In this section, we shall clarify the regulatory use of ratings in different countries. Reflecting the European origin of RATINGPLATFORM, we have first focused on the legal regime in the European Union, which takes into account thee types of sources of assessments: Credit Rating Agencies (CRAs), External Credit Assessment Institutions ("ECAI") and Export Credit Agencies ("ECA").
In addition, you shall find information on 1) countries where the European Securities and Markets Authority ("ESMA"), solely responsible for the supervision of CRAs in Europe, concluded that the regulatory regime on Credit rating agencies is equivalent to the European one and 2) countries, from which ratings can be endorsed by European agencies. These countries are:
The European Union legislation makes currently references to ratings and assessments from different sources:
Date of last update of this section: January 29th, 2013
In September 2009, the European Parliament and the Council of Ministers adopted the regulation on Credit Rating Agencies (1060/2009) (hereafter “CRA regulation”) defining the regulatory regime applicable to Credit Rating Agencies („CRA“). This regulation was amended in 2010 in order to take into account the set up of the European Securities and Markets Authority (“ESMA”), solely responsible for the on-going supervision of CRAs from July 1st, 2011.
In November 2011, the EU Commisssion tabled a new legislative proposal on Credit Rating Agencies (called “CRA III” thereafter). After negotiations between the European Parliament, the Council of Ministers and the EU Commission a compromise text was reached in December 2012. This text has been adopted by the European Parliament in Plenary session on January 16th, 2013. The text needs now to be formally adopted by the Council, be translated into all official languages of the European Union, published in the EU official journal, entry into force 20 days thereafter. The entry into force of this regulation is expected for end Q2 or early Q3 2013.
CRA III introduces a number of important changes on credit rating agencies (e.g. regarding management of conflict of interest, establishing and updating rating methodologies). Key changes from an issuer perspective are:
for all market segments:
- in case the issuer wants to mandate 2 CRAs, the issuer should consider engaging one small CRA (having less than 10% market share)
- CRAs shall disclose on their website information about all entities or financial instruments submitted to it for their initial review of for preliminary rating ("Rating-shopping clause")
- all issuer-pays ratings to be published on an European Rating Platform (2 years after entering into force)
- Civil liability (Article 35a)
for Structured finance issuers:
- Provision of information on the credit quality and performance of the underlying assets. ESMA to set up a specific website.
- Minimum of 2 ratings (otherwise considered unrated)
For Resecuritisation only
- Rotation of CRAs every 4 years, but several exemptions
The full text is available directly here:
Registered or Certified Rating Agencies
Article 3 (1) a of the CRA regulation provides the following definition of credit ratings: ‘credit
rating’ means an opinion regarding the creditworthiness of an entity, a debt or financial obligation, debt security, preferred share or other financial instrument, or of an issuer of such a debt or financial obligation, debt security, preferred share or other financial instrument, issued using an established and defined ranking system of rating categories;
According to Article 2 of the CRA regulation, rating agencies need to register with ESMA so that their ratings can be used for regulatory purposes. The list of registered or certified rating agencies in Europe can be looked up at ESMA’s website.
Not covered by this regulation are private credit ratings, credit scores, credit ratings from export credit agencies (see below) and credit ratings from central banks.
Who can use ratings for regulatory purposes?
According to Article 4 of the CRA Regulation the following market participants MAY use ratings for regulatory purposes:
- Credit institutions as defined in Directive 2006/48/EC,
- investment firms as defined in Directive 2004/39/EC,
- insurance undertakings subject to the First Council Directive 73/239/EEC of24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance
- assurance undertakings as defined in Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance, reinsurance undertakings as defined in Directive 2005/68/EC of the European Parliament and the Council of 16 November 2005 on reinsurance,
- undertakings for collective investements in transferable securities (UCITS) as defined in Directive 85/611/EEC
- institutions for occupational retirement provisions as defined in Directive 2003/41/EC
- Alternative investment funds as defined in Directive 2011/61/EU *)
- Central counterparties authorized in accordance with Regulation 2012/648/EU *)
How can ratings from registered CRAs be used?
