Brussels, 05/11/2010 (Agence Europe) - The European Commission has entered consultations that will last until Friday 7 January 2011 on the role of financial ratings agencies. It is asking interested parties what they think about the idea of setting up an EU ratings agency. The consultation document explains that the sovereign debt crisis in Europe and the behaviour of ratings agencies have stimulated interest in such an idea. The European Commission says it has no preconceived ideas about the nature or substance of measures it will be unveiling early next year and wishes to discuss all issues, namely how ratings impact on sovereign debt, whether ratings agencies should be made responsible for their behaviour, the relevance of external ratings in EU legislation and the danger of conflicts of interest that might arise from a system whereby ratings agencies are paid by the bodies they rate.
European agency. The consultation document gives details of how a European ratings agency might operate. It could be formed as a public body, a public-private partnership or a non-profit-making organisation. The set-up costs would be wholly or partially borne by the private sector and the public sector would be responsible for ensuring that the monies raised are used for the work assigned to the agency. In June 2010, EU Internal Market Commissioner Michel Barnier expressed support for the idea of an “independent” European ratings agency (see EUROPE 10161).
The Commission also makes other suggestions for increasing competition on the international ratings market, currently dominated by the Big Three (Moody's, Standard & Poor and Fitch). The European Central Bank or national central banks could be given responsibility for issuing ratings for regulatory purposes. This would have to take account of the fact that it is illegal for central banks to issue financial ratings on financial instruments emitted by other central banks.
Sovereign debt. Sovereign debt ratings have a huge and immediate impact on the borrowing costs of the country in question. The Commission suggests several ways of making ratings agency work more transparent in this area, over and above what is foreseen in EU rules. A ratings agency could be required to warn countries three days in advance of any plan to change the sovereign debt rating in order to give the country time to react. Ratings agencies could be required to review their ratings every 6 months rather than every 12 months as at present. Ratings agencies could be required to publish ratings in the evening, after the closure of European stock exchanges and could be subject to the same rules as structured financial products. In order to reduce conflicts of interest, countries could be exempt from paying the agency rating its sovereign debt. (M.B./transl.fl)