Technical advice : in accordance with Article 39(b) 2 of the CRA Regulation regarding the appropriateness of the development of a European creditworthiness assessment for sovereign debt

For the purposes of this advice, ESMA provides its views based on the quantitative information contained in the CEREP public database and on information publicly disclosed by credit rating agencies registered with ESMA.Additionally, ESMA’s advice has been informed by its first supervisory activities regarding the rating process for sovereign ratings of CRAs which are active in the EU sovereign rating market. In accordance with the CRA Regulation, these supervisory activities did not address the content of the sovereign methodologies themselves but rather were concerned with the independence, transparency and governance of the sovereign rating process.Sovereign credit ratings play a crucial role from a credit market and financial stability perspective, not least because sovereign governments account for the largest group of borrowers in capital markets in terms of volume. In addition the crucial importance of these sovereign ratings can be amplified by the “cascade” effect sovereign ratings have on other asset classes via their presence as factors in other asset methodologies.In the EU the sovereign rating market is composed of nine CRAs established in nine different EU member states. These nine CRAs exhibit a high level of variation with respect to the type and number of sovereign ratings they assign.Sovereign credit ratings themselves can also be differentiated in various ways depending on such factors as local/foreign currency, duration of issuance, whether the rating applies to a specific issuer or issuance and if it is solicited or unsolicited.In addition ESMA would like to emphasise the following points which it believes to be important when considering the appropriateness of the development of a European creditworthiness assessment of sovereign debt.