The Financial Times reported on July 28 that the European Commission will remove some market access rights of five countries, namely, Argentina, Australia, Brazil, Canada, and Singapore. The bloc, which is the executive body of the European Union responsible for laws and regulations, deems that these countries no longer enforce strict regulations and vigorous supervision on credit rating agencies and henceforth do not carry standards in line with the EU. By stripping these countries of their market access rights, also known as equivalence provisions, the EU blocks European banks from relying on ratings provided by local rating agencies in these countries.
Daniel Teo, Executive Director at DesFran, pointed out that this move reflects the EU’s dissatisfaction with foreign credit rating agencies lowering sovereign credit ratings of Greece and Portugal in 2013, which many believe worsened the European sovereign debt crisis. It also shows the bloc’s frustration with the slow progress of regulatory enforcement on these agencies after engaging in extensive dialogues with their local governments.
Instead of restricting local businesses in the aforementioned five countries, Daniel believes that the withdrawal of equivalence provisions will mainly impact European banks situated in these countries looking to cross-sell products back to the European financial markets. It also serves as a warning to the United Kingdom, who will have to leverage this status to gain access to the financial markets after Brexit.
The European Commission will remove some market access rights from five countries this week in a move that could affect the UK after Brexit, the Financial Times reported.