Today, the FCA has assessed the European Union (EU) regulatory and supervisory regime to be ‘as stringent as’ the UK’s regime for the purposes of allowing UK-registered Credit Rating Agencies (CRAs) to endorse credit ratings into the UK from affiliated EU CRAs for regulatory use under the Credit Rating Agencies Regulation (CRAR), as amended by The Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019 (CRAR SI).
Under the CRAR SI, the FCA will become the UK regulator of CRAs. Once the new regime is in place, any legal person wishing to issue or endorse credit ratings for regulatory purposes will need to be registered or certified with the FCA. As of the date of this statement, the following CRAs have either registered or intend to register with the FCA. These CRAs will be eligible to endorse ratings from affiliated EU entities, subject to meeting all the relevant provisions in the Regulation.
The endorsement of ratings from third-country affiliate CRAs allows these ratings to be used by market participants for regulatory purposes. This includes when calculating their capital requirements under the Capital Requirements Regulation and Solvency II. It is important that this practice can continue in a no-deal scenario.
A condition for the endorsement of ratings from a third country into the UK is that the legal and supervisory framework of the third country is deemed to be as stringent as the UK’s. In the context of the FCA’s assessment of the EU regime, the FCA has assessed the EU’s framework against these criteria and has concluded that the legal and supervisory framework meets the conditions for endorsement.
The FCA can confirm that the EU regime is ‘as stringent as’ the UK’s regime for the purpose of the endorsement requirements. However, the decision to endorse some or all the credit ratings issued by EU-based CRAs is one that lies exclusively with UK CRAs. Therefore, those CRAs must ensure they comply with all the requirements in Article 4(3) of CRAR, as amended by the CRAR SI.
ESMA has undertaken a similar exercise to assess the UK’s regulatory and supervisory framework. We welcome ESMA’s announcement that it deems the UK regime to be ‘as stringent as’ the EU regime.
In any event, to ensure a smooth transition to the new regime under a no-deal scenario, ratings issued or endorsed by a CRA established in the EU before exit day and not withdrawn immediately before exit day, will still be available for regulatory use for up to one year after exit, as set out in the CRAR SI and the FCA’s Transitional Direction exercising our Temporary Transitional Power. The Transitional Direction provides relief in the form of a run-off period for ratings issued or endorsed by EU-based CRAs who are not registering with the FCA to be used for regulatory purposes in the UK for up to one year after exit day.