Legal provisions of COM(2008)704 - Credit Rating Agencies - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2008)704 - Credit Rating Agencies. |
|---|---|
| document | COM(2008)704  |
| date | September 16, 2009 |
TITLE I
SUBJECT MATTER, SCOPE AND DEFINITIONS
Article 1
Subject matter
This Regulation introduces a common regulatory approach in order to enhance the integrity, transparency, responsibility, good governance and reliability of credit rating activities, contributing to the quality of credit ratings issued in the Community, thereby contributing to the smooth functioning of the internal market while achieving a high level of consumer and investor protection. It lays down conditions for the issuing of credit ratings and rules on the organisation and conduct of credit rating agencies to promote their independence and the avoidance of conflicts of interest.
Article 2
Scope
1. This Regulation applies to credit ratings issued by credit rating agencies registered in the Community and which are disclosed publicly or distributed by subscription.
2. This Regulation does not apply to:
| (a) | private credit ratings produced pursuant to an individual order and provided exclusively to the person who placed the order and which are not intended for public disclosure or distribution by subscription; |
| (b) | credit scores, credit scoring systems or similar assessments related to obligations arising from consumer, commercial or industrial relationships; |
| (c) | credit ratings produced by export credit agencies in accordance with point 1.3 of Part 1 of Annex VI to Directive 2006/48/EC; or |
| (d) | credit ratings produced by the central banks and which:
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3. A credit rating agency shall apply for registration under this Regulation as a condition for being recognised as an External Credit Assessment Institution (ECAI) in accordance with Part 2 of Annex VI to Directive 2006/48/EC, unless it only issues the credit ratings referred to in paragraph 2.
4. In order to ensure the uniform application of paragraph 2(d), the Commission may, upon submission of a request by a Member State, in accordance with the regulatory procedure referred to in Article 38(3) and in accordance with paragraph 2(d) of this Article, adopt a decision stating that a central bank falls within the scope of that point and that its credit ratings are therefore exempt from the application of this Regulation.
The Commission shall publish on its website the list of central banks falling within the scope of paragraph 2(d) of this Article.
Article 3
Definitions
1. For the purpose of this Regulation, the following definitions shall apply:
| (a) | ‘credit rating’ means an opinion regarding the creditworthiness of an entity, a debt or financial obligation, debt security, preferred share or other financial instrument, or of an issuer of such a debt or financial obligation, debt security, preferred share or other financial instrument, issued using an established and defined ranking system of rating categories; |
| (b) | ‘credit rating agency’ means a legal person whose occupation includes the issuing of credit ratings on a professional basis; |
| (c) | ‘home Member State’ means the Member State in which the credit rating agency has its registered office; |
| (d) | ‘rating analyst’ means a person who performs analytical functions that are necessary for the issuing of a credit rating; |
| (e) | ‘lead rating analyst’ means a person with primary responsibility for elaborating a credit rating or for communicating with the issuer with respect to a particular credit rating or, generally, with respect to the credit rating of a financial instrument issued by that issuer and, where relevant, for preparing recommendations to the rating committee in relation to such rating; |
| (f) | ‘rated entity’ means a legal person whose creditworthiness is explicitly or implicitly rated in the credit rating, whether or not it has solicited that credit rating and whether or not it has provided information for that credit rating; |
| (g) | ‘regulatory purposes’ means the use of credit ratings for the specific purpose of complying with Community law, as implemented by the national legislation of the Member States; |
| (h) | ‘rating category’ means a rating symbol, such as a letter or numerical symbol which might be accompanied by appending identifying characters, used in a credit rating to provide a relative measure of risk to distinguish the different risk characteristics of the types of rated entities, issuers and financial instruments or other assets; |
| (i) | ‘related third party’ means the originator, arranger, sponsor, servicer or any other party that interacts with a credit rating agency on behalf of a rated entity, including any person directly or indirectly linked to that rated entity by control; |
| (j) | ‘control’ means the relationship between a parent undertaking and a subsidiary, as described in Article 1 of Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts (16), or a close link between any natural or legal person and an undertaking; |
| (k) | ‘financial instrument’ means any of the instruments listed in Section C of Annex I to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (17); |
| (l) | ‘structured finance instrument’ means a financial instrument or other assets resulting from a securitisation transaction or scheme referred to in Article 4(36) of Directive 2006/48/EC; |
| (m) | ‘group of credit rating agencies’ means a group of undertakings established in the Community consisting of a parent undertaking and its subsidiaries within the meaning of Articles 1 and 2 of Directive 83/349/EEC as well as undertakings linked to each other by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC and whose occupation includes the issuing of credit ratings. For the purposes of Article 4(3)(a), a group of credit rating agencies shall also include credit rating agencies established in third countries; |
| (n) | ‘senior management’ means the person or persons who effectively direct the business of the credit rating agency and the member or members of its administrative or supervisory board; |
| (o) | ‘credit rating activities’ means data and information analysis and the evaluation, approval, issuing and review of credit ratings. |
2. For the purposes of paragraph 1(a), the following shall not be considered to be credit ratings:
| (a) | recommendations within the meaning of Article 1(3) of Commission Directive 2003/125/EC (18); |
| (b) | investment research as defined in Article 24(1) of Directive 2006/73/EC (19) and other forms of general recommendation, such as ‘buy’, ‘sell’ or ‘hold’, relating to transactions in financial instruments or to financial obligations; or |
| (c) | opinions about the value of a financial instrument or a financial obligation. |
Article 4
Use of credit ratings
1. Credit institutions as defined in Directive 2006/48/EC, investments firms as defined in Directive 2004/39/EC, insurance undertakings subject to the First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (20), assurance undertakings as defined in Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance (21), reinsurance undertakings as defined in Directive 2005/68/EC of the European Parliament and the Council of 16 November 2005 on reinsurance (22), undertakings for collective investment in transferable securities (UCITS) as defined in Directive 85/611/EEC and institutions for occupational retirement provision as defined in Directive 2003/41/EC may use credit ratings for regulatory purposes only if they are issued by credit rating agencies established in the Community and registered in accordance with this Regulation.
