Shareholding Provisions in European Credit Rating Agency Regulation

Effective on 20 June 2013, the European Regulation on Credit Rating Agencies (as amended) contains European rules applicable to Moody’s Investors Service (MIS) and which may impact investors that own 5% or more of Moody’s Corporation (MCO) stock, and certain of those investors’ holdings. However, these rules only affect credit ratings issued by Moody’s Investors Service entities where the Moody’s lead analyst is located in the European Union (MIS EU CRAs).

In summary, these provisions may affect:

  1. holders of 10% or more of MCO stock and their 10% or more holding in other companies.
    • MIS EU CRAs may not issue new credit ratings in respect of the MCO 10% plus shareholder itself. In relation to existing ratings, MIS EU CRAs must make a disclosure and consider whether to withdraw or take other action in relation to such ratings;
    • MIS EU CRAs may not issue new credit ratings in respect of any of the MCO 10% plus shareholder’s holdings of 10% plus, or their related third parties, or where the 10% plus shareholder has directors on the board of the rated entity. In relation to existing ratings, MIS EU CRAs must make a disclosure and consider whether to withdraw or take other action in relation to such ratings.
  2. holders of 5% or more of MCO stock and their 5% or more holdings in other companies.
    • MIS EU CRAs may rate holders of 5% plus (but below 10%) of MCO stock without making a disclosure; but
    • MIS EU CRAs must make a disclosure if any of the MCO 5% plus shareholders hold more than 5% of the relevant rated entity or their related third parties, or where the 5% plus shareholder has board members of the rated entity.
    • MCO 5% plus shareholders are prohibited from providing advisory or consulting services to a rated entity or its related third party. This includes advisory or consulting services in relation to corporate or legal structure, assets, liabilities or activities;
    • MCO 5% plus shareholders are prohibited from being able to hold 5% or more or have board members of another EU registered CRA.

As mentioned above, these rules only affect credit ratings issued by MIS entities where the lead analyst is located in the EU.

IMPORTANT NOTE: The above is only a high level summary of the relevant provisions to give a brief outline of potentially impacted parties. Moody’s cannot provide legal or regulatory advice or guidance on these issues but wishes to draw attention to these provisions. Those who think that they may be affected should consult the actual legislation and obtain independent legal advice. The relevant legislation can currently be found on the official website of the EU, www.europa.eu