Whereas the first European regulations on Credit Rating Agencies did not further define how the above users should use the ratings, the CRA III regulation includes 2 important provisions:
1) Structured Finance instruments shall be deemed unrated unless rated by 2 or more agencies according to the new Article 8b,
2) Investors "shall make their own credit risk assessment and shall not solely or mechanistically rely on credit rating fro assessing the creditworthiness of an entity of financial instrument. (new Article 5b)
Sectoral legislation (such as the Capital Requirements Directive) include the provision that sectoral competent authorities should map ratings from registered CRAs onto their own risk scales. As soon as a mapping of ratings is available, this shall be displayed here.
Ratings issued in third countries
The EU CRA regulation takes into account ratings issued in third countries in two different ways: endorsement (Article 4.3) or equivalence (Article 5).
Article 5 relates to Credit Rating Agencies established in third countries and allows the use of credit ratings issued by these agencies if the following conditions are met:
- The credit rating agency is authorized or registered in and is subject to supervision in that third country,
- The Commission has adopted an equivalence decision recognizing the legal and supervisory framework of that third country as equivalent to the requirements in Europe,
- A cooperation agreement between ESMA and the third country competent authority regarding the supervision of credit rating agency is operational
- The credit rating agency is certified by ESMA.
The European Commission has adopted decisions on the equivalence of the legal and supervisory frameworks on CRAs (or equivalent) on the following countries: Australia, Canada, Japan and the United States.
Currently, only Japan Credit Rating Agency Ltd from Japan and Kroll Bond Rating from the US are certified with ESMA.
Article 4.3 (endorsement procedure) relates to credit ratings issued in third countries. These can be used if the following conditions are met:
- the credit rating activities resulting in the issuing of the credit rating to be endorsed are undertaken in whole or in part by the endorsing credit rating agency or by credit rating agencies belonging to the same group;
- the credit rating agency has verified and is able to demonstrate on an ongoing basis to the European Supervisory Authority (European Securities and Markets Authority) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (*) (ESMA), that the conduct of credit rating activities by the third-country credit rating agency resulting in the issuing of the credit rating to be endorsed fulfils requirements which are at least as stringent as the requirements set out in Articles 6 to 12;
- the ability of ESMA to assess and monitor the compliance of the credit rating agency established in the third country with the requirements referred to in point (b) is not limited;
- the credit rating agency makes available on request to ESMA all the information necessary to enable ESMA to supervise on an ongoing basis the compliance with the requirements of this Regulation;
- there is an objective reason for the credit rating to be elaborated in a third country;
- the credit rating agency established in the third country is authorised or registered, and is subject to supervision, in that third country;
- the regulatory regime in that third country prevents interference by the competent authorities and other public authorities of that third country with the content of credit ratings and methodologies; and
- there is an appropriate cooperation arrangement between ESMA and the relevant supervisory authority of the credit rating agency established in a third country. ESMA shall ensure that such a cooperation arrangement shall specify at least:
- the mechanism for the exchange of information between ESMA and the relevant supervisory authority of the credit rating agency established in a third country; and
- the procedures concerning the coordination of supervisory activities in order to enable ESMA to monitor credit rating activities resulting in the issuing of the endorsed credit rating on an ongoing basis.’;
Currently, ratings issued in the following countries may be endorsed by European registered rating agencies: Argentina, Australia, Brazil, Canada, Dubai, Hong Kong, Japan, Mexico, Singapore and the United States.
Out of the EU registered CRAs, the following agencies may be using the endorsement mechanism: AM Best, DBRS, FitchRatings, Moody’s and Standard & Poor’s. With reference to the "endorsement policy" as published on the websites of the respective agencies, the endorsement is applied as follows:
- DBRS Ratings Limited (UK) endorsed ratings issued by DBRS Limited (Canada) and DBRS Inc. (US);
- FitchRatings Limited (UK) endorsed ratings issued by Fitch, Inc.(US), Fitch Argentina Calificadora de Riesgo S.A, Fitch Australia Pty Ltd., Fitch Ratings Brasil Ltda., Fitch (Hong Kong) Ltd., Fitch Ratings Japan Ltd., Fitch Mexico S.A. de C.V., Fitch Singapore Pte. Ltd.
