ESAs publish position on credit quality steps for ECAIs’ credit assessments

The Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA – ESAs) published today its Opinion on the European Commission’s (EC) intention to amend the draft Implementing Technical Standards (ITS) on the mapping of External Credit Assessment Institutions’ (ECAIs) credit assessments under the Capital Requirements Regulation (CRR) and Solvency II Directive. The Opinion was produced in response to the EC’s proposed amendments to these draft ITS.

The draft ITS were prepared by the ESAs and submitted to the EC via the Joint Committee in November 2015. In these ITS, the ESAs had particularly proposed “less conservative” quantitative requirements to apply for a phase-in period of three years. Thus, the ECAIs could receive the best mapping based on their past performance, irrespective of how many ratings they have already produced. Upon expiry of the phase-in period, from 2019 onwards, the Joint Committee intended to apply a “more conservative” approach, requiring ECAIs to issue a minimum number of ratings in order to receive the best mapping.

On 30 March 2016, the EC informed the Joint Committee of its intention to amend the draft ITS by extending the “less conservative” approach to the mapping of ECAIs.

In their Opinion, the ESAs express their disagreement with the EC’s proposal since favouring competition aspects over prudential considerations increases the risk to financial stability and is not in line with the mandate given to the ESAs.

The Joint Committee believes that the initial draft ITS represent a good balance of prudential objectives and at the same time sufficiently promote market competition in the credit rating industry.

The statement and the full report are available here.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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