01 March 2009

Council Presidency compromise proposal on CRA

The Czech Presidency issued a new compromise proposal on the Directive on CRAs. The Commission said it has reservations on the provisions relating to scope, treatment of third country ratings and the transitional periods.

The Czech Presidency issued a new compromise proposal on the Directive on CRAs. The opinions of the European Parliament and of the European Economic and Social Committee on the Commission proposal are not yet available.

 

Preliminary contacts between the Presidency and the European Parliament have indicated a willingness on both sides to conclude a first-reading agreement before the end of the current parliamentary term.

 

 

As regards the scope of the Regulation (Article 2), the Commission proposal was considerably broader in scope than that covered by the Presidency compromise proposal.

Whilst there is general support for restricting the scope proposed by the Commission, some delegations are opposed to a narrow scope as proposed by the Presidency and would like to extend it to also cover ratings used for drawing up prospectuses, or the use of ratings for regulatory purposes under national law. The Presidency has addressed the concerns of those delegations by introducing a new Article 4a clarifying the interaction between the draft Regulation and Directive 2003/71/EC on prospectuses.

In addition, some delegations are opposed to the possibility of exempting from the scope of the Regulation – subject to certain conditions – central banks issuing credit ratings.

 

Most delegations support the scope as proposed by the Presidency.

 

As regards entry into force and application of the Regulation delegations have welcomed the overall transitional period of twelve months. Some delegations consider too long the 24 month transitional period in respect of some criteria for endorsement set out in Article 36 of the Presidency compromise proposal and have proposed to shorten it to 12 or 18 months.

Other delegations are in favour of further extending the transitional period referred to above unless there is a prior positive assessment by the Commission.

 

The Commission proposal did not address the possible outsourcing by credit rating agencies of certain functions, as referred to in Articles 14, 14a, 20 and Annex II of the Presidency compromise text. Some delegations are in favour of laying down more detailed rules governing such outsourcing by credit rating agencies of certain functions. In its compromise proposal the Presidency has introduced new recitals on outsourcing to accommodate the concerns of these delegations.

 

Other concerns expressed by delegations are:

– rating methodologies, models and key rating assumptions, where some delegations propose to delete paragraph 2b of Article 7;

– the role of CESR and colleges, where one delegation objects to paragraph 7 of Articles 14 and 14a which it considers incompatible with Treaty provisions on the ESCB and the ECB;

– credit ratings issued in third countries: in the working party, delegations called for an explicit third-country regime to be included in the draft Regulation. Following discussions in the working party of different ways of addressing this matter, the Presidency has opted for the endorsement regime set out in Article 4 of its compromise proposal according to which registered credit rating agencies can endorse, subject to certain conditions, credit ratings issued in third countries. Whilst most delegations are in favour of such an endorsement regime, some delegations would prefer a multilateral approach combining endorsement with an equivalence test, according to which endorsement by credit rating agencies should be preceded by a Commission assessment of the equivalence of regulatory and supervisory provisions with those established pursuant to the draft Regulation.

 

The UK delegation has entered a parliamentary scrutiny reservation on the text

 

The Commission position on the Presidency compromise proposal is set out below:

"The Commission welcomes the progress made even though it has reservations on the provisions relating to scope, treatment of third country ratings and the transitional periods. Concerning credit ratings issued in third countries, it is necessary to find a solution for the use in the Community of these credit ratings, whilst at the same time ensuring that the formulation of these credit ratings is carried out to requirements as stringent as those in the EU. We must at the same time ensure that such provisions do not hamper competition. Consequently, it reserves its position to seek agreement on an acceptable solution between the Council and the European Parliament. The Commission continues to encourage the Council to work together with the European Parliament for the adoption of this Regulation in first reading."

 

The compromise proposal is attached below

 

© Council of the European Union