ESMA's 2020 Supervision Focuses on Outstanding Credit Ratings, Data Quality

Monday, March09, 2020 / 03:447PM / By ESMA / HeaderImage Credit: ESMA

TheEuropean Securities and Markets Authority (ESMA) has published its 2020 Supervision Work Programme,detailing the areas of focus for its supervision of Credit Rating Agencies(CRAs), Trade Repositories (TRs) and the monitoring of third-country CentralClearing Counterparties (TC-CCPs) and Central Securities Depositories(TC-CSDs).

ESMA isalso preparing for its new supervisory responsibilities under the SecuritiesFinancing Transactions Regulation (SFTR), the Securitisation Regulation (SECR),the Benchmarks Regulation and MiFIR.

Key Supervisory Priorities for 2020

ESMA'ssupervisory focus will include:

CRAs - outstanding ratings, the ratingprocess, cybersecurity, usability of ratings, internal control environment;
TRs - data quality; IT systemsreliability; business continuity planning and information security;
SFTR/SECR - assessment of first SFTR andSECR applications and the implementation of the new supervisory frameworks;
TC-CCPs & TC-CSDs - assessment ofapplication of the clearing obligation; Brexit preparations and possible directsupervision of Tier 2 TC-CCPs under EMIR 2.2
In addition, ESMA will continue to engagewith supervised entities about their preparation for the end of theBrexit implementation period and ensure minimal disruption.

StevenMaijoor, Chair, said:

"ESMAis now in its tenth year as a pan-European supervisor and we have continued toprogress in our supervision of CRAs and TRs and effect improvements in CRAs andTRs conduct as seen in our recent work on fees, Brexit contingency plans,review of CLO credit ratings and TR data quality.

"Ibelieve that our performance in those ten years was a key factor in theEuropean institutions decision to increase ESMA's supervisory responsibilitiesunder the ESAs Review. We now look forward to building on our experience withCRAs and TRs to transition to the new role of securitisation repositories andcritical EU benchmarks supervisor and continue, through this work, to play ourrole in ensuring orderly markets, investor protection and financial stability."

Main priorities for 2020

For2020, the supervisory priorities will include:

Credit Rating Agencies

Proactive identification of risks inoutstanding credit ratings;
Ensure CRAs have robust andwell-structured rating processes;
Address identified concerns on IT andinformation security in CRAs;
Ensure credit ratings are accessible andusable for investors;
Organisation and independence of CRAs' control functions;

Trade Repositories

Data quality and access by authorities,with a focus on the Data Quality Action Plan;
Assess/monitor internal controls around ITprocesses and software changes;
Effectiveness of the Information Securityfunction and business continuity and disaster recovery plans;

Third Country CCPs & CSDs

Monitoring the impact of Brexit on theTC-CCP and TC-CSD regimes;
Set-up of the new processes correspondingto EMIR 2.2 recognition;
Reassessment of recognition decisions(including UK-based CCPs, if necessary);
Set-up and implementation of the newmonitoring of Tier 2 CCPs;
Monitoring of the potential risks TC-CCPsmight introduce in the EU for Tier 1; and
Assessment of possible recognitionapplications submitted by TC-CSDs, following EC equivalence decisions inrespect of the TC-CSDs' jurisdictions.