Credit Rating Agencies Regulation

02009R1060-20110721 → 02009R1060-20130620

Article 1 Subject matter This Regulation introduces a common regulatory approach in order to enhance the integrity, transparency, responsibility, good governance and reliability independence of credit rating activities, contributing to the quality of credit ratings issued in the Community, thereby contributing Union and to the smooth functioning of the internal market market, while achieving a high level of consumer and investor protection. It lays down conditions for the issuing of credit ratings and rules on the organisation and conduct of credit rating agencies agencies, including their shareholders and members, to promote their independence and credit rating agencies’ independence, the avoidance of conflicts of interest. interest, and the enhancement of consumer and investor protection. This Regulation also lays down obligations for issuers, originators and sponsors established in the Union regarding structured finance instruments.

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Article 2 Scope 1. This Regulation applies to credit ratings issued by credit rating agencies registered in the Community Union and which are disclosed publicly or distributed by subscription. 2. This Regulation does not apply to: (a) private credit ratings produced pursuant to an individual order and provided exclusively to the person who placed the order and which are not intended for public disclosure or distribution by subscription; (b) credit scores, credit scoring systems or similar assessments related to obligations arising from consumer, commercial or industrial relationships; (c) credit ratings produced by export credit agencies in accordance with point 1.3 of Part 1 of Annex VI to Directive 2006/48/EC; or (d) credit ratings produced by the central banks and which: (i) are not paid for by the rated entity; (ii) are not disclosed to the public; (iii) are issued in accordance with the principles, standards and procedures which ensure the adequate integrity and independence of credit rating activities as provided for by this Regulation; and (iv) do not relate to financial instruments issued by the respective central banks’ Member States. 3. A credit rating agency shall apply for registration under this Regulation as a condition for being recognised as an External Credit Assessment Institution (ECAI) in accordance with Part 2 of Annex VI to Directive 2006/48/EC, unless it only issues the credit ratings referred to in paragraph 2. 4. In order to ensure the uniform application of paragraph 2(d), the Commission may, upon submission of a request by a Member State, in accordance with the regulatory procedure referred to in Article 38(3) and in accordance with paragraph 2(d) of this Article, adopt a decision stating that a central bank falls within the scope of that point and that its credit ratings are therefore exempt from the application of this Regulation. The Commission shall publish on its website the list of central banks falling within the scope of paragraph 2(d) of this Article.

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Article 3 Definitions 1. For the purpose of this Regulation, the following definitions shall apply: (a) credit rating means an opinion regarding the creditworthiness of an entity, a debt or financial obligation, debt security, preferred share or other financial instrument, or of an issuer of such a debt or financial obligation, debt security, preferred share or other financial instrument, issued using an established and defined ranking system of rating categories; (b) credit rating agency means a legal person whose occupation includes the issuing of credit ratings on a professional basis; (c) home Member State means the Member State in which the credit rating agency has its registered office; (d) rating analyst means a person who performs analytical functions that are necessary for the issuing of a credit rating; (e) lead rating analyst means a person with primary responsibility for elaborating a credit rating or for communicating with the issuer with respect to a particular credit rating or, generally, with respect to the credit rating of a financial instrument issued by that issuer and, where relevant, for preparing recommendations to the rating committee in relation to such rating; (f) rated entity means a legal person whose creditworthiness is explicitly or implicitly rated in the credit rating, whether or not it has solicited that credit rating and whether or not it has provided information for that credit rating; (g) regulatory purposes means the use of credit ratings for the specific purpose of complying with Community Union law, or with Union law as implemented by the national legislation of the Member States; (h) rating category means a rating symbol, such as a letter or numerical symbol which might be accompanied by appending identifying characters, used in a credit rating to provide a relative measure of risk to distinguish the different risk characteristics of the types of rated entities, issuers and financial instruments or other assets; (i) related third party means the originator, arranger, sponsor, servicer or any other party that interacts with a credit rating agency on behalf of a rated entity, including any person directly or indirectly linked to that rated entity by control; (j) control means the relationship between a parent undertaking and a subsidiary, as described in Article 1 of Council Directive 83/349/EEC of 13 June 1983 on consolidated accountsOJ L 193, 18.7.1983, p. 1., or a close link between any natural or legal person and an undertaking; (k) financial instrument means any of the instruments listed in Section C of Annex I to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instrumentsOJ L 145, 30.4.2004, p. 1.; (l) structured finance instrument means a financial instrument or other assets resulting from a securitisation transaction or scheme referred to in Article 4(36) of Directive 2006/48/EC; (m) group of credit rating agencies means a group of undertakings established in the Community Union consisting of a parent undertaking and its subsidiaries within the meaning of Articles 1 and 2 of Directive 83/349/EEC as well as undertakings linked to each other by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC and whose occupation includes the issuing of credit ratings. For the purposes of Article 4(3)(a), a group of credit rating agencies shall also include credit rating agencies established in third countries; (n) senior management means the person or persons who effectively direct the business of the credit rating agency and the member or members of its administrative or supervisory board; (o) credit rating activities means data and information analysis and the evaluation, approval, issuing and review of credit ratings; (p) competent authorities means the authorities designated by each Member State in accordance with Article 22; (pa) credit institution means a credit institution as defined in point (1) of Article 4 of Directive 2006/48/EC; (pb) investment firm means an investment firm as defined in point (1) of Article 4(1) of Directive 2004/39/EC; (pc) insurance undertaking means an insurance undertaking as defined in point (1) of Article 13 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)OJ L 335, 17.12.2009, p. 1.; (pd) reinsurance undertaking means a reinsurance undertaking as defined in point (4) of Article 13 of Directive 2009/138/EC; (pe) institution for occupational retirement provision means an institution for occupational retirement provision as defined in Article 6(a) of Directive 2003/41/EC; (pf) management company means a management company as defined in Article 2(1)(b) of Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)OJ L 302, 17.11.2009, p. 32.; (pg) investment company means an investment company authorised in accordance with Directive 2009/65/EC; (ph) alternative investment fund manager means an AIFM as defined in Article 4(1)(b) of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund ManagersOJ L 174, 1.7.2011, p. 1.; (pi) central counterparty means a CCP as defined in point (1) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositoriesOJ L 201, 27.7.2012, p. 1. which is authorised in accordance with Article 14 of that Regulation; (pj) prospectus means a prospectus published under Directive 2003/71/EC and Regulation (EC) No 809/2004; (q) sectoral legislation means the legal legislative acts of the Union referred to in the first subparagraph of Article 4(1); points (pa) to (pj); (r) sectoral competent authorities means the national competent authorities designated under the relevant sectoral legislation for the supervision of credit institutions, investment firms, insurance undertakings, assurance undertakings, reinsurance undertakings, undertakings for collective investment in transferable securities (UCITS), institutions for occupational retirement provision and provision, management companies, investment companies, alternative investment funds. fund managers, central counterparties and prospectuses; (s) issuer means an issuer as defined in Article 2(1)(h) of Directive 2003/71/EC; (t) originator means an originator as defined in point (41) of Article 4 of Directive 2006/48/EC; (u) sponsor means a sponsor as defined in point (42) of Article 4 of Directive 2006/48/EC; (v) sovereign rating means: (i) a credit rating where the entity rated is a State or a regional or local authority of a State; (ii) a credit rating where the issuer of the debt or financial obligation, debt security or other financial instrument is a State or a regional or local authority of a State, or a special purpose vehicle of a State or of a regional or local authority; (iii) a credit rating where the issuer is an international financial institution established by two or more States which has the purpose of mobilising funding and providing financial assistance for the benefit of the members of that international financial institution which are experiencing or threatened by severe financing problems; (w) rating outlook means an opinion regarding the likely direction of a credit rating over the short term, the medium term or both; (x) unsolicited credit rating and unsolicited sovereign rating mean, respectively, a credit rating or a sovereign rating assigned by a credit rating agency other than upon request; (y) credit score means a measure of creditworthiness derived from summarising and expressing data based only on a pre-established statistical system or model, without any additional substantial rating-specific analytical input from a rating analyst; (z) regulated market means a regulated market as defined in point (14) of Article 4(1) of Directive 2004/39/EC and established in the Union; (aa) re-securitisation means re-securitisation as defined in point (40a) of Article 4 of Directive 2006/48/EC. 2. For the purposes of paragraph 1(a), the following shall not be considered to be credit ratings: (a) recommendations within the meaning of Article 1(3) of Commission Directive 2003/125/ECOJ L 339, 24.12.2003, p. 73.; (b) investment research as defined in Article 24(1) of Directive 2006/73/ECCommission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (OJ L 241, 2.9.2006, p. 26). and other forms of general recommendation, such as buy, sell or hold, relating to transactions in financial instruments or to financial obligations; or (c) opinions about the value of a financial instrument or a financial obligation.3. For the purposes of this Regulation, the term shareholder includes beneficial owners, as defined in point (6) of Article 3 of Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financingOJ L 309, 25.11.2005, p. 15..

