Credit rating agencies face tighter rules
Credit rating agencies – partly blamed for the financial crisis – face tighter regulation under plans unveiled by the European Commission today.
The agencies set the benchmark for the quality of financial investments, but now Brussels says stricter controls are required to guarantee their independence and accuracy.
Today’s proposal to EU finance ministers says new conditions are needed to control the issuing of credit ratings, to restore market confidence and investor protection.
A European Commission statement said: “The new rules are designed to ensure high quality credit ratings which are not tainted by the conflicts of interest which are inherent in the ratings business.”
EU Single Market Commissioner Charlie McCreevy said: “I want Europe to adopt a leading role in this area. Our proposal goes further than the rules which apply in other jurisdictions. These very exacting rules are necessary to restore the confidence of the market in the ratings business in the EU”.
The agencies have come under fire in the last few months, accused of not identifying the scale of the American sub-prime market collapse – the trigger for the global credit crunch.
The commission proposals would prevent credit rating agencies from offering additional “advisory” services, and they would not be allowed to rate “financial instruments” unless they have “sufficient quality information” on which to base their ratings.
The agencies would also have to publish annual transparency reports and have at least three independent directors on their boards.