Where a prospectus published under Directive 2003/71/EC and Regulation (EC) No 809/2004 contains a reference to a credit rating or credit ratings, the issuer, offeror, or person asking for admission to trading on a regulated market shall ensure that the prospectus also includes clear and prominent information stating whether or not such credit ratings are issued by a credit rating agency established in the Community and registered under this Regulation.
2. A credit rating agency established in the Community and registered in accordance with this Regulation shall be deemed to have issued a credit rating when the credit rating has been published on the credit rating agency’s website or by other means or distributed by subscription and presented and disclosed in accordance with the obligations of Article 10, clearly identifying that the credit rating is endorsed in accordance with paragraph 3 of this Article.
3. A credit rating agency established in the Community and registered in accordance with this Regulation may endorse a credit rating issued in a third country only when credit rating activities resulting in the issuing of such a credit rating comply with the following conditions:
| (a) | the credit rating activities resulting in the issuing of the credit rating to be endorsed are undertaken in whole or in part by the endorsing credit rating agency or by credit rating agencies belonging to the same group; |
| (b) | the credit rating agency has verified and is able to demonstrate on an ongoing basis to the competent authority of the home Member State that the conduct of credit rating activities by the third-country credit rating agency resulting in the issuing of the credit rating to be endorsed fulfils requirements which are at least as stringent as the requirements set out in Articles 6 to 12; |
| (c) | the ability of the competent authority of the home Member State of the endorsing credit rating agency or the college of competent authorities referred to in Article 29 (college) to assess and monitor the compliance of the credit rating agency established in the third country with the requirements referred to in point (b) is not limited; |
| (d) | the credit rating agency makes available on request to the competent authority of the home Member State all the information necessary to enable that competent authority to supervise on an ongoing basis the compliance with the requirements of this Regulation; |
| (e) | there is an objective reason for the credit rating to be elaborated in a third country; |
| (f) | the credit rating agency established in the third country is authorised or registered, and is subject to supervision, in that third country; |
| (g) | the regulatory regime in that third country prevents interference by the competent authorities and other public authorities of that third country with the content of credit ratings and methodologies; and |
| (h) | there is an appropriate cooperation arrangement between the competent authority of the home Member State of the endorsing credit rating agency and the relevant competent authority of the credit rating agency established in a third country. The competent authority of the home Member State shall ensure that such cooperation arrangements shall specify at least:
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4. A credit rating endorsed in accordance with paragraph 3 shall be considered to be a credit rating issued by a credit rating agency established in the Community and registered in accordance with this Regulation.
A credit rating agency established in the Community and registered in accordance with this Regulation shall not use such endorsement with the intention of avoiding the requirements of this Regulation.
5. The credit rating agency that has endorsed a credit rating issued in a third country in accordance with paragraph 3 shall remain fully responsible for such a credit rating and for the fulfilment of conditions set out therein.
6. Where the Commission has recognised, in accordance with Article 5(6), the legal and supervisory framework of a third country as equivalent to the requirements of this Regulation and the cooperation arrangements referred to in Article 5(7) are operational, the credit rating agency endorsing credit ratings issued in that third country shall no longer be required to verify or demonstrate that the condition laid down in paragraph 3(g) of this Article is fulfilled.
Article 5
Equivalence and certification based on equivalence
1. The credit ratings that are related to entities established or financial instruments issued in third countries and that are issued by a credit rating agency established in a third country may be used in the Community under Article 4(1) without being endorsed in accordance with Article 4(3), provided that:
| (a) | the credit rating agency is authorised or registered in and is subject to supervision in that third country; |
| (b) | the Commission has adopted an equivalence decision in accordance with paragraph 6 of this Article, recognising the legal and supervisory framework of that third country as equivalent to the requirements of this Regulation; |
| (c) | the cooperation arrangements referred to in paragraph 7 of this Article are operational; |
| (d) | the credit ratings issued by the credit rating agency and its credit rating activities are not of systemic importance to the financial stability or integrity of the financial markets of one or more Member States; and |
| (e) | the credit rating agency is certified in accordance with paragraph 2 of this Article. |
2. The credit rating agency referred to in paragraph 1 may apply for certification. The application shall be submitted to the Committee of European Securities Regulators (CESR) in accordance with the relevant provisions of Article 15. Within five working days of receipt of the application for certification, CESR shall send the application to the competent authorities of all Member States, inviting them to consider becoming a member of the relevant college in accordance with Article 29(3)(b). The competent authorities that have decided to become members of the college shall notify CESR accordingly within 10 working days of receipt of CESR’s invitation. The competent authorities that notify CESR in accordance with this paragraph shall be members of the college. Within twenty working days of receipt of the application for certification, CESR shall draw up and publish on its website a list of the competent authorities that are members of the college. Within 10 working days of the publication, the members of the college shall select a facilitator in accordance with criteria in Article 29(5). Following the establishment of the college, its composition and functioning shall be governed by Article 29.
3. The application for certification shall be examined in accordance with the procedure set out in Article 16. The certification decision shall be based on the criteria set out in points (a) to (d) of paragraph 1 of this Article.
The certification decision shall be notified and published in accordance with Article 18.
4. The credit rating agency may also separately apply to be exempted:
| (a) | on a case-by-case basis from complying with some or all of the requirements set out in Section A of Annex I and Article 7(4) if the credit rating agency is able to demonstrate that the requirements are not proportionate in view of the nature, scale and complexity of its business and the nature and range of its issuing of credit ratings; |
| (b) | from the requirement of physical presence in the Community where such a requirement would be too burdensome and disproportionate in view of the nature, scale and complexity of its business and the nature and range of its issuing of credit ratings. |
When assessing that application, the competent authorities shall take into consideration the size of the applicant credit rating agency, having regard to the nature, scale and complexity of its business and the nature and range of its issuing of credit ratings, as well as the impact of the credit ratings issued by the credit rating agency on the financial stability and integrity of the financial markets of one or more Member States. On the basis of those considerations, the competent authority may grant such exemption to the credit rating agency.
5. The decisions on the exemptions under paragraph 4 of this Article shall be subject to the relevant provisions and procedures set out in Article 16 with the exception of the second subparagraph of paragraph 7 of that Article. In the event of continued absence of agreement among the members of the relevant college on whether to grant an exemption to the credit rating agency, the facilitator shall adopt a fully reasoned decision.
