The European Commission has published its plans to impose tougher regulation on credit rating agencies, including restrictions on the kind of services they can provide.
Most rating agencies already followed a voluntary code agreed on in 2004 by the International Organization of Securities Commissions, but this self-regulation had failed, Commission officials say. Legal supervision was needed because the code was based on the “comply or explain” principle, because there was no “robust mechanism of control” over agency behavior and because in many areas the code was simply too lenient, the Commission contents.
EU internal market commissioner Charlie McCreevy says agencies such as Moody’s, Standard & Poor’s and Fitch had led a “charmed existence.” Rating agencies were not the single cause of the financial crisis, but they were a factor, he says.
The proposed rules, which McCreevy said would be implemented within 12 months, will stop rating agencies from providing advisory services and ban them from rating financial instruments if they lack sufficient quality information. Agencies will be required to publish an annual transparency report and create an internal unit to review the quality of their ratings.
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