CRA III and the over-reliance on rating in question

The question of how investors make their investment decisions, and to what extent they make mistakes based on an inaccurate reliance on credit rating, has been at the forefront of the regulator’s attention for a number of years.

The very simple issue can be put as follows: if you are an investor and have no personal view on, say, the future of the US Midwest mortgage market, is it reasonable to invest in a transaction — no matter how well rated it is — that is fully exposed to that market? The regulators — and others — believe that this is not the case and have taken a series of initiatives to lead investors to adopt a different approach.

Following similar types of initiatives in the US, the EU introduced the regulation of credit agencies back in 2009. This regime has already been modified once. In a third wave of regulation, Regulation (EU) No 462/2013, amending Regulation (EC) No 1060/2009 on credit rating agencies (CRA III), came into force on 20 June 2013 in order to supplement the existing regulatory framework for credit rating agencies (CRAs) within the EU…

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