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TITLE IIU.K.ISSUING OF CREDIT RATINGS

Article 6U.K.Independence and avoidance of conflicts of interest

[F11.A credit rating agency shall take all necessary steps to ensure that the issuing of a credit rating or a rating outlook is not affected by any existing or potential conflicts of interest or business relationship involving the credit rating agency issuing the credit rating or the rating outlook, its shareholders, managers, rating analysts, employees or any other natural person whose services are placed at the disposal or under the control of the credit rating agency, or any person directly or indirectly linked to it by control.]

2.In order to ensure compliance with paragraph 1, a credit rating agency shall comply with the requirements set out in Sections A and B of Annex I.

[F13.At the request of a credit rating agency, [F2the FCA] may exempt a credit rating agency from complying with the requirements of points 2, 5, 6 and 9 of Section A of Annex I and Article 7(4) if the credit rating agency is able to demonstrate that those requirements are not proportionate in view of the nature, scale and complexity of its business and the nature and range of issue of credit ratings and that:]

(a)the credit rating agency has fewer than 50 employees;

(b)the credit rating agency has implemented measures and procedures, in particular internal control mechanisms, reporting arrangements and measures ensuring independence of rating analysts and persons approving credit ratings, which ensure the effective compliance with the objectives of this Regulation; and

(c)the size of the credit rating agency is not determined in such a way as to avoid compliance with the requirements of this Regulation by a credit rating agency or a group of credit rating agencies.

[F3In the case of a group of credit rating agencies, [F2the FCA] shall ensure that at least one of the credit rating agencies in the group is not exempted from complying with the requirements of points 2, 5 and 6 of Section A of Annex I and Article 7(4).]

[F44.Credit rating agencies shall establish, maintain, enforce and document an effective internal control structure governing the implementation of policies and procedures to prevent and mitigate possible conflicts of interest and to ensure the independence of credit ratings, rating analysts and rating teams regarding shareholders, administrative and management bodies and sales and marketing activities. Credit rating agencies shall establish standard operating procedures (SOPs) with regard to corporate governance, organisation, and the management of conflicts of interest. They shall periodically monitor and review those SOPs in order to evaluate their effectiveness and assess whether they should be updated.]

Textual Amendments

[F4Article 6a U.K. Conflicts of interest concerning investments in credit rating agencies

1. A shareholder or a member of a credit rating agency holding at least 5 % of either the capital or the voting rights in that credit rating agency or in a company which has the power to exercise control or a dominant influence over that credit rating agency, shall be prohibited from:

(a) holding 5 % or more of the capital of any other credit rating agency;

(b) having the right or the power to exercise 5 % or more of the voting rights in any other credit rating agency;

(c) having the right or the power to appoint or remove members of the administrative or supervisory board of any other credit rating agency;

(d) being a member of the administrative or supervisory board of any other credit rating agency;

(e) exercising or having the power to exercise control or a dominant influence over any other credit rating agency.

The prohibition referred to in point (a) of the first subparagraph does not apply to holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance, provided that the holdings in such schemes do not put the shareholder or member of a credit rating agency in a position to exercise significant influence on the business activities of those schemes.

2. This Article does not apply to investments in other credit rating agencies belonging to the same group of credit rating agencies.

Textual Amendments

Article 6bU.K.Maximum duration of the contractual relationship with a credit rating agency

1.Where a credit rating agency enters into a contract for the issuing of credit ratings on re-securitisations, it shall not issue credit ratings on new re-securitisations with underlying assets from the same originator for a period exceeding four years.

2.Where a credit rating agency enters into a contract for rating re-securitisations, it shall request that the issuer:

(a)determine the number of credit rating agencies which have a contractual relationship for the issuing of credit ratings on re-securitisations with underlying assets from the same originator;

(b)calculate the percentage of the total number of outstanding rated re-securitisations with underlying assets from the same originator for which each credit rating agency issues credit ratings.

Where at least four credit rating agencies each rate more than 10 % of the total number of outstanding rated re-securitisations, the limitations set out in paragraph 1 shall not apply.

The exemption set out in the second subparagraph shall continue to apply at least until the credit rating agency enters into a new contract for rating re-securitisations with underlying assets from the same originator. Where the criteria set out in the second subparagraph are not met when entering into such a contract, the period referred to in paragraph 1 shall be calculated from the date on which the new contract was entered into.

