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ESMA: rating agencies and trade repositories must prepare for no-deal Brexit


The European Securities and Markets Authority (ESMA) has issued a public statement alerting credit rating agencies, trade repositories and those using their services to ready themselves for a no-deal Brexit.

In the statement (3 page / 138KB PDF) ESMA said entities using services provided by credit rating agencies and trade repositories needed to consider the implications of the UK leaving the EU in March without a withdrawal agreement.

ESMA said it planned to put a memorandum of understanding in place with the UK Financial Conduct Authority (FCA) to allow information exchange after Brexit, with the aim being to have this agreed by the time the UK leaves the EU.

Such a move is a precondition to allow credit rating agencies to endorse ratings issued from the UK for regulatory purposes in the EU.

The authority warned that derivatives subject to reporting obligations under the European Market Infrastructure Regulation (EMIR) must be reported to a trade repository registered in the EU, or in a recognised 'third country'. Credit rating agencies need to have a legal entity registered in the EU and supervised by ESMA in order for their ratings to be used for regulatory purposes in the EU.

ESMA suggested to market participants that they should contact their trade repository to make sure there would be continuity of service after Brexit.

ESMA said it had noted "significant" steps made by UK-based ratings agencies and repositories to implement contingency plans for a no-deal Brexit scenario, but said "some actions still need to be completed".

It warned that some counterparties may need to ask their UK trade repository to port data to an EU repository, and said it was crucial for counterparties and any reporting entities to make sure they had fully complied with the most recent reporting requirements.

Last month the FCA published consultation papers aimed at outlining the necessary technical changes to incorporate European financial services rules in the UK framework in the event of a no-deal Brexit.

These included details of temporary permissions regimes that would allow financial services firms to operate in Europe. However the papers noted that credit rating agencies, trade repositories and data reporting services providers would not be able to use the temporary permissions regime, as they do not currently 'passport' into the UK. The Treasury intends to introduce specific transitional regimes for each of these types of firm.

Separately the Treasury published a draft statutory instrument which will amend EU law concerning the trading of financial instruments by banks, investment managers and other financial services institutions.

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