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Canada aligns credit rating rules with EU

Monday 30 January 2012 – by Karina Whalley

The Canadian securities watchdog has clamped down on credit rating agencies by releasing new legislation in line with international standards, especially those in Europe.

Any credit rating agency in Canada will now have to apply to become a “designated rating organisation” and adhere to rules on conflicts of interest, governance, conduct, a compliance function and required filings.

The Canadian Securities Administrators, which coordinates regulation for the country’s capital markets, imposed the ruling on Friday in an attempt to harmonise Canadian legislation with that of the European Commission.

“The rule is also designed … so that European market participants can rely on ratings of Canadian credit rating organisations associated with those registered in Europe,” the CSA said.

Under European regulations, firms are to be allowed to use credit ratings issued by a CRA based outside of the EU if the European Securities and Markets Authority has recognised regulatory and supervisory standards in that country to be ‘as stringent as’ European rules.

Esma has extended a transitional period for accrediting CRA requirements in foreign countries, allowing firms to use non-EU ratings until the end of April but has only approved Japan and Australia as having equivalent rules so far.

Canada, along with Argentina, Hong Kong, Singapore and the US are in an advanced state of assessment by the pan-European authority. Esma wants to conclude whether these countries’ standards are up to scratch during the first quarter of this year.

The CSA published proposed amendments to the rule in March 2011, which included feedback received from Esma on whether the planned Canadian regulatory framework was “equivalent” to that of the EU. Since then, minor changes have been made.

“The CSA recognise the significant role credit rating organisations play in today’s global credit markets,” said Bill Rice, chair of the CSA.

“By considering international developments while creating the Canadian regulatory regime for credit rating agencies, the CSA has set appropriate standards for credit rating agencies that are also consistent with international regimes,” he added.

Once all regions have approved the proposal, the rule will come into effect on 20 April this year.

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