BVI

We propose to amend the definition as follows:

“It is considered that there is sole or mechanistic reliance on credit ratings (or credit rating outlooks) when an action or omission for assessing the creditworthiness of an entity or financial instrument is the consequence of any type of rule solely based on credit ratings (or credit rating outlooks) without any additional discretion.

The proposed definition of the ESAs’ in the consultation paper is very broad and includes all actions or omissions in any context of credit ratings. This goes beyond Articles 5a and 5b of the CRA with focus of the creditworthiness of an entity or financial instrument. For example, ratings of tenants in cases of investments in real estate schould not included in the assessment of over-reliance. Therefore, the definition should be restricted to actions or omissions for assessing the creditworthiness of an entity or financial instrument". Moreover, it should be clarified that this definition is solely relevant for the purpose of Article 5a, 5b and 5c of the CRA."
We did not identify any other guidelines, texts and provisions with focus on over-reliance. However, it should be clarified that all national authorities should not refer to credit ratings in their guidelines and recommendations. Therefore, national authorities should also be required to review and remove, where appropriate, all such references to credit ratings in existing guidelines and recommendations.

Moreover, we realise that ESAs do not consider it appropriate to repeal or amend the guidelines to remove the references to external ratings in cases where specific rules of the CRR or the Solvency Directive apply. However, it should be clarified that the ESAs will interpret these rules in the light of the CRA requirements.
We greatly appreciate that the assessment of the credit quality of a money market instrument must not consider (as previously under the CESR's Guidelines) each recognised credit rating agency that has rated the instrument. However, the following points should be clarified and amended:

a) Documented assessment of credit quality
Each manager of MMFs should be allowed to create its own credit assessment system with the understanding that the manager would have to provide the design and operational details of its system to allow competent authorities to evaluate the appropriateness of the system. In this context, it should be further clarified that an internal assessment of the credit quality of money market instruments does not neccesary lead to a formal assignment of an interal “credit rating”. The interanal credit assessement of the “high quality” of investments must not lead to implementation of the same kind of research and governance processes which are implemented in a regulated credit rating agency.

b) Reliance to external ratings
Sentence 2 of paragraph 47 and paragraph 48 should be amended as follows:

Such an assessment may (not should) have regard to the credit rating(s) provided by one or more credit rating agencies ..."

In terms of avoiding mechanistic overreliance on external credit ratings, it is contradictory that MMF managers should be required to monitor the credit ratings provided by at least on CRA recognized by ESMA. Therefore, the use and the number of credit rating agencies should be determined by the fund’s management in the best interest of unit holders.

c) Downgrades
It should be clarified that sentence 3 ("downgrades ... used by such an agency") refers to sentence 2. This means that the manager should only consider downgrades of such an agency if he has used the rating of the relevant agency within the credit assessment."
Peggy Steffen