ESMA calls for greater transparency in rating agency fees
The European Securities and Markets Authority (ESMA) released a report on fees charged by credit rating agencies (CRAs) and trade repositories (TRs), who register all derivatives contracts entered into between two counterparties. The report, based on research in this area in 2018, highlights some good practices in fee transparency, fee-setting and cost-monitoring, but concludes that ratings agencies will have to enhance their transparency in pricing and price revisions, also by streamlining their offerings and rate scales based on client category.
The report also focused on pricing processes and end-to-end record-keeping of this process in order to guarantee that fees are not discriminatory and are based on the real costs of services, which should involve more active participation in control functions, such as compliance and internal auditing.
Fees based on real costs
“We expect all supervised firms to be able to demonstrate that their fees are based on costs”, said Steven Maijoor, head of ESMA.
The 41 registered ratings agencies (from 27 groups) must also improve access to, and usability of, the credit ratings released on their websites, and, ideally, continue to supervise distribution of credit ratings that it produces, with reference to ratings from outside countries, which are likely to be more numerous, post-Brexit.
The nine certified trade repositories (from seven groups in all), which ESMA assesses for transparency of rate scales, based on services, must also resolve potential issues in pricing and ensure that their fee policy is in compliance with EMIR regulations and regulator expectations.
The regulator, which also released a datasheet stating the normal client expectations and areas to improve in fees, will continue to monitor progress and practices on this issue, while also continuing to work to improve rating access and use.