EBA欧洲银行-ESAs-BoA-Decision-on-Financialcraft_Analytics_Sp.Z.o.o-vs-ESMA-2017_57页_1mb

Summary of the Decision by the Board of Appeal (BoA 2017 01)

Core Content

This decision is an appeal by FinancialCraft Analytics Sp. z o.o. (formerly Global Rating Sp. z o.o.) against the refusal decision of the European Securities and Markets Authority (ESMA), dated 8 December 2016, which denied its registration as a credit rating agency (CRA) under Regulation (EC) No 1060/2009 (CRAR). The appeal was brought under Article 60 of Regulation (EU) No 1095/2010 (ESMA Regulation), and the Board of Appeal (BoA) considered the case based on the submitted documents.

The BoA concluded that the refusal decision was not vitiated by procedural irregularity or unfairness, and that the appellant failed to demonstrate compliance with CRAR to the required level of detail during the registration process. The Board also emphasized that an appeal is not an ab initio compliance assessment, and that the respondent's decision should not be overturned on the grounds of minor or superficial non-compliance.

Main Points and Key Information

I. Procedural Background

• The appellant is a Polish limited liability company, now named FinancialCraft Analytics Sp. z o.o., owned by Mr. Paweł Gożliński and his wife.
• The appeal is against the refusal decision ESMA/2016/1626, which was issued after the second application for registration.
• The application process was conducted in accordance with CRAR and related regulatory technical standards (RTS), including ESMA/2013/720 (Guidelines and Recommendations).
• The appeal was submitted in Polish with 19 annexes, and the translation process was agreed upon by the parties.
• The Board of Appeal consisted of William Blair (President), Juan Fernández-Armesto (Vice-President and Rapporteur), Anna Konstantinou, Marco Lamandini, Katalin Mero, and Beata Maria Mrozowska.

II. Facts

• The appellant applied for registration as a CRA in April 2015 and April 2016, following an initial refusal.
• The application was considered complete on 19 September 2016, and the respondent commenced its assessment on 20 September 2016.
• The respondent identified 19 specific non-compliance requirements in the refusal decision, including issues related to rating methodologies, conflicts of interest, and organisational structure.
• The refusal decision is a 25-page document with 126 paragraphs.

III. Legal Framework

• CRAR was the first regulation to require credit rating agencies to register with national authorities, and later ESMA was given responsibility for registration and supervision.
• The ESMA Regulation provides for an appeal process under Article 60, which allows for challenges against decisions taken in accordance with Union acts.
• The Board of Appeal is required to provide reasoned and public decisions under Article 60(7).

IV. Parties' Contentions

Appellant's Contentions:

• Claims that the required descriptions and information were included in its documentation.
• Argues that the refusal decision is based on subjective opinions and unfounded allegations.
• Asserts that the documentation provided sufficient detail and that the respondent misinterpreted its intent.
• Believes that the refusal decision is an attempt to use technical requirements to prevent market entry.

Respondent's Contentions:

• The application failed to demonstrate compliance with CRAR.
• The respondent identified six headings of non-compliance in the refusal decision, including rating methodologies, organisational structure, and conflict of interest management.
• The applicant did not provide sufficient detail or clarity regarding its policies and procedures.
• The respondent maintains that the concentration of tasks in the independent member of the Management Board compromises the independence of the credit rating process.

V. Board of Appeal's Conclusions

• The Board accepts that the appellant's documentation provided some flexibility in internal arrangements.
• However, it agrees with the respondent that a clear division between internal control and compliance functions is necessary to ensure effective oversight.
• The appellant failed to provide sufficient explanation regarding its organisational measures to ensure the physical separation of credit rating activities from commercial interests.
• The Board also agrees that the respondent was justified in expressing concerns about the potential influence of Ms. O on credit rating decisions, despite the appellant's claims.
• The Board emphasizes that the registration process requires detailed and specific compliance evidence, and that merely citing legal provisions is insufficient.

Key Legal Principles

• Credit rating agencies were not previously subject to significant financial regulation, but the financial crisis prompted stricter oversight.
• The Board of Appeal acknowledged the policy goal of increasing competition in the CRA industry, particularly for smaller agencies.
• The registration process is a compliance assessment, and the Board does not accept new information on appeal as a means to remedy deficiencies in the original application.
• The respondent is entitled to a margin of appreciation in technical matters, such as methodologies, but must still apply the regulations correctly.

Conclusion

The Board of Appeal upheld the refusal decision of the respondent (ESMA), finding that the appellant did not meet the necessary requirements for registration as a CRA. The Board concluded that the appellant failed to provide sufficient detail and clarity in its documentation, particularly regarding organisational structure, conflict of interest management, and independence of the rating process. The refusal decision was deemed lawful and justified under CRAR and the ESMA Regulation.