Credit rating agencies

The UK left the EU on 31 January 2020 and entered a transition period. The transition period is due to operate until 31 December 2020.

Update: 9 November 2020

The Treasury has announced its intention to take equivalence decisions in respect of the EEA states across a number of financial services files. For more information about how this regime is affected, please see our statement.

 

During the transition period, EU law will continue to apply in the UK. The European Securities and Markets Authority (ESMA) will continue to operate as the direct regulator of UK CRAs. UK firms using credit ratings for regulatory purposes can continue to use EU ratings over the course of the transition period in accordance with the existing rules.

At the end of the transition period, the FCA will become the regulator of UK-registered and certified credit rating agencies (CRAs). Any UK legal entity that wishes to issue credit ratings publicly or by subscription after that date needs to register with the FCA as a CRA.

CRAs issue credit ratings, which are opinions on the creditworthiness of an issuer or security. Firms may use credit ratings in the calculation of their capital requirements and for assessing risks in investment activity.

The current EU Credit Rating Agencies Regulation (Regulation (EC) No 1060/2009) (CRA Regulation) will be onshored into UK law on 31 December 2020, with the necessary modifications contained in the ​​​​​​Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019 (CRAR SI).

Getting registered

To support a smooth transition to the new regime for CRAs in the UK, and minimise disruption to the users of credit ratings, the CRAR SI prescribes several transitional processes for existing CRAs. The CRAR SI introduces both a conversion and temporary registration regime available to CRAs wishing to issue ratings in the UK after 31 December 2020:

  • Registration Conversion regime. This will allow CRAs incorporated in the UK and registered with ESMA under the CRA Regulation to notify the FCA before 31 December 2020 to convert their existing ESMA registration into a registration with the FCA.
  • Certification Conversion regime. CRAs certified with ESMA will be able to notify the FCA before 31 December 2020 to extend their certification to the UK. 
  • Temporary registration regime (TRR). This will offer temporary registration of CRAs that submit an advance application for registration with the FCA before 31 December 2020, provided that they are a UK incorporated entity and are part of the same group as a CRA with an existing ESMA registration.

For firms not making use of the above transitional processes, applications to register as a new CRA after 31 December 2020 will be assessed in accordance with the usual procedures in the CRA Regulation, as brought into UK law under the EU Withdrawal Agreement.

What CRAs should do now

Throughout the transition period, we will continue accepting notifications to convert ESMA registrations, and notifications to convert ESMA certifications. We are also accepting advance applications for registration with the FCA. Please note that the conversion and advance application regimes are only available until 31 December 2020.

CRAs that have already submitted notifications to convert ESMA registrations and certifications need not take further action unless instructed by the FCA. CRAs intending to submit new notifications or advance applications should complete the relevant form as provided below. This should be submitted  by email with all supporting documentation required.

Notification to convert ESMA registration

If you are a UK based CRA that wishes to convert your ESMA registration into a registration with the FCA you should complete and submit the conversion form for UK CRAs, with supporting documentation by email. If you have already submitted your notification for conversion to the FCA, you do not need to submit a new notification.

The transitional provisions in the CRAR SI are in force during the transition period and we have published a direction for CRAs looking to convert their registration with ESMA into the equivalent status with the FCA. To make a valid notification, CRAs must comply fully with the direction and submit the specified conversion form and all supporting documentation.

Under regulation 38 of the CRAR SI, the FCA has 20 working days to determine whether the notification for conversion of registration meets the requirements to be converted or inform the firm of the steps that need to be taken and the time within which they need to be taken for the notification to be considered valid.

To give sufficient time for these notifications to be processed, firms should aim to submit their completed notifications, together with all supporting documentation, by 2 December 2020 to help ensure the continued regulatory use of their ratings in the UK after 31 December 2020.

The FCA cannot guarantee that notifications submitted after 2 December 2020, or incomplete notifications, will be processed by 31 December 2020.

Notification to convert ESMA certification

If you are a CRA certified with ESMA that wishes to extend its certification to the UK, you should complete and submit the conversion form (with supporting documentation) by email. If you have already submitted your notification for conversion to the FCA, you do not need to submit a new notification.

The transitional provisions in the CRAR SI are in force during the transition period and we have published a direction for CRAs looking to convert their registration with ESMA into the equivalent status with the FCA. To make a valid notification, CRAs must comply fully with the direction and submit the specified conversion form and all supporting documentation.

Under regulation 44 of the CRAR SI the FCA has 20 working days to determine whether the notification for conversion of certification meets the requirements to be converted or inform the firm of the steps that need to be taken and the time within they need to be taken for the notification to be considered valid.

To give sufficient time for these notifications to be processed, firms should aim to submit their completed notifications, together with all supporting documentation, by 2 December 2020 to help ensure the continued regulatory use of their ratings in the UK after 31 December 2020.

The FCA cannot guarantee that notifications submitted after 2 December, or incomplete notifications, will be processed by 31 December 2020.

Advance Application for registration as a CRA and to enter the TRR

To make a valid notification, CRAs meeting the conditions for advance applications must comply fully with the direction and submit the specified registration form and all supporting documentation. In addition, CRAs should confirm the following in their covering email:

  • Their intention to enter the TRR
  • Their consent to the FCA treating the advance application as an application for registration as a credit rating agency solely for the purposes of the rules in Chapter 3 of the FCA’s Fees Manual as they will apply from 1 January 2021. They will be required to pay a fee of £5000 for the advance application. Full details of both our application and periodic fees can be found in Policy Statement 19/10.

If you are a UK based CRA that wishes to make an advance application for registration as a credit rating agency in the UK, you will need to complete and submit a registration form (with supporting documentation) by email by 11pm on 31 December 2020. We have also published notes on completing the form. Note that it is a condition of the TRR that you are a UK incorporated entity and are part of the same group as a CRA with an existing ESMA registration.

The FCA has issued a direction outlining that final applications should include the registration form (with supporting documentation).

If you are a CRA that has already submitted an application to us, prior to the UK entering the transition period on 1 February 2020, you do not need to take any further action at this time, unless directed by the FCA.

Application for a new registration

Applications to register as a new UK CRA after the window for advance applications has closed on 31 December 2020 will be assessed in accordance with the usual procedures in the CRA Regulation.

If you are a new UK-based CRA without an existing ESMA registration wishing to apply for registration in the UK in order to provide rating services in the UK after 31 December 2020, you should submit the completed ​​​​​​registration form with supporting documentation by email. We will process these applications after 31 December 2020.

You will also be required to pay a fee of £5000 for your new registration application.  Full details of both our application and periodic fees can be found in Policy Statement 19/10.

If you have any queries, please email us.