Brussels, 22/05/2012 (Agence Europe) - On Monday 21 May 2012, the EU27 member states' permanent representatives agreed in principle on the draft regulation updating EU rules for credit rating agencies registered in Europe (see EUROPE 10612). In a press release, Danish Enterprise Minister Ole Sohn said the deal was positive, making it easier for new players to join the market and reducing dependency credit ratings in the financial system. He said it would also reduce conflicts of interest.
The member states have watered down the European Commission's initial suggestion that companies be forced to change credit rating agency after nine years. Most member states, including Germany and Spain, say that this is not feasible because of the monopoly nature of the credit rating market, dominated by the Big Three, (Standard and Poor's, Fitch and Moody's). The easing of the rotation rule might prove to be a stumbling block in talks between ministers and the European Parliament, whose rapporteur, Leonardo Domenici (S&D, Italy), is in favour of maximum rotation. The EP's Economic and Monetary Affairs Committee will vote on the question in June at the start of informal interinstitutional talks.
Under the agreement reached by the ministers, the rotation requirement would only apply to structured finance products with underlying re-securitised assets, required to rotate after four years. Small rating agencies would not be covered by the rule, and neither of course will rating agencies registered outside the EU whose ratings are endorsed by agencies registered in the EU. For “structured” financial products, companies will have to make use of the services of at least two rating agencies. The rating agency rules are due to be assessed in the future to see whether they should be extended to other financial products.
Civil liability. Investors and issuers of rated products will be able to issue court proceedings in pursuit of damages if they feel that a rating agency has broken the EU rules deliberately or due to gross negligence.
In order to deal with conflicts of interest, credit rating agencies will be required to divulge if they owns more than 25% of a rated company's shares or voting rights. In order to encourage greater diversity and independence among rating agencies, the new rules will make it illegal for investors to own more than 25% of the capital of more than one rating agency. (MB/transl.fl)