- Standard&Poor’s, as of 30 April 2012, states that global scale ratings issued by S&P’s ratings affiliates in Argentina, Australia, Brazil, Canada, Hong Kong, Japan, Mexico, Singapore and the United States are endorsable in the European Union. (for U.S. Public Finance, S&P will endorse ratings “on request,” as S&P expects limited market demand for these endorsements).
The directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions, which implements the Basel II framework into European legislation, allows credit institutions using the standardized approach to use ratings from External Credit Assessments Institutions (“ECAI”).
According to Annex VI Part 3 of Directive 2006/48/EC, “a credit institution may nominate one or more eligible ECAIs to be used for the determination of risk weights to be assigned to asset and off-balance sheet items”. Such credit assessments shall be used for all exposures in a continuous and consistent way over time.
Recognised ECAIs and Mapping
Annex VI Part 2 of Directive 2006/48/EC requires competent authorities to provide for a mapping of the credit assessments into the different credit quality steps. On an indicative basis, below is a table summarizing the mapping of long term credit assessments from all entities recognised ECAIs in the European Union:
In addition, competent authorities provide mappings for short term credit assessments and specific mappings for long term and short term securitization positions under the standard approach ("SA") and under the internal ratings based approach ("IRB").
Note that the ECAI status is a national status (as opposed to the CRA status which is usuable throughout the European Union) and that only few players are recognized as ECAIs in all EU Member states.
Note also that the ECAI status needs to be granted for the 3 main market segments (Public Finance, Structured Finance and commercial entities) separately.The ECAI status may therefore not be applicable.
You may look up the full mapping at the website of the European Banking Authority (“EBA”) by clicking on this link. Under the item “recognition Process of ECAIs” you may download the full mapping.
Whereas credit assessments from Export Credit Agencies (“ECA”) are not covered by the CRA regulation, the directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions in its Annex VI Part 1 point 1.3 provides for the possibility to use credit assessments from ECAs
- if it is a consensus risk score from ECAs participating in the OECD “Arrangement on Guidelines for Officially Supported Export Credits” or if
- the ECA publishes its credit assessments using the eight minimum export insurance premiums (“MEIP”) that the OECD agreed methodology establishes.
The MEIP may be mapped into risk weights:
The mapping into the 6 credit quality steps was derived by using table 1 in the Annex VI Part 1 point 1.1 of directive 2006/48/EC). Please note that these mappings are only of indicative nature.
For further information on the OECD Arrangement please consult our section on "Sovereign Assessments from Export Credit Agencies".
At OECD’s website, you may also find the current minimum Country risk classification: http://www.oecd.org/document/49/0,3746,en_2649_34169_1901105_1_1_1_1,00.html
Currently 4 companies are registered as “Calificadoras de Riesgo” with Commission Nacional de Valores (“CNV Argentina”):
On CNV Argentina website, you may look up publicly available ratings in Argentina.
Relation with European Union
On April 18th, ESMA announced that it considers the regulatory regime for Credit Rating Agencies in Argentina to be in line with European Union rules In July 2012, ESMA and the CNV Argentina entered into a Memorandum of Understanding regarding the cooperation of competent authorities for the supervision of Credit Rating Agencies.
The Australian legal and regulatory framework for credit rating agencies was introduced on January 1st, 2010. Credit rating agencies are required to hold an Australian Financial Services (AFS) licence granted by the Australian Securities & Investments Commission (“ASIC”) http://www.asic.gov.au/asic/asic.nsf. Under the AFS licensing regime, credit rating agencies are required to meet the general licensee obligations set out in the Corporations Act and specially tailored conditions relating to credit rating agencies.
According to our research, the following companies are currently registered as credit rating agencies in Australia:
Relation with European Union law:
In December 2011, ESMA announced that EU-registered CRAs may endorse credit ratings issued in Australia.
On April 18th, 2012, ESMA issued its technical advice to the European Commission and concluded that the Australian legal and supervisory framework for CRAs is equivalent to the EU regulatory regime. .
On October 5th, 2012, the European Commission adopted the decision on the recognition of the legal supervisory frameworks of Australia as equivalent to the requirements of the EU CRA Regulation.
