Shearman & Sterling LLP | FinReg | European Commission Updates Credit Rating Agencies Regulation Equivalence Decisions
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  • European Commission Updates Credit Rating Agencies Regulation Equivalence Decisions

    The European Commission has published a series of draft Implementing Decisions on the equivalence with the EU Credit Rating Agencies Regulation of the credit rating regimes of certain non-EU countries. The Implementing Decisions for Brazil, Canada, Argentina, Singapore and Australia repeal the existing equivalence decisions of the credit rating legislation in these countries, stripping these regimes of their equivalent status. The Implementing Decisions for Mexico, the US, Japan and Hong Kong confirm the equivalence of such countries' credit rating legislation.

    The EU CRA Regulation regulates CRAs established in the EU. The CRA Regulation provides that banks, investment firms, insurers, reinsurers, management companies, investment companies, alternative investment fund managers and CCPs may only use credit ratings for certain regulatory purposes if a rating is issued by: (i) an EU CRA registered with ESMA; (ii) a third-country CRA under the endorsement regime; or (iii) a third-country CRA under the equivalence/certification regime. Endorsement allows credit ratings issued by a third-country CRA to be used for regulatory purposes in the EU, provided that the rating has been endorsed by an EU CRA. The equivalence/certification regime allows credit ratings issued by a third-country CRA in relation to a third-country entity or financial instrument to be used in the EU for regulatory purposes. It does not cover ratings issued by a third-country CRA for an EU entity or a financial instrument issued in the EU.

    The repealing Implementing Decisions set out the reasoning for the repeals. In each case, the relevant jurisdictions failed to make appropriate revisions to their legislation to reflect changes to the EU CRA Regulation made by an EU amending regulation that came into force in 2013. The recitals detail the precise areas in which the legislation of each jurisdiction falls short of the requirements of the amended EU CRA Regulation. If the Implementing Decisions are adopted, the loss of equivalence would mean these countries could no longer reap the benefits arising from an equivalence decision, including the reduction of overlapping compliance requirements and the regulatory acceptability, for EU purposes, of certain products and services.

    The draft Implementing Decisions have been published on the European Commission's website and are open for feedback until July 9, 2019.

    View the draft Implementing Decisions.
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