On Dec. 18, ESMA issued final report on credit ratings disclosures.
ESMA issued final report on technical advice on revisions to EU CMSN delegated Reg 447/2012 and annex I of credit rating agencies regulation (CRAR Reg 1060/2009).
ESMA received formal request for technical advice from the Commission in Jun. 2023.
The request sought input on how the delegated act and CRAR annex could be amended to ensure that relevant ESG risks are systematically captured in credit ratings.
And improve transparency in inclusion of ESG risks by CRAs in credit ratings/outlooks.
On Apr. 2, 2024, ESMA published a consultation paper proposing amendments to EU CMSN delegated regulation 447/2012 and annex I of CRAR, to ensure the better traceability on the incorporation of ESG factors in credit rating methodologies.
And better disclosure of relevance of ESG factors to individual credit rating actions.
The proposals in the consultation paper were provided in response to a formal request for technical advice received from the European Commission in Jun. 2023.
The proposals also responded to the need to update a number of provisions of delegated regulation 447/2012 to reflect ESMA’s supervisory observations.
Following conclusion of the consultation, ESMA introduced revisions to its proposed technical advice; ESMA's final report provides ESMA’s proposals for amending delegated regulation 447/2012 and the credit rating agencies regulation, annex I.
CRA Regulation
CRA regulation sets out detailed requirements to protect against conflicts of interest, ensure robust methodologies, sound corporate governance, deliver transparency.
Supporting regulatory framework is composed of several regulatory technical standards and delegated acts with more detail on functioning of key CRA provisions.
In addition, ESMA promotes smooth functioning of this regulatory framework through the development and implementation of guidelines, and questions and answers.
Regarding delivering transparency to the market and to investors, CRA annex I sets out detailed requirements for CRAs’ credit rating and methodological disclosures.
These provisions enable investors and users of credit ratings to have all relevant information necessary to understand a credit rating and perform own due diligence.
To ensure credit rating methodologies meet CRA requirements, regulatory framework includes specific delegated act with detail on how a credit rating agency can show its credit rating methodology is rigorous, systematic, continuous and subject to validation.
Input on revisions to the delegated act and CRA annex I in the technical advice builds on ESMA work, specifically its Guidelines on disclosures applicable to credit ratings (see #100129), for more consistency, transparency in credit rating agency press releases.
Guidelines also sought more transparency when ESG factors were key driver behind a credit rating/rating outlook; per action 3(b) of EC Sustainable Finance Strategy (see #110490), ESMA conducted review on integration of ESG factors in CRA methodologies.
Final Report
The main body of the final report gives an overview of consultation feedback received.
Explains how feedback was considered in developing the final technical advice.
Annex I provides the legislative mandate for ESMA’s technical advice.
Annex II provides updated cost benefit analysis; annex III provides ESMA’s proposed amendments to delegated regulation 447/2012 and annex I of the CRA regulation.
