As in the United States, the European Union (EU) has determined that credit rating agencies (CRAs) in the EU need to be subject to greater regulatory oversight in order to safeguard the stability of the EU’s financial system. The European Security Markets Authority (ESMA) has recently issued their interpretation of Article 4(3) of the Credit Rating Regulation 1060/2009 approved by the European Commission in June 2009, which sets out conditions under which an EU-regulated CRA may “endorse” a credit rating issued (e.g. by an affiliated CRA) in a third country.

As interpreted by ESMA, Article 4(3) means that requirements “as stringent as” applicable EU regulation must be established by law or regulation of the third country (and not just a matter of the “conduct” of the third country rating agency). This interpretation threatens to substantially increase required regulatory capital for EU financial institutions, since ratings issued in most non-EU countries will not be respected for determining required regulatory capital.

Please join Mayer Brown partners Paul Forrester and Kevin Hawken as they address some of the implications and issues surrounding the support of Article 4(3) by ESMA.

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