For the purposes of certification, including the granting of exemptions, and supervision, the facilitator shall perform the tasks of the competent authority of the home Member State where relevant.
6. The Commission may adopt an equivalence decision in accordance with the regulatory procedure referred to in Article 38(3), stating that the legal and supervisory framework of a third country ensures that credit rating agencies authorised or registered in that third country comply with legally binding requirements which are equivalent to the requirements resulting from this Regulation and which are subject to effective supervision and enforcement in that third country.
A third-country legal and supervisory framework may be considered equivalent to this Regulation if that framework fulfils at least the following conditions:
| (a) | credit rating agencies in that third country are subject to authorisation or registration and are subject to effective supervision and enforcement on an ongoing basis; |
| (b) | credit rating agencies in that third country are subject to legally binding rules which are equivalent to those set out in Articles 6 to 12 and Annex I; and |
| (c) | the regulatory regime in that third country prevents interference by the supervisory authorities and other public authorities of that third country with the content of credit ratings and methodologies. |
The Commission shall specify further or amend the criteria set out in points (a) to (c) of the second subparagraph in order to take account of developments on financial markets. Those measures, designed to amend non-essential elements of this Regulation, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 38(2).
7. The facilitator shall establish cooperation agreements with the relevant competent authorities of third countries whose legal and supervisory frameworks have been considered equivalent to this Regulation in accordance with paragraph 6. Such arrangements shall specify at least:
| (a) | the mechanism for the exchange of information between the competent authorities concerned; and |
| (b) | the procedures concerning the coordination of supervisory activities. |
CESR shall coordinate the development of cooperation agreements between the competent authorities of Member States and the relevant competent authorities of third countries whose legal and supervisory frameworks have been considered equivalent to this Regulation in accordance with paragraph 6.
8. Articles 20, 24 and 25 shall apply mutatis mutandis to certified credit rating agencies and to credit ratings issued by them.
TITLE II
ISSUING OF CREDIT RATINGS
Article 6
Independence and avoidance of conflicts of interest
1. A credit rating agency shall take all necessary steps to ensure that the issuing of a credit rating is not affected by any existing or potential conflict of interest or business relationship involving the credit rating agency issuing the credit rating, its managers, rating analysts, employees, any other natural person whose services are placed at the disposal or under the control of the credit rating agency, or any person directly or indirectly linked to it by control.
2. In order to ensure compliance with paragraph 1, a credit rating agency shall comply with the requirements set out in Sections A and B of Annex I.
3. At the request of a credit rating agency, the competent authority of the home Member State may exempt a credit rating agency from complying with the requirements of points 2, 5 and 6 of Section A of Annex I and Article 7(4) if the credit rating agency is able to demonstrate that those requirements are not proportionate in view of the nature, scale and complexity of its business and the nature and range of issue of credit ratings and that:
| (a) | the credit rating agency has fewer than 50 employees; |
| (b) | the credit rating agency has implemented measures and procedures, in particular internal control mechanisms, reporting arrangements and measures ensuring independence of rating analysts and persons approving credit ratings, which ensure the effective compliance with the objectives of this Regulation; and |
| (c) | the size of the credit rating agency is not determined in such a way as to avoid compliance with the requirements of this Regulation by a credit rating agency or a group of credit rating agencies. |
In the case of a group of credit rating agencies, competent authorities shall ensure that at least one of the credit rating agencies in the group is not exempted from complying with the requirements of points 2, 5 and 6 of Section A of Annex I and Article 7(4).
Article 7
Rating analysts, employees and other persons involved in the issuing of credit ratings
1. A credit rating agency shall ensure that rating analysts, its employees and any other natural person whose services are placed at its disposal or under its control and who are directly involved in credit rating activities have appropriate knowledge and experience for the duties assigned.
2. A credit rating agency shall ensure that persons referred to in paragraph 1 shall not be allowed to initiate or participate in negotiations regarding fees or payments with any rated entity, related third party or any person directly or indirectly linked to the rated entity by control.
3. A credit rating agency shall ensure that persons referred to in paragraph 1 meet the requirements set out in Section C of Annex I.
4. A credit rating agency shall establish an appropriate gradual rotation mechanism with regard to the rating analysts and persons approving credit ratings as defined in Section C of Annex I. That rotation mechanism shall be undertaken in phases on the basis of individuals rather than of a complete team.
5. Compensation and performance evaluation of rating analysts and persons approving the credit ratings shall not be contingent on the amount of revenue that the credit rating agency derives from the rated entities or related third parties.
Article 8
Methodologies, models and key rating assumptions
1. A credit rating agency shall disclose to the public the methodologies, models and key rating assumptions it uses in its credit rating activities as defined in point 5 of Part I of Section E of Annex I.
2. A credit rating agency shall adopt, implement and enforce adequate measures to ensure that the credit ratings it issues are based on a thorough analysis of all the information that is available to it and that is relevant to its analysis according to its rating methodologies. It shall adopt all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from reliable sources.
3. A credit rating agency shall use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing.
4. Where a credit rating agency is using an existing credit rating prepared by another credit rating agency with respect to underlying assets or structured finance instruments, it shall not refuse to issue a credit rating of an entity or a financial instrument because a portion of the entity or the financial instrument had been previously rated by another credit rating agency.
A credit rating agency shall record all instances where in its credit rating process it departs from existing credit ratings prepared by another credit rating agency with respect to underlying assets or structured finance instruments providing a justification for the differing assessment.
5. A credit rating agency shall monitor credit ratings and review its credit ratings and methodologies on an ongoing basis and at least annually, in particular where material changes occur that could have an impact on a credit rating. A credit rating agency shall establish internal arrangements to monitor the impact of changes in macroeconomic or financial market conditions on credit ratings.
6. When methodologies, models or key rating assumptions used in credit rating activities are changed, a credit rating agency shall:
| (a) | immediately, using the same means of communication as used for the distribution of the affected credit ratings, disclose the likely scope of credit ratings to be affected; |
| (b) | review the affected credit ratings as soon as possible and no later than six months after the change, in the meantime placing those ratings under observation; and |
| (c) | re-rate all credit ratings that have been based on those methodologies, models or key rating assumptions if, following the review, the overall combined effect of the changes affects those credit ratings. |
Article 9
Outsourcing
Outsourcing of important operational functions shall not be undertaken in such a way as to impair materially the quality of the credit rating agency’s internal control and the ability of the competent authorities to supervise the credit rating agency’s compliance with obligations under this Regulation.
