ESMA Consults on Guide to Internal Controls for Credit Rating Agencies

The CRA Regulation includes a number of requirements for the internal control system that a CRA must have in place to prevent or mitigate any possible conflicts of interest that may impact the independence of its credit rating activities. The proposed guidelines set out the views of ESMA on the components and characteristics that CRAs should have in place to demonstrate the presence of an effective framework for internal controls and effective internal control functions. The Internal Controls Framework focuses on the control environment, risk management, control activities, information and communications, and monitoring activities of a CRA. However, the Internal Controls Functions focus on specific roles, namely compliance, review, risk management, information security, and internal audit. These guidelines have been developed with a view to accommodate the proportionality that is provided for smaller CRAs under the CRA Regulation. The need for guidance on internal controls was identified during the supervisory work of ESMA in 2017 and 2018 and its development was highlighted as part of its 2019 Supervisory Work Program.

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Comment Due Date: March 16, 2020

Keywords: Europe, EU, Banking, Insurance, Securities, CRAs, Internal Control Functions, Guideline, CRA Regulation, ESMA