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Article 4 Use of credit ratings 1. Credit institutions as defined in Directive 2006/48/EC, institutions, investment firms as defined in Directive 2004/39/EC, firms, insurance undertakings subject to the First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the take-up and pursuit of the business of direct insurance other than life assuranceOJ L 228, 16.8.1973, p. 3., assurance undertakings as defined in Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assuranceOJ L 345, 19.12.2002, p. 1., undertakings, reinsurance undertakings as defined in Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 on reinsuranceOJ L 323, 9.12.2005, p. 1., UCITS as defined in Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)OJ L 302, 17.11.2009, p. 32., undertakings, institutions for occupational retirement provision as defined in Directive 2003/41/EC and provision, management companies, investment companies, alternative investment funds as defined in Directive 2011/61/EU of the European Parliament fund managers and of the Council of 8 June 2011 on Alternative Investment Fund ManagersOJ L 174, 1.7.2011, p. 1. central counterparties may use credit ratings for regulatory purposes only if they are issued by credit rating agencies established in the Union and registered in accordance with this Regulation. Where a prospectus published under Directive 2003/71/EC and Regulation (EC) No 809/2004 contains a reference to a credit rating or credit ratings, the issuer, offeror, or person asking for admission to trading on a regulated market shall ensure that the prospectus also includes clear and prominent information stating whether or not such credit ratings are issued by a credit rating agency established in the Community Union and registered under this Regulation. 2. A credit rating agency established in the Community Union and registered in accordance with this Regulation shall be deemed to have issued a credit rating when the credit rating has been published on the credit rating agency’s website or by other means or distributed by subscription and presented and disclosed in accordance with the obligations of Article 10, clearly identifying that the credit rating is endorsed in accordance with paragraph 3 of this Article. 3. A credit rating agency established in the Community Union and registered in accordance with this Regulation may endorse a credit rating issued in a third country only when credit rating activities resulting in the issuing of such a credit rating comply with the following conditions: (a) the credit rating activities resulting in the issuing of the credit rating to be endorsed are undertaken in whole or in part by the endorsing credit rating agency or by credit rating agencies belonging to the same group; (b) the credit rating agency has verified and is able to demonstrate on an ongoing basis to the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the CouncilOJ L 331, 15.12.2010, p. 84. (ESMA), 84., that the conduct of the credit rating activities by the third-country credit rating agency resulting in the issuing of the credit rating to be endorsed fulfils requirements which are at least as stringent as the requirements set out in Articles 6 to 12; 12 and Annex I, with the exception of Articles 6a, 6b, 8a, 8b, 8c and 11a, point (ba) of point 3 and points 3a and 3b of Section B of Annex I. (c) the ability of ESMA to assess and monitor the compliance of the credit rating agency established in the third country with the requirements referred to in point (b) is not limited; (d) the credit rating agency makes available on request to ESMA all the information necessary to enable ESMA to supervise on an ongoing basis the compliance with the requirements of this Regulation; (e) there is an objective reason for the credit rating to be elaborated in a third country; (f) the credit rating agency established in the third country is authorised or registered, and is subject to supervision, in that third country; (g) the regulatory regime in that third country prevents interference by the competent authorities and other public authorities of that third country with the content of credit ratings and methodologies; and (h) there is an appropriate cooperation arrangement between ESMA and the relevant supervisory authority of the credit rating agency established in a third country. ESMA shall ensure that such a cooperation arrangement shall specify at least: (i) the mechanism for the exchange of information between ESMA and the relevant supervisory authority of the credit rating agency established in a third country; and (ii) the procedures concerning the coordination of supervisory activities in order to enable ESMA to monitor credit rating activities resulting in the issuing of the endorsed credit rating on an ongoing basis. 4. A credit rating endorsed in accordance with paragraph 3 shall be considered to be a credit rating issued by a credit rating agency established in the Community Union and registered in accordance with this Regulation. A credit rating agency established in the Community Union and registered in accordance with this Regulation shall not use such endorsement with the intention of avoiding the requirements of this Regulation. 5. The credit rating agency that has endorsed a credit rating issued in a third country in accordance with paragraph 3 shall remain fully responsible for such a credit rating and for the fulfilment of conditions set out therein. 6. Where the Commission has recognised, in accordance with Article 5(6), the legal and supervisory framework of a third country as equivalent to the requirements of this Regulation and the cooperation arrangements referred to in Article 5(7) are operational, the credit rating agency endorsing credit ratings issued in that third country shall no longer be required to verify or demonstrate that the condition laid down in paragraph 3(g) of this Article is fulfilled.

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Article 5 Equivalence and certification based on equivalence 1. The credit ratings that are related to entities established or financial instruments issued in third countries and that are issued by a credit rating agency established in a third country may be used in the Community Union under Article 4(1) without being endorsed in accordance with Article 4(3), provided that: (a) the credit rating agency is authorised or registered in and is subject to supervision in that third country; (b) the Commission has adopted an equivalence decision in accordance … 607 unchanged words … registration and are subject to effective supervision and enforcement on an ongoing basis; (b) credit rating agencies in that third country are subject to legally binding rules which are equivalent to those set out in Articles 6 to 12 and Annex I, with the exception of Articles 6a, 6b, 8a, 8b, 8c and 11a, point (ba) of point 3 and points 3a and 3b of Section B of Annex I; and (c) the regulatory regime in that third country prevents interference by the supervisory authorities and other public authorities of that third country with the content of credit ratings and methodologies. In order to take account of developments on financial markets, the Commission shall adopt, by means of delegated acts in accordance with Article 38a, and subject to the conditions of Articles 38b and 38c, measures to specify further or amend the criteria set out in points (a), (b) and (c) of the second subparagraph of this paragraph. 7. ESMA shall establish cooperation agreements with the relevant supervisory authorities of third countries whose legal and supervisory frameworks have been considered equivalent to this Regulation in accordance with paragraph 6. Such arrangements shall specify at least: (a) the mechanism for the exchange of information between ESMA and the relevant supervisory authorities of the third countries concerned; and (b) the procedures concerning the coordination of supervisory activities. 8. Articles 20 20, 23b and 24 shall apply mutatis mutandis to certified credit rating agencies certified in accordance with Article 5(3) and to credit ratings issued by them.

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Article 5a
Over-reliance on credit ratings by financial institutions
1. The entitites referred to in the first subparagraph of Article 4(1) shall make their own credit risk assessment and shall not solely or mechanistically rely on credit ratings for assessing the creditworthiness of an entity or financial instrument.
2. Sectoral competent authorities in charge of supervising the entities referred to in the first subparagraph of Article 4(1) shall, taking into account the nature, scale and complexity of their activities, monitor the adequacy of their credit risk assessment processes, assess the use of contractual references to credit ratings and, where appropriate, encourage them to mitigate the impact of such references, with a view to reducing sole and mechanistic reliance on credit ratings, in line with specific sectoral legislation.

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Article 5b
Reliance on credit ratings by the European Supervisory Authorities and the European Systemic Risk Board
1. The European Supervisory Authority (European Banking Authority) (EBA) established by Regulation (EU) No 1093/2010 of the European Parliament and of the CouncilOJ L 331, 15.12.2010, p. 12., the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA) established by Regulation (EU) No 1094/2010 of the European Parliament and of the CouncilOJ L 331, 15.12.2010, p. 48. and ESMA shall not refer to credit ratings in their guidelines, recommendations and draft technical standards where such references have the potential to trigger sole or mechanistic reliance on credit ratings by the competent authorities, the sectoral competent authorities, the entitites referred to in the first subparagraph of Article 4(1) or other financial market participants. Accordingly, by 31 December 2013, EBA, EIOPA and ESMA shall review and remove, where appropriate, all such references to credit ratings in existing guidelines and recommendations.
2. The European Systemic Risk Board (ESRB) established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk BoardOJ L 331, 15.12.2010, p. 1. shall not refer to credit ratings in its warnings and recommendations where such references have the potential to trigger sole or mechanistic reliance on credit ratings.

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Article 5c
Over-reliance on credit ratings in Union law
Without prejudice to its right of initiative, the Commission shall continue to review whether references to credit ratings in Union law trigger or have the potential to trigger sole or mechanistic reliance on credit ratings by the competent authorities, the sectoral competent authorities, the entities referred to in the first subparagraph of Article 4(1) or other financial market participants with a view to deleting all references to credit ratings in Union law for regulatory purposes by 1 January 2020, provided that appropriate alternatives to credit risk assessment have been identified and implemented.

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Article 6 Independence and avoidance of conflicts of interest 1. 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 conflict conflicts of interest or business relationship involving the credit rating agency issuing the credit rating, rating or the rating outlook, its shareholders, managers, rating analysts, employees, 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. 3. At the request of a credit rating agency, ESMA may exempt a credit rating agency from complying with the requirements of points 2, 5 5, 6 and 6 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. In the case of a group of credit rating agencies, ESMA 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).4. 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.

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Article 6a
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.

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Article 6b
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.
6. Where a credit rating agency enters into a contract for the issuing of credit ratings on re-securitisations before 20 June 2013, the period referred to in paragraph 1 shall be calculated from that date.

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Article 7 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. 5. Compensation and performance evaluation of employees involved in the credit rating analysts and 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.

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Article 8 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. 2. 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 its the applicable rating methodologies. It shall adopt all necessary measures so that the information it uses in assigning a 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 structured finance 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 structured finance 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. Sovereign ratings shall be reviewed at least every six months. 5a. 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. 6. When Where rating methodologies, models or key rating assumptions used in credit rating activities are changed, 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; (aa) immediately inform ESMA 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.7. 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 ESMA 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.

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Article 8a
Sovereign ratings
1. Sovereign ratings shall be issued in a manner which ensures that the individual specificity of a particular Member State 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 ESMA 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.

