Brussels, 19/01/2009 (Agence Europe) - Jean-Paul Gauzès (EPP-ED, France) is to present to the committee on economic and monetary affairs, on Tuesday 20 January, his draft report on the proposal for a regulation that introduces a Community system for the registration of financing rating agencies (see EUROPE 9781). Saying that provisions of the proposal concerning governance of agencies and the settlement of potential conflicts of interest are along the right lines, he nonetheless suggests that a central role be played by the Committee of European Securities Regulators (CESR) in the decision-making process for registration of rating agencies. Registration will be compulsory for agencies that wish to carry out their activity in the EU. In Council, which has a weekly schedule of work, national experts are looking at the possibility of creating regulators' colleges that would be responsible for the rating agency registration process, according to a progress report by the French EU Presidency dating back to mid-December. The aim of the EP and Council is to reach a political agreement in April from first reading.
The rating agencies, which find themselves in a situation of “oligopoly”, “have obviously under-estimated the credit risk inherent in structured credit products”, Mr Gauzès said, taking the view that several factors may explain the inability of these agencies to anticipate the international financial crisis. These are: inadequate models, a lax attitude, conflict of interest, qualification of analysts, the method of governance, and the lack of any real supervision of the quality of rating. It is therefore appropriate and justified, he said, that rating agencies should be subject to binding regulations and not just to a code of conduct.
Registration. Describing the European Commission's initial proposal as “generally satisfactory”, the rapporteur nonetheless takes the view that the text sketched out is “insufficient on one essential point: the choice of method for registration and supervision”. The Commission provides that the CESR should serve as a one-stop shop for receiving registration applications, but it attributes to the regulator of the member state in which the agency is to be established the ultimate authority for issuing an opinion on the request for approval. In his draft report, Mr Gauzès says the CESR has a “pivotal role in implementing the regulation”. The European committee will receive every registration request, will inform the relevant national authorities within ten days of receiving the requests and will forward the complete requests to them, and will prepare within 40 days a proposal (or refusal) for registration that it will pass on to the national authorities. The latter should issue an opinion within a timeframe fixed by the CESR, after which the European committee will adopt its decision. If it accepts a request for registration, the CESR will notify its decision to the Commission and to the member states. The same is true in the event of refusal, but in that case, the CESR would have to give the reasons for its decision.
In Council, member states keep the role of one-stop shop that the Commission attributes to the CESR for receiving registration requests from rating agencies, and the committee now has no more than five days for forwarding a request to the regulator of the country where the agency is to be established. Member states amend the registration procedure by introducing, on a case by case basis, the creation of regulator colleges tasked with jointly examining the request and with doing everything they can in the 60 days after the request is made (possible extension of 30 days) in order to reach common agreement on approval (or refusal) of a request submitted for approval. “The Presidency text gives a strong role to the college of supervisors in the decision-making process for registration and supervision: the members of the college shall do everything within their power to reach an agreement on: (i) the application for registration; (ii) the possibility to withdraw the registration; (iii) the possibility to take supervisory measures. While in case of case of disagreement between the members of the college, the competent authority of the home member state may take the final decision regarding withdrawal of registration or supervisory measures”, the report from the French authorities explains, noting that delegations welcomed these proposals. What would happen if there were disagreement within the college of supervisors over a request for approval? After having asked the CESR for a consultative opinion, the regulator of the home state may reject the request.
Mr Gauzès said, moreover, that he was in favour of the principle whereby notes published and used in the EU should be imperatively developed by agencies established and regulated in the EU - a provision that the Council work has, for now, maintained in substance. Calling, however, for “realism”, the rapporteur notes that agencies established in the EU are not necessarily better placed for giving a rating on financial instruments developed in third countries. Pending harmonised rules worldwide, he suggests that the rating of products issued by an agency located in a third country should be used in the EU if: - these ratings are confirmed by an agency regulated in the EU and if the rating agency regulated in the EU guarantees in writing that the issuing agency from a third country is subject to regulation that is equivalent to the future European regulation. The Commission should adopt criteria allowing the equivalence of third country rules for the future regulation to be assessed. Finally, an amendment from the rapporteur calls on member states to ensure that companies seeking rating for their products should call on agencies whose head office is established in the EU - a way of stimulating the emergence of European players on a market dominated by large American agencies (Moody's, Standard & Poor's, Fitch). (M.B./transl.jl)