The European Securities and Markets Authority’s (ESMA) examination of the credit rating agencies (CRAs) has highlighted several concerns over transparency.
ESMA has not determined whether any of the latest observations constitutes a breach of regulations but it has registered concerns about how Moody’s, Fitch and Standard and Poor’s arrive at their conclusions.
Rating committees as well as other key meetings are “not sufficiently recorded” including the outcome of voting within the committees and the reasons behind the final decisions.
ESMA has specifically cited transparency as a key concern for the agencies: “CRAs should improve the recording of core internal processes, in particular regarding the activities of the rating committees. A more rigorous approach to the organisation and recording of rating committees and other key internal meetings and committees would lead to improved control mechanisms for monitoring the quality and consistency of internal decisions, in particular relating to the rating activities.”
RC meetings were often attended by personel who had not been involved in the evaluation of a specific rated entity and that attendees were only offered a limited time to analyse documents relevant to the meeting.
Users of the agencies should be kept better informed about how and why final decisions are reached.
ESMA has suggested that criteria are compiled in a single document setting forth the main methodology.