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Efama considers the definition very broad, as it includes every action or omission related to the use of a credit rating. Article 5b (1) of the CRA3 Regulation refers specifically to cases of reliance concerning the assessment of the creditworthiness of an entity or financial instrument. This should be included in the definition as to be consistent with the provision of the CRA3 Regulation and the articles 5a, 5b and 5c.

Therefore, EFAMA would propose the following addition to the definition:

“It is considered that there is sole or mechanistic reliance on credit ratings (or credit rating outlooks) when an action or omission related to the assessment of the creditworthiness of an entity or a financial instrument is the consequence of any type of rule solely based on credit ratings (or credit rating outlooks) without any additional discretion.”

Moreover it would be important to make a non-exhaustive/indicative list of actions or omissions that are not to be considered as mechanistic reliance, such as counterparty selection and proactive selection of securities. The list should include actions and omissions which if considered as mechanistic reliance will mean that there is an obligation to establish internal credit ratings systems, contradicting the flexibility foreseen in CRA3 Regulation (as mentioned in our introductory Remarks).
EFAMA agrees on the identified provisions, texts and guidelines of EBA and ESMA currently in force which contain references to credit ratings that can be considered as mechanistic or sole reliant to credit ratings and with the proposed actions. There are no other guidelines or provisions identified by EFAMA as necessary to take further action. It should be stressed however, that even though it is not considered appropriate to take further action or remove the references to external ratings in the case of specific rules in CRR or Solvency Capital Requirement, it still has to be clear that those references should be interpreted in the context of the CRA3 requirements.
EFAMA welcomes the revision of the ESMA Guidelines on MMFs, notably, the fact that the assessment of the credit quality of a money market instrument must not consider (as was previously the case) each recognized credit rating agency that has rated the instrument.

We believe, however, that three points merit further clarification in Paragraphs 47 and 48 of the consultation paper relating to:

1. Own documented assessment of credit quality

EFAMA believes that the internal credit assessment carried out by MMF managers should avoid any mechanistic analysis and monitoring framed on the basis of similar internal credit ratings scales. We believe an internal rating scale imposed to MMF managers is inappropriate. The different views of market participants are a key pillar for the well-functioning of financial markets. Divergent views translated into different credit assessments between MMF managers should be permitted. 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.

2. Reliance to external credit rating agencies

The current proposal requires that MMF managers monitor the credit ratings provided by at least one CRA registered and authorized by ESMA. This is unnecessary and contradictory in terms of avoiding mechanistic overreliance on external credit ratings.

EFAMA proposes that the guidelines should clarify that the number of credit rating agencies to be considered should be determined by the fund’s manager taking into account the fund’s investment objectives and the best interests of the share/unit holders.

We thus propose the following amendment to the proposed text:
Such an assessment [should] may have regard to the credit rating(s) provided by one or more credit rating agencies ..." (Sentence 2 in paragraphs 47 and 48).

3. Downgrades

We agree with the proposal made in Paragraph 47 that “any downgrade below the two highest short-term credit ratings used by such an agency should lead the manager to undertake a new assessment of the credit quality of the money market instrument”, provided that this proposal means that the manager should undertake such a new assessment only when the downgrade has been decided by the agency or agencies that the manager is using to assess the credit quality of money market instruments. The same remark applies to paragraph 48."