What is a CRA Agency?

Esma logo

With effect from July, 10th, 2015, modeFinance is registered as a Credit Rating Agency under Regulation (EC) No 1060/2009.

Such registration is mandatory within the EU for credit rating agencies to issue credit ratings which are disclosed to public and/or via subscription, both in the issuer-pays and the subscriber-pays model.

In the issuer-pays model, the rated entity is a client of the rating agency and pays a fee for all rating activities. In the subscriber-pays model instead, the rating agency sells the ratings to stakeholders such as the rated entity’s suppliers, clients, investors, etc.

The scope of Regulation (EC) No 1060/2009, as amended by Regulation (EU) No 513/2011 and No 462/2013, includes public or subscription-based ratings while private ratings and credit scores are excluded.

modeFinance currently issues:

  • Credit ratings on non-financial corporations and banks on a subscriber-pays model (any user may access rating data via subscription)
  • Private Credit ratings (the rating is issued to a specific request by a single customer and may be shared only with a very limited range of other subjects)
  • Credit scorings (entirely automated creditworthiness assessments that do not involve the intervention of analysts and currently cover millions of companies worldwide)

The Registration requires approvation by ESMA (the European Securities and Markets Authority) and involves an intensive period of examination of requirements such as transparency, governance and avoidance of conflicts of interest; in order to comply with such requirements, modeFinance adopted and implemented strict and rigorous internal policies and procedures.

In addition, another fundamental requirement for the registration is to rely on methodologies that are rigorous, systematic, continuative and subject to validation based on historical experience.

Corporate ratings issued by modeFinance in compliance with the CRA Regulations are the result of two methodologies: the first, purely quantitative, is the “MORE” Methodology, widely tested during scoring activity; the second methodology implies the intervention of modeFinance team of rating analysts, which is responsible for the activity of issuance and monitoring of credit ratings.

modeFinance credit ratings issued in compliance to the CRA Regulation may be used for regulatory purposes in any country of the European Union. modeFinance is now recognised as an ECAI (External Credit Assessment Institution) according to art. 135(2) of the Capital Requirements Regulation.

modeFinance transparency and disclosure

modeFinance creates and maintains a dedicated section of its own website in which it clearly discloses to the public (and update immediately any modification to) the following information:

a) the general fact that it is registered in accordance with EU Reg. 1060/2009 and following;
b) its inventory of conflicts including any actual and potential conflicts of interest;
c) the list of all services it performs;
d) the policy on publication of credit ratings and other related communications;
e) the general nature of its compensation arrangements;
f) the methodologies and descriptions of models and key rating assumptions, as well as their material changes;
g) any material modification to its systems, resources or procedures;
h) its code of conduct.

Within three months after the end of each financial year, modeFinance publishes an annual transparency report which includes the following information:

a) detailed information on legal structure and ownership of the credit rating agency, including information on holdings within the meaning of Articles 9 and 10 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market;
b) a description of the internal control mechanisms ensuring quality of its credit rating activities;
c) statistics on the allocation of its staff to new credit ratings, credit rating reviews, methodology or model appraisal and senior management, and on the allocation of staff to rating activities with regard to the different asset classes;
d) a description of its record-keeping policy,
e) the outcome of the annual internal review of its independent compliance function;
f) a description of its management and rating analyst rotation policy;
g) financial information on the revenue of the credit rating agency, including total turnover, divided into fees from credit rating and ancillary services with a comprehensive description of each, including the revenues generated from ancillary services provided to clients of credit rating services and the allocation of fees to credit ratings of different asset classes. Information on total turnover shall also include a geographical allocation of that turnover to revenues generated in the European Union and revenues worldwide;
h) a governance statement within the meaning of Article 46a(1) of Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies. For the purposes of that statement, the information referred to in Article 46a(1)(d) of that Directive shall be provided by the credit rating agency irrespective of whether it is subject to Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids.

modeFinance discloses to the public the names of the rated entities or related third parties from which it receives more than 5 % of its annual revenue.