Analysis of the EU Credit Rating Agencies Regulation

Due to the financial crisis, a new European System of Financial Supervisors including a new authority, ESMA, in charge of the oversight of rating agencies, was established. The chapter presents an overview of this new financial architecture and provides an in-depth analysis of the European Regulation on rating agencies. It explains the regulatory use of ratings in the EU, analysing the ECAI recognition process of the Capital Requirements Directive, which implements the Basel framework. It also examines the registration process and the supervision and enforcement framework, and ESMA’s sanctioning powers. Finally, the chapter analyses in detail the requirements to enhance agencies’ governance, to manage conflicts of interest, to improve the processes to develop and review methodologies and models, and to increase disclosures on individual ratings and on transparency of agencies’ activities. The Regulation is examined in light of all relevant guidance from ESMA, IOSCO, and other supervisors, related EU legislation, and SEC’s rules.