The European Securities and Markets Authority has published a follow-up report on its 2018 Thematic Report on the fees charged by credit rating agencies and trade repositories. ESMA directly supervises all CRAs and trade repositories that are established in the EU. The 2018 Thematic Report highlighted three key areas of concern in the fee charging practices of CRAs and trade repositories, namely: (i) transparency and disclosure to clients and ESMA of fees; (ii) the process of setting fees; and (iii) how interactions with other group entities may pose challenges to the principles of non-discrimination and cost-related fees to which credit rating agencies and trade repositories are expected to adhere. The follow-up report describes developments in industry practices since the publication of the 2018 Thematic Report and identifies areas that require further improvement. Earlier in 2019, ESMA also published final revised guidelines on the submission of periodic information to ESMA by CRAs and a consultation on the submission of such information by trade repositories. This information includes details of firms’ costs and revenues and can be used to help ESMA carry out its supervision of these entities.
ESMA observed that CRAs had adopted good practices including: (i) the revision of pricing policies to ensure they embed the fee-related requirements set out under the Credit Rating Agencies Regulation; (ii) the publication of pricing policies on websites; (iii) the simplification and standardization of fee schedules and programs; and (iv) the provision of fee schedules and programs to existing and prospective clients when changes to fees were made. However, it observed that more CRAs should consider: (i) establishing policies and procedures governing the fee-setting process and strengthening the governance framework for this process; (ii) explicitly linking fee schedules or programs to cost components; (iii) ensuring fee schedules that allow for wide fee ranges are justified by CRAs’ cost structures and do not result in discriminatory pricing; and (iv) involving their compliance and internal audit functions in regular and in-depth reviews of the end-to-end fee-setting and costs-monitoring process.
ESMA also observed good practices by trade repositories, including: (i) enhanced transparency, including through amendments to the layout of fees schedules and the publication of all types of fees, including those for porting and connectivity; (ii) providing sufficient notice of fee schedule updates to trade repository clients; and (iii) seeking customer feedback on fee practices. ESMA identified that more trade repositories could, however, adopt practices such as: (i) conducting regular, documented costs reviews; (ii) appointing a staff member to oversee pricing; (iii) charging fees on a sliding scale, leading to a decrease in fees where there is an increase in reporting volumes; and (iv) differentiating fee caps by product, to reflect the differences in actual reporting costs for different products.
ESMA intends to continue monitoring the actions of CRAs and trade repositories in response to the report and to work on improving access to and use of credit ratings.