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.”