3.As from the expiry of a contract pursuant to paragraph 1, a credit rating agency shall not enter into a new contract for the issuing of credit ratings on re-securitisations with underlying assets from the same originator for a period equal to the duration of the expired contract but not exceeding four years.

The first subparagraph shall also apply to:

(a)a credit rating agency belonging to the same group of credit rating agencies as the credit rating agency referred to in paragraph 1;

(b)a credit rating agency which is a shareholder or member of the credit rating agency referred to in paragraph 1;

(c)a credit rating agency in which the credit rating agency referred to in paragraph 1 is a shareholder or member.

4.Notwithstanding paragraph 1, where a credit rating of a re-securitisation is issued before the end of the maximum duration of the contractual relationship as referred to in paragraph 1, a credit rating agency may continue to monitor and update those credit ratings, on a solicited basis, for the duration of the re-securitisation.

5.This Article shall not apply to credit rating agencies that have fewer than 50 employees at group level involved in the provision of credit rating activities, or that have an annual turnover generated from credit rating activities of less than EUR 10 million at group level.

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Textual Amendments

Article 7U.K.Rating analysts, employees and other persons involved in the issuing of credit ratings

1.A credit rating agency shall ensure that rating analysts, its employees and any other natural person whose services are placed at its disposal or under its control and who are directly involved in credit rating activities have appropriate knowledge and experience for the duties assigned.

2.A credit rating agency shall ensure that persons referred to in paragraph 1 shall not be allowed to initiate or participate in negotiations regarding fees or payments with any rated entity, related third party or any person directly or indirectly linked to the rated entity by control.

3.A credit rating agency shall ensure that persons referred to in paragraph 1 meet the requirements set out in Section C of Annex I.

4.A credit rating agency shall establish an appropriate gradual rotation mechanism with regard to the rating analysts and persons approving credit ratings as defined in Section C of Annex I. That rotation mechanism shall be undertaken in phases on the basis of individuals rather than of a complete team.

[F15. Compensation and performance evaluation of employees involved in the credit rating activities or rating outlooks, as well as persons approving the credit ratings or rating outlooks, shall not be contingent on the amount of revenue that the credit rating agency derives from the rated entities or related third parties.]

Textual Amendments

Article 8U.K.Methodologies, models and key rating assumptions

1.A credit rating agency shall disclose to the public the methodologies, models and key rating assumptions it uses in its credit rating activities as defined in point 5 of Part I of Section E of Annex I.

[F12.A credit rating agency shall adopt, implement and enforce adequate measures to ensure that the credit ratings and the rating outlooks it issues are based on a thorough analysis of all the information that is available to it and that is relevant to its analysis according to the applicable rating methodologies. It shall adopt all necessary measures so that the information it uses in assigning credit ratings and rating outlooks is of sufficient quality and from reliable sources. The credit rating agency shall issue credit ratings and rating outlooks stipulating that the rating is the agency’s opinion and should be relied upon to a limited degree.

2a.Changes in credit ratings shall be issued in accordance with the credit rating agency’s published rating methodologies.]

3.A credit rating agency shall use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing.

4.Where a credit rating agency is using an existing credit rating prepared by another credit rating agency with respect to underlying assets or [F6securitisation instruments], it shall not refuse to issue a credit rating of an entity or a financial instrument because a portion of the entity or the financial instrument had been previously rated by another credit rating agency.

A credit rating agency shall record all instances where in its credit rating process it departs from existing credit ratings prepared by another credit rating agency with respect to underlying assets or [F6securitisation instruments] providing a justification for the differing assessment.

5.A credit rating agency shall monitor credit ratings and review its credit ratings and methodologies on an ongoing basis and at least annually, in particular where material changes occur that could have an impact on a credit rating. A credit rating agency shall establish internal arrangements to monitor the impact of changes in macroeconomic or financial market conditions on credit ratings.

[F4Sovereign ratings shall be reviewed at least every six months.]

[F45a.A credit rating agency that intends to make a material change to, or use, new rating methodologies, models or key rating assumptions which could have an impact on a credit rating shall publish the proposed material changes or proposed new rating methodologies on its website inviting stakeholders to submit comments for a period of one month together with a detailed explanation of the reasons for and the implications of the proposed material changes or proposed new rating methodologies.]

