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Brexit scenario, UK-based CRAs will no longer meet the conditions for registration and their registrations will be withdrawn changing their status to third-country CRAs.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.
Keywords: Europe, EU, UK, Banking, Securities, Brexit, No-Deal Brexit, CRA Regulation, EU27 CRA, UK-Based CRA, CRA, ESMA
Previous ArticleFSB Letter to ISDA on Ensuring Robustness of Derivatives Contracts
Next ArticleEBA Single Rulebook Q&A: Third Update for March 2019
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.