Response to joint Consultation on mechanistic references to credit ratings in the ESAs’ guidelines and recommendations

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In particular, do you agree with the proposed revisions of the ESMA Money Mar ket Funds Guidelines? If not, please suggest an alternative.

We greatly appreciate that the assessment of the credit quality of a money market instrument must not consider (as previously under the CESR's Guidelines) each recognised credit rating agency that has rated the instrument. However, the following points should be clarified and amended:

a) Documented assessment of credit quality
Each manager of MMFs should be allowed to create its own credit assessment system with the understanding that the manager would have to provide the design and operational details of its system to allow competent authorities to evaluate the appropriateness of the system. In this context, it should be further clarified that an internal assessment of the credit quality of money market instruments does not neccesary lead to a formal assignment of an interal “credit rating”. The interanal credit assessement of the “high quality” of investments must not lead to implementation of the same kind of research and governance processes which are implemented in a regulated credit rating agency.

b) Reliance to external ratings
Sentence 2 of paragraph 47 and paragraph 48 should be amended as follows:

Such an assessment may (not should) have regard to the credit rating(s) provided by one or more credit rating agencies ..."

In terms of avoiding mechanistic overreliance on external credit ratings, it is contradictory that MMF managers should be required to monitor the credit ratings provided by at least on CRA recognized by ESMA. Therefore, the use and the number of credit rating agencies should be determined by the fund’s management in the best interest of unit holders.

c) Downgrades
It should be clarified that sentence 3 ("downgrades ... used by such an agency") refers to sentence 2. This means that the manager should only consider downgrades of such an agency if he has used the rating of the relevant agency within the credit assessment."

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