EUROPEAN INTERNAL market commissioner Charlie McCreevy has proposed a new regulatory regime for credit rating agencies to enable EU financial supervisors to monitor their activities.
Presenting the draft regulation in Brussels yesterday, he said credit rating agencies had led a “charmed existence” until now and predicted that the new law could be in place within 12 months after consideration by MEPs and EU member states.
“I repeatedly said that it [would] be unjust to think that the credit rating agencies are the single cause [of the crisis],” said Mr McCreevy. “But . . . they are one of the many actors.”
Until now, credit rating agencies such as Moody’s and Standard Poor’s have largely gone unregulated in the EU. But these types of agencies have come in for widespread criticism in the wake of the financial crisis for giving investment-grade ratings to complex products whose value imploded as US house prices dropped.
The regulation has been proposed days before the world’s 20 biggest economies meet in Washington for a summit designed to implement reforms to the global financial system. Mr McCreevy said he hoped the EU’s proposal would form the basis for similar regulatory proposals elsewhere.
“I want Europe to adopt a leading role in this area. Our proposal goes further than the rules which apply in other jurisdictions,” said Mr McCreevy, shrugging off fears that they could lead to flight of capital from the EU due to over-regulation. He said investors wanted the security of good regulation in uncertain times.
The draft regulation includes a requirement for agencies to disclose publicly the methodology and key assumptions for their ratings. It also proposes that: agencies may not provide advisory services; they will not be allowed to rate financial instruments if they do not have sufficient quality information; they will be obliged to publish a transparency report; they will have to create an internal function to review the quality of their ratings; they should have at least three independent directors on their boards whose remuneration cannot depend on the business performance of the agency.
Martin Winn, a Standard Poor’s spokesman, said the agency shared the goal of bringing transparency and confidence to markets and was studying the proposals. He said many of the requirements being proposed were already standard practice in its ratings services, such as prohibition of consulting or advising, and delinking analyst pay from fees paid by issuers they rate.
Editorial comment: page 17
