EU Parliament | Regulation on CRA’s

Proposals to strengthen the regulation of credit rating agencies have been broadly welcomed by MEPs on the European Parliament’s Economic and Monetary Affairs Committee.

On 29 February 2012, MEPs debated a draft regulation from the European Commission to strengthen oversight of credit ratings agencies (CRAs) as part of ongoing financial market reforms.

The regulation is an attempt to reduce possible conflicts of interest, make CRAs more accountable, and provide more information to investors. The agencies are now supervised by the EU’s new European Securities and Markets Authority (ESMA), which can penalise them for breaking the rules.

The parliament’s rapporteur on the draft regulation – Italian social democrat Leonardo Dominici – said a credit rating should be regarded as “an information service rather than a formal opinion”.

A rating is an assessment of creditworthiness – for example, the risk of investing in the debt issued by a particular company or country.

Downgrading a national rating can lead to higher interest rates, making it more expensive for that country to borrow money.

Mr Domenici said that the new regulation should end the “over-reliance” on ratings agencies, and said that the Parliament should go further than the Commission’s original proposal.

He has proposed that the draft regulation should be amended to bring in a ban on “unsolicited” ratings of sovereign debt, an issue that has played a major role in the crisis in Greece.

However this stance was criticised by MEPs including Olle Schmidt on behalf of the liberal group, and British Conservative Ashley Fox.

Mr Fox said that such a ban would be “complete nonsense”.

MEPs will debate various amendments over the next few months, before the committee holds its final vote on the proposal in May, with a plenary vote expected later in the year.

Source | BBC


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