Article 10
Disclosure and presentation of credit ratings
1. A credit rating agency shall disclose any credit rating, as well as any decision to discontinue a credit rating, on a non-selective basis and in a timely manner. In the event of a decision to discontinue a credit rating, the information disclosed shall include full reasons for the decision.
The first subparagraph shall also apply to credit ratings that are distributed by subscription.
2. Credit rating agencies shall ensure that credit ratings are presented and processed in accordance with the requirements set out in Section D of Annex I.
3. When a credit rating agency issues credit ratings for structured finance instruments, it shall ensure that rating categories that are attributed to structured finance instruments are clearly differentiated using an additional symbol which distinguishes them from rating categories used for any other entities, financial instruments or financial obligations.
4. A credit rating agency shall disclose its policies and procedures regarding unsolicited credit ratings.
5. When a credit rating agency issues an unsolicited credit rating, it shall state prominently in the credit rating whether or not the rated entity or related third party participated in the credit rating process and whether the credit rating agency had access to the accounts and other relevant internal documents of the rated entity or a related third party.
Unsolicited credit ratings shall be identified as such.
6. A credit rating agency shall not use the name of any competent authority in such a way that would indicate or suggest endorsement or approval by that authority of the credit ratings or any credit rating activities of the credit rating agency.
Article 11
General and periodic disclosures
1. A credit rating agency shall fully disclose to the public and update immediately information relating to the matters set out in Part I of Section E of Annex I.
2. A credit rating agency shall make available in a central repository established by CESR information on its historical performance data including the ratings transition frequency and information about credit ratings issued in the past and on their changes. A credit rating agency shall provide information to that repository on a standard form as provided for by CESR. CESR shall make that information accessible to the public and shall publish summary information on the main developments observed on an annual basis.
3. A credit rating agency shall provide annually to the competent authority of its home Member State and to CESR information relating to matters set out in point 2 of Part II of Section E Annex I. The competent authority of the home Member State shall disclose that information to the members of the relevant college.
Article 12
Transparency report
A credit rating agency shall publish annually a transparency report which includes information on matters set out in Part III of Section E of Annex I. The credit rating agency shall publish its transparency report at the latest three months after the end of each financial year and shall ensure that it remains available on the website of the agency for at least five years.
Article 13
Public disclosure fees
A credit rating agency shall not charge a fee for the information provided in accordance with Articles 8 to 12.
TITLE III
SURVEILLANCE OF CREDIT RATING ACTIVITIES
Contents
CHAPTER I - Registration procedure
Article 14
Requirement for registration
1. A credit rating agency shall apply for registration for the purposes of Article 2(1) provided that it is a legal person established in the Community.
2. The registration shall be effective for the entire territory of the Community once the registration decision issued by the competent authority of the home Member State as referred to in Article 16(7) or Article 17(7) has taken effect under the relevant national law.
3. A registered credit rating agency shall comply at all times with the conditions for initial registration.
A credit rating agency shall, without undue delay, notify CESR, the competent authority of its home Member State and the facilitator of any material changes to the conditions for initial registration, including any opening or closing of a branch within the Community.
4. Without prejudice to Articles 16 or 17, the competent authority of the home Member State shall register the credit rating agency if it concludes from the examination of the application that the credit rating agency complies with the conditions for the issuing of credit ratings set out in this Regulation, taking into consideration Articles 4 and 6.
5. Competent authorities shall not impose requirements regarding registration which are not provided for in this Regulation.
Article 15
Application for registration
1. The credit rating agency shall submit an application for registration to CESR. The application shall contain information on the matters set out in Annex II.
2. Where a group of credit rating agencies applies for registration, the members of the group shall mandate one of their number to submit all the applications to CESR on behalf of the group. The mandated credit rating agency shall provide the information on the matters set out in Annex II for each member of the group.
3. A credit rating agency shall submit its application in the language which is required under the law of its home Member State and also in a language customary in the sphere of international finance.
An application for registration sent by CESR to the competent authority of the home Member State shall be considered to be an application submitted by the credit rating agency concerned.
4. Within five working days of receipt of the application, CESR shall transmit copies of the application to the competent authorities of all Member States.
Within 10 working days of receipt of the application, CESR shall provide advice to the competent authority of the home Member State on the completeness of the application.
5. Within 25 working days of receipt of the application, the competent authority of the home Member State and the members of the relevant college shall assess whether the application is complete, taking into account the advice of CESR referred to in paragraph 4. If the application is not complete, the competent authority of the home Member State shall set a deadline by which the credit rating agency is to provide additional information to it and to CESR and shall notify the members of the college and CESR accordingly.
After assessing an application as complete, the competent authority of the home Member State shall notify the credit rating agency, the members of the college and CESR accordingly.
6. Within five working days of receipt of the additional information referred to in paragraph 5, CESR shall transmit the additional information to the competent authorities of all other Member States.
Article 16
Examination of the application for registration of a credit rating agency by the competent authorities
1. The competent authority of the home Member State and the competent authorities which are members of the relevant college shall, within 60 working days of the notification referred to in the second subparagraph of Article 15(5):
| (a) | jointly examine the application for registration; and |
| (b) | do everything reasonable within their power to reach an agreement on whether to grant or refuse registration of the credit rating agency based on the compliance of the credit rating agency with the conditions set out in this Regulation. |
2. The facilitator may extend the period of examination by 30 working days, in particular if the credit rating agency:
| (a) | envisages endorsing credit ratings as referred to in Article 4(3); |
| (b) | envisages using outsourcing; or |
| (c) | requests exemption from compliance in accordance with Article 6(3). |
3. The facilitator shall coordinate the examination of the application submitted by the credit rating agency and shall ensure that all information necessary to carry out the examination of the application is shared among the members of the relevant college.
4. The competent authority of the home Member State shall prepare a fully reasoned draft decision following the agreement referred to in paragraph 1(b) and shall submit it to the facilitator.
