ESMA highlights changes needed for credit ratings compliance

The European Securities and Markets Authority (ESMA) has recommended a number of improvements to be made to credit ratings including a boost in transparency.

After publishing its Thematic Report on fees charged by Credit Rating Agencies (CRAs) and Trade Repositories (TRs), it found that pricing transparency of CRAs and their fee setting process need more work. They need to ensure that fees are non-discriminatory and are based on actual costs.

The report also did highlight several good practices implemented by CRAs and TRs around fee transparency, fee setting and costs monitoring.

While there are good procedures, the EBA stated more improvements are needed to costs’ recording and monitoring practices to show how fees are charged to users relate to the costs of providing the service.

Furthermore, ESMA stated CRAs must improve the access to and usability of credit ratings published on their websites.

Other recommendations included costs should be monitored by categories and at the same granularity as fee schedules, credit ratings published on websites can be accessed without limitation and pricing policies meet compliance.

ESMA chair Steven Maijoor said, “CRAs and TRs have improved their practices regarding the transparency of fees charged and their fees setting and costs monitoring processes. However, further improvements are still needed regarding costs recording and monitoring as we expect all supervised firms to be able to demonstrate the fees charged are cost-based for CRAs and cost-related for TRs.

“Additionally, we expect CRAs to address outstanding issues around the accessibility and usability of their credit ratings. ESMA will continue to monitor supervised firms’ progress and practices in these areas to ensure consistent and compliant approaches that support investor protection and stable and orderly markets in the EU.”

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