The Joint Committee of the three European Supervisory Authorities (ESAs) has today published a Report on good supervisory practices for reducing sole and mechanistic reliance on credit ratings.
The Report is directed at the nationally appointed Sectoral Competent Authorities (SCAs) for a wide range of financial institutions, such as credit institutions, investment firms, asset management companies and insurance undertakings. The purpose of the Report is to provide for a level of cross sectoral consistency in the implementation of elements of the CRA Regulation regarding overreliance on credit ratings. To achieve this, the Report recommends a common framework of non-binding good supervisory practices for SCAs.
The supervisory practices are structured into two groups. The first set of good practices proposes a general framework for SCAs with regards to how they should monitor the use of credit ratings by their supervised entities, what alternative and complementary measures are available and how SCAs can address issues of nature, scale and complexity. The second set of good practices provides greater detail on how mechanistic reliance on credit ratings can be addressed within the different business processes of SCAs' supervised entities.
Taken together these practices set out in a simple and straightforward manner what steps SCAs can take to monitor their supervised entities reliance on credit ratings, and what steps can be taken to mitigate any such reliance where it is identified.
The publication of the report follows a Discussion Paper previously issued by the Joint Committee of the ESAs on the use of credit ratings by financial intermediaries.