In the absence of agreement among the members of the relevant college, the competent authority of the home Member State shall prepare a fully reasoned draft refusal decision based on the written opinions of the members of the college who oppose registration and shall submit it to the facilitator. The members of the college who are in favour of registration shall prepare and submit a detailed explanation of their opinions to the facilitator.
5. Within 60 working days of the notification referred to in the second subparagraph of Article 15(5), and in any event within 90 working days thereof in the event that paragraph 2 applies, the facilitator shall communicate to CESR a fully reasoned draft registration or refusal decision accompanied by the detailed explanations referred to in the second subparagraph of paragraph 4.
6. Within 20 working days of receipt of the communication referred to in paragraph 5, CESR shall provide its advice on the compliance of the credit rating agency with the requirements for the registration to the members of the relevant college. Following receipt of CESR’s advice, the members of the college shall re-examine the draft decision.
7. The competent authority of the home Member State shall adopt a fully reasoned registration or refusal decision within 15 working days of receipt of CESR’s advice. If the competent authority of the home Member State departs from CESR’s advice, it shall provide full reasons. If CESR has provided no advice, the competent authority of the home Member State shall adopt its decision within 30 working days of the communication to CESR of the draft decision in accordance with paragraph 5.
In the event of a continued absence of agreement among the members of the relevant college, the competent authority of the home Member State shall adopt a fully reasoned refusal decision, which shall identify the dissenting competent authorities and shall include a description of their opinions.
Article 17
Examination of the applications for registration of a group of credit rating agencies by the competent authorities
1. The facilitator and the competent authorities who are members of the relevant college shall, within 60 working days of the notification referred to in the second subparagraph of Article 15(5):
| (a) | jointly examine the applications for registration; and |
| (b) | do everything reasonable within their power to reach an agreement on whether to grant or refuse registration of the members of the group of credit rating agencies based on the compliance of those credit rating agencies with the conditions set out in this Regulation. |
2. The facilitator may extend the period of examination by 30 working days, in particular if any of credit rating agencies in the group:
| (a) | envisages endorsing credit ratings as referred to in Article 4(3); |
| (b) | envisages using outsourcing; or |
| (c) | requests exemption from compliance in accordance with Article 6(3). |
3. The facilitator shall coordinate the examination of the applications submitted by the group of credit rating agencies and shall ensure that all information necessary to carry out the examination of the applications is shared among the members of the relevant college.
4. The competent authorities of the home Member States shall prepare individual fully reasoned draft decisions for each credit rating agency of the group following the agreement referred to in paragraph 1(b) and shall submit it to the facilitator.
In the absence of agreement among the members of the relevant college, the competent authorities of the home Member States shall prepare fully reasoned draft refusal decisions based on the written opinions of the members of the college who oppose registration and shall submit them to the facilitator. The members of the college who are in favour of registration shall prepare and submit a detailed explanation of their opinions to the facilitator.
5. Within 60 working days of the notification as referred to in the second subparagraph of Article 15(5), and in any event within 90 working days thereof in the event that paragraph 2 applies, the facilitator shall communicate to CESR fully reasoned individual draft registration or refusal decisions accompanied by the detailed explanations referred to in the second subparagraph of paragraph 4.
6. Within 20 working days of receipt of the communication referred to in paragraph 5, CESR shall provide its advice on the compliance of the credit rating agencies of the group with the requirements for the registration to the members of the relevant college. Following receipt of CESR’s advice, the members of the college shall re-examine the draft decisions.
7. The competent authorities of the home Member States shall adopt fully reasoned registration or refusal decisions within 15 working days of receipt of the advice of CESR. If the competent authorities of the home Member States depart from CESR’s advice, they shall provide full reasons. If CESR has provided no advice, the competent authorities of the home Member States shall adopt their decisions within 30 working days of the communication to CESR of the draft decisions in accordance with paragraph 5.
In the event of continued absence of agreement among the members of the relevant college on whether to register any of the credit rating agencies of the group, the competent authority of the home Member State of such credit rating agency shall adopt a fully reasoned refusal decision, which shall identify the dissenting competent authorities and shall include a description of their opinions.
Article 18
Notification of the decision on the registration, refusal of registration or the withdrawal of registration of a credit rating agency
1. Within five working days of the adoption of a decision under Articles 16 or 17 the competent authority of the home Member State shall notify the credit rating agency concerned whether or not it has been registered. Where the competent authority of the home Member State refuses to register the credit rating agency, it shall provide full reasons in its decision.
2. The competent authority of the home Member State shall notify the Commission, CESR and the other competent authorities of any decision under Article 16, 17 or 20.
3. The Commission shall publish in the Official Journal of the European Union and on its website a list of credit rating agencies registered in accordance with this Regulation. That list shall be updated within 30 days of the notification referred to in paragraph 2.
Article 19
Registration and supervisory fees
The competent authority of the home Member State may charge registration and/or supervisory fees to the credit rating agency. The registration and/or supervisory fees shall be proportionate to the cost incurred by the competent authority of the home Member State.
Article 20
Withdrawal of registration
1. The competent authority of the home Member State shall withdraw the registration of a credit rating agency where the credit rating agency:
| (a) | expressly renounces the registration or has provided no credit ratings for the preceding six months; |
| (b) | has obtained the registration by making false statements or by any other irregular means; |
| (c) | no longer meets the conditions under which it was registered; or |
| (d) | has seriously or repeatedly infringed the provisions of this Regulation governing the operating conditions for credit rating agencies. |
2. Where the competent authority of the home Member State considers that one of the conditions referred to in paragraph 1 has been met, it shall notify the facilitator and closely cooperate with members of the relevant college in order to decide whether or not to withdraw the registration of the credit rating agency.
The members of the college shall carry out a joint assessment and do everything reasonable within their power to reach an agreement on the necessity to withdraw the registration to the credit rating agency.
In the absence of agreement, the competent authority of the home Member State shall, at the request of any of the other members of the college or on its own initiative, request advice from CESR. CESR shall provide its advice within 15 working days of receipt of such request.
The competent authority of each home Member State shall adopt an individual withdrawal decision on the basis of the agreement reached within the college.