[F16.Where rating methodologies, models or key rating assumptions used in credit rating activities are changed in accordance with Article 14(3), a credit rating agency shall:]

(a)immediately, using the same means of communication as used for the distribution of the affected credit ratings, disclose the likely scope of credit ratings to be affected;

[F4(aa)immediately inform [F7the FCA] and publish on its website the results of the consultation and the new rating methodologies together with a detailed explanation thereof and their date of application;

(ab)immediately publish on its website the responses to the consultation referred to in paragraph 5a except in cases where confidentiality is requested by the respondent to the consultation;]

(b)review the affected credit ratings as soon as possible and no later than six months after the change, in the meantime placing those ratings under observation; and

(c)re-rate all credit ratings that have been based on those methodologies, models or key rating assumptions if, following the review, the overall combined effect of the changes affects those credit ratings.

[F47.Where a credit rating agency becomes aware of errors in its rating methodologies or in their application it shall immediately:

(a)notify those errors to [F8the FCA] and all affected rated entities explaining the impact on its ratings including the need to review issued ratings;

(b)where errors have an impact on its credit ratings, publish those errors on its website;

(c)correct those errors in the rating methodologies; and

(d)apply the measures referred to in points (a), (b) and (c) of paragraph 6.]

Textual Amendments

[F4Article 8aU.K.Sovereign ratings

1.Sovereign ratings shall be issued in a manner which ensures that the individual specificity of a particular [F9country] has been analysed. A statement announcing revision of a given group of countries shall be prohibited if it is not accompanied by individual country reports. Such reports shall be made publicly available.

2.Public communications other than credit ratings, rating outlooks, or accompanying press releases or reports as referred to in point 5 of Part I of Section D of Annex I, which relate to potential changes in sovereign ratings shall not be based on information within the sphere of the rated entity that has been disclosed without the consent of the rated entity, unless it is available from generally accessible sources or unless there are no legitimate reasons for the rated entity not to give its consent to the disclosure of the information.

3.A credit rating agency shall, taking into consideration the second subparagraph of Article 8(5), publish on its website and submit to [F10the FCA] on an annual basis, in accordance with point 3 of Part III of Section D of Annex I, a calendar at the end of December for the following 12 months, setting a maximum of three dates for the publication of unsolicited sovereign ratings and related rating outlooks and setting the dates for the publication of solicited sovereign ratings and related rating outlooks. Such dates shall be set on a Friday.

4.Deviation of the publication of sovereign ratings or related rating outlooks from the calendar shall only be possible where necessary for the credit rating agency to comply with its obligations under Article 8(2), Article 10(1) and Article 11(1) and shall be accompanied by a detailed explanation of the reasons for the deviation from the announced calendar.

Textual Amendments

F11Article 8bU.K. [F11Information on structured finance instruments]

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Textual Amendments

Article 8c U.K. Double credit rating of [F6securitisation instruments]

1. Where an issuer or a related third party intends to solicit a credit rating of a [F6securitisation instrument] , it shall appoint at least two credit rating agencies to provide credit ratings independently of each other.

2. The issuer or a related third party as referred to in paragraph 1 shall ensure that the appointed credit rating agencies comply with the following conditions:

(a) they do not belong to the same group of credit rating agencies;

(b) they are not a shareholder or a member of any of the other credit rating agencies;

(c) they do not have the right or the power to exercise voting rights in any of the other credit rating agencies;

(d) they do not have the right or the power to appoint or remove members of the administrative or supervisory board of any of the other credit rating agencies;

(e) none of the members of their administrative or supervisory boards are a member of the administrative or supervisory boards of any of the other credit rating agencies;

(f) they do not exercise, or have the power to exercise, control or a dominant influence over any of the other credit rating agencies.

Textual Amendments

Article 8dU.K.Use of multiple credit rating agencies

1.Where an issuer or a related third party intends to appoint at least two credit rating agencies for the credit rating of the same issuance or entity, the issuer or a related third party shall consider appointing at least one credit rating agency with no more than 10 % of the total market share, which can be evaluated by the issuer or a related third party as capable of rating the relevant issuance or entity, provided that, based on [F12the FCA]’s list referred to in paragraph 2, there is a credit rating agency available for rating the specific issuance or entity. Where the issuer or a related third party does not appoint at least one credit rating agency with no more than 10 % of the total market share, this shall be documented.

