March 15, 2019

ESMA has set out the implications of Brexit for credit rating agencies (CRAs) based in UK, including the endorsement of UK credit ratings, in case of a no-deal Brexit. In a no-deal Brexit scenario, UK-based CRAs will no longer meet the conditions for registration and their registrations will be withdrawn changing their status to third-country CRAs. In this event, the outstanding credit ratings of UK-based CRAs will only continue to be usable for regulatory purposes in EU if the credit ratings are endorsed by a CRA that is located in an EU member state (EU27 CRA).

Most UK-based CRAs have taken the necessary steps to prepare for the endorsement regime. An EU27 CRA must notify ESMA of its intention to endorse credit ratings from the UK-based CRA. ESMA supervises seven UK-based CRAs—AM Best Europe-Rating Services Ltd, DBRS Ratings Limited, Fitch Ratings Limited, Fitch Ratings CIS Limited, Moody’s Investors Service Ltd, Moody’s Investors Service EMEA Ltd, and The Economist Intelligence Unit Ltd. As of March 15, 2019, all UK-based CRAs, except The Economist Intelligence Unit Ltd, have taken steps to ensure that an EU27 CRA is willing and able to endorse its credit ratings in a no-deal Brexit scenario.

For a credit rating issued by a third-country CRA to be endorsed by an EU27 CRA, the CRA Regulation requires a set of strict conditions to be met. Some of these conditions relate to the legal and supervisory framework in the third country while other conditions relate to the EU27 and third-country CRAs that wish to make use of the endorsement regime. ESMA has completed an assessment of the legal and supervisory framework for CRAs foreseen by the UK statutory instrument 226 of February 13, 2019, which will take effect on the date of Brexit, in a no-deal Brexit scenario. It is also a condition for endorsement that ESMA has a cooperation agreement with the supervisory authority of the UK. This condition is met by the memorandum of understanding that was agreed on February 01, 2019 and will take effect on the date of Brexit, in a no-deal Brexit scenario. 

 

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Keywords: Europe, EU, UK, Banking, Securities, Brexit, No-Deal Brexit, CRA Regulation, EU27 CRA, UK-Based CRA, CRA, ESMA

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