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Article 8b
Information on structured finance instruments
1. The issuer, the originator and the sponsor of a structured finance instrument established in the Union shall, on the website set up by ESMA pursuant to paragraph 4, jointly publish information on the credit quality and performance of the underlying assets of the structured finance instrument, the structure of the securitisation transaction, the cash flows and any collateral supporting a securitisation exposure as well as any information that is necessary to conduct comprehensive and well-informed stress tests on the cash flows and collateral values supporting the underlying exposures.
2. The obligation under paragraph 1 to publish information shall not extend to where such publication would breach national or Union law governing the protection of confidentiality of information sources or the processing of personal data.
3. ESMA shall develop draft regulatory technical standards to specify:
(a) the information that the persons referred to in paragraph 1 must publish in order to comply with the obligation resulting from paragraph 1 in accordance with paragraph 2;
(b) the frequency with which the information referred to in point (a) is to be updated;
(c) the presentation of the information referred to in point (a) by means of a standardised disclosure template.
ESMA shall submit those draft regulatory technical standards to the Commission by 21 June 2014.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010.
4. ESMA shall set up a website for the publication of the information on structured finance instruments as referred to in paragraph 1.

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Article 8c
Double credit rating of structured finance instruments
1. Where an issuer or a related third party intends to solicit a credit rating of a structured finance 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.

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Article 8d
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 ESMA’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, ESMA 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.

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Article 10 Disclosure and presentation of credit ratings 1. A credit rating agency shall disclose any credit rating, 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. 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, Directive 2003/6/EC. Article 6(3) of that Directive 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 structured finance instruments, it shall ensure that rating categories that are attributed to structured finance 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. 5. When 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 accounts, management and other relevant internal documents of for the rated entity or a related third party. Unsolicited credit ratings shall be identified as such. 6. A credit rating agency shall not use the name of ESMA or any competent authority in such a way that would indicate or suggest endorsement or approval by ESMA or any competent authority of the credit ratings or any credit rating activities of the credit rating agency.

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Article 11 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. 2. A registered or certified credit rating agency shall make available in a central repository established by ESMA information on its historical performance data data, including the ratings transition frequency frequency, and information about credit ratings issued in the past and on their changes. A Such a credit rating agency shall provide information to that repository on a standard form as provided for by ESMA. ESMA shall make that information accessible to the public and shall publish summary information on the main developments observed on an annual basis. 3. 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.

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Article 14 Requirement for registration 1. A credit rating agency shall apply for registration for the purposes of Article 2(1) provided that it is a legal person established in the Community. Union. 2. The registration shall be effective for the entire territory of the Union once the decision to register a credit rating agency adopted by ESMA as referred to in Article 16(3) or Article 17(3) has taken effect. 3. A registered credit rating agency shall comply at all times with the conditions for initial registration. A credit rating agency shall, without undue delay, notify ESMA of any material changes to the conditions for initial registration, including any opening or closing of a branch within the Union. Without prejudice to the second subparagraph, the credit rating agency shall notify ESMA of the intended material changes to the rating methodologies, models or key rating assumptions or the proposed new rating methodologies, models or key rating assumptions when the credit rating agency publishes the proposed changes or proposed new rating methodologies on its website in accordance with Article 8(5a). After the expiry of the consultation period, the credit rating agency shall notify ESMA of any changes due to the consultation. 4. Without prejudice to Article 16 or 17, ESMA shall register the credit rating agency if it concludes from the examination of the application that the credit rating agency complies with the conditions for the issuing of credit ratings set out in this Regulation, taking into consideration Articles 4 and 6. 5. ESMA shall not impose requirements regarding registration which are not provided for in this Regulation.

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Article 18 Notification of a decision to register, refuse or withdraw registration, and publication of the list of registered credit rating agencies 1. Within five working days of the adoption of a decision under Article 16, 17 or 20 ESMA shall notify its decision to the credit rating agency concerned. Where ESMA refuses to register the credit rating agency or withdraws the registration of the credit rating agency, it shall provide full reasons in its decision. 2. ESMA shall communicate to the Commission, the European Supervisory Authority (European Banking Authority) established by Regulation (EU) No 1093/2010 of the European Parliament and of the CouncilOJ L 331, 15.12.2010, p. 12. (EBA), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) established by Regulation (EU) No 1094/2010 of the European Parliament and of the CouncilOJ L 331, 15.12.2010, p. 48. (EIOPA), EBA, EIOPA, the competent authorities and the sectoral competent authorities, any decision under Article 16, 17 or 20. 3. ESMA shall publish on its website a list of credit rating agencies registered in accordance with this Regulation. That list shall be updated within five working days following the adoption of a decision under Article 16, 17 or 20. The Commission shall publish that updated list in the Official Journal of the European Union within 30 days following such update.

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Article 19 Registration and supervisory fees 1. ESMA shall charge fees to the credit rating agencies fees in accordance with this Regulation and with the Commission regulation on fees referred to in paragraph 2. Those fees shall fully cover ESMA's ESMA’s necessary expenditure relating to the registration registration, certification and supervision of credit rating agencies and the reimbursement of any costs that the competent authorities may incur carrying out work pursuant to this Regulation, in particular as a result of any delegation of tasks in accordance with Article 30. 2. The Commission shall adopt a regulation on fees. That regulation shall determine in particular the type of fees and the matters for which fees are due, the amount of the fees, the way in which they are to be paid and the way in which ESMA is to reimburse competent authorities in respect of any costs that they may incur carrying out work pursuant to this Regulation, in particular as a result of any delegation of tasks in accordance with Article 30. The amount of a fee charged to a credit rating agency shall cover all administrative costs and be proportionate to the turnover of the credit rating agency concerned. The Commission shall adopt the regulation on fees referred to in the first subparagraph by means of a delegated act in accordance with Article 38a and subject to the conditions of Articles 38b and 38c.

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Article 21 ESMA 1. Without prejudice to Article 25a, ESMA shall ensure that this Regulation is applied. 2. In accordance with Article 16 of Regulation (EU) No 1095/2010, ESMA shall issue and update guidelines on the cooperation between ESMA, the competent authorities and the sectoral competent authorities for the purposes of this Regulation and for those of the relevant sectoral legislation, including the procedures and detailed conditions relating to the delegation of tasks. 3. In accordance with Article 16 of Regulation (EU) No 1095/2010, ESMA shall, in cooperation with EBA and EIOPA, issue and update guidelines on the application of the endorsement regime under Article 4(3) of this Regulation by 7 June 2011. 4. By 2 January 2012 ESMA shall submit develop draft regulatory technical standards for endorsement by the Commission in accordance with Article 10 of Regulation (EU) No 1095/2010 on: to specify: (a) the information to be provided by a credit rating agency in its application for registration as set out in Annex II; (b) information that the credit rating agency must provide for the application for certification and for the assessment of its systemic importance to the financial stability or integrity of financial markets referred to in Article 5; (c) the presentation of the information, including structure, format, method and period of reporting, that credit rating agencies shall disclose in accordance with Article 11(2) and point 1 of Part II of Section E of Annex I; (d) the assessment of compliance of credit rating methodologies with the requirements set out in Article 8(3); (e) the content and format of ratings data periodic reporting to be requested from the registered and certified credit rating agencies for the purpose of ongoing supervision by ESMA. ESMA shall submit those draft regulatory technical standards to the Commission by 21 June 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010. 4a. ESMA shall develop draft regulatory technical standards to specify: (a) the content and the presentation of the information, including structure, format, method and timing of reporting that credit rating agencies are to disclose to ESMA in accordance with Article 11a(1); and (b) the content and format of periodic reporting on fees charged by credit rating agencies for the purpose of ongoing supervision by ESMA. ESMA shall submit those draft regulatory technical standards to the Commission by 21 June 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010. 4b. ESMA shall report on the possibility of establishing one or more mappings of credit ratings submitted in accordance with Article 11a(1) and submit that report to the Commission by 21 June 2015. The report shall, in particular, assess: (a) the possibility, cost, and benefit of establishing one or more mappings; (b) how one or more mappings can be created without misrepresenting credit ratings in light of different rating methodologies; (c) any effects mappings could have on the regulatory technical standards developed to date in relation to Article 21(4a)(a) and (b). ESMA shall consult EBA and EIOPA in regard to points (a) and (b) of the first subparagraph. 5. ESMA shall publish, annually and for the first time by 1 January 2012, a publish an annual report on the application of this Regulation. That report shall contain, in particular, an assessment of the implementation of Annex I by the credit rating agencies registered under this Regulation. Regulation and an assessment of the application of the endorsement mechanism referred to in Article 4(3). 6. ESMA shall present annually to the European Parliament, the Council and the Commission a report on supervisory measures taken and penalties imposed by ESMA under this Regulation, including fines and periodic penalty payments. 7. ESMA shall cooperate with EBA and EIOPA in performing its tasks and shall consult EBA and EIOPA before issuing and updating guidelines and submitting draft regulatory technical standards referred to in paragraphs 2, 3 and 4.

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Article 22a Examination of compliance with the back-testing obligation methodology requirements 1. In the exercise of its ongoing supervision of credit rating agencies registered under this Regulation, ESMA shall examine regularly compliance with Article 8(3). 2. Without prejudice to Article 23, ESMA shall also in the framework of the examination referred to in paragraph 1: (a) verify the execution of back-testing by credit rating agencies; (b) analyse the results of that back-testing; and (c) verify that the credit rating agencies have processes in place to take into account the results of the back-testing in their rating methodologies.

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Article 25a Sectoral competent authorities responsible for the supervision and enforcement of Article 4(1) (the use of credit ratings) and Articles 5a, 8b, 8c and 8d The sectoral competent authorities shall be responsible for the supervision and enforcement of Article 4(1) and Articles 5a, 8b, 8c and 8d in accordance with the relevant sectoral legislation.

