Small Credit Rating Agencies Cry Foul Over EU Directive

May 23, 2014

“We have seen the obligation to document the consideration of a smaller CRA reflected in offering memorandum, board resolutions or underlying deal documents. The obligation is to consider a smaller agency, but I think that there are a number of factors that go into that, including the fact that the CRA has to be capable of giving the rating. Whilst a smaller CRA may well be capable, the market for certain structured finance instruments is sufficiently developed and established that investors and issuers tend to gravitate towards tried and tested methodologies and the larger credit rating agencies.”

- Cadwalader partner Stephen Day commenting to IFLR about claims made by smaller credit rating agencies that banks are ignoring a key part of the European Union’s CRA3 regulations, aimed at decreasing an over-reliance on the larger rating agencies. Day refutes that banks are not taking the rule seriously, and instead credits the continued dominance of the big three agencies to simple market factors – that they are simply more capable of providing what is needed.