ESMA cuts UK rating agencies; impacts OTC trade reporting

Darren Sinden

The agencies that have had their registration withdrawn include Fitch Ratings and Moody’s Investors Services, with trade reporting in procedure for FX firms also affected


ESMA the European Securities and Markets Authority (ESMA) has decided to withdraw the registrations of certain UK businesses in light of the UK leaving the European Union, without a formal deal in place over financial services.

The removal of the registrations comes about because of rules within the EMIR, CRA and SFTR regulations, which demand that a firms registration be withdrawn if they no longer meet the criteria with which they were originally registered.

ESMA’s Credit Rating Agency(CRA)  regulations mean that ratings issued by UK rating agencies can no longer be used in the EU without an additional endorsement from an EU domiciled agency though nearly all of the UK agencies put contingency plans in place for such endorsements well ahead of the December 31st deadline.

The agencies that have had their registration withdrawn include Fitch Ratings and Moody’s Investors Services, two of the most respected and widely recognised rating agencies in the City of London.

Credit ratings play a key role in determining lending decisions and the pricing and valuation of corporate bonds and government bonds. Given the steps that the UK based agencies have taken it seems likely that it will be something akin to business as usual for the likes of Moody’s and Fitch as far issuing ratings and upgrading or downgrading existing scores are concerned.

However, the fact that their registrations have been removed at all shows how much work there is to be done to create a workable deal between the City of London and EU member states.

Another area which has fallen foul of the ESMA rulings is derivatives and securities financing trade reporting.

Counterparties to a reportable trade in EU instruments can no longer use a UK domiciled trade reporting venue. They must instead report to an established EU reporting venue.

Somewhat ironically three of the four trade reporting facilities that have had their registration withdrawn are subsidiaries of US organisations they are DTCC Derivatives Repository Plc, the CME Trade Repository Ltd and ICE Trade Vault Europe Ltd.

UnaVista limited which is owned and operated by the London Stock Exchange Group was the fourth trade reporting services to have its registrations withdrawn.

ESMA has shown a degree of flexibility elsewhere, however. For example, back in September 2020, it agreed to recognise the ree UK based central counterparties allowing them to continue to offer their services within the EU. Central counterparties are playing an increasingly important role in the centralised clearing of OTC derivatives something that regulators were very keen to encourage in the wake of the 2008 global financial crisis.

Even here the recognition is not indefinite and was issued with an 18-month life cycle so the clock is ticking. Those 18 months are intended to give ESMA the opportunity to conduct what it called a comprehensive review of the systemic importance of UK CCPs and their clearing services or activities to the Union and take any appropriate measures to address financial stability risks.

Though ESMA has not specified a timetable within which it will conduct that review, which it says it will complete in due time.

Markets hate uncertainty and the somewhat disorganised withdrawal of UK markets from Europe and the European authorities reticence towards the UK are in danger of creating just that.

I’m That’s something that the City minister John Glen and his colleagues need to impress upon their European counterparts, once talks over the future relationship between the UK’s financial services sector and Europe begin in earnest.

Read this next

Retail FX, Technology

MetaTrader’s iOS issue opens brokers’ eyes to other trading platforms

In a surprising (or-not-so-surprising) move, Apple has removed MetaTrader 4 and MetaTrader 5 from its App Store in a huge blow for the leading FX trading platform provider.

Retail FX

Pepperstone adds analytics and automated trading tools free of charge

“We look forward to bringing significant value to Pepperstone traders and making a real, positive impact in their daily trading habits. We are excited to welcome them on board.”

Retail FX

FP Markets wins Best Global Value Broker for 4th consecutive year at the 2022 Global Forex Awards

“We greatly appreciate the continued international recognition as at FP Markets we pride ourselves on these attributes and these prestigious awards are testament to the hard work from our global team to always provide our clients with the ultimate trading experience.”

Inside View

How to Engage Your Customer at Every Stage of Their Journey

As many as 89% of successful businesses say that providing assistive customer experiences is critical to their growth. That’s because a mere 5% increase in customer retention can boost profits by 25% to 95%.

Industry News

CFTC fines Chinese firms Chinatex and COFCO $720,000 for wash trading

Chinatex traders engaged in wash trading in order to liquidate a long position in the account of an affiliated company and re-establish the position in its own account, to the ultimate benefit of its parent company, COFCO.

Industry News

US-based operation of Brazilian broker XP fined $500,000 for recordkeeping failures

“Proper recordkeeping is vital to protecting our markets and market participants from fraud and manipulation. This case serves as another example of the Commission’s intent to vigorously enforce the recordkeeping obligations of its registrants.”

Digital Assets

Bitfinex announces integration of USDt on Polkadot

Polkadot is the brainchild of British computer programmer and Ethereum co-founder and former CTO Gavin Wood.

Executive Moves

FPG hires ex-Fireblocks Chris Hazelton to head marketing at crypto prime broker

“Chris’s experience as a marketing leader at several exceptional businesses will help us refine our message to an institutional audience that’s overwhelmed with new information and show tangible examples of how we’ve helped customers like them scale successfully in crypto.”


FinanceFeeds Podcast Ep. #6: Gold-i’s Tom Higgins talks efficiency in FX and inner workings of Crypto Switch

On its sixth episode, the FinanceFeeds Podcast welcomed Tom Higgins, the founder and chief executive of trading systems integration provider, Gold-i.