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Article 35a
Civil liability
1. Where a credit rating agency has committed, intentionally or with gross negligence, any of the infringements listed in Annex III having an impact on a credit rating, an investor or issuer may claim damages from that credit rating agency for damage caused to it due to that infringement.
An investor may claim damages under this Article where it establishes that it has reasonably relied, in accordance with Article 5a(1) or otherwise with due care, on a credit rating for a decision to invest into, hold onto or divest from a financial instrument covered by that credit rating.
An issuer may claim damages under this Article where it establishes that it or its financial instruments are covered by that credit rating and the infringement was not caused by misleading and inaccurate information provided by the issuer to the credit rating agency, directly or through information publicly available.
2. It shall be the responsibility of the investor or issuer to present accurate and detailed information indicating that the credit rating agency has committed an infringement of this Regulation, and that that infringement had an impact on the credit rating issued.
What constitutes accurate and detailed information shall be assessed by the competent national court, taking into consideration that the investor or issuer may not have access to information which is purely within the sphere of the credit rating agency.
3. The civil liability of credit rating agencies, as referred to in paragraph 1, shall only be limited in advance where that limitation is:
(a) reasonable and proportionate; and
(b) allowed by the applicable national law in accordance with paragraph 4.
Any limitation that does not comply with the first subparagraph, or any exclusion of civil liability shall be deprived of any legal effect.
4. Terms such as damage, intention, gross negligence, reasonably relied, due care, impact, reasonable and proportionate which are referred to in this Article but are not defined, shall be interpreted and applied in accordance with the applicable national law as determined by the relevant rules of private international law. Matters concerning the civil liability of a credit rating agency which are not covered by this Regulation shall be governed by the applicable national law as determined by the relevant rules of private international law. The court that is competent to decide on a claim for civil liability brought by an investor or issuer shall be determined by the relevant rules of private international law.
5. This Article does not exclude further civil liability claims in accordance with national law.
6. The right of redress set out in this Article shall not prevent ESMA from fully performing its powers as laid down in Article 36a.

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Article 36a Fines 1. Where, in accordance with Article 23e(5), ESMA's Board of Supervisors finds that a credit rating agency has, intentionally or negligently, committed one of the infringements listed in Annex III, it shall adopt a decision imposing a fine in accordance with paragraph 2. An infringement by a credit rating agency shall be considered to have been committed intentionally if ESMA finds objective factors which demonstrate that the credit rating agency or its senior management acted deliberately to commit the infringement. 2. The basic amount of the fines referred to in paragraph 1 shall be included within the following limits: (a) for the infringements referred to in points 1 to 5, 11 to 15, 19, 20, 23, 26a to 26d, 28, 30, 32, 33, 35, 41, 43, 50 50, 51 and 51 55 to 62 of Section I of Annex III, the fines shall amount to at least EUR 500000 and shall not exceed EUR 750000; (b) for the infringements referred to in points 6 to 6, 7, 8, 16 to 16, 17, 18, 21, 22, 22a, 24, 25, 27, 29, 31, 34, 37 to 40, 42, 42a, 42b, 45 to 47, 48, 49, 52 49a, 52, 53 and 54 of Section I of Annex III, the fines shall amount to at least EUR 300000 and shall not exceed EUR 450000; (c) for the infringements referred to in points 9, 10, 26, 36, 44 and 53 of Section I of Annex III, the fines shall amount to at least EUR 100000 and shall not exceed EUR 200000; (d) for the infringements referred to in points 1, 6, 7 7, 8 and 8 9 of Section II of Annex III, the fines shall amount to at least EUR 50000 and shall not exceed EUR 150000; (e) for the infringements referred to in points 2, 4 and 3a to 5 of Section II of Annex III, the fines shall amount to at least EUR 25000 and shall not exceed EUR 75000; (f) for the infringements referred to in point 3 of Section II of Annex III, the fines shall amount to at least EUR 10000 and shall not exceed EUR 50000; (g) for the infringements referred to in points 1 to 3 and 11 of Section III of Annex III, the fines shall amount to at least EUR 150000 and shall not exceed EUR 300000; (h) for the infringements referred to in point 20a of Section I of Annex III, points 4, 4 to 4c, 6, 8 and 10 of Section III of Annex III, the fines shall amount to at least EUR 90000 and shall not exceed EUR 200000; (i) for the infringements referred to in points 5, 7 and 9 of Section III of Annex III, the fines shall amount to at least EUR 40000 and shall not exceed EUR 100000. In order to decide whether the basic amount of the fines should be set at the lower, the middle or the higher end of the limits set out in the first subparagraph, ESMA shall have regard to the annual turnover in the preceding business year of the credit rating agency concerned. The basic amount shall be at the lower end of the limit for credit rating agencies whose annual turnover is below EUR 10 million, the middle of the limit for the credit rating agencies whose annual turnover is between EUR 10 and 50 million and the higher end of the limit for the credit rating agencies whose annual turnover is higher than EUR 50 million. 3. The basic amounts defined within the limits set out in paragraph 2 shall be adjusted, if need be, by taking into account aggravating or mitigating factors in accordance with the relevant coefficients set out in Annex IV. The relevant aggravating coefficient shall be applied one by one to the basic amount. If more than one aggravating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual aggravating coefficient shall be added to the basic amount. The relevant mitigating coefficient shall be applied one by one to the basic amount. If more than one mitigating coefficient is applicable, the difference between the basic amount and the amount resulting from the application of each individual mitigating coefficient shall be subtracted from the basic amount. 4. Notwithstanding paragraphs 2 and 3, the fine shall not exceed 20 % of the annual turnover of the credit rating agency concerned in the preceding business year and, where the credit rating agency has directly or indirectly benefitted financially from the infringement, the fine shall be at least equal to that financial benefit. Where an act or omission of a credit rating agency constitutes more than one infringement listed in Annex III, only the higher fine calculated in accordance with paragraphs 2 and 3 and related to one of those infringements shall apply.

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Article 39 Reports 1. By 7 December 2012, the Commission shall make an assessment of the application of this Regulation, including an assessment of the reliance on credit ratings in the Community, the impact on the level of concentration in the credit rating market, the cost and benefit of impacts of the Regulation and of the appropriateness of the remuneration of the credit rating agency by the rated entity (issuer-pays model), and submit a report thereon to the European Parliament and the Council. 2. By 7 December 2010, the Commission shall, in the light of discussions with the competent authorities, assess the application of Title III of this Regulation, in particular of the cooperation of the competent authorities, the legal status of CESR and supervisory practices. The Commission shall present a report on those matters to the European Parliament and to the Council, accompanied, where appropriate, by proposals for a review of that Title. That report shall include a reference to the Commission proposal of 12 November 2008 for a regulation on credit rating agencies and to the report of the Committee on Economic and Monetary Affairs of the European Parliament of 23 March 2009 relating to that proposal. 3. By 1 July 2011, the Commission shall, in the light of developments in the regulatory and supervisory framework for credit rating agencies in third countries, present a report to the European Parliament and to the Council concerning the effects of those developments and of the transitional provisions referred to in Article 40 on the stability of financial markets in the Union. 4. The Commission shall, after obtaining technical advice from ESMA, review the situation in the credit rating market for structured finance instruments, in particular the credit rating market for re-securitisations. Following that review, the Commission shall, by 1 July 2016, submit a report to the European Parliament and to the Council, accompanied by a legislative proposal if appropriate, assessing, in particular: (a) the availability of sufficient choice in order to comply with the requirements set out in Articles 6b and 8c; (b) whether it is appropriate to shorten or extend the maximum duration of the contractual relationship referred to in Article 6b(1) and the minimum period before the credit rating agency may re-enter into a contract with an issuer or a related third party for the issuing of credit ratings on re-securitisations referred to in Article 6b(3); (c) whether it is appropriate to amend the exemption referred to in the second subparagraph of Article 6b(2). 5. The Commission shall, after obtaining technical advice from ESMA, review the situation in the credit rating market. Following that review, the Commission shall, by 1 January 2016, submit a report to the European Parliament and to the Council, accompanied by a legislative proposal if appropriate, assessing, in particular: (a) whether there is a need to extend the scope of the obligations referred to in Article 8b to include any other financial credit products; (b) whether the requirements referred to in Articles 6, 6a and 7 have sufficiently mitigated conflicts of interest; (c) whether the scope of the rotation mechanism referred to in Article 6b should be extended to other asset classes and whether it is appropriate to use differentiated lengths of periods across asset classes; (d) the appropriateness of existing and alternative remuneration models; (e) whether there is a need to implement other measures to foster competition in the credit rating market; (f) the appropriateness of additional initiatives to promote competition in the credit rating market against the background of the evolution of the structure of the sector; (g) whether there is a need to propose measures to address contractual over-reliance on credit ratings; (h) the market concentration levels, the risks arising from high concentration, and the impact on the overall stability of the financial sector. 6. The Commission shall, at least annually, inform the European Parliament and the Council of any new equivalence decisions referred to in Article 5(6) that have been adopted during the reporting period.

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Article 39a Report by ESMA ESMA’s staffing and resources By 31 December 2011, 21 June 2014, ESMA shall assess the its staffing and resources needs arising from the assumption of its powers and duties in accordance with under this Regulation and shall submit a report to the European Parliament, the Council and the Commission.

