On 9 May 2014, the Ministry of Finance proposed new legislation regarding credit rating agencies. The background for the proposal is Regulation No 1060/2009 (CRA I) of the European Parliament, which has been incorporated into the EEA Agreement.

Credit rating agencies are currently non-regulated in Norway, and their activities fall outside the supervisory powers of the Financial Supervisory Authority of Norway (FSAN). Although there has not been established any Norwegian credit rating agencies yet, the strong growth in the Norwegian corporate bond market for the last 10-15 years, particularly with respect to shipping, offshore and oil & gas, makes it more likely that credit rating agencies will find it more attractive to establish themselves in Norway. For a quick glance at the Norwegian high yield corporate bond market, please see our earlier newsletter, which can be ready by clicking here.

Credit rating agencies play an important role in the global financial markets, and have a significant impact on the trust of consumers and investors. It is therefore important that the agencies’ activities are conducted in accordance with the principles of integrity, transparency, responsibility and good governance.

The proposed legislation provides rules for registration and supervision of credit rating agencies, including organisational and operational requirements. The aim of the proposed legislation is to ensure compliance with these principles, and to avoid potential conflicts of interest. The legislation shall also ensure that ratings issued by credit rating agencies are independent, objective and of good quality.

The rules apply to credit ratings issued by credit rating agencies registered in the EEA, and that are published or distributed to subscribers. According to the proposal, financial institutions (including insurance companies) and investment firms may only use ratings issued by credit ratings agencies established in the EEA and being registered with the European Securities and Markets Authority (ESMA) in accordance with applicable legislation.

The proposed legislation provides for strict and detailed provisions governing the agencies’ organization and business, inter alia that

  • the agency shall establish an administrative or supervisory board. The board shall ensure that the credit rating activities are independent. Furthermore, the board shall ensure that potential conflict of interests are identified, dealt with and disclosed;
  • the board shall disclose to the public information regarding actual or potential conflicts of interest;
  • the agency shall have adequate administrative procedures and effective systems of internal control, risk management and data processing;
  • the agency shall establish a compliance department with a compliance officer; and
  • the agency shall submit an application to the ESMA.

The legislation also provides for detailed rules regarding the issuance of credit ratings, inter alia that

  • the agency shall disclose to the public the methodologies, models and key rating assumptions it uses in the credit ratings activities;
  • the agency shall monitor and review the agencies ratings and methods on an ongoing basis. Any changes shall be disclosed to the public;
  • the agency shall disclose to the public any credit rating, including rating that are distributed by subscriptions; and
  • the agency shall annually publish a transparency report which includes information on compliance with the matters above.

If the Norwegian Parliament adopts the proposal, further changes to the legislation should be expected. The CRA I has already been changed by detailed provisions given by EU in CRA II and CRA III, none of which have been included in the EEA-agreement. Norwegian authorities are currently working with Iceland and Liechtenstein on the one side (qua members of the EEA) and the EU on the other side in finding solutions under the EEA-agreement to give EU regulatory authorities supranational competence in the EEA.

EU Regulations do not have direct effect in Norway. The Ministry of Finance therefore proposes to incorporate CRA I into Norwegian law “as is”, through a reference.