In the absence of an agreement between the members of the college within 30 working days of notification to the facilitator as referred to in the first subparagraph, the competent authority of the home Member State may adopt an individual withdrawal decision. Any deviation of its decision from the opinions expressed by the other members of the college and, where appropriate, the advice provided by CESR shall be fully reasoned.
3. The competent authority of a Member State in which credit ratings issued by the credit rating agency concerned are used and which considers that one of the conditions referred to in paragraph 1 has been met may request the relevant college to examine whether the conditions for withdrawal of registration are met. If the competent authority of the home Member State decides not to withdraw the registration of the credit rating agency concerned, it shall provide full reasons.
4. The decision on the withdrawal of registration shall take immediate effect throughout the Community, subject to the transitional period for the use of credit ratings referred to in Article 24(2).
CHAPTER II - CESR and competent authorities
Article 21
Committee of European Securities Regulators
1. CESR shall provide advice to the competent authorities in the cases provided for in this Regulation. The competent authorities shall consider that advice before taking any final decision under this Regulation.
2. By 7 June 2010, CESR shall issue guidance on:
| (a) | the registration process and coordination arrangements between competent authorities and with CESR, including on the information set out in Annex II, and language regime for applications submitted to CESR; |
| (b) | the operational functioning of the colleges, including on the modalities for determining the membership to the colleges, the application of the criteria for the selection of the facilitator referred to in Article 29(5)(a) to (d), the written arrangements for the operation of colleges and the coordination arrangements between colleges; |
| (c) | the application of the endorsement regime under Article 4(3) by competent authorities; and |
| (d) | common standards on the presentation of the information, including structure, format, method and period of reporting, that credit rating agencies shall disclose in accordance with Article 11(2) and point 1 of Part II of Section E of Annex I. |
3. By 7 September 2010, CESR shall issue guidance on:
| (a) | enforcement practices and activities to be conducted by competent authorities under this Regulation; |
| (b) | common standards for assessment of compliance of credit rating methodologies with the requirements set out in Article 8(3); |
| (c) | types of measures referred to in Article 24(1)(d) to ensure that credit rating agencies continue to comply with legal requirements; and |
| (d) | information that the credit rating agency must provide for the application for certification and for the assessment of its systemic importance to the financial stability or integrity of financial markets referred to in Article 5. |
4. CESR shall publish, annually and for the first time by 7 December 2010, a report on the application of this Regulation. That report shall contain, in particular, an assessment of the implementation of Annex I by the credit rating agencies registered under this Regulation.
5. CESR shall cooperate with the Committee of European Banking Supervisors established by Commission Decision 2009/78/EC (23) and the Committee of European Insurance and Occupational Pensions Supervisors established by Commission Decision 2009/79/EC (24) and shall consult those Committees before publishing guidance referred to in paragraphs 2 and 3.
Article 22
Competent authorities
1. By 7 June 2010, each Member State shall designate a competent authority for the purpose of this Regulation.
2. Competent authorities shall be adequately staffed, with regard to capacity and expertise, in order to be able to apply this Regulation.
Article 23
Powers of competent authorities
1. In carrying out their duties under this Regulation, neither the competent authorities nor any other public authorities of a Member State shall interfere with the content of credit ratings or methodologies.
2. In order to carry out their duties under this Regulation, the competent authorities shall, in conformity with national law, have all the supervisory and investigatory powers that are necessary for the exercise of their functions. They shall exercise their powers:
| (a) | directly; |
| (b) | in collaboration with other authorities; or |
| (c) | by application to the competent judicial authorities. |
3. In order to carry out their duties under this Regulation, the competent authorities shall, in conformity with national law, have the power in their supervisory capacity to:
| (a) | access any document in any form and to receive or take a copy thereof; |
| (b) | demand information from any person and if necessary to summon and question a person with a view to obtaining information; |
| (c) | carry out on-site inspections with or without announcement; and |
| (d) | require records of telephone and data traffic. |
The competent authorities may use the powers referred to in the first subparagraph only in relation to credit rating agencies, persons involved in credit rating activities, rated entities and related third parties, third parties to whom the credit rating agencies have outsourced certain functions or activities, and persons otherwise related or connected to credit rating agencies or credit rating activities.
Article 24
Supervisory measures by the competent authorities of the home Member State
1. Where the competent authority of the home Member State has established that a registered credit rating agency breaches the obligations arising from this Regulation, it may take the following measures:
| (a) | withdraw the registration of that credit rating agency in accordance with Article 20; |
| (b) | temporarily prohibit that credit rating agency from issuing credit ratings with effect throughout the Community; |
| (c) | suspend the use, for regulatory purposes, of the credit ratings issued by that credit rating agency with effect throughout the Community; |
| (d) | take appropriate measures to ensure that credit rating agencies continue to comply with legal requirements; |
| (e) | issue public notices; |
| (f) | refer matters for criminal prosecution to its relevant national authorities. |
2. Credit ratings may continue to be used for regulatory purposes following the adoption of measures in points (a) and (c) of paragraph 1 during a period not exceeding:
| (a) | ten working days if there are credit ratings of the same financial instrument or entity issued by other credit rating agencies registered under this Regulation; or |
| (b) | three months if there are no credit ratings of the same financial instrument or entity issued by other credit rating agencies registered under this Regulation. |
A competent authority may extend the period referred to in point (b) of the first subparagraph by three months in exceptional circumstances relating to the potential for market disruption or financial instability.
3. Before taking any measures referred to in paragraph 1, the competent authority of the home Member State shall notify the facilitator and shall consult the members of the relevant college. The members of the college shall do everything reasonable within their power to reach an agreement on the necessity to take any measures referred to in paragraph 1.
In the absence of agreement between the members of the college, the competent authority of the home Member State shall, at the request of any member of the college or on its own initiative, request advice from CESR. CESR shall provide its advice within 10 working days of receipt of such request.
In the absence of agreement between the members of the college on whether to take any measures referred to in paragraph 1 within 15 working days after the matter was notified to the facilitator as referred to in the first subparagraph, the competent authority of the home Member State may adopt a decision. Any deviation of that decision from the opinions expressed by the other members of the college and, where appropriate, the advice provided by CESR shall be fully reasoned. The competent authority of the home Member State shall notify its decision, without undue delay, to the facilitator and CESR.
