Risk & Compliance

EU wants tighter control of rating agencies

A European Parliament committee supports compulsory registration and oversight of credit rating agencies.
European Voice StaffMarch 26, 2009

Members of the European Parliament’s economic and monetary affairs committee earlier this week voted in favour of a proposal that would require credit rating agencies to register and be subject to scrutiny by regulators to see they were complying with governance rules.

The proposal from Charlie McCreevy, the European commissioner for the internal market, was backed by 21 in favour, seven voting against and four abstentions.

MEPs voted for an even tougher approach than the European Commission had originally proposed, insisting that agencies should register with the Committee of European Securities Regulators (CESR), a body of national financial market regulators. The Commission had proposed that registration should be with national regulators.

MEPs supported the Commission’s proposal that lead analysts at rating agencies should be rotated every five years to guard against conflicts of interest.

Agencies outside the EU