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Article 39b
Reporting obligations
1. By 31 December 2015, the Commission shall submit a report to the European Parliament and to the Council on:
(a) the steps taken as regards the deletion of references to credit ratings which trigger or have the potential to trigger sole or mechanistic reliance thereon; and
(b) alternative tools to enable investors to make their own credit risk assessment of issuers and of financial instruments,
with a view to deleting all references to credit ratings in Union law for regulatory purposes by 1 January 2020, subject to appropriate alternatives being identified and implemented. ESMA shall provide technical advice to the Commission within the framework of this paragraph.
2. Taking into consideration the situation of the market, the Commission shall, by 31 December 2014, submit a report to the European Parliament and to the Council on the appropriateness of the development of a European creditworthiness assessment for sovereign debt.
Taking into consideration the findings of the report referred to in the first subparagraph and the situation of the market, the Commission shall, by 31 December 2016, submit a report to the European Parliament and to the Council, on the appropriateness and feasibility of supporting a European credit rating agency dedicated to assessing the creditworthiness of Member States’ sovereign debt and/or a European credit rating foundation for all other credit ratings.
3. The Commission shall, by 31 December 2013, submit a report to the European Parliament and to the Council regarding the feasibility of a network of smaller credit rating agencies in order to increase competition in the market. That report shall evaluate financial and non-financial support for the creation of such a network, taking into consideration the potential conflicts of interest arising from such public funding. In light of the findings of that report and following ESMA’s technical advice, the Commission may re-evaluate and suggest amending Article 8d.

