EU backs credit rating rules

Credit ratings agencies are partly to blame for the current global economic crisis, MEPs claimed today.

Strict rules to improve transparency and independence of European credit rating were endorsed by the European Parliament in Strasbourg when MEPs adopted a legislative report with 569 votes in favour, 47 against and four abstentions.

According to Members of the Parliament debating the legislation, credit rating agencies failed to detect the worsening of the financial market conditions or to change their ratings in time.

Ratings agencies were also accused of failed to adapt to the new risks of the credit market, such as derivatives and hedge funds.

Agencies such as Moody's Standard and Poors and Fitch provide ratings on the creditworthiness of companies and countries which investors use to make decisions.

The new rules agreed today are intended to ensure that credit rating agencies avoid conflict of interests and to increase transparency by setting disclosure obligations.

"The Regulation will help give investors the information, integrity and impartiality they need from credit rating agencies if they are to make prudent investment decisions that create growth and jobs instead of bubbles of excessive risk," said European Commission president José Manuel Barroso.

Under the new rules agencies will for the first time have to register and be supervised to operate in the European Union.

The Committee of European Securities Regulators (CESR), made up of national securities markets watchdogs, will be the first point of contact in the EU for registration.

So-called colleges of supervisors will be set up for each rating agency operating in the EU, comprised of supervisors from all countries in which the company offers ratings.

In addition, staff working with individual agencies will be rotated at regular intervals to cover another sector in order to avoid becoming too close to a particular client, as customers pay agencies for ratings on their debt.

"We expect the conduct of the credit rating agencies to be significantly improved as a result of this regulation, with clear benefits to the integrity and stability of the financial markets," said Internal Market and Services Commissioner Charlie McCreevy

The new regulation take effect in 2010.

Additional reporting: Reuters