LONDON, Feb 28 (IFR) - While the ‘big three’ ratings agencies are scrambling to work out whether they will be able to conduct business from London after Brexit, one of their rivals decided months ago that Dublin was the place to launch a push into the European market.
Moody‘s, Standard & Poor’s and Fitch all have their European headquarters in London, where the UK’s membership of the European Union means they can be regulated by the Paris-based European Securities and Markets Authority.
ESMA authorisation requires firms to have a “meaningful presence” in the EU - essentially they need to prove their senior management and key operations are genuinely run from inside the bloc - presenting a problem for agencies once the UK triggers its two-year exit from the union next month.
Kroll Bond Ratings Agency, one of the big three’s smaller rivals, has already decided that London is no longer the best place to run a European ratings business.
“We made the decision some time ago that setting up our European presence in London post-referendum might send the wrong message to the Continent,” said Mauricio Noe, who is charged with running Kroll’s fledgling European operation.
“In time, we will have to be in both locations – you can’t ignore the UK economy and the assets under management there – but we are now staffing up across all functions in Dublin, not just support.”
The Bank of England and the Financial Conduct Authority, the UK’s banking and markets regulators, are the two obvious candidates to take over ESMA’s supervision post-Brexit.
But market participants are not certain they are ready or willing to take the job on and, if so, whether there is enough time to draft the necessary legislation.
That raises the spectre of Moody‘s, S&P and Fitch having to move key personnel and operations away from the UK capital in order to keep their stranglehold on the US$2.5trn sold annually in Europe’s bond market.
Ireland ‘attracting FDI for 60 years’
However, Noe told IFR Kroll’s decision was based on pull as well as push factors, saying the company was impressed by IDA, Ireland’s foreign direct investment division.
“They have been attracting foreign investment for 60 years,” he said.
“The other places people are talking about benefiting from Brexit, the likes of Madrid, Paris, Frankfurt, they are only just starting now.”
Noe said that housing, schools, availability of staff and employment law were all important factors to consider, and that Dublin was “top of the list” for these.
“Tax is pretty low on our list of priorities,” he added.
New York-based Kroll has been certified by ESMA since 2013, though most of the European securities it currently rates are for European clients looking to sell to US investors.
The next step is to sell more deals into the European investor base, said Noe.
“We are expanding naturally from our strengths in the US in mortgage-backed, infrastructure, public finance and aviation products,” he said.
“Name recognition is critical.”
Reporting by Tom Porter; Editing by Philip Wright