2.With a view to facilitating the evaluation by the issuer or a related third party under paragraph 1, [F12the FCA] shall annually publish on its website a list of registered credit rating agencies, indicating their total market share and the types of credit ratings issued, which can be used by the issuer as a starting point for its evaluation.

3.For the purposes of this Article, total market share shall be measured with reference to annual turnover generated from credit rating activities and ancillary services, at group level.]

Textual Amendments

[F3Article 9U.K.Outsourcing

Outsourcing of important operational functions shall not be undertaken in such a way as to impair materially the quality of the credit rating agency's internal control and the ability of [F13the FCA] to supervise the credit rating agency's compliance with obligations under this Regulation.]

Textual Amendments

Article 10U.K.Disclosure and presentation of credit ratings

[F11.A credit rating agency shall disclose any credit rating or rating outlook, as well as any decision to discontinue a credit rating, on a non-selective basis and in a timely manner. In the event of a decision to discontinue a credit rating, the information disclosed shall include full reasons for the decision.

The first subparagraph shall also apply to credit ratings that are distributed by subscription.

2.Credit rating agencies shall ensure that credit ratings and rating outlooks are presented and processed in accordance with the requirements set out in Section D of Annex I and shall not present factors other than those related to the credit ratings.

2a.Until disclosure to the public of credit ratings, rating outlooks and information relating thereto, they shall be deemed to be inside information as defined in, and in accordance with, [F14Regulation (EU) No 596/2014].

[F15Regulation (EU) No 596/2014] shall apply mutatis mutandis to credit rating agencies as regards their duty of confidentiality and their obligation to maintain a list of persons who have access to their credit ratings, rating outlooks or related information before disclosure.

The list of persons to whom credit ratings, rating outlooks and information relating thereto are communicated before being disclosed shall be limited to persons identified by each rated entity for that purpose.]

3.When a credit rating agency issues credit ratings for [F6securitisation instruments, it shall ensure that rating categories that are attributed to securitisation instruments] are clearly differentiated using an additional symbol which distinguishes them from rating categories used for any other entities, financial instruments or financial obligations.

4.A credit rating agency shall disclose its policies and procedures regarding unsolicited credit ratings.

[F15.Where a credit rating agency issues an unsolicited credit rating, it shall state prominently in the credit rating, using a clearly distinguishable different colour code for the rating category, whether or not the rated entity or a related third party participated in the credit rating process and whether the credit rating agency had access to the accounts, management and other relevant internal documents for the rated entity or a related third party.]

Unsolicited credit ratings shall be identified as such.

[F36.A credit rating agency shall not use the name of [F16the FCA] in such a way that would indicate or suggest endorsement or approval by [F16the FCA] of the credit ratings or any credit rating activities of the credit rating agency.]

Textual Amendments

Article 11U.K.General and periodic disclosures

1.A credit rating agency shall fully disclose to the public and update immediately information relating to the matters set out in Part I of Section E of Annex I.

[F12.A registered or certified credit rating agency shall make available in a central repository established by [F17the FCA] information on its historical performance data, including the ratings transition frequency, and information about credit ratings issued in the past and on their changes. Such a credit rating agency shall provide information to that repository on a standard form as provided for by [F17the FCA]. [F18The FCA] shall make that information accessible to the public and shall publish summary information on the main developments observed on an annual basis.]

[F33.A credit rating agency shall provide annually, by 31 March, to ESMA information relating to matters set out in point 2 of Part II of Section E of Annex I.]

Textual Amendments

[F4Article 11aU.K.[F19Public rating database]

1.A registered or certified credit rating agency shall, when issuing a credit rating or a rating outlook, submit to [F20the FCA] rating information, including the credit rating and rating outlook of the rated instrument, information on the type of credit rating, the type of rating action, and date and hour of publication.

2.[F21The FCA] shall publish the individual credit ratings submitted to it pursuant to paragraph 1 on a website F22....

F23...

3.This Article shall not apply to credit ratings or rating outlooks which are exclusively produced for and disclosed to investors for a fee.]

Textual Amendments

Article 12U.K.Transparency report

A credit rating agency shall publish annually a transparency report which includes information on matters set out in Part III of Section E of Annex I. The credit rating agency shall publish its transparency report at the latest three months after the end of each financial year and shall ensure that it remains available on the website of the agency for at least five years.

Article 13U.K.Public disclosure fees

A credit rating agency shall not charge a fee for the information provided in accordance with Articles 8 to 12.