A Guide to Financial Regulation for Fintech Entrepreneurs

SHEET 18Rating Agencies Regulation

Rating Agencies Regulation—The regulation establishing a supervisory regime for rating agencies across the Single Market

Summary

Credit rating agencies opine on the creditworthiness of potential borrowers, and their rating reports are important for the functioning of the market as well as for a number of regulatory purposes. The EU has therefore decided to apply a common standard to their regulation.

The scope of the present regulation is publicly available or through subscription‐based credit ratings. It excludes private ratings as well as (typically consumer) credit scores.

Relevance for Fintech Companies

This regulation is not of particular relevance for most Fintech start‐ups, unless they are active in the securities or rating space themselves.

References

• Regulation EC 1060/2009 (RAR)
• Directive 2013/36/EU (CRD4‐CID)
• BCBS 189 (Basel 3)

The Rating Agencies Regulation is 1060/2009. One of the key reasons for regulating agencies is the prevalence of ratings in regulations like CRD 2013/36, implementing the Basel 3 framework BCBS 189.

Note: the regulation refers to CESR, but CESR was replaced by ESMA since this regulation has been published so references here are to ESMA throughout.

18.1 Definition

This directive regulates credit rating agencies (CRAs) across the Single Market. The stated reason is that it contributes to the smooth functioning of the internal market while achieving a high level of consumer and investor protection ...