On 13 April 2021, the European Securities and Markets Authority (ESMA) published its response to an earlier letter it had received from the European Systemic Risk Board (ESRB) providing detailed views on the procyclical impact of downgrades of corporate bonds. In particular, the letter focuses on the transparency of credit rating agency (CRA) methodologies and contractual references to credit ratings by providing an overview of:

• The current state of play from a regulatory perspective, highlighting aspects of the CRA Regulation and ESMA’s activities that are relevant in the context of the ESRB’s earlier letter.
• ESMA’s preliminary observations on the definition of ratings, the rating “through-the-cycle” concept and the timely incorporation of information in credit ratings by CRAs.
• Possible follow-up work on contractual references to credit ratings and the transparency on some of the more technical aspects of CRA methodologies.