Response to joint Consultation on mechanistic references to credit ratings in the ESAs’ guidelines and recommendations
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We believe that managers should be allowed to implement their own credit assessment system and should be able to justify the appropriateness of that system to competent authorities. It is inappropriate to impose an internal rating scale on managers as it is the variety of views of market participants that is key to the efficient functioning of markets.
The current proposal requires that managers monitor the credit ratings provided by at least one CRA registered and authorised by ESMA. In our view, this contradicts the requirement not to place a mechanistic overreliance on external credit ratings. The number of CRAs to be considered should be determined by the manager taking into account the investment objectives of the fund and the best interests of investors.
We suggest sentence two in paragraphs 47 and 48 is amended to “Such an assessment may have regard to the credit rating(s) provided by one or more credit rating agencies ...".
We agree with the proposals both Paragraphs 47 & 48 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”. This is provided that the manager should only be required to undertake a new assessment when the downgrade has been made by the particular agency/agencies that it uses to assess the credit quality of the instrument(s)."
In particular, do you agree with the proposed revisions of the ESMA Money Mar ket Funds Guidelines? If not, please suggest an alternative.
We agree with the proposed revisions and the principles-based approach. In particular, that the assessment of the credit quality of a money market instrument must not consider (as was previously the case) each recognised credit rating agency that has rated the instrument.We believe that managers should be allowed to implement their own credit assessment system and should be able to justify the appropriateness of that system to competent authorities. It is inappropriate to impose an internal rating scale on managers as it is the variety of views of market participants that is key to the efficient functioning of markets.
The current proposal requires that managers monitor the credit ratings provided by at least one CRA registered and authorised by ESMA. In our view, this contradicts the requirement not to place a mechanistic overreliance on external credit ratings. The number of CRAs to be considered should be determined by the manager taking into account the investment objectives of the fund and the best interests of investors.
We suggest sentence two in paragraphs 47 and 48 is amended to “Such an assessment may have regard to the credit rating(s) provided by one or more credit rating agencies ...".
We agree with the proposals both Paragraphs 47 & 48 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”. This is provided that the manager should only be required to undertake a new assessment when the downgrade has been made by the particular agency/agencies that it uses to assess the credit quality of the instrument(s)."