The European Securities and Markets Authority (“ESMA“) has published jointly (i) its annual report to highlight its direct supervisory activities during 2019 regarding credit rating agencies (“CRAs“) and trade repositories and (ii) its work programme to outline its main priorities in these areas for 2020.
In 2019, one of the main priorities for ESMA related to the improvement of the quality of the rating process. In this respect, ESMA (i) concluded its investigation into the processes CRAs followed to assign credit ratings on individual debt instruments and established appropriate remedial actions; (ii) launched a thematic review on the processes CRAs follow in assigning credit ratings to collateralised loan obligations; and (iii) clarified its expectations on the minimum standards CRAs should maintain during their rating reviews.
Looking forward, ESMA’s key supervisory focus for 2020 will include:
Credit Rating Agencies (“CRA”):
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- Proactive identification of risks in outstanding credit ratings;
- Ensure CRAs have robust and well-structured rating processes;
- Address identified concerns on IT and information security in CRAs;
- Ensure credit ratings are accessible and usable for investors;
- Organisation and independence of CRAs’ control functions.
Trade Repositories:
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- Data quality and access by authorities, with a focus on the Data Quality Action Plan;
- Assess/monitor internal controls around IT processes and software changes;
- Effectiveness of the Information Security function and business continuity and disaster recovery plans.
Third-country Central Clearing Counterparties (“TC-CCPs”) and Central Securities Depositories (“TC-CSDs”):
- Monitoring the impact of Brexit on the TC-CCP and TC-CSD regimes;
- Set-up of the new processes corresponding to EMIR 2.2 recognition;
- Set-up and implementation of the new monitoring of Tier 2 CCPs;
- Monitoring of the potential risks TC-CCPs might introduce in the EU for Tier 1;
- Assessment of possible recognition applications submitted by TC-CSDs, following EC equivalence decisions in respect of the TC-CSDs’ jurisdictions.
In addition, ESMA will continue to engage with supervised entities about their preparation for the end of the Brexit implementation period and ensure minimal disruption.