Strasbourg, 08/06/2011 (Agence Europe) - MEPs believe that steps must be taken to limit the risks of conflicts of interest inherent to the financial ratings market, which is essentially based on a model in which the rated entity pays the ratings agency. Without wishing to impose “an unjustified model”, they call on the European Commission to propose “viable alternative payment models involving issuers and users”, paying particular attention to a model whereby the investor which uses a rating pays a ratings agency. “In order to break with the oligopolistic structure of the market, to intensify competition and to reduce dependency from the user pays model, we need new payment systems and a clear definition of the liability of the CRAs”, Wolf Klinz (ALDE, Germany), the author of the own-initiative report adopted by the EP on Wednesday 8 June, stated in a press release. He also feels that potential conflicts of interest arising when a ratings agency also acts in an advisory capacity should be stopped.
The EP takes the view that “the excessive dependence of the global financial regulation system as regards external ratings agencies must be reduced as much as possible and in a realistic timescale”. Cutting the ties between rating and bank capital requirements is “a real solution”, argued Jean-Paul Gauzès (EPP, France). Noting that the US has already made a start on this process, he stated that the Commission would be tackling the issue under the so-called proposed “CRD IV” directive, which will transpose into European law the “Basel III” international agreement on boosting the quality and quantity of banks' own funds.
European foundation. The MEPs call on the Commission to look into the feasibility of a “European foundation for credit ratings”. This foundation, which would be fully independent no more than five years after coming into being, would rate the capacity of companies and states to repay their loans. The Social Democrats unsuccessfully stressed that such an entity should be public in nature. It is worth noting that an amendment adopted in plenary also calls on the Commission to look into a “European credit ratings agency which is fully independent” and funded by the private sector. Welcoming the support of the EP for a proposal by the Greens for the creation of a European foundation and a European agency, the German MEP Sven Giegold pleaded for ratings on sovereign debt to be the subject of “additional compulsory rating” by the European foundation.
A legislative initiative by the Commission on the matter is anticipated for the autumn. (M.B./transl.fl)