The European Securities and Markets Authority has published its supervisory priorities for credit rating agencies and trade repositories for the rest of the year, along with an annual retrospective report.

ESMA has seen a number of changes in the credit rating agency and trade repository industries in the last year, with new applicants for registration in both sectors. Credit rating agencies have been rating new asset classes and spreading existing types of rating to new geographic areas. Trade repositories have been offering trade reporting services for other types of instrument.
 
ESMA identifies its supervisory priorities on the basis of risk assessment exercises it has conducted throughout the year. These exercises identified high levels of "governance and strategy risk," whatever that might entail, and operational risk in the credit rating industry and high levels of risk associated with trade repositories' data and systems. Therefore, for the rest of this year ESMA will concentrate on:

• the ways in which credit rating agencies govern themselves, their strategies and the quality of credit ratings;
• the quality of trade repositories' data and data access;
• fees charged and information security for all supervised entities.

In 2015, while claiming to take a risk-based approach to supervision, ESMA concentrated on credit rating agencies’ governance, risk management and internal decision-making and on their business development processes. Its main achievements were as follows.

• It investigated the techniques that some credit rating agencies were applying to 'validate' their methods. It then used the differences its regulators had identified to encourage industry-wide debate about appropriate validation standards;
• It assessed IT risks and realised that credit rating agencies are facing serious risks in several areas, including IT operations and information security.
• It investigated the process by which one credit rating agency went about rating the issuance of stock etc and raised concerns about the preparation of issue ratings, the workloads of credit rating analysts and their involvement in the provision of ancillary services.
• It concluded an enforcement case against DBRS Ratings Ltd for internal control failings and imposed a €30,000 fine for past record-keeping transgressions. The case highlighted the need for ratings agencies to establish clear decision-making procedures, organisational structures and effective compliance functions.

The key risks that ESMA looked at in respect of trade repositories last year related to the quality of repositories’ data, access to data held by TRs and the operation and performance of TRs’ systems. It continued to push its "data quality action plan (established in September 2014) on repositories, achieving the following.

• The standardisation of repositories' data validation.
• Keeping an eye on the inter-repository reconciliation process.
• Making sure that the aggregate data made available on trade repositories’ websites looked the same.

ESMA has also signed some Memoranda of Understanding with various regulatory authorities and is developing an IT system to allow national regulators - presumably all from EU countries - to submit data queries through a centralised web portal.