Brussels, 08/02/2008 (Agence Europe) - Speaking at the annual dinner of the Society of Business Economists” in London on Wednesday 6 February, European Internal Market Commissioner Charlie McCreevy sent a firm message to rating agencies. He pressed them to quickly bring forward substantial proposals for the review of their internal rules, or face the prospect of specific regulation at European level.
“Strong, independent, professional oversight of the credit professionals with the rating agencies - including their performance, pay and promotion - and of the operation and processes of the rating functions themselves is absolutely essential if market and regulator confidence is to be restored in respect of the effective management of the conflicts of interest inherent in the rating agencies' business models,” McCreevy said. He warned that if “meaningful and robust” proposals were not forthcoming over the next few months, he would “not hesitate to move forward quickly and have the issue addressed by regulatory action”. Rating agencies have been criticised for not warning investors early enough of the risks represented by some US establishments which were active in the subprime mortgage market, the sector at the root of the current financial crisis. The role of these agencies is to rate the financial health of companies by assessing debt risks, when they are paid by companies that want to be rated.
Sure in his belief that it was up to the industry itself to sort out the problems of the financial markets, McCreevy had some harsh words for Société Générale, the French bank which recently announced that one of its market operators had lost almost €5 billion. “It is inexcusable that the entire market value of a financial institution can be placed at risk by such abject carelessness on the part of a leading European bank, that that institution failed to heed the warnings of a significant market counterparty and failed to learn that lessons that rogue traders have taught us about the checks, balances and controls that must be in place for risk to be effectively managed and controlled,” he said. (M.B.)