FINMA amends "credit rating agencies" circular

The Swiss Financial Market Supervisory Authority FINMA is amending FINMA Circular 2012/1 "Credit rating agencies" in three points. These formal changes have been made necessary by regulatory developments and will enter into force on 1 January 2015.

Insurers: transition period extended

Insurers can continue to use external credit ratings that have hitherto qualified as recognised under FINMA Circular 2008/18 "Investment guideline – insurers" to determine tied assets. The existing transitional provisions stated that this would only be the case until 1 January 2015, after which insurers would only be allowed to use credit ratings from recognised credit rating agencies to determine tied assets.

In view of the international efforts to reduce dependency on credit rating agencies, FINMA will, as part of its revision of FINMA Circular 2008/18 "Investment guideline – insurers", look into the possibility of allowing insurers to use their own estimations of creditworthiness to determine tied assets. The aforementioned transition period for using external credit ratings will be extended until 31 March 2016 so as not to pre-empt the prospective amendment.

Collective investment schemes: rules on agency credit ratings abolished

With the FINMA Collective Investment Schemes Ordinance undergoing a complete revision, the minimum creditworthiness required in connection with investment techniques and derivatives will no longer be determined solely on the basis of credit ratings from recognised credit rating agencies. It will therefore no longer be necessary to prescribe the regulatory use of credit ratings from recognised credit rating agencies for collective investment schemes.

Banks: agency credit rating for Liquidity Coverage Ratio

Changes to the ordinance on banks' liquidity and the release of FINMA Circular 2015/2 "Liquidity risks – banks" require banks to use credit ratings from suitably recognised credit rating agencies to calculate their Liquidity Coverage Ratio (LCR). Credit ratings are needed in particular to divide the high-quality liquid assets for the purposes of the LCR into category 1 (0% risk weighting) and category 2 (max. 20% risk weighting), as the Basel Committee also stipulates in the international framework agreement. These changes also necessitate corresponding amendments to FINMA Circular 2012/1 'Credit rating agencies'.