05/12/2012 - Economic and Financial Affairs Council (ECOFIN)
Stricter EU rules on credit rating agencies agreed
Credit rating agencies in the EU will soon be operating according to an amended set of rules recently agreed by the Council and the European Parliament. Part of the amendments concern sovereign debt ratings. The EU finance ministers were informed about this agreement at the Council meeting on 4 December.
The aim of the agreed amendments to the legislative package – which consists of a directive and a regulation – is to reduce investors' over-reliance on credit rating agencies, mitigate conflicts of interest and increase transparency and competition in the sector.
The new rules make it possible to hold a rating agency liable in cases of negligence or intent, when damage to an investor has been caused.
In addition, the credit rating agencies will have to set up a calendar indicating when they intend to issue ratings of member states. Such ratings will only be published after the close of business and at least one hour before the opening of trading venues in the EU.
More clarity and transparency
The credit rating agencies will have to inform investors and member states of the facts and assumptions on which each rating is based. This should facilitate a better understanding of member states' credit ratings.
Furthermore, all available ratings will have to be published on a European Rating Platform, which will contain all ratings by agencies that are registered and authorised in the EU. This will allow for comparison of all ratings for any financial instrument and increase their visibility.
The European Rating Platform should also help investors make their own credit risk assessment and contribute to more diversity in the rating industry.
Tackling conflict of interest
The amendments introduce mandatory rotation – the issuers of financial instruments will have to switch to a different agency at least every four years. This rule will apply to re-securitisations, which are complex structured finance instruments.
In addition, there will be shareholder limitations: investors will be prohibited from simultaneously owning large stakes in more than one rating agency, unless those agencies belong to the same group.
The rule should ensure sufficient independence of credit rating agencies.
The two texts were agreed by the Council and the European Parliament on 27 November. They will now be submitted to the two institutions for approval and adoption, which can be expected in the first quarter of 2013.