Rating Agencies' market share: 2022 numbers

modefinance 3 February 2023

The annual Report on CRA Market Share Calculation is out. 

The report, drawn up by the European Securities and Markets Authority (ESMA), provides a list of all CRAs registered in the EU and their total market share, along with their year-on-year change in CRA’s market share.

Negligible information? Not really. 

One of the purposes of the CRA Regulation is to increase competition in the credit rating industry by encouraging issuers or related third parties to consider the appointment of smaller rating agencies. In this regard, Article 8d(1) states that where issuers or related third parties intend to use two or more CRAs, they should consider appointing one CRA with less than 10% market share in the EU

The provision affects both issuers, i.e. any legal entity that offers or intends to offer financial instruments - typically, banks and states, but also companies, including small and medium-sized companies that issue minibonds - and related third parties, i.e. any party interacting with the rating agency on behalf of the rated entity or indirectly linked to that entity by control.

The Report on CRA Market Share Calculation therefore provides valuable information for anyone approaching the rating market.

Share, growth, and activities: modefinance numbers

Corporate credit rating growth

Only 3 of the 23 rating agencies authorized by ESMA to operate at the European level hold more than 10% market share; Moody's, Fitch, and Standards & Poors.
All other agencies hold a market share ranging from 0.01% to 1.3%.

In 2022 only 6 agencies increased their market share, including modefinance, which now holds 0.42% and rose to the 10th position.
In 2022 modefinance recorded +36.6% growth in the issuance of public and private corporate ratings and confirmed itself as the first Italian player in the issuance of ratings related to bond and minibond issuance. 

Last year modefinance also recorded +118.3% growth in ECAI rating issuance, also thanks to the entry into force of the CRR2 regulation. Several financial institutions have already begun to comply with this regulation, which prescribes the adoption of the new Standardized Approach for Counterparty Credit Risk methodology to be used alongside the bank's Internal Rating Based (IRB) methods for calculating capital requirements. The approach adopted by modefinance for the issuance of ratings is based on a highly digitized procedure supervised by financial analysts that makes it possible to obtain an ECAI rating for the calculation of RWAs in a matter of hours. 

In addition to the rating activity on corporations, in 2022 modefinance expanded its activities to the issuance of ratings on financial instruments with 16 private ratings. An increase in issuance is planned for 2023.

The future is sustainability: ESG ratings

When calculating the market share of rating agencies, ESMA does not consider ESG ratings, i.e. environmental, social, and governance sustainability ratings.

Not yet.

On 28 November, the European Council gave final approval to the directive on corporate disclosure on sustainability, which obliges large companies and listed SMEs to provide detailed information on sustainability issues. ESMA has identified 59 ESG rating providers active in the European market and is working to define a regulatory framework.

modefinance is an early mover and is already involved in several initiatives aimed at defining standard models, such as the TranspArEEnS (Mainstream Transparent Assessment of Energy Efficiency In Environmental Social Governance Ratings) project and the RIBES (Return of Investments for Building Energy Efficiency Solutions) project.
Thanks to these projects and the EU Taxonomy, modefinance developed a quantitative and qualitative framework for standardized data collection and defined the main KPIs for ESG assessment. modefinance's financial analysts developed and tested a proprietary methodology, which enables an extensive investigation of the three pillars, leading to the issuance of 20 ESG ratings in 2022.