January 07, 2019

FCA announced that it will become the UK regulator of the credit rating agencies (CRAs). Any legal person wishing to issue credit ratings in the UK for regulatory purposes on or after exit of the UK from EU will need to be registered or certified with FCA. In the event there is no ratified withdrawal agreement, FCA will assume responsibility for registering and supervising CRAs in the UK when the UK leaves the EU on March 29, 2019 (exit day).

The European Union (Withdrawal) Act 2018 (EUWA) will repeal the European Communities Act 1972, preserve existing UK laws that implement EU obligations, and convert existing EU law at the point of exit into the UK law. The EUWA allows for amendments to this retained EU legislation to ensure that it continues to operate effectively once the UK leaves EU. It is not intended to make policy changes, other than where appropriate to reflect the UK’s new position outside the EU. To support a smooth transition to the new regime for CRAs in the UK and to minimize disruption to the users of credit ratings, FCA announcement mentioned that the draft Credit Rating Agencies (Amendments etc.) (EU Exit) Regulations 2018 (CRAR SI) prescribes several transitional processes for existing CRAs. The draft CRAR SI introduces both a conversion and temporary registration regime available to CRAs wishing to issue ratings in the UK on or after exit day:

  • Registration Conversion regime. This will allow CRAs incorporated in the UK and registered with ESMA under the CRA Regulation to notify FCA before exit day to convert their existing ESMA registration into a registration with FCA.
  • Certification Conversion regime. CRAs certified with ESMA will be able to notify FCA before exit day to extend their certification to the UK.
  • Temporary registration regime. This will offer temporary registration to CRAs that submit an advance application for registration with FCA before exit day, provided they are a UK incorporated entity and are part of the same group as a CRA with an existing ESMA registration.

For firms not making use of the above transitional processes, applications to register as a new CRA will be assessed in accordance with the usual procedures in the CRA Regulation, as brought into UK law under the EUWA. If the UK enters an implementation period after Brexit, EU law would remain applicable in the UK from March 29, 2019 until the end of December 2020, in accordance with the withdrawal agreement, and the CRAR SI will not have effect for the duration of the implementation period.

 

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Keywords: Europe, UK, Banking, Insurance, Securities, CRA, CRA Regulation, Brexit, CRA Regulation, FCA

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