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Euro move may see rating agencies held liable for investor losses

Rules to allow investors to sue credit-rating agencies for losses resulting from their ratings have moved a step closer after the European Council backed the European Commission’s stance on the issue.

In November, the commission put forward proposals for the credit rating agencies III directive, which targets an “over-reliance” on credit ratings.

It included a proposal to open CRAs to civil liability for losses resulting from reliance on a rating that was affected by any intentional breaching of the rules in the directive or gross negligence on behalf of the agency.

This week, the council backed the proposal in a communiqué setting out its starting position for negotiations with the commission and the European parliament over he final rules.

It says: “Investors and issuers would be able to claim damages from a CRA if they suffered a loss due to an infringement committed by the agency intentionally or with gross negligence.”

Conservative MEP Ashley Fox has put forward an amendment to remove the proposal from the directive.

The council has also backed the commission’s proposal to require security issuers to rotate the agencies they use. However, it thinks this should be done every four years instead of every three and should only apply to structured products with underlying resecuritised assets and big CRAs.

The parliament will finalise its position later this month.

Facts and Figures managing director Simon Webster says: “Any organisation with significant market influence which causes consumer detriment through inappropriate behaviour should be held accountable but you have to ask, how much of this is a result of EU member states being downgraded?”

Eldon Financial Planning director Joss Harwood says: “Investor protection is all very well but this is going to make the credit-rating agencies very wary about giving things AAA ratings for fear of litigation.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Ratings are advice, so the rating agencies should be held liaible to any consumers who rely on their ratings in ALL circumstances – just like the rest of the advice community. Make them stand up and be counted.

  2. European Bods trying to protect themselves from doomsayers who might be saying that not everything is hunky dory. They are just trying to make the truth harder to find in bad times. I didn’t see any clamp down on these companies when the EU countries were AAA rated in the boom times.

  3. Just because the agencies have downgraded european sovereign debt, lets kill the messinger!

  4. Does that mean that IFA’s who rely on credit ratings to advise can sue? I think not…………….

  5. CynicAli – ratings are opinions and not advice. An investor who invests millions without due diligence or wider understanding of a sovereign state’s economy should hardly be surprised to make losses.

  6. “Buyer Beware” has been replaced with “if you can Blame you can Claim”.

    It was therefore inevitable, Progress cannot be Halted !

    Rating Agencies will have to Pay a PI premium in the future and hence reports will only be avaliable to those who can afford them,

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