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ANNEX I INDEPENDENCE AND AVOIDANCE OF CONFLICTS OF INTEREST Section A Organisational requirements 1. The credit rating agency shall have an administrative or supervisory board. Its senior management shall ensure that: (a) credit rating activities are independent, including from all political and economic influences or constraints; (b) … 1,051 unchanged words … credit rating agency shall monitor and evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with this Regulation and take appropriate measures to address any deficiencies. Section B Operational requirements 1. A credit rating agency shall identify, eliminate eliminate, or manage and disclose, clearly and prominently, any actual or potential conflicts of interest that may influence the analyses and judgments of its rating analysts, employees, or any other natural person whose services are placed at the disposal or under the control of the credit rating agency and who are directly involved in the issuing of credit rating activities and persons approving credit ratings. ratings and rating outlooks. 2. A credit rating agency shall disclose to the public the names of the rated entities or related third parties from which it receives more than 5 % of its annual revenue. 3. A credit rating agency shall not issue a credit rating or a rating outlook in any of the following circumstances, or shall, in the case of an existing credit rating, rating or rating outlook, immediately disclose where the credit rating or rating outlook is potentially affected by the following: (a) the credit rating agency or persons referred to in point 1, directly or indirectly owns financial instruments of the rated entity or a related third party or has any other direct or indirect ownership interest in that entity or party, other than holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance; (aa) a shareholder or member of a credit rating agency holding 10 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, holds 10 % or more of either the capital or the voting rights of the rated entity or of a related third party, or of any other ownership interest in that rated entity or third party, excluding holdings in diversified collective investment schemes and managed funds such as pension funds or life insurance, which do not put him in a position to exercise significant influence on the business activities of the scheme; (b) the credit rating is issued with respect to the rated entity or a related third party directly or indirectly linked to the credit rating agency by control; (ba) the credit rating is issued with respect to a rated entity or a related third party which holds 10 % or more of either the capital or the voting rights of that credit rating agency; (c) a person referred to in point 1 is a member of the administrative or supervisory board of the rated entity or a related third party; or (ca) a shareholder or member of a credit rating agency holding 10 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, is a member of the administrative or supervisory board of the rated entity or a related third party; (d) a rating analyst who participated in determining a credit rating, or a person who approved a credit rating, has had a relationship with the rated entity or a related third party which may cause a conflict of interests. A credit rating agency shall also immediately assess whether there are grounds for re-rating or withdrawing the existing credit rating. 4. rating or rating outlook. 3a. A credit rating agency shall disclose where an existing credit rating or rating outlook is potentially affected by either of the following: (a) a shareholder or member of a credit rating agency holding 5 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, holds 5 % or more of either the capital or the voting rights of the rated entity or of a related third party, or of any other ownership interest in that rated entity or third party. This excludes holdings in diversified collective investment schemes and managed funds such as pension funds or life insurance, which do not put him in a position to exercise significant influence on the business activities of the scheme; (b) a shareholder or member of a credit rating agency holding 5 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, is a member of the administrative or supervisory board of the rated entity or a related third party. 3b. Provided that the information is known or should be known by the credit rating agency, the obligations in point 3(aa), (ba) and (ca) and point 3a shall also relate to: (a) indirect shareholders covered by Article 10 of Directive 2004/109/EC; and (b) companies that control or exercise a dominant influence, directly or indirectly, on the credit rating agency, and which are covered by Article 10 of Directive 2004/109/EC. 3c. A credit rating agency shall ensure that fees charged to its clients for the provision of credit rating and ancillary services are not discriminatory and are based on actual costs. Fees charged for credit rating services shall not depend on the level of the credit rating issued by the credit rating agency or on any other result or outcome of the work performed. 4. Neither a credit rating agency nor any person holding, directly or indirectly, at least 5 % of either the capital or voting rights of the credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency shall provide consultancy or advisory services to the rated entity or a related third party regarding the corporate or legal structure, assets, liabilities or activities of that rated entity or related third party. A credit rating agency may provide services other than issue of credit ratings (ancillary services). Ancillary services are not part of credit rating activities; they comprise market forecasts, estimates of economic trends, pricing analysis and other general data analysis as well as related distribution services. A credit rating agency shall ensure that the provision of ancillary services does not present conflicts of interest with its credit rating activities and shall disclose in the final ratings reports any ancillary services provided for the rated entity or any related third party. 5. A credit rating agency shall ensure that rating analysts or persons who approve ratings do not make proposals or recommendations, either formally or informally, regarding the design of structured finance instruments on which the credit rating agency is expected to issue a credit rating. 6. A credit rating agency shall design its reporting and communication channels so as to ensure the independence of the persons referred to in point 1 from the other activities of the credit rating agency carried out on a commercial basis. 7. A credit rating agency shall arrange for adequate records and, where appropriate, audit trails of its credit rating activities to be kept. Those records shall include: (a) for each credit rating and rating outlook decision, the identity of the rating analysts participating in the determination of the credit rating, rating or rating outlook, the identity of the persons who have approved the credit rating, rating or rating outlook, information as to whether the credit rating was solicited or unsolicited, and the date on which the credit rating action was taken; (b) the account records relating to fees received from any rated entity or related third party or any user of ratings; (c) the account records for each subscriber to the credit ratings or related services; (d) the records documenting the established procedures and rating methodologies used by the credit rating agency to determine credit ratings; ratings and rating outlooks; (e) the internal records and files, including non-public information and work papers, used to form the basis of any credit rating and rating outlook decision taken; (f) credit analysis reports, credit assessment reports and private credit rating reports and internal records, including non-public information and work papers, used to form the basis of the opinions expressed in such reports; (g) records of the procedures and measures implemented by the credit rating agency to comply with this Regulation; and (h) copies of internal and external communications, including electronic communications, received and sent by the credit rating agency and its employees, that relate to credit rating activities. 8. Records and audit trails referred to in point 7 shall be kept at the premises of the registered credit rating agency for at least five years and be made available upon request to ESMA. Where the registration of a credit rating agency is withdrawn, the records shall be kept for an additional term of at least three years. 9. Records which set out the respective rights and obligations of the credit rating agency and the rated entity or its related third parties under an agreement to provide credit rating services shall be retained for at least the duration of the relationship with that rated entity or its related third parties. Section C Rules on rating analysts and other persons directly involved in credit rating activities 1. Rating analysts, employees of the credit rating agency as well as any other natural person whose services are placed at the disposal or under the control of the credit rating agency and who is directly involved in credit rating activities, and persons closely associated with them within the meaning of Article 1(2) of Directive 2004/72/ECCommission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers’ transactions and the notification of suspicious transactions (OJ L 162, 30.4.2004, p. 70)., shall not buy or sell or engage in any transaction in any financial instrument issued, guaranteed, or otherwise supported by any rated entity within their area of primary analytical responsibility other than holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance. 2. No person referred to in point 1 shall participate in or otherwise influence the determination of a credit rating or rating outlook of any particular rated entity if that person: (a) owns financial instruments of the rated entity, other than holdings in diversified collective investment schemes; (b) owns financial instruments of any entity related to a rated entity, the ownership of which may cause or may be generally perceived as causing a conflict of interest, other than holdings in diversified collective investment schemes; (c) has had a recent employment, business or other relationship with the rated entity that may cause or may be generally perceived as causing a conflict of interest. 3. Credit rating agencies shall ensure that persons referred to in point 1: (a) take all reasonable measures to protect property and records in possession of the credit rating agency from fraud, theft or misuse, taking into account the nature, scale and complexity of their business and the nature and range of their credit rating activities; (b) do not disclose any information about credit ratings or ratings, possible future credit ratings or rating outlooks of the credit rating agency, except to the rated entity or its a related third party; (c) do not share confidential information entrusted to the credit rating agency with rating analysts and employees of any person directly or indirectly linked to it by control, as well as with any other natural person whose services are placed at the disposal or under the control of any person directly or indirectly linked to it by control, and who is not directly involved in the credit rating activities; and (d) do not use or share confidential information for the purpose of trading financial instruments, or for any other purpose except the conduct of the credit rating activities. 4. Persons referred to in point 1 shall not solicit or accept money, gifts or favours from anyone with whom the credit rating agency does business. 5. If a person referred to in point 1 considers that any other such person has engaged in conduct that he or she considers to be illegal, he or she shall report such information immediately to the compliance officer without negative consequences to him or herself. 6. Where a rating analyst terminates his or her employment and joins a rated entity, which he or she has been involved in rating, or a financial firm, with which he or she has had dealings as part of his or her duties at the credit rating agency, the credit rating agency shall review the relevant work of the rating analyst over two years preceding his or her departure. 7. A person referred to in point 1 shall not take up a key management position with the rated entity or its a related third party within six months of the issuing of a credit rating. rating or rating outlook. 8. For the purpose purposes of Article 7(4), 7(4): (a) credit rating agencies shall ensure that: (a) that the lead rating analysts shall not be involved in credit rating activities related to the same rated entity or its a related third parties party for a period exceeding four years; (b) credit rating agencies other than those appointed by an issuer or a related third party and all credit rating agencies issuing sovereign ratings shall ensure that: (i) the rating analysts shall not be involved in credit rating activities related to the same rated entity or its a related third parties party for a period exceeding five years; (c) (ii) the persons approving credit ratings shall not be involved in credit rating activities related to the same rated entity or its a related third parties party for a period exceeding seven years. The persons referred to in points (a), (a) and (b) and (c) of the first subparagraph shall not be involved in credit rating activities related to the rated entity or a related third parties party referred to in those points within two years of end of the periods set out in those points. Section D Rules on the presentation of credit ratings and rating outlooks I. General obligations 1. A credit rating agency shall ensure that any credit rating and rating outlook states clearly and prominently the name and job title of the lead rating analyst in a given credit rating activity and the name and position of the person primarily responsible for approving the credit rating. rating or rating outlook. 