European securities regulators said have concluded that the proposed regulatory regime for credit rating agencies in Canada, and several other countries, is in line with the new European rules.
The European Securities and Markets Authority announced Thursday that it considers the regulatory frameworks of Canada, the U.S., Hong Kong and Singapore to be as stringent as its new rules. The decision allows European financial institutions to continue using credit ratings issued in these countries for regulatory purposes after April 30.
For European rating agencies to endorse credit ratings issued in non-EU countries, the ratings must be issued by CRAs that are registered and subject to supervision in those countries. The ESMA notes that this is already the case for the US and Hong Kong, and new regimes are taking effect in Canada and Singapore, and are due to be completed before the end of April. Additionally, the ESMA says that it has entered into co-operation agreements for the supervision of CRAs with regulators in Canada, the US, Hong Kong and Singapore.
“By allowing EU-registered CRAs to endorse credit ratings issued by CRAs based in the USA, Canada, Hong Kong and Singapore, ESMA today takes a major step towards the international convergence of credit rating agencies’ oversight,” said Steven Maijoor, chair of the ESMA.
Back in January, the Canadian Securities Administrators announced that they are adopting a new rule that establishes a regulatory framework for the oversight of rating agencies by requiring them to apply to become a ‘designated rating organization’ and adhere to rules concerning conflicts of interest, governance, conduct, a compliance function and required filings. Until now, the rating agencies have not been subject to any formal regulatory oversight.
Initially, Canadian regulators were proposing a less onerous regime that would have only required the CRAs to comply with regulatory requirements, or explain why they chose to deviate from the requirements. However, they revised their approach after it became clear that this would likely not be acceptable to European regulators. The new regime is due to take effect on April 20.
In addition to assessing the endorsability of non-EU regimes, the ESMA says that it will shortly provide its technical advice to the European Commission on the equivalence of the regulatory regimes for CRAs in the Canada, the US, and Australia. Once the Commission has declared a third-country regime to be equivalent to the EU regime, CRAs which are only established in that country can submit their application to the ESMA to be certified in the EU, which would allow their ratings to be directly used by EU financial institutions.
The ESMA is also currently working to finalize assessments of Argentina, Mexico and Brazil, and to conclude the necessary co-operation agreements as soon as possible.