In April 2012, the Comissao de Valores Mobiliarios (“CVM Brasil”) adopted the requirements for Credit rating agencies domiciled in Brazil.
Players on Brazilian market
According to our research, the following credit rating agencies are currently operating in Brazil:
Relation with European Union
On April 27th, 2012, ESMA announced that it considers the regulatory framework for credit rating agencies of Brazil to be in line with European Union rules. It also entered into a cooperation agreement with CVM Brazil.
In January 2012, the Canadian Securities Administrators adopted the regulatory regime for Credit Rating Organizations. On April 30th, 2012, The Canadian Securities Administrators announced the official designation as Designated Rating Organization (“DRO”) of the following companies:
List of Designated Rating Organizations
Relation with European Union law
On March 15th, ESMA announced that EU-registered CRAs may endorse credit ratings issued in Canada. In July 2012, ESMA and the Canadian Securities Administrators entered into a Memorandum of Understanding regarding the cooperation of competent authorities for the supervision of Credit Rating Agencies.
On April 18th, 2012, ESMA issued its technical advice to the European Commission and concluded that the Canadian legal and supervisory framework for CRAs is equivalent to the EU regulatory regime. .
On October 5th, 2012, the European commission adopted the decision on the recognition of the legal supervisory frameworks of Canada as equivalent to the requirements of the EU CRA Regulation.
The Superinterndencia General de Valores ("SUGEVAL") is the supervisor of Calificadoras de Riesgo.
You may look up ratings in Costa Rica in the public register maintainde by SUGEVAL following this link.
The Supervisor of Credit Rating Agency in Dubai is the Dubai Financial Services Authority (“DFSA”)
Agencies operating in Dubai need to comply with the requirements as specified in the “Specific rules COB 8 – Operating a Credit Rating Agency”
Relations with European Union
On February 7th, 2013, ESMA and DFSA entered into a Memorandum of Unterstanding regarding the supervision of cross-border Credit Rating Agencies. Ratings issued in Dubai may now be endorsed by European registered rating agencies.
The Superintendencia de Companias is the supervisor of Calificadoras de Riesgo.
You may find public ratings in Ecuador by following this link and selecting "calificaciones realizadas"
The regulatory regime governing CRAs operating in Hong Kong became effective on 1 June 2011 under the supervision of the Securities & Futures Commission of Hong Kong ("SFC")
According to the SFC website (update October 10th, 2012), the following companies have a Type 10 (“providing credit rating services”) license:
Relation with European Union
On March 15th, ESMA announced that EU-registered CRAs may endorse credit ratings issued in Hong Kong.
The Financial Services Agency of Japan (“FSA Japan”) is the supervisor of CRAs in Japan.
Registered Credit Rating Agencies:
Currently registered are the following companies
The Japanese regualtory regime on CRAs is equivalent to the European framework
The supervisor of credit rating agencies in Mexico is Comisión Nacional Bancaria y de Valores ("CNBV")
Registered Credit rating Agencies
Currently registered as “clasificadora de valores” are the following companies:
Mapping of ratings
To view the mapping of ratings, please login with your account and follow this link
Relation with European Union
On April 18th, 2012, ESMA announced that it considers the regulatory regime for Credit Rating Agencies in Mexico to be in line with European Union rules. Ratings issued in Mexico may therefore be endorsed by ESMA registered CRAs.
Currently registered with the Monetary Authority of Singapore (“MAS”) are the following companies
Relation with European Union
On March 15th, ESMA announced that EU-registered CRAs may endorse credit ratings issued in Singapore. In July 2012, ESMA and the Monetary Authority of Singapore (“MAS”) entered into a Memorandum of Understanding regarding the cooperation of competent authorities for the supervision of Credit Rating Agencies.
This section is being prepared with the kind support of
The regulatory use of ratings in Switzerland is mainly defined by Swiss Financial Market Supervisory Authority FINMA. Unlike in the EU, there is no formal registration process for rating agencies in Switzerland. Rating agencies are given the possibility to apply for recognition as an External Credit Assessment Institute (ECAI) only. According to international regulatory practice, FINMA determines the specific rating segments of recognized ECAI’s that can be used for regulatory capital requirements in consideration with domestic needs.
