Another goal achieved
modefinance ratings have been approved by the European Commission
As modefinance became the first European Fintech Rating Agency, it was authorized to issue credit ratings. According to the ESMA, the European Securities and Markets Authority, modefinance is allowed to issue credit ratings of non-financial corporations and of financial institutions, public or distributed via subscription. Moreover, modefinance guarantees an equal quality level both for unsolicited ratings, i.e. ratings published without the request of the evaluated subject, and the solicited ones, i.e. ratings expressly requested by the rated entity. On 15th May 2018, the European Commission approved the amendments to the Implementing Regulation (UE) 2016/1799 and 2016/1800 that updates the ECAIs' mapping list with five new institutions, including modefinance. With the implementation of these amendments, modefinance ratings can now be legally employed by insurance companies and banks too.
What does this mean?
Let's start from the beginning.
On 10th July 2015, modefinance was registered by ESMA as Credit Rating Agency (CRA). The registration as CRA automatically implies the granting of the ECAI status, i.e. the institutions, other than banks and insurance companies, authorized to issue credit assessment. As modefinance was registered as Credit Rating Agency after the beginning of the European standardization process, it didn’t appear in two documents issued in 2016 concerning only the Rating Agencies registered before 2009:
- in the European Banking Authority (EBA) evaluation document concerning the ECAIs unsolicited rating quality
- in the list of ECAIs and their mapping in the Implementing Regulation (EU) 2016/1799 and 2016/1800
EBA evaluation on modefinance unsolicited credit assessment quality
As modefinance issue both solicited ratings and unsolicited one, it must ensure an equal quality level for both the typologies.
The reason is simple: unsolicited credit assessments are based exclusively on public information, unlike solicited ratings where the company itself provides internal and private documents too to allow a deeper examination of the creditworthiness.
The list of ECAIs whose unsolicited ratings do not differ in quality from solicited ones is published by EBA. On 17th August 2017, a new document was issued confirming that modefinance unsolicited ratings do not differ in quality from its solicited ones and are therefore legally available for regulatory purposes.
Publication of modefinance mapping
Few weeks ago came into force the amendments to the Implementing Regulation and the updating of the ECAIs mapping list, which now includes modefinance too.
Mapping means comparing the credit assessment scale of each ECAI to the Credit Quality Steps defined by the European Commission. Through the mapping, modefinance rating scale classes (from A1 to D) are weight up to the 6 steps defined by the European Commission and they are included in a common standard valid for all ECAIs operating in Europe.
The table below shows modefinance global long-term rating scale.
With the publication of the mapping and the EBA approval of the unsolicited rating quality, modefinance ratings have now legal value for the purposes of the Capital Requirements Regulation for banks and of the Solvency II for insurance companies.