EU asks for information on how Credit Ratings are used

In doing something slightly different for financial regulation matters, this post is just a small update for those connected or interested in the credit rating industry. The EU, on the 30th March, has published a call for comments on the availability and use of credit rating information and related data. As stated on the ESMA’s website, ‘the purpose of this call for evidence is to gather information on the specific uses of credit ratings as well as how the users of credit ratings are currently accessing this information’. This reflects an alteration in regulatory direction that a number of entities have been calling for – instead of just focusing on the rating agencies and mis-regulating because of a lack of scope, a greater focus needs to be placed on the users of credit ratings. This call for information is the EU’s attempt to start that process. I am reminded of my own journey in which the scholarly literature is massively negative regarding the credit rating industry and its usefulness, but in having spoken to a number of practitioners, there were more people than I had anticipated who found the ratings useful in their business practices – this is, of course, not to say that this sentiment is universally shared amongst practitioners. Yet, regulatory speaking, this is a positive move from the EU and, arguably, should have happened much sooner. It seems to be a direct reaction to the phenomenon we are witnessing at the moment; a lot of regulatory capital was expended on reducing regulatory reliance, and the use of credit rating subsequently increased, rather than decrease had many had expected.

The call is currently open and will remain open until the 3rd August 2020. ESMA have stated that ‘input is welcomed from all interested stakeholders, including users of credit ratings such as public authorities and financial market participants, credit rating agencies, as well as distributors of credit rating data’. The aim of the endeavour is to consider options that will improve access to and use of credit ratings, and also whether there is scope to improve the usability of the information provided for on rating agencies’ websites – the sentiment to this can be seen to be somewhat of an antithesis to the sentiment that was promoted when ending regulatory reliance was at the forefront of global regulatory efforts.


The call for information itself is available here.

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