European Supervisory Authorities Consult On The Removal Of Mechanistic Reliance On Credit Ratings

The Joint Committee of the European Supervisory Authorities (the European Banking Authority (EBA), the European Securities and Markets Authority(ESMA) and the European Insurance and Occupational Pensions Authority (EOIPA) – ESAs) yesterday launched a one-month public consultation on the removal of mechanistic references to credit ratings in their guidelines and on the definition of sole and mechanistic reliance on such ratings.

The term "sole and mechanistic reliance on credit ratings" is mentioned in Article 5b(1) of the European Regulation on Credit Rating Agencies (Regulation (EU) No 462/2013). However, neither its formal definition nor explanations of its meaning are included in the document.

In order to have a common approach towards this issue, the ESAs have developed a definition of "sole and mechanistic reliance", and are consulting with market participants on whether this definition is clear and can be used in practice. The consultation paper contains:

• a proposed definition for "sole or mechanistic reliance", including examples;

• the provisions in the three ESAs' guidelines that are not to be defined as mechanistic; and

• those provisions that are to be considered as mechanistic and therefore should be amended.

Berlaymont Building by Sebastien Bertrand

Berlaymont Building by Sebastien Bertrand

The ESAs intend to refer to this definition in all their future guidelines, recommendations and draft technical standards where relevant.

The current public consultation also contributes to the initiative of the Financial Stability Board to reduce the reliance on ratings.

The consultation paper is available on the websites of the three ESAs: EBA, ESMA and EIOPA: www.eiopa.europa.eu/consultations/consultation-papers/index.html

The consultation will end on close of business 5th December 2013.

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