16 Financial services
| (31697)
10827/10
+ ADDs 1-2
COM(10) 289
| Draft Regulation on amending Regulation (EC) No. 1060/2009 on credit rating agencies
|
| Legal base | Article 114 TFEU; co-decision; QMV
|
| Document originated | 2 June 2010
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| Deposited in Parliament | 11 June 2010
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| Department | HM Treasury
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| Basis of consideration | EM of 17 June 2010
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| Previous Committee Report | None
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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
16.1 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. The Regulation:
- introduced a harmonised approach to the regulation of credit
rating activities in the EU;
- established a registration system for credit
rating agencies;
- required registered agencies to comply with various
provisions relating to independence, conflicts of interest, employees
and analysts, methodologies and models, outsourcing, and disclosure
and presentation of information;
- provided that specified financial institutions
may only use credit ratings for regulatory purposes if they have
been issued or endorsed by a registered credit rating agency or
if issued by an overseas agency that has been certified in accordance
with 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.[64]
16.2 In its May 2009 Communication European financial
supervision the Commission proposed a new regulatory and supervisory
regime for financial services with a European Systemic Risk Council
(subsequently named the European Systemic Risk Board) and a European
System of Financial Supervisors, including three European Supervisory
Authorities. It suggested the system should have a role in supervising
credit rating agencies.
16.3 In September and October 2009 the Commission
proposed legislation, which is nearing adoption, in relation to
the relevant supervisory authority, the European Securities and
Markets Authority and its role in relation to credit rating agencies.[65]
The document
16.4 The Commission has now proposed this draft amending
Regulation in order to introduce centralised oversight of credit
rating agencies. It provides 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
current proposals for the Alternative Investment Fund Managers
Directive,[66] 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.
The Government's view
16.5 The Financial Secretary to the Treasury (Mr
Mark Hoban) tells us that the Government is content in principle
for the European Securities and Markets Authority to supervise
credit rating agencies, provided that the authority ensures high
quality supervision and is efficient and legal. However, he qualifies
this comment by saying that:
- as drafted the draft Regulation
could give rise to problems of workability and effectiveness
of supervision;
- the powers proposed for the European Securities
and Markets Authority appear very broad; and
- the proposal implies significant and unmet ongoing
costs for national authorities.
16.6 Expanding on the matter of costs the Minister
says first that the Commission's impact assessment:
- envisages that no additional
administrative costs would be created as a result of the proposal;
- claims, on the contrary, that an immediate consequence
of the centralization of supervision for credit rating agencies
is that the administrative burden would be reduced;
- notes that the time for registration would be
reduced from the current two to seven months to a maximum of 65
working days, implying a substantial reduction of costs for credit
rating agencies as they would be able to start issuing credit
ratings under the new regime earlier than under the old system;
and
- notes that, moreover, credit rating agencies
would no longer have to deal with several supervisors and the
number of reporting obligations and other contacts would be reduced,
as agencies would have to deal with only one supervisor.
16.7 Turning to the costs of the European Securities
and Markets Authority the Minister, noting that under the draft
European Securities and Markets Authority Regulation the revenues
of the authority would consist in particular of contributions
from the national competent authorities, a subsidy of the EU and
any fees paid to it in cases specified in relevant legislation,
comments that:
- the European Securities and
Markets Authority's credit rating agencies oversight activity
would be funded from its overall revenues, including proceeds
from fees it charged from credit rating agencies;
- it is unclear in the Commission's proposal how
national competent authorities would be reimbursed and supervisory
fees charged; and
- the impact assessment acknowledges that there
will be implications for the EU budget.
16.8 The Minister, noting that cost to each competent
national authority would depend on the amount of delegation of
tasks to national supervisors, comments that the Commission's
impact assessment says that:
- whilst competent authorities
would not be responsible for the supervision of the credit rating
agencies, they would nonetheless be expected to offer all necessary
assistance to the European Securities and Markets Authority and
fulfill tasks delegated by the authority; and
- competent authorities would be entitled in some
clearly defined circumstances to request the European Securities
and Markets Authority to take a concrete enforcement action.
But he adds that the assessment does not attribute
a cost to competent authorities.
16.9 The Minister tells us that, given the short
period between the publication of the proposed Regulation and
the first Council working group meeting (on 21 June 2010), a formal
domestic consultation has not been possible and that the Treasury
and the Financial Services Authority intend to convene a stakeholder
group shortly to canvass views.
Conclusion
16.10 How the introduction of centralised oversight
of credit rating agencies, under the aegis of the European Securities
and Markets Authority, is to be arranged is important and we note
the Government's cautious approach to the proposal and its planned
consultations with a stakeholder group. So before considering
the document further we should like 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
this regard we refer the Government to the Report of the previous
Committee on draft legislation for the financial services sector,[67]
in which it raised doubts over the legality of delegating broad
executive powers to the European Supervision Authorities; and
also to the Report of the Treasury Committee on European financial
supervision[68]
on the same point;
- 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 remains under scrutiny.
64 (30168) 15661/08: see HC 19-ii (2008-09), chapter
1 (17 December 2008) and Stg Co Debs, European Committee
B, 27 January 2009, cols 3-24. Back
65
(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
66
(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 Stg Co Debs, European Committee B, 23 February 2010,
cols. 3-28. Back
67
(30954) 13654/09: see HC 19-xxx (2008-09), chapter 2 (4 November
2009). Back
68
Sixteenth Report from the Treasury Committee, 2008-09, The
Committee's Opinion on proposals for European financial supervision,
HC 1088, paras 55-64. Back
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