2. A credit rating agency shall ensure that at least: (a) all substantially material sources, including the rated entity or, where appropriate, a related third party, which were used to prepare the credit rating or rating outlook are indicated together with an indication as to whether the credit rating or rating outlook has been disclosed to that rated entity or its related third party and amended following that disclosure before being issued; (b) the principal methodology or version of methodology that was used in determining the rating is clearly indicated, with a reference to its comprehensive description; where the credit rating is based on more than one methodology, or where reference only to the principal methodology might cause investors to overlook other important aspects of the credit rating, including any significant adjustments and deviations, the credit rating agency shall explain this fact in the credit rating and indicate how the different methodologies or these other aspects are taken into account in the credit rating; (c) the meaning of each rating category, the definition of default or recovery and any appropriate risk warning, including a sensitivity analysis of the relevant key rating assumptions, such as mathematical or correlation assumptions, accompanied by worst-case scenario credit ratings as well as best-case scenario credit ratings are explained; (d) the date at which the credit rating was first released for distribution and when it was last updated including any rating outlooks is indicated clearly and prominently; and (e) information is given as to whether the credit rating concerns a newly issued financial instrument and whether the credit rating agency is rating the financial instrument for the first time. time; and (f) in the case of a rating outlook, the time horizon is provided during which a change in the credit rating is expected. When publishing credit ratings or rating outlooks, credit rating agencies shall include a reference to the historical default rates published by ESMA in a central repository in accordance with Article 11(2), together with an explanatory statement of the meaning of those default rates. 2a. A credit rating agency shall accompany the disclosure of rating methodologies, models and key rating assumptions with guidance which explains assumptions, parameters, limits and uncertainties surrounding the models and rating methodologies used in credit ratings, including simulations of stress scenarios undertaken by the credit rating agency when establishing the credit ratings, credit rating information on cash-flow analysis it has performed or is relying upon and, where applicable, an indication of any expected change in the credit rating. Such guidance shall be clear and easily comprehensible. 3. The credit rating agency shall inform the rated entity during working hours of the rated entity and at least 12 hours a full working day before publication of the credit rating and of or the rating outlook. That information shall include the principal grounds on which the credit rating or rating outlook is based in order to give the rated entity an opportunity to draw attention of the credit rating agency to any factual errors. 4. A credit rating agency shall state clearly and prominently when disclosing credit ratings or rating outlooks any attributes and limitations of the credit rating. rating or rating outlook. In particular, a credit rating agency shall prominently state when disclosing any credit rating or rating outlook whether it considers satisfactory the quality of information available on the rated entity and to what extent it has verified information provided to it by the rated entity or its a related third party. If a credit rating or a rating outlook involves a type of entity or financial instrument for which historical data is limited, the credit rating agency shall make clear, in a prominent place, such limitations of the credit rating. limitations. In a case where the lack of reliable data or the complexity of the structure of a new type of financial instrument or the quality of information available is not satisfactory or raises serious questions as to whether a credit rating agency can provide a credible credit rating, the credit rating agency shall refrain from issuing a credit rating or withdraw an existing rating. 5. When announcing a credit rating, rating or a rating outlook, a credit rating agency shall explain in its press releases or reports the key elements underlying the credit rating. rating or the rating outlook. Where the information laid down in points 1, 2 and 4 would be disproportionate in relation to the length of the report distributed, it shall suffice to make clear and prominent reference in the report itself to the place where such disclosures can be directly and easily accessed, including a direct web link to the disclosure on an appropriate website of the credit rating agency. 6. A credit rating agency shall disclose on its website, and notify ESMA on an ongoing basis, information about all entities or debt instruments submitted to it for their initial review or for preliminary rating. Such disclosure shall be made whether or not issuers contract with the credit rating agency for a final rating. II. Additional obligations in relation to credit ratings of structured finance instruments 1. Where a credit rating agency rates a structured finance instrument, it shall provide in the credit rating all information about loss and cash-flow analysis it has performed or is relying upon and an indication of any expected change in the credit rating. 2. A credit rating agency shall state what level of assessment it has performed concerning the due diligence processes carried out at the level of underlying financial instruments or other assets of structured finance instruments. The credit rating agency shall disclose whether it has undertaken any assessment of such due diligence processes or whether it has relied on a third-party assessment, indicating how the outcome of such assessment impacts on the credit rating. 3. Where a credit rating agency issues credit ratings of structured finance instruments, it shall accompany the disclosure of methodologies, models and key rating assumptions with guidance which explains assumptions, parameters, limits and uncertainties surrounding the models and rating methodologies used in such credit ratings, including simulations of stress scenarios undertaken by the agencies when establishing the ratings. Such guidance shall be clear and easily comprehensible. 4. A credit rating agency shall disclose, on an ongoing basis, information about all structured finance products submitted to it for their initial review or for preliminary rating. Such disclosure shall be made whether or not issuers contract with the credit rating agency for a final rating. III. Additional obligations in relation to sovereign ratings 1. Where a credit rating agency issues a sovereign rating or a related rating outlook, it shall simultaneously provide a detailed research report explaining all the assumptions, parameters, limits and uncertainties and any other information taken into account in determining that sovereign rating or rating outlook. That report shall be publicly available, clear and easily comprehensible. 2. A publicly available research report accompanying a change compared to the previous sovereign rating or related rating outlook shall include at least the following: (a) a detailed evaluation of the changes to the quantitative assumption justifying the reasons for the rating change and their relative weight. The detailed evaluation should include a description of the following: per capita income, GDP Growth, inflation, fiscal balance, external balance, external debt, an indicator for economic development, an indicator for default and any other relevant factor taken into account. This should be complemented with the relative weight of each factor; (b) a detailed evaluation of the changes to the qualitative assumption justifying the reasons for the rating change and their relative weight; (c) a detailed description of the risks, limits and uncertainties related to the rating change; and (d) a summary of minutes of the meeting of the rating committee that decided on the rating change. 3. Without prejudice to point 3 of Part I of Section D of Annex I, where a credit rating agency issues sovereign ratings or related rating outlooks, it shall publish them in accordance with Article 8a, after the close of business hours of regulated markets and at least one hour before their opening. 4. Without prejudice to point 5 of Part I of Section D of Annex I, in accordance with which, when announcing a credit rating, a credit rating agency is to explain in its press releases or reports the key elements underlying the credit rating and although national policies may serve as an element underlying a sovereign rating, policy recommendations, prescriptions or guidelines to rated entities, including States or regional or local authorities of States, shall not be part of sovereign ratings or rating outlooks. Section E Disclosures I. General disclosures A credit rating agency shall generally disclose the fact that it is registered in accordance with this Regulation and the following information: 1. any actual and potential conflicts of interest referred to in point 1 of Section B; 2. a list of its ancillary services; 3. the policy of the credit rating agency concerning the publication of credit ratings and other related communications; communications including rating outlooks; 4. the general nature of its compensation arrangements; 5. the methodologies, and descriptions of models and key rating assumptions such as mathematical or correlation assumptions used in its credit rating activities as well as their material changes; 6. any material modification to its systems, resources or procedures; and 7. where relevant, its code of conduct. II. Periodic disclosures A credit rating agency shall periodically disclose the following information: 1. every six months, data about the historical default rates of its rating categories, distinguishing between the main geographical areas of the issuers and whether the default rates of these categories have changed over time; 2. annually, the following information: (a) a list of fees charged to each client for individual credit ratings and any ancillary services; (aa) its pricing policy, including the largest 20 clients of the fees structure and pricing criteria in relation to credit rating agency by revenue generated from them; ratings for different asset classes; (b) a list of those clients of the credit rating agency whose contribution to the growth rate in the generation of revenue of the credit rating agency in the previous financial year exceeded the growth rate in the total revenues of the credit rating agency in that year by a factor of more than 1,5 times. Any such client shall be included on the list only where, in that year, it accounted for more than 0,25 % of the worldwide total revenues of the credit rating agency at global level; and (c) a list of credit ratings issued during the year, indicating the proportion of unsolicited credit ratings among them. For the purposes of this point, client means an entity, its subsidiaries, and associated entities in which the entity has holdings of more than 20 %, as well as any other entities in respect of which it has negotiated the structuring of a debt issue on behalf of a client and where a fee was paid, directly or indirectly, to the credit rating agency for the rating of that debt issue. III. Transparency report A credit rating agency shall make available annually the following information: 1. detailed information on legal structure and ownership of the credit rating agency, including information on holdings within the meaning of Articles 9 and 10 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated marketOJ L 390, 31.12.2004, p. 38.; 2. a description of the internal control mechanisms ensuring quality of its credit rating activities; 3. statistics on the allocation of its staff to new credit ratings, credit rating reviews, methodology or model appraisal and senior management; management, and on the allocation of staff to rating activities with regard to the different asset classes (corporate — structured finance — sovereign); 4. a description of its record-keeping policy; 5. the outcome of the annual internal review of its independent compliance function; 6. a description of its management and rating analyst rotation policy; 7. financial information on the revenue of the credit rating agency agency, including total turnover, divided into fees from credit rating and non-credit-rating activities ancillary services with a comprehensive description of each; each, including the revenues generated from ancillary services provided to clients of credit rating services and the allocation of fees to credit ratings of different asset classes. Information on total turnover shall also include a geographical allocation of that turnover to revenues generated in the Union and revenues worldwide; 8. a governance statement within the meaning of Article 46a(1) of Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain types of companiesOJ L 222, 14.8.1978, p. 11.. For the purposes of that statement, the information referred to in Article 46a(1)(d) of that Directive shall be provided by the credit rating agency irrespective of whether it is subject to Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bidsOJ L 142, 30.4.2004, p. 12..