This paragraph shall apply without prejudice to Article 20.
Article 25
Supervisory measures by competent authorities other than the competent authority of the home Member State
1. Where the competent authority of a Member State has established that a registered credit rating agency whose ratings are used within its territory breaches the obligations arising from this Regulation, it may take the following measures:
| (a) | adopt the supervisory measures referred to in Article 24(1)(e) and (f); |
| (b) | adopt measures referred to in Article 24(1)(d) within its jurisdiction and, where so doing, duly consider the measures already taken or envisaged by the competent authority of the home Member State; |
| (c) | impose the suspension of the use of credit ratings of that credit rating agency for regulatory purposes by institutions referred to in Article 4(1) whose registered office is located within its jurisdiction, subject to the transitional period referred to in Article 24(2); |
| (d) | request the relevant college to examine whether the measures referred to in points (b), (c) or (d) of Article 24(1) are needed. |
2. Before the adoption of measures referred to in points (a), (b) or (c) of paragraph 1, the competent authority shall notify the facilitator and consult the members of the relevant college. The members of the college shall do everything reasonable within their power to reach an agreement on the necessity to take any measures referred to in points (a) and (b) of paragraph 1. In the event of disagreement, the facilitator shall, at the request of any of the members of the college or on its own initiative, request advice from CESR. CESR shall provide its advice within 10 working days of receipt of such request.
3. In the absence of an agreement between the members of the relevant college within 15 working days of the matter being notified to the facilitator in accordance with paragraph 2, the competent authority of the Member State concerned may adopt a decision. Any deviation of its decision from the opinions expressed by the other members of the college and, where appropriate, the advice provided by CESR shall be fully reasoned. The competent authority of the Member State concerned shall notify its decision, without undue delay, to the facilitator and CESR.
4. This Article shall apply without prejudice to Article 20.
CHAPTER III - Cooperation between competent authorities
Article 26
Obligation to cooperate
1. The competent authorities shall cooperate where it is necessary for the purposes of this Regulation, including in cases where the conduct under investigation does not constitute an infringement of any legislative or regulatory provision in force in the Member State concerned.
2. The competent authorities shall also cooperate closely with the competent authorities responsible for supervision of the undertakings referred to in Article 4(1).
Article 27
Exchange of information
1. The competent authorities shall, without undue delay, supply each other with the information required for the purposes of carrying out their duties under this Regulation.
2. The competent authorities may transmit to the competent authorities responsible for supervising the undertakings referred to in Article 4(1), central banks, the European System of Central Banks and the European Central Bank, in their capacity as monetary authorities, and, where appropriate, to other public authorities responsible for overseeing payment and settlement systems, confidential information intended for the performance of their tasks. Similarly, such authorities or bodies shall not be prevented from communicating to the competent authorities information that the competent authorities may need in order to carry out their duties under this Regulation.
Article 28
Cooperation in case of a request with regard to on-site inspections or investigations
1. The competent authority of one Member State may request the assistance of the competent authority of another Member State with regard to on-site inspections or investigations.
The competent authority making such request shall inform CESR of any request referred to in the first subparagraph. In the event of an investigation or inspection with cross-border effect, the competent authorities may request CESR to assume coordination of the investigation or inspection.
2. Where a competent authority receives a request from a competent authority of another Member State to carry out an on-site inspection or an investigation, it shall:
| (a) | carry out the on-site inspection or investigation itself; |
| (b) | allow the competent authority which submitted the request to participate in an on-site inspection or investigation; |
| (c) | allow the competent authority which submitted the request to carry out the on-site inspection or investigation itself; |
| (d) | appoint auditors or experts to carry out the on-site inspection or investigation; or |
| (e) | share specific tasks related to supervisory activities with the other competent authorities. |
Article 29
Colleges of competent authorities
1. Within 10 working days of receipt of an application for registration under Article 15, the competent authority of the home Member State, or, in the case of a group of credit rating agencies, the competent authority of the home Member State of the credit rating agency mandated under Article 15(2), shall establish a college of competent authorities in order to facilitate the exercise of the tasks referred to in Articles 4, 5, 6, 16, 17, 20, 24, 25 and 28.
2. The college shall comprise the competent authority of the home Member State and the competent authorities referred to in paragraph 3 in the case of a single agency, or the competent authorities of the home Member States and the competent authorities referred to in paragraph 3 in the case of a group of rating agencies.
3. A competent authority other than the competent authority of the home Member State may at any time decide to become a member of the college provided that:
| (a) | a branch which is a part of the credit rating agency or of one of the undertakings in the group of credit rating agencies is established within its jurisdiction; or |
| (b) | the use for regulatory purposes of credit ratings issued by the credit rating agency or the group of credit rating agencies concerned is widespread or has or is likely to have a significant impact within its jurisdiction. |
4. The competent authorities other than the members of the college as referred to in paragraph 3 in the jurisdictions of which the credit ratings issued by the credit rating agency or by the group of credit rating agencies concerned are used may participate in a meeting or in an activity of the college.
5. Within 15 working days of the establishment of the college, its members shall select a facilitator, consulting CESR in the absence of agreement. For that purpose, at least the following criteria shall be taken into account:
| (a) | the relationship between the competent authority and the credit rating agency or the group of credit rating agencies; |
| (b) | the extent to which credit ratings will be used for regulatory purposes in a particular territory or territories; |
| (c) | the place in the Community where the credit rating agency or group of credit rating agencies pursues or is planning to pursue the most important part of its credit rating activities; and |
| (d) | administrative convenience, burden optimisation, and an appropriate distribution of the workload. |
Members of the college shall review the selection of the facilitator at least every five years to ensure the selected facilitator remains the most appropriate following the criteria referred to in the first subparagraph.
6. The facilitator shall chair the meetings of the college, coordinate the actions of the college and ensure efficient exchange of information among members of the college.
