The European Securities and Markets Authority (ESMA) has published its third annual report on credit rating agencies (CRAs) in the EU.

The annual report has four substantive chapters covering:

  • an overview of the EU CRA industry;
  • ESMA’s commitments in its 2012 annual report on CRAs and 2013 deliverables;
  • ESMA’s CRA supervision work plan for 2014 and beyond; and
  • ESMA’s CRA related policy work plan for 2014 and beyond.

In its latest annual report ESMA notes that CRAs continue to progress in how they comply with the CRA Regulation, including improved internal transparency and disclosure to the market on credit rating activities as well as empowerment of the compliance function.

However, ESMA also recognises that there are a number of outstanding issues that still need addressing, such as:

  • validation of rating methodologies, ensuring the full independence of the internal review function;
  • internal governance, ensuring the full independence of the internal review function to reduce the risk of potential conflicts of interest; and
  • robust IT systems to support the rating process.

The above issues will form much of ESMA’s supervision activities for 2014.

ESMA will complete two on-going supervisory reviews into CRA’s monitoring of structured finance ratings and into small and medium sized CRAs. It will also conduct a new thematic investigation into how CRAs review and validate their rating methodologies, as well as dedicated work on CRAs’ IT systems and controls.

View Credit rating agencies – third annual report 2013, 21 February 2014