EU's move to strip market access likely to have little impact on Singapore

The Monetary Authority of Singapore said that credit rating agencies here will continue to be able to access the EU market through a separate endorsement regime, which they already operate under.
The Monetary Authority of Singapore said that credit rating agencies here will continue to be able to access the EU market through a separate endorsement regime, which they already operate under.PHOTO: ST FILE

Credit rating agencies in Singapore are not expected to have their business affected by the European Commission's decision to strip five countries of some market access rights, the Singapore authorities said yesterday.

The European Commission confirmed it has deemed that Argentina, Australia, Brazil, Canada and Singapore no longer regulate credit rating agencies as rigorously as the European Union does.

It is therefore removing a status that made it possible for European banks to rely directly on those ratings for the issuance of bonds, loans and other debt instruments.

This is the first time that such access rights - called equivalence provisions - have been withdrawn, although some temporary permissions for Switzerland were allowed to lapse earlier this year.

But the Monetary Authority of Singapore (MAS), which regulates the four credit rating agencies here, said agencies here will continue being able to access the EU market through a separate endorsement regime, which they already operate under. This has been confirmed by the EU Commission, MAS added.

"Under this regime, ratings issued by credit rating agencies in Singapore are endorsed by their related entities in the EU, and can continue to be recognised and used for regulatory purposes in the EU," it said.

The four agencies here are: Standard and Poor's, Fitch Ratings, Moody's and AM Best Asia Pacific.

Equivalence means the EU Commission recognises that the financial regulatory or supervisory regime of certain non-EU countries is equivalent to the corresponding EU framework.

 

EU financial services law includes around 40 areas for equivalence decisions. The aim, said the Financial Times, is to ensure that trading platforms, brokers and other companies based in non-EU financial centres can serve European clients as long as they undergo strong regulation and supervision.

MAS, however, noted that even as Singapore's regime for rating agencies no longer has equivalence status, the Republic continues to be on the list of countries that the European Securities and Markets Authority (Esma) has deemed as meeting the legal and supervisory framework for the endorsement regime.

A spokesman for credit rating agency Moody's said the EU Commission's decision will not have an impact on its general operations.

"Where applicable, credit ratings will continue to be endorsed by our EU-registered credit ratings agencies and can be used for regulatory purposes in the EU," he added.

Moody's agencies are registered in a number of European countries including Italy, Germany, France, Spain and Britain, according to the Esma website.

A spokesman for Fitch said that users of its ratings in the EU will not be affected by the changes because it has ensured that its "internationally produced ratings can be used for regulatory purposes".

Analysts said that the EU's decision to strip Singapore of some market access rights may have only limited impact, if any, on the Republic.

CIMB Private Banking economist Song Seng Wun said the EU move is a timely reminder for businesses to follow all EU rules. "It is about amending or adhering to the rules, then showing the EU bureaucrats that we are compliant," he said.

Associate Professor Lawrence Loh of the National University of Singapore said the credit ratings system signifies the ability of a borrower to fulfil debt obligations like interest and principal repayments.

"The EU's move seeks to manage market access rights of countries... Non-EU countries must be deemed to have the same level of rigour in regulation as the EU counterparts so as to enjoy the same privileges."

Prof Loh noted that the EU is moving towards ensuring equivalence with the countries that the bloc trades with because of Brexit. Singapore and the other four countries the EU has named as not having met its standards might be the result of collateral damage. "The current EU's attention to regulatory equivalence may well be a warning shot aimed at the United Kingdom amid the ongoing Brexit saga," he said.

A version of this article appeared in the print edition of The Straits Times on July 30, 2019, with the headline 'EU's move to strip market access likely to have little impact on S'pore'. Print Edition | Subscribe