The FINMA Circular 2012/1 on Credit Rating Agencies entered into force on January 1st 2012 and can be found here: http://www.finma.ch/e/regulierung/Documents/finma-rs-2012-01-e.pdf
Recognized Rating Agencies
Currently, the following Rating Agencies are recognized by FINMA in Switzerland:
The recognition is granted separately for the 3 broad market segments “public finance”, “commercial entities” and “structured Finance”. Whereas Fedafin AG is recognized for the Public Finance segment, the other 4 cover all 3 segments.
Long term Ratings from the above agencies are mapped by FINMA onto the 7 credit quality steps applicable to banks in Switzerland as follows:
In 2006, the US enacted the “Credit Rating Agency Reform Act” http://www.sec.gov/divisions/marketreg/ratingagency/cra-reform-act-2006.pdf
According to Section 3 “Definitions” a Credit Rating means “an assessment of the creditworthiness of an obligor as an entity or with respect to specific securities or money market instruments”.
The term ‘nationally recognized statistical rating organization’ ("NRSRO") means a credit rating agency that:
- has been in business as a credit rating agency for at least the 3 consecutive years immediately preceding the date of its application for registration under section 15E;
- issues credit ratings certified by qualified institutional buyers, in accordance with section 15E(a)(1)(B)(ix), with respect to
(i) financial institutions, brokers, or dealers;
(ii) insurance companies;
(iii) corporate issuers;
(iv) issuers of asset-backed securities (as that term is defined in section 1101(c) of part 229 of title 17, Code of Federal Regulations, as in effect on the date of enactment of this paragraph);
(v) issuers of government securities, municipal securities, or securities issued by a foreign government; or
(vi) a combination of one or more categories of obligors described in any of clauses (i) through (v); and
- is registered under section 15E.
In 2010, the US Congress adopted the Dodd-Frank Wall Street Reform and Protection Act (“Dodd-Frank Act”). This Act includes in its Title IX Subtitle C “improvements to the Regulation on Credit Rating Agencies”. http://www.sec.gov/divisions/marketreg/ratingagency/wallstreetreform-cpa-ix-c.pdf
This Dodd-Frank Act addresses a.o. the following issues:
- Enhanced regulation, accountability and Transparency of NRSROs by establishing requirements on internal controls over processes for determining credit ratings, on the separation of ratings from sales and marketing, and look-back requirements (in case an NRSRO employee move to a rated entity)
- The SEC shall report annually over its annual examination at NRSROs and establish an Office of Credit Ratings http://www.sec.gov/about/offices/ocr.shtml
- Requirements on rating methodologies and their review,
- Removing statutory references to credit ratings in the Federal Deposit Insurance Act, the Federal Housing Enterprises Financial Safety and Soundness Act, the Investment Company Act, the Securities Exchange Act within 2 years of the adopted of the Dodd-Frank Act and by replacing them with other measures of alternative measures of creditworthiness
- Several reports and studies
Currently registered as Nationally Recognized Statistical Rating Organisation ("NRSRO") with the Securities and Exchange Commission ("SEC") are the following companies:
Relations with European Union
On March 15th, ESMA announced that EU-registered CRAs may endorse credit ratings issued in the United States. In July 2012, ESMA and the US Securities and Exchange Commission (“SEC”) entered into a Memorandum of Understanding regarding the cooperation of competent authorities for the supervision of Credit Rating Agencies. http://www.esma.europa.eu/system/files/esma-sec_mou_march_2012.pdf
On April 18th, 2012, ESMA issued its technical advice to the European Commission and concluded that the US legal and supervisory framework for CRAs is equivalent to the EU regulatory regime. http://www.esma.europa.eu/system/files/2012_-259_0.pdf.
On October 5th, 2012, the European commission adopted the decision on the recognition of the legal supervisory frameworks of the US as equivalent to the requirements of the EU CRA Regulation. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:274:0032:0033:EN:PDF
Out of the 10 registered NRSROs, the following are endorsing ratings issued in the US: A.M. Best Company, DBRS Inc, Fitch Inc. Moody’s. Japan Credit Rating Agency is certified by ESMA, the others not.
The supervisor of Calificadoras de Riesgo is Banco Central de Uruguay ("BCU")