January 11, 2018 / 3:58 PM / 5 months ago

UPDATE 1-European watchdog warns credit rating agencies over fees

* Watchdog expects agencies to start making changes this year

* S&P, Moody’s and Fitch control over 90 pct of market (Adds comments from rating agencies, background)

By Marc Jones

LONDON, Jan 11 (Reuters) - Europe’s financial markets watchdog accused top credit rating agencies like S&P Global <SPGI.N >, Moody’s and Fitch on Thursday of not providing enough clarity on the fees they charge.

The European Securities and Markets Authority (ESMA) said it was sometimes unable to understand the key elements of agencies’ fee “schedules” and why they sometimes deviated from them or increased or cut their prices.

“ESMA has found that there are areas for significant improvement by both credit rating agencies (CRA) and trade repositories (TR) in their current fee practices,” ESMA’s chairman Steven Maijoor said.

He added that the Paris-based watchdog would give “supervisory priority to the issues identified”.

It wants them to provide clearer explanations and transparency on the fee-setting process as well as how sister companies that provide supplementary ratings-related services, such as bulk provision of ratings data, set their prices.

ESMA said there was no apparent link between the fees that were charged and the costs involved in actually calculating and providing the rating.

In some cases there had also been triple-digit price hikes by the affiliated companies with little obvious explanation.

“The ultimate aim is to ensure that customers know exactly what they are paying for,” Maijoor said.

S&P has a market share of 46 percent in the European Union, followed by Moody’s on just over 31 percent and Fitch on around 15 percent, according ESMA’s latest data.

All three firms, as well as Canadian-based DBRS which is a distant number four in sector, said they were reviewing ESMA’s report. Fitch added that it already maintains set and freely-available fee schedules and explains any deviations.

ESMA added that it could provide agencies with “further supervisory guidance to ensure compliance with the relevant requirements”.

The work so far has ESMA taken just over a year but it expects firms to start taking action to address its concerns this year and for it to continue next year.

For story on ESMA warning on trade repository fees click ($1 = 0.7386 pounds) (Reporting by Marc Jones; Editing by Mark Heinrich)

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