Brussels, 09/12/2008 (Agence Europe) - Financiers, credit ratings agencies, regulators and academics were invited to express their views on the draft EU regulation introducing an EU authorisation system for financial rating agencies at a workshop organised on Thursday 4 December 2008 by the European Parliament's Economic and Financial Affairs Committee (see EUROPE 9781), which looked at the measures on rating agency fees, ways of increasing competition in the industry and the rotation of analysts within rating agencies.
Credit rating agencies charge fees to the companies using their services. The European Commission's draft regulation does not change the fee system but it does introduce measures to limit conflicts of interest as far as possible. The regulation covers agencies' procedures and rules (no rating if analysts own shares in the company in question and no consultancy services to a rated company) and internal governance (strict separation between commercial work and rating, and at least three independent members of the board of managers). German EPP-EP MEP Kurt Joachim Lauk asked whether the roles should be reversed to make it the users of rating agencies that paid the fees. Richard Hunter of Fitch Ratings said there no systems existed without conflicts of interest, explaining that his rating agency did not rate all the companies that applied for rating. The payment-by-issuer model is the right system, argued Richard Braeburn for the European Association of Company Treasurers. He explained that the users of ratings would not form groups to issue joint rating requests. Hubert Reynier of the French financial markets agency said that the funding system for rating agencies was a more important key point for combatting conflicts of interest than simply increasing competition by increasing the number of agencies. The draft legislation under discussion does not take this issue sufficiently into account, he admitted when pressed by Pervenche Beres (PES, France), calling for measures to be taken at international level, by the IOSCO for example.
Raeburn distinguished between corporate ratings, which work well, and malfunctions in the rating of structured financial products, which had played a role in propagation of the financial crisis. He criticised the proposal foreseeing that investment and credit companies would be able to implement orders from their clients for rated financial instruments only if the rating had been issued by a rating agency registered under the new regulation because this would sent business from Europe to the United States and Asia. Calling for greater competition, Ralf Garrn, director general of the German rating agency Euler Hermes, said he would like rating agency methods to be validated, particularly the methods used by small rating agencies. Agencies could share information about investors taking large risks, he suggested, as these could encounter large problems in the short-term. Thomas McGowan of the Securities Exchange Commission explained the rules in force in the United States since 2006 on the registration, publication of information and management of conflicts of interest at rating agencies. (M.B. trans fl)