We have covered the European-based Scope Ratings a number of times in Financial Regulation Matters , here , here , and here . Also, recently the agency has received positive reviews in the financial press, with one outlet prescribing Scope Ratings as ‘ the new challenger ’ to the credit rating space, complete with a new approach. However, it was announced today that Scope Ratings had been fined by ESMA for a practice which is particularly familiar in the ratings arena – saying one thing and doing another.   The news broke this morning that ESMA had fined Scope for breaches of the Credit Rating Agencies Regulations (CRAR), to the tune of €640,000 . ESMA also published a ‘ public notice ’ explaining the reason for the regulatory action. The regulator found that there were a number of breaches, with the fine being divided between: a failure to apply a methodology systematically (€550,000); and a failure to revise methodologies (€90,000). The action revolves around the time of 2015...

Today’s post assesses the news that the European Securities and Markets Authority (ESMA) has had its decision to reject Polish rating agency FinancialCraft’s application to be registered under EU regulation upheld, after an appeal was lodged to the Joint Board of Appeal of the European Supervisory Authorities. In this post we will look at some of the reasons for the rejection and assess whether the grounds for rejection were fair, especially in relation to recent instances of the larger rating agencies flouting the European regulations. FinancialCraft , a small Polish rating firm, had applied in 2016 to be registered as a recognised Credit Rating Agency under the EU Regulations on Credit Rating Agencies; on the 8 th of December 2016 that application was rejected by ESMA , the supervisory body tasked with supervising the CRA sector. In accordance with the regulations, which allow for a second application, FinancialCraft swiftly reapplied, with the same rejection following. As a ...

Today’s post previews a forthcoming article by this author, entitled ‘Artificially Increasing Competition in the Credit Rating Industry: The ESMA Meets an Immovable Object’, which will be published in the European Company Law Journal (available here in a pre-published form). The paper is concerned with the recent push by the European Securities and Markets Authority (ESMA) to enforce an increase in competition within the credit rating industry, particularly with regards to the rating of structured products. However, even though the rules that dictate that regional authorities must endeavour to enforce this new regulatory drive are clear, an analysis of the reality of the situation reveals that the only actor that can realistically dictate the movement of the industry, with regards to its output and internal competition, are the investors who use the ratings of the largest agencies. The article begins by looking at the regulatory and legislative attempts from both the U.S. and t...

Here in Financial Regulation Matters we have looked at the credit rating agencies on a number of occasions, with the underlying sentiment being that the industry represents an overarching problem when it comes to the failure of financial regulation. In this post today the theme will be revisited in light of recent action by European regulators. It is beyond question that the leading credit rating agencies – Standard & Poor’s, Moody’s, and to a lesser extent Fitch Ratings – played a central role in the Financial Crisis. Having been the focus of an extensive United States Senate investigation , subsequent pieces of similarly extensive legislation in the U.S. and the E.U. confirmed that the conduct of the rating agencies was not acceptable and that, by use of regulation, their behaviour would be corrected. However, on the 1 st of June 2017, the European Securities and Markets Authority (ESMA) issued a relatively small fine of €1.24 million to Moody’s , for breaching European cre...