Credit Rating Agencies Regulation

Credit rating agencies (CRA) play an important role in global securities and banking markets. On the one hand, CRAs are used by investors, borrowers, issuers and governments as the basis for investment and financing decisions. On the other hand, a large variety of financial intermediaries, banks and investment firms under the Liechtenstein Banking Act or the Liechtenstein Asset Management Act, insurance companies, reinsurance companies, institutions for occupational retirement provision, fund managers under the Liechtenstein UCITS Act and the Liechtenstein AIFM Act or central counterparties rely on credit ratings as the reference for the calculation of their capital requirements or for calculating risks in their investment activity. Consequently, credit ratings have a significant impact on the operation of the markets and on the trust and confidence of investors and consumers.

In order to ensure that independent and objective credit rating activities of adequate quality are conducted in accordance with the principles of integrity, transparency, responsibility and good governance in the EEA, the European legislature adopted Regulation (EC) No. 1060/2009 on credit rating agencies (Credit Rating Agencies Regulation, CRAR).

It provides that all CRAs which have their registered office or a branch office in the European Union must be licensed in accordance with the Regulation and be subject to regulatory supervision. The Regulation provides for exemption for central banks and smaller CRAs. Since 1 July 2011, overall responsibility for the supervision of CRAs has rested with the European Securities and Markets Authority (ESMA).

Furthermore, the Regulation provides that all credit institutions, insurance companies and other supervised companies in the financial services sector may only use credit ratings for regulatory purposes if the credit ratings were issued by authorised CRAs.

Regulation (EU) No. 1060/2009 has already been amended several times, in particular by Regulation (EU) No. 513/2011 and Regulation (EU) No. 462/2013.

The CRAR has the following objectives aimed at improving the process of issuance of credit ratings:

• To ensure that CRAs avoid conflicts of interest in the rating process or at least manage them adequately
• To improve the quality of the methodologies used by CRAs and the quality of the ratings that they issue
• To increase transparency by setting disclosure obligations for CRAs
• To ensure an efficient registration and supervisory framework, avoiding forum shopping and regulatory arbitrage between EU jurisdictions

The CRAR has been supplemented by three delegated regulations, which implement its core provisions. These regulatory technical standards set out among other things:

• Disclosure requirements for originators, issuers and sponsors of structured finance products
• Reporting requirements for CRAs on fees charged to their clients
• Reporting requirements for CRAs in relation to the European credit rating platform

The above-mentioned Regulation does not have to be transposed into national law because it will apply directly in Liechtenstein when the relevant decisions of the EEA Joint Committee to incorporate it into the EEA Agreement take effect. Under national law, all that has to be enacted are supplementary provisions concerning the competent authority and its powers, as well as provisions for penalties and provisions requiring compliance with the CRAR. For these purposes, Liechtenstein has enacted the Credit Rating Agencies Implementation Act (Ratingagenturen-Durchführungsgesetz, CRA-DG).