ESMA published an update to its March 2019 statement on the endorsement of credit ratings from UK. The update provides clarity on whether endorsement can proceed following the end of the transition period on December 31, 2020 in the context of the UK's Withdrawal Agreement from EU. In this statement, ESMA confirms that EU credit rating agencies (CRAs) will be able to endorse credit ratings elaborated in UK after the end of the transition period.
In March 2019, ESMA had communicated that it completed an assessment of the legal and supervisory framework for CRAs, foreseen by the UK Statutory Instrument 266 of February 13, 2019, which will take effect after the end of the transition period. In this communication, ESMA had concluded that the foreseen UK legal and supervisory framework for CRAs met the conditions for endorsement if it fully entered into force on the date of Brexit in an unaltered form. ESMA is now satisfied that the previously foreseen UK legal and supervisory framework will fully enter into force after the end of the transition period and that this requirement of the endorsement regime can be considered as being met.
Endorsement is one of the two regimes provided for in CRA Regulation to allow credit ratings issued in a third country to be used for regulatory purposes in EU. The other regime is equivalence, which is a condition for endorsement that the UK has a legal and supervisory framework in place for CRAs and that the framework meets certain standards. The CRA Regulation only allows for endorsement of a credit rating where there is an objective reason for elaborating the credit rating outside EU. As part of their preparation for Brexit, UK-based CRAs have been transferring the issuance of credit ratings to an affiliated EU entity to meet this requirement where necessary. Endorsement requires that an EU CRA is willing to endorse the credit ratings issued by a UK-based CRA from the same group. The EU CRA must notify ESMA of its intention to endorse credit ratings from the UK-based CRA. As of today, all UK-based CRAs except The Economist Intelligence Unit Ltd have taken steps to ensure that an EU CRA is willing and able to endorse its credit ratings after the end of the transition period. While ESMA can confirm that the necessary conditions for endorsement have been met, the decision to endorse some or all of the credit ratings issued by UK-based CRAs lies exclusively with the EU CRAs.
Keywords: Europe, EU, UK, Banking, Securities, Brexit, Transition Period, CRA, ESMA
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