As of 1 July, the European Securities and Markets Authority (ESMA) took over supervision of CRAs and is expected to conduct its first inspection visits before the end of the year.
In a 5 July, ESMA chair Steven Maijoor said one of the key points the regulator will use in appraisals is if CRAs base their ratings on full and high quality information. “Looking at the financial reporting systems used by governments I think it is fair to say that they are not at the same level as the ones used by listed companies,” he says.
“Investors have been taken by surprise by the level of debt, or other long-term commitments, of countries. These events raise the question whether we should expect the same level of transparency for sovereign debt holders as for corporate debt holders. I think the answer is a clear yes.”
With sovereign bonds playing a strong role in the functioning of capital markets, Maijoor says the transparency of governments needs to be better addressed. While listed companies adhere to similar accounting standards, known as IFRS, governments use other accounting systems, making them difficult to evaluate properly.