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ANNEX II INFORMATION TO BE PROVIDED IN THE APPLICATION FOR REGISTRATION 1. Full name of the credit rating agency, address of the registered office within the Community Union 2. Name and contact details of a contact person and of the compliance officer 3. Legal status 4. Class of credit ratings for which the credit rating agency is applying to be registered 5. Ownership structure 6. Organisational structure and corporate governance 7. Financial resources to perform credit rating activities 8. Staffing of credit rating agency and its expertise 9. Information regarding subsidiaries of credit rating agency 10. Description of the procedures and methodologies used to issue and review credit ratings 11. Policies and procedures to identify, manage and disclose any conflicts of interests 12. Information regarding rating analysts 13. Compensation and performance evaluation arrangements 14. Services other than credit rating activities, which the credit rating agency intends to provide 15. Programme of operations, including indications of where the main business activities are expected to be carried out, branches to be established, and setting out the type of business envisaged 16. Documents and detailed information related to the expected use of endorsement 17. Documents and detailed information related to the expected outsourcing arrangements including information on entities assuming outsourcing functions.

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ANNEX III List of infringements referred to in Article 24(1) and Article 36a(1) I. Infringements related to conflicts of interest, organisational or operational requirements 1. The credit rating agency infringes Article 4(3) by endorsing a credit rating issued in a third country without … 967 unchanged words … mechanisms and arrangements established in accordance with this Regulation or by not taking appropriate measures to address any deficiencies. 19. The credit rating agency infringes Article 6(2), in conjunction with point 1 of Section B of Annex I, by not identifying, eliminating eliminating, or managing and disclosing, clearly or prominently, any actual or potential conflicts of interest that may influence the analyses or judgments of its rating analysts, employees, or any other natural person whose services are placed at the disposal or under the control of the credit rating agency and who are directly involved in the issuing of a credit rating activities or persons approving credit ratings. ratings and rating outlooks. 20. The credit rating agency infringes Article 6(2), in conjunction with the first paragraph of point 3 of Section B of Annex I, by issuing a credit rating or rating outlook in any of the circumstances set out in the first paragraph of that point or, in the case of an existing credit rating, rating or rating outlook, by not disclosing immediately that the credit rating or rating outlook is potentially affected by those circumstances. 20a. The credit rating agency infringes Article 6(2), in conjunction with point 3a of Section B of Annex I, by not disclosing that an existing credit rating or rating outlook is potentially affected by any of the circumstances set out in letters (a) and (b) of that point. 21. The credit rating agency infringes Article 6(2), in conjunction with the second paragraph of point 3 of Section B of Annex I, by not immediately assessing whether there are grounds for re-rating or withdrawing an existing credit rating. rating or rating outlook. 22. The credit rating agency infringes Article 6(2), in conjunction with the first paragraph of point 4 of Section B of Annex I, by providing rating entities where the credit rating agency itself or any person holding, directly or indirectly, at least 5 % of either the capital or the voting rights of the credit rating agency, or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, provides consultancy or advisory services to the that rated entity or a related third party regarding the corporate or legal structure, assets, liabilities or activities of that rated entity or related third party. 22a. The credit rating agency infringes Article 6a(1) when one of its shareholders or members holding at least 5 % of 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, is in breach of one of the prohibitions set out in points (a) to (e) of that paragraph, with the exception of that set out in point (a) for 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. 23. The credit rating agency infringes Article 6(2), in conjunction with the first part of the third paragraph of point 4 of Section B of Annex I, by not ensuring that the provision of an ancillary service does not present a conflict of interest with its credit rating activity. 24. The credit rating agency infringes Article 6(2), in conjunction with point 5 of Section B of Annex I, by not ensuring that rating analysts or persons who approve ratings do not make proposals or recommendations regarding the design of structured finance instruments on which the credit rating agency is expected to issue a credit rating. 25. The credit rating agency infringes Article 6(2), in conjunction with point 6 of Section B of Annex I, by not designing its reporting or communication channels so as to ensure the independence of the persons referred to in point 1 of Section B from the other activities of the credit rating agency carried out on a commercial basis. 26. The credit rating agency infringes Article 6(2), in conjunction with the second paragraph of point 8 of Section B of Annex I, by not keeping the records for a term of at least three years once its registration is withdrawn. 26a. The credit rating agency which entered into a contract for the issuing of credit ratings on re-securitisations infringes Article 6b(1) by issuing credit ratings on new re-securitisations with underlying assets from the same originator for a period exceeding four years. 26b. The credit rating agency which entered into a contract for the issuing of credit ratings on re-securitisations infringes Article 6b(3) by entering 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 referred to in paragraphs1 and 2 of Article 6b but not exceeding four years. 27. The credit rating agency infringes Article 7(1) by not ensuring that rating analysts, its employees or any other natural person whose services are placed at its disposal or under its control and who are directly involved in credit rating … 337 unchanged words … Article 7(3), in conjunction with point 2 of Section C of Annex I, by not ensuring that a person referred to in point 1 of that Section does not participate in or otherwise influence the determination of a credit rating or rating outlook as set out in point 2 of that Section. 34. The credit rating agency infringes Article 7(3), in conjunction with points (b), (c) and (d) of point 3 of Section C of Annex I, by not ensuring that a person referred to in point 1 of that Section does not disclose or use or share information, as referred to in those points. 35. The credit rating agency infringes Article 7(3), in conjunction with point 4 of Section C of Annex I, by not ensuring that a person referred to in point 1 of that Section does not solicit or accept money, gifts or favours from anyone with whom the credit rating agency does business. 36. The credit rating agency infringes Article 7(3), in conjunction with point 7 of Section C of Annex I, by not ensuring that a person referred to in point 1 of that Section does not take up a key management position with the rated entity or its a related third party within six months of the issuing of a credit rating. rating or rating outlook. 37. The credit rating agency infringes Article 7(4), in conjunction with point (a) of the first paragraph of point 8 of Section C of Annex I, by not ensuring that the lead rating analyst is not involved in credit rating activities related to the same rated entity or its related third parties for a period exceeding four years. 38. The credit rating agency infringes Article 7(4), in conjunction with point (i) of point (b) of the first paragraph of point 8 Section C of Annex I, by not ensuring that that, where it provides unsolicited credit ratings or sovereign ratings, a rating analyst is not involved in credit rating activities related to the same rated entity or its a related third parties party for a period exceeding five years. 39. The credit rating agency infringes Article 7(4), in conjunction with point (c) (ii) of point (b) of the first paragraph of point 8 of Section C of Annex I, by not ensuring that that, where it provides unsolicited credit ratings or sovereign ratings, a person approving credit ratings is not involved in credit rating activities related to the same rated entity or its a related third parties party for a period exceeding seven years. 40. The credit rating agency infringes Article 7(4), in conjunction with the second paragraph of point 8 of Section C of Annex I, by not ensuring that a person referred to in points (a), (a) and (b) and (c) of the first paragraph of that point is not involved in credit rating activities related to the rated entity or a related third parties party referred to in those points within two years of the end of the periods set out in those points. 41. The credit rating agency infringes Article 7(5) by introducing compensation or performance evaluation contingent on the amount of revenue that the credit rating agency derives from the rated entities or related third parties. 42. The credit rating agency infringes Article 8(2) by not adopting, implementing or enforcing adequate measures to ensure that the credit ratings and 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. 42a. The credit rating agency infringes Article 8(2) by using information falling outside the scope of Article 8(2). 42b. The credit rating agency infringes Article 8(2a) by issuing changes in credit ratings that do not comply with its published rating methodologies. 43. The credit rating agency infringes Article 8(3) by not using rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing. 44. The credit rating agency infringes the first subparagraph of Article 8(4) by refusing 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. 45. The credit rating agency infringes the second subparagraph of Article 8(4) by not recording 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 structured finance instruments or by not providing a justification for the differing assessment. 46. The credit rating agency infringes the first sentence of the first subparagraph of Article 8(5) by not monitoring its credit ratings other than sovereign ratings or by not reviewing its credit ratings other than sovereign ratings or rating methodologies on an ongoing basis and or at least annually. 46a. The credit rating agency infringes the second subparagraph of Article 8(5), in conjunction with the first sentence of the first subparagraph of Article 8(5), by not monitoring its sovereign ratings or by not reviewing its sovereign ratings on an ongoing basis or at least every six months. 47. The credit rating agency infringes the second sentence of Article 8(5) by not establishing internal arrangements to monitor the impact of changes in macroeconomic or financial market conditions on credit ratings. 48. The credit rating agency infringes point (b) of Article 8(6), where methodologies, models or key rating assumptions used in credit rating activities are changed, by not reviewing the affected credit ratings in accordance with that point, or by not placing those ratings under observation in the meantime. 49. The credit rating agency infringes point (c) of Article 8(6) by not re-rating a credit rating that has been based on methodologies, models or key rating assumptions that are changed where the overall combined effect of those changes affects that credit rating. 49a. The credit rating agency infringes point (c) of Article 8(6), in conjunction with point (c) of Article 8(7), by not re-rating a credit rating where errors in the rating methodologies or in their application affect that credit rating. 50. The credit rating agency infringes Article 9 by undertaking the outsourcing of important operational functions in such a way as to impair materially the quality of the credit rating agency's internal control or the ability of ESMA to supervise the credit rating agency's compliance with obligations under this Regulation. 51. The credit rating agency infringes Article 10(2), in conjunction with the second paragraph of point 4 of Part I of Section D of Annex I, by issuing a credit rating or not withdrawing an existing rating in a case where the lack of reliable data or the complexity of the structure of a new type of financial instrument or the quality of information available is not satisfactory or raises serious questions as to whether the credit rating agency can provide a credible credit rating. 52. The credit rating agency infringes Article 10(6) by using the name of ESMA or any competent authority in such a way that would indicate or suggest endorsement or approval by ESMA or any competent authority of the credit ratings or any credit rating activities of the credit rating agency. 53. The credit rating agency infringes Article 13 by charging a fee for the information provided in accordance with Articles 8 to 12. 54. The credit rating agency, where it is a legal person established in the Union, infringes Article 14(1) by not applying for registration for the purposes of Article 2(1). 55. The credit rating agency infringes Article 8a(3) by not publishing on its website, or by not submitting to ESMA 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 that fall on a Friday for the publication of unsolicited sovereign ratings and related rating outlooks and setting dates that fall on a Friday for the publication of solicited sovereign ratings and related rating outlooks. 56. The credit rating agency infringes Article 8a(4) by deviating from the announced calendar where this is not necessary to fulfil its obligations under Article 8(2), Article 10(1) or Article 11(1) or by not providing a detailed explanation of the reasons for the deviation from the announced calendar. 57. The credit rating agency infringes Article 10(2), in conjunction with point 3 of Part III of Section D of Annex I, by publishing a sovereign rating or a related rating outlook during business hours of regulated markets or less than one hour before their opening. 58. The credit rating agency infringes Article 10(2), in conjunction with point 4 of Part III of Section D of Annex I, by including policy recommendations, prescriptions or guidelines to rated entities, including States or regional or local authorities of States, as part of a sovereign rating or a related rating outlook. 59. The credit rating agency infringes Article 8a(2) by basing its public communications relating to changes in sovereign ratings, and which are not credit ratings, rating outlooks or accompanying press releases, as referred to in point 5 of Part I of Section D of Annex I, on information within the sphere of the rated entity, where such information 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. 60. The credit rating agency infringes Article 8a(1) by not issuing individual publicly available country reports when announcing the revision of a given group of countries. 61. The credit rating agency infringes point 1 of Part III of Section D of Annex I by issuing a sovereign rating or a related rating outlook without simultaneously providing a detailed research report explaining all the assumptions, parameters, limits and uncertainties and any other information taken into account in determining that sovereign rating or rating outlook or by not making that report publicly available, clear and easily comprehensible. 62. The credit rating agency infringes point 2 of Part III of Section D of Annex I by not issuing a publicly available research report accompanying a change compared to the previous sovereign rating or related rating outlook or by not including in that report at least the information referred to in point 2(a) to (d) of Part III of Section D of Annex I. II. Infringements related to obstacles to the supervisory activities 1. The credit rating agency infringes Article 6(2), in conjunction with point 7 of Section B of Annex I, by not arranging for records or audit trails of its credit rating activities as required by those provisions. 2. The credit rating agency infringes Article 6(2), in conjunction with the first paragraph of point 8 of Section B of Annex I, by not keeping the records or audit trails referred to in point 7 of that Section at its premises for at least five years or by not making available those records or audit trails to ESMA upon request. 3. The credit rating agency infringes Article 6(2), in conjunction with point 9 of Section B of Annex I, by not retaining records which set out the respective rights and obligations of the credit rating agency or the rated entity or its related third parties under an agreement to provide credit rating services for the duration of the relationship with that rated entity or its related third party. 3a. The credit rating agency infringes the third subparagraph of Article 14(3) by not notifying ESMA of the intended material changes to the existing rating methodologies, models or key rating assumptions or of the proposed new rating methodologies, models or key rating assumptions when it publishes the rating methodologies on its website in accordance with Article 8(5a). 3b. The credit rating agency infringes the first subparagraph of Article 8(5a) by not publishing on its website the proposed new rating methodologies or the proposed material changes to the rating methodologies that could have an impact on a credit rating together with an explanation of the reasons for and the implications of the changes. 3c. The credit rating agency infringes point (a) of Article 8(7) by not notifying ESMA of discovered errors in its rating methodologies or in their application or by not explaining their impact on its credit ratings, including the need to review its issued credit ratings. 4. The credit rating agency infringes Article 11(2) by not making available the required information or by not providing that information in the required format as referred to in that paragraph. 4a. The credit rating agency infringes Article 11a(1) by not making available the required information or by not providing that information in the required format as referred to in that paragraph. 5. The credit rating agency infringes Article 11(3), in conjunction with point 2 of Part I of Section E of Annex I, by not providing to ESMA a list of its ancillary services. 6. The credit rating agency infringes the second subparagraph of Article 14(3) by not notifying ESMA of any material changes to the conditions for initial registration in accordance with that subparagraph. 7. The credit rating agency infringes Article 23b(1) by failing to provide information in response to a decision requiring information pursuant to Article 23b(3), or by providing incorrect or misleading information in response to a simple request for information pursuant to Article 23b(2) or in response to a decision requiring for information pursuant to Article 23b(3). decision. 8. The credit rating agency infringes point (c) of Article 23c(1) by failing to provide an explanation, or by providing an incorrect or misleading answers explanation, on facts or documents related to questions asked pursuant to that point. the subject matter and purpose of an inspection. III. Infringements related to disclosure provisions 1. The credit rating agency infringes Article 6(2), in conjunction with point 2 of Section B of Annex I, by not disclosing to the public the names of the rated entities or related third parties from which it receives more than 5 % of its annual revenue. 2. The credit rating agency infringes Article 6(2), in conjunction with the second part of the third paragraph of point 4 of Section B of Annex I, by not disclosing in the final rating report an ancillary service provided for the rated entity or any related third party. 3. The credit rating agency infringes Article 8(1) by not disclosing to the public the methodologies, models or key rating assumptions it uses in its credit rating activities as described in point 5 of Part I of Section E of Annex I. 4. The credit rating agency infringes point (a) of Article 8(6), where methodologies, models or key rating assumptions used in credit rating activities are changed, by not disclosing immediately, or by disclosing and not using the same means of communication as used for the distribution of the affected credit ratings, the likely scope of affected credit ratings. 4a. The credit rating agency infringes point (aa) of Article 8(6), where it intends to use new rating methodologies, by not informing ESMA or by not publishing immediately on its website the results of the consultation and those new rating methodologies together with a detailed explanation thereof and their date of application. 4b. The credit rating agency infringes point (a) of Article 8(7) by not notifying affected rated entities of discovered errors in its rating methodologies or in their application,or by not explaining the impact on its credit ratings, including the need to review its issued credit ratings. 4c. The credit rating agency infringes point (b) of Article 8(7) by not publishing on its website discovered errors in its rating methodologies or in their application where such errors have an impact on the credit rating agency’s credit ratings. 5. The credit rating agency infringes Article 10(1) by not disclosing on a non-selective basis or in a timely manner a decision to discontinue a credit rating, including full reasons for the decision. 6. The credit rating agency infringes Article 10(2), in conjunction with point 1 or 2, the first paragraph of point 4 or point 5, points 5 or 6, of Part I of Section D of Annex I, or Part Parts II or III of Section D of Annex I, by not providing the information as required by those provisions when presenting a rating. credit rating or a rating outlook. 7. The credit rating agency infringes Article 10(2), in conjunction with point 3 of Part I of Section D of Annex I, by not informing the rated entity during working hours of the rated entity and at least 12 hours a full working day before publication of the credit rating. rating or the rating outlook. 8. The credit rating agency infringes Article 10(3) by not ensuring that rating categories that are attributed to structured finance instruments are clearly differentiated using an additional symbol which distinguishes them from rating categories used for any other entities, financial instruments or financial obligations. 9. The credit rating agency infringes Article 10(4) by not disclosing its policies or procedures regarding unsolicited credit ratings. 10. The credit rating agency infringes Article 10(5) by not providing the information as required by that paragraph when issuing an unsolicited credit rating or by not identifying an unsolicited credit rating as such. 11. The credit rating agency infringes Article 11(1) by not fully disclosing or immediately updating information relating to the matters set out in Part I of Section E of Annex I.