, amongst other things, 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. In October 2010 we heard information about other matters we had raised. But on the legality issue we observed that, although the Government had spelt out its view of the legal issue, it had not actually told us to what extent it had been able to subject such delegation to a tight legal framework nor whether it believed that the latest text of the proposal dispelled the doubts about legality. We asked for clarification. Meanwhile the document remained under scrutiny.[31]

The Minister's letter

13.5  The Financial Secretary to the Treasury (Mr Mark Hoban) now says:

  • the issue of the legality of delegating discretionary powers to the European Securities and Markets Authority is of vital importance and has been a priority for the Government throughout the negotiations;
  • from the very beginning it has sought to ensure that any powers conferred on Authority are subject to a tight legal framework and significant progress has now been made in this regard;
  • for example, a new article has been added to the Council text expressly constraining the Authority's power to obtain information, conduct investigations and carry out inspections; and
  • the Government will continue to press this issue as strongly as possible and work with the Commission, Presidency and other Member States to secure a final text which confers only those powers that may lawfully be conferred on the European Securities and Markets Authority.


13.6  We are grateful to the Minister for this clarification. We have no further questions to raise and clear the document.

28   (30168) 15661/08: see HC 19-ii (2008-09), chapter 1 (17 December 2008) and Gen Co Debs, European Committee B, 27 January 2009, cols 3-24. Back

29   (30954) 13654/09 (30955) 13656/09 (30956) 13657/09 (30957) 13658/09 and (31088) 15093/09: see 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

30   (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

31   See headnote.  Back

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