The European Securities and Markets Authority (Esma) has launched a consultation on internal controls at credit rating agencies active in the European single market, particularly as they relate to meeting requirements contained in the EU's CRA Regulation.
The consultation asks for views on the proposals put forward such as the criteria for internal controls, their framework and functions. Esma says this is required to show adequate control systems exist, to ensure "the accuracy and integrity of the credit rating process".
The Authority says need for guidance on internal controls was identified in its supervisory work done in 2017 and 2018.
Steven Maijoor, Esma chair (pictured), said: "The accuracy and integrity of credit ratings is fundamental to ensuring that users have reliable sources of information to inform their investment decisions, while supporting investor protection and stable and orderly markets. Investors need to know that those producing the ratings have adequate systems in place to ensure their accuracy and integrity."
"The proposed Guidelines on Internal Controls provide clarity to CRAs as to what Esma's expectations are in this area, will promote a more consistent approach to internal controls amongst registered CRAs and set the marker for new entrants to the industry."
Regarding the framework for internal controls at rating agencies, Esma says is is lokoing at "control envronment; risk management; control activities; information and communications; and monitoring activities", while regarding the 'functions' of internal controls it is looking at "compliance; review; risk management; information security; and internal audit".
Esma added that the guidelines have been developed to also ensure "proportionality" when it comes to smaller rating agencies operating under the CRA Regulation.
The consultation period runs until 16 March, with a final report expected by the third quarter of 2020.