International regulatory developments

The European Regulation on CRAs came into force on 7 December 2009 [1], introducing a procedure for registering agencies established in the European Union (EU) [2]. The procedure has been supplemented by a new Regulation [3] which transfers jurisdiction for registration from national authorities to the European Securities and Markets Authority as from 1 July [4].

In parallel, the European Commission launched a consultation at end-2010 on new legislative initiatives to regulate CRAs’ activities and the use of credit ratings. Although it does not prefigure the issues that may give rise to concrete proposals in the latter half of 2011, the consultation covers the following topics:
 overreliance on CRA ratings
 sovereign debt ratings
 competition in the ratings industry
 civil liability
 conflicts of interest and the "issuer-pays" remuneration model.

Regulation of CRA activities was also tightened also in the United States with the Dodd-Frank Act, adopted on 21 July 2010, which introduced new legislative measures applicable to agencies.

European registration procedure

Under the Regulation that came into force on 7 December 2009, existing agencies were required to file their registration applications by 7 September 2010 and to have adopted all the measures needed to comply with the Regulation by that date. A transition period was provided so that existing agencies’ ratings could continue to be used for regulatory purposes in the European Union during the registration period.

A certification regime was put in place for small non-EU agencies that are not present in the EU but that publish their ratings there.

By 7 September 2010, 45 CRAs had filed a registration application. At 1 July 2011, five were registered, four by the German regulator and one by its Bulgarian counterpart.

The AMF is currently taking an active part in the colleges of regulators set up for the three main CRAs, Standard & Poor’s, Moody’s and Fitch Ratings, as part of the registration procedure for their French subsidiaries.

In addition, the AMF certified Japan Credit Rating Agency Ltd (JCRA) on 6 January 2011. As the sole member of JCRA’s college of regulators, it was the only competent authority for the certification procedure.

Credit ratings

In France, and across Europe in general, perceptions of credit risk in the sovereign debt market and the corporate credit market have changed in contrasting ways since 2009.

 Perception of sovereign risk has increased since autumn 2009 in connection with a widespread deterioration in government finances. In many euro area countries, this has led to a rise in the frequency and extent of sovereign downgrades by CRAs. This heightened perception has also affected the European banking sector because of its balance sheet exposure. By contrast, sovereign ratings have been upgraded in Asia and Latin America, which have been buoyed by brisk economic activity in China and Brazil.

 In the corporate credit market, signs of a pick-up in global activity have contributed to a relative return to normal, reflected in highly stable ratings and a reduction in downgrades versus upgrades, although downgrades are still more prevalent. This trend combined with a marked increase in issuance of high yield debt, which offers attractive returns in a period of low interest rates. At the same time, the sharp rise in unrated issues that had coincided with the crisis did not take further hold in France. Although it is still possible for issuers to access the debt market without relying on a rating, this seems to be the case for a limited number of issues only.