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German government issues draft legislation to implement EU regulation on credit rating agencies
Practical Law UK Legal Update 0-501-4898 (Approx. 3 pages)
German government issues draft legislation to implement EU regulation on credit rating agencies
by Reinhard Bunjes, Simmons & Simmons
| Published on 17 Feb 2010 • Germany |
This article is part of the PLC Global Finance February 2010 e-mail update for Germany.
Speedread
The German Government has issued a draft for an act to implement the EC Regulation on credit rating agencies into German law. The major part of the Regulation, which provides for registration of credit rating agencies and bans the individual agencies from advising the same companies that they rate, does not require implementation. However the draft names the German Federal Financial Supervisory Authority as the responsible agency for supervising rating agencies and provides for fines for violations.
On 16 September 2009, the European Parliament and the Council adopted Regulation (EC) No 1060/2009 on credit rating agencies (Regulation). The Regulation addresses the important influence credit rating agencies have for the functioning of the financial markets and the fact that, so far, their activities have not been regulated in most EU member states.
The Regulation aims at:
- Protecting the stability of financial markets and investors.
- Avoiding the possibility of conflict of interest.
- Enhancing the transparency of the rating process.
It applies to credit ratings issued by credit rating agencies registered in the EU and which are disclosed publicly or distributed by subscription.
The obligation for credit rating agencies acting in the EU to be registered is itself a new requirement introduced by the Regulation. This is one of the central elements of the Regulation, along with an obligation to provide certain information and a new prohibition on advising the same companies that the individual rating agency also rates.
The Regulation does not intend to create a general obligation for financial instruments to be rated under the Regulation nor a ban on investing in securities which are not rated under the Regulation. However, it asks for prospectuses to contain clear and prominent information on whether or not the any rating quoted in the prospectus has been issued by a credit rating agency established in the EU and registered under the Regulation.
While these substantial changes brought by the Regulation apply without implementation into national law, the German government has now agreed on a draft act to appoint a responsible authority and adapt German law to the requirements of the Regulation (Act). This will happen by amending the Securities Trade Act (Wertpapierhandelsgesetz) (WpHG).
The Act names the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BaFin) as the responsible authority in Germany for the supervising rating agencies for the time being; BaFin has also been responsible for the supervision of banks, insurance companies and securities trading. However, the reasons for the Act envisage a transfer of the responsibility for supervising rating agencies to the European Securities and Markets Authority (ESMA) once it is established.
In furtherance of the Regulation, the Act will allow BaFin to perform special audits with or without specific cause to supervise compliance with the Regulation.
Apart from that, rating agencies will be under an obligation to have their compliance with the requirements of the Regulation audited on a yearly basis by an auditor instructed by BaFin.
The Act also contains numerous provisions intended to safeguard the rating agencies' compliance with the Regulation by declaring violations against many of the obligations set out in the Act as regulatory offences. Violations can be punished if committed intentionally or recklessly (leichtfertig) and carry a fine of up to EUR1 million.
The German Government expects the Act to enter into force by 7 June 2010.