7. In order to ensure close cooperation between competent authorities within the college, the facilitator shall, within 10 working days of his or her selection, establish written coordination arrangements within the framework of the college regarding the following matters:
| (a) | information to be exchanged between competent authorities; |
| (b) | the decision-making process between the competent authorities, without prejudice to Articles 16, 17, and 20; |
| (c) | cases in which the competent authorities must consult each other; |
| (d) | cases in which the competent authorities must apply the mediation mechanism referred to in Article 31; and |
| (e) | cases in which the competent authorities may delegate supervisory tasks in accordance with Article 30. |
8. In the absence of agreement concerning the written coordination arrangements under paragraph 7, any member of the college may refer the matter to CESR. The facilitator shall give due consideration to any advice provided by CESR concerning the written coordination arrangements before agreeing their final text. The written coordination arrangements shall be set out in a single document containing full reasons for any significant deviation from the advice of CESR. The facilitator shall transmit the written coordination arrangements to the members of the college and to CESR.
Article 30
Delegation of tasks between competent authorities
The competent authority of the home Member State may delegate any of its tasks to the competent authority of another Member State subject to the agreement of that authority. Delegation of tasks shall not affect the responsibility of the delegating competent authority.
Article 31
Mediation
1. CESR shall establish a mediation mechanism to assist in finding a common view among the competent authorities concerned.
2. In the event of disagreement between competent authorities concerning an examination or action under this Regulation, they shall refer the matter to CESR for mediation. The competent authorities concerned shall give due consideration to the advice of CESR and shall provide full reasons for any deviation from that advice.
Article 32
Professional secrecy
1. The obligation of professional secrecy shall apply to all persons who work or who have worked for CESR, for the competent authority or for any authority or person to whom the competent authority has delegated tasks, including auditors and experts contracted by the competent authority. Information covered by professional secrecy shall not be disclosed to another person or authority except where such disclosure is necessary for legal proceedings.
2. All the information exchanged between CESR and the competent authorities and between competent authorities under this Regulation shall be considered confidential, except where CESR or the competent authority concerned states at the time of communication that such information may be disclosed or where such disclosure is necessary for legal proceedings.
Article 33
Disclosure of information from another Member State
The competent authority of a Member State may disclose the information received from a competent authority of another Member State only if it has obtained the express agreement of the competent authority that transmitted the information and, where applicable, the information is disclosed only for the purposes for which that competent authority gave its agreement, or where such disclosure is necessary for legal proceedings.
CHAPTER IV - Cooperation with third countries
Article 34
Agreement on exchange of information
The competent authorities may conclude cooperation agreements on exchange of information with the competent authorities of third countries only if the information disclosed is subject to guarantees of professional secrecy which are at least equivalent to those set out in Article 32.
Such exchange of information shall be intended for the performance of the tasks of those competent authorities.
With regard to transfer of personal data to a third country, Member States shall apply Directive 95/46/EC.
Article 35
Disclosure of information from third countries
The competent authority of a Member State may disclose the information received from competent authorities of third countries only if it has obtained the express agreement of the competent authority that has transmitted the information and, where applicable, the information is disclosed only for the purposes for which that competent authority gave its agreement, or where such disclosure is necessary for legal proceedings.
TITLE IV
PENALTIES, COMMITTEE PROCEDURE, REPORTING AND TRANSITIONAL AND FINAL PROVISIONS
CHAPTER I - Penalties, committee procedure and reporting
Article 36
Penalties
Member States shall lay down the rules on penalties applicable to infringements of the provisions of this Regulation and shall take all measures necessary to ensure that they are implemented. The penalties provided for shall be effective, proportionate and dissuasive.
Member States shall ensure that the competent authority disclose to the public every penalty that has been imposed for infringement of this Regulation, unless such disclosure would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved.
By 7 December 2010 the Member States shall notify the rules referred to in the first subparagraph to the Commission. They shall notify the Commission without delay of any subsequent amendment thereto.
Article 37
Amendments to Annexes
The Commission may amend the Annexes in order to take account of developments, including international developments, on financial markets, in particular in relation to new financial instruments and with regard to convergence of supervisory practice.
Those measures, designed to amend non-essential elements of this Regulation, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 38(2).
Article 38
Committee procedure
1. The Commission shall be assisted by the European Securities Committee established by Commission Decision 2001/528/EC (25).
2. Where reference is made to this paragraph, Article 5a(1) to (4) and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.
3. Where reference is made to this paragraph, Article 5 and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.
The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months.
Article 39
Reports
1. By 7 December 2012, the Commission shall make an assessment of the application of this Regulation, including an assessment of the reliance on credit ratings in the Community, the impact on the level of concentration in the credit rating market, the cost and benefit of impacts of the Regulation and of the appropriateness of the remuneration of the credit rating agency by the rated entity (issuer-pays model), and submit a report thereon to the European Parliament and the Council.
2. By 7 December 2010, the Commission shall, in the light of discussions with the competent authorities, assess the application of Title III of this Regulation, in particular of the cooperation of the competent authorities, the legal status of CESR and supervisory practices. The Commission shall present a report on those matters to the European Parliament and to the Council, accompanied, where appropriate, by proposals for a review of that Title.
That report shall include a reference to the Commission proposal of 12 November 2008 for a regulation on credit rating agencies and to the report of the Committee on Economic and Monetary Affairs of the European Parliament of 23 March 2009 relating to that proposal.
3. By 7 December 2010, the Commission shall, in the light of developments in the regulatory and supervisory framework for credit rating agencies in third countries, present a report to the European Parliament and to the Council concerning the effects of those developments and of the transitional provisions referred to in Article 40 on the stability of financial markets in the Community.
CHAPTER II - Transitional and final provisions
Article 40
Transitional provision
Credit rating agencies operating in the Community before 7 June 2010 (existing credit rating agencies), which intend to apply for registration under this Regulation, shall adopt all necessary measures to comply with its provisions by 7 September 2010.
Credit rating agencies shall submit their application for registration no earlier than 7 June 2010. Existing credit rating agencies shall submit their application for registration by 7 September 2010
Existing credit rating agencies may continue issuing credit ratings which may be used for regulatory purposes by the financial institutions referred to in Article 4(1) unless registration is refused. Where registration is refused, Article 24(2) shall apply.
Article 41
Entry into force
This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union.
It shall apply from its date of entry into force. However:
| — | Article 4(1) shall apply from 7 December 2010 and |
| — | points (f), (g) and (h) of Article 4(3) shall apply from 7 June 2011. |
This Regulation shall be binding in its entirety and directly applicable in all Member States.