EC plans tougher rules for credit rating agencies
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The European Commission has called for stricter rules for credit ratings agencies in a bid to make them more transparent and accountable for their actions.
EC internal markets commissioner Michel Barnier (pictured) said the commission was also aiming to reduce the over-reliance on ratings as well as increasing quality and competition in the sector.
Barnier said that agencies had a serious and widespread impact on markets and that their assessments had resulted in some “serious mistakes in the past”.
The EC wants any agency that infringes - intentionally or through gross negligence - the credit rating agency regulation and causes damage to an investor relying on the regulation, to have that case taken to court.
According to the BBC, Barnier said: “Ratings have a direct impact on the markets and the wider economy and thus on the prosperity of European citizens. They are not just simple opinions.”
Barnier said: “Credit rating agencies should follow stricter rules, be more transparent about their ratings and be held accountable for their mistakes. I also want to see increased competition in this sector”
Barnier said this would include introducing a general obligation for investors to do their own assessment.
The move comes only a week after leading rating agency Standard & Poor’s downgraded France’s credit rating by mistake. While the downgrading of the likes of Greece, Portugal and the Irish Republic by credit agencies have seen their respective borrowing costs rise. All three have since required a bailout.
Credit rating agencies have also been accused for triggering the credit crunch in 2008 after giving top grades to the likes of sub-prime mortgages.
Barnier says: “I have also been surprised by the timings of some sovereign ratings - for example, ratings announced in the middle of negotiations on an international aid programme for a country.
“We can’t let ratings increase market volatility further.”
Barnier also wants agencies to communicate their ratings to the European Securities and Markets Authority, these would then be published, and for any changes to a rating to be released outside of European trading hours in a bid to reduce market turmoil.
The proposals will pass to the European Parliament and the Council member states for negotiation and adoption.
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Readers' comments (1)
kevin murphy | 16 Nov 2011 10:20 am
More from those not living in the real world. The whole idea of these agencies is that they give independent ratings, not for the benefit of the borrower (bond issuer) but for the benefit of the potential investor (lender). This obviously doesn't guarantee 100% accuracy - but has got to be a better guide for the investor than just the promise of the borrower to pay the interest throughout the term of the 'loan' and repay the capital at the end - particularly in the light of recent events? And these people who want to 'regulate' the agencies are presumably the same people who have forced private investors to take 40% losses on the money they loaned on the basis that the loans were guaranteed by the Greek Government?
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