European Association of Credit Rating Agencies (EACRA")"

Yes, we agree with the definition proposed in paragraph 12. In the application of this definition, we would like to recall the principle of proportionality embedded in Art 5a of CRA III.

This Consultation relates to the latest amendment of the EU Regulation on Credit Rating Agencies, which widely implements the Principles for Reducing Reliance on CRA Ratings as issued by the Financial Stability Board in October 2010. While these principles include the objective of reducing mechanistic reliance by market participants on CRA Ratings, the principles do not further define the terms “sole or mechanistic”. During the negotiations of CRA III, these terms were widely discussed without providing a detailed definition. We therefore welcome the ESA’s intent to clarify this important concept.
While the FSB Principles call on reducing reliance to credit ratings, in parallel, legislation on Credit Rating Agencies in Europe has been substantially strengthened over time and includes amongst others a Civil liability regime. In several jurisdictions, specific legislation on Credit Rating Agencies has been equally introduced or been amended.
Removing references to ratings means that investors/users of ratings but also supervisors will have less comfort going forward. First, CRA ratings are an established external benchmark used by a variety of different investors. Second, finding alternatives measures of credit risk is a challenging task. Third, specific sectoral alternatives measures may fragment the access to finance and may create new cliff effects. Finally, alternatives risk measures are currently not regulated and supervisory authorities have no powers to act if required. We have therefore proposed to the FSB in its Stock Taking Exercise on Reference to ratings to expand the principles of “removing or replacing CRA ratings” to “removing, adapting, complementing or replacing” CRA ratings. The FSB acknowledges itself that the Principles are “not about abolishing CRA ratings or their use by banks and other investors”; our proposed expansion of the principles ensures that this important aspect is taken into account.
We very much welcome the review exercise carried out by EBA, EIOPA and ESMA regarding references to ratings in their guidelines and recommendations. We positively note that the ESA’s have identified several references to ratings which do not trigger any “sole or mechanistic” reliance.
With respect the Standardised Approach for banking institutions and the mapping of ECAI ratings, we agree with the conclusion that level 2 legislation can’t change level 1 regulation. The recently amended Capital Requirements Directive (and Regulation) takes into account external ratings but on the same time promotes the use of the internal ratings based approach for calculating own funds requirements for credit risk.

Review guidelines to make them generic and relating to all CRAs
Given that CRAs use very different rating scales, we propose that any requirement in a specific guidleine should be defined according to the standards used in the respective regulation and that the CRAs rating are mapped to these standards. This would make references to ratings less prominent, more precise and more generic (not linked to a specific CRA). We further recommend that alternative terms for credit risk categories like “high quality” or “investment grade” should be defined in sectoral regulation. Cross-sectoral convergent definitions would of course be welcomed.
As an example, we would like to cite the references on page 11 of the Consultation to “a minimum claims paying ability rating of A”. While the rating symbol of “A” is usually associated with the third highest rating category, this may not be the case for all registered CRAs (eg FeriEuroRatings, ICAP or Assekurata). AM Best uses “a” instead of “A”. Finally, a reference to the symbol “A” leaves users unclear whether the rating category is meant or whether the rating symbol (which represents a more stringent requirement).
Given that some CRAs do not notch at all their scales (eg Cerved of ICAP), references cannot be done to “downgrades by 3 notches” either

On Article 5a “Over-reliance on credit ratings by financial institutions”
While the Consultation relates only to Article 5b, we would like to comment also on Article 5a of CRA III which calls on users of ratings not to rely solely or mechanistically on external ratings and requests sectoral competent authorities to “assess the use of contractual references to credit ratings”. We would like to recall that CRD IV introduces 2 very important changes regarding the “External Credit Assessment Institution” (ECAI) status:
- The ECAI status will be granted automatically to ESMA registered Credit Rating Agencies
- The ECAI status will be an European wide one.
While the ECAI status was a national one and restricted in several EU Members States to just 3 well known CRAs, this legislative change means that banking institutions will be able to use going forward all ESMA registered and certified Credit Rating Agencies (currently 24). We therefore call on all ESA’s to inform all supervised entities about this important change and recommend that all users familiarize with all ESMA registered CRAs.
Similar to the above approach for the ESA’s guidelines and recommendations, we think that contractual clauses to CRA ratings should be reviewed so that they generically relate to ESMA registered CRAs.
No, we do not agree with the proposed revision of these guidelines and propose instead that the outcome of the Money Market Funds Regulation currently under negotiations is awaited. While the proposed guidelines are fairly similar to the European Commission’s proposal, negotiations of this legislative file may end with a modified or different approach. This in turn could mean that the new guidelines would be revised soon again, thereby creating unnecessary burdens to users of money market fund ratings.
Please note that EACRA Members are currently not active in the rating of Money Market Funds and our position in this context is of general nature.


Note to Readers: EACRA currently represents 8 ESMA registered Credit Rating Agencies and 4 agencies recognized or registered outside of the European Union. The profile of EACRA members are available at our website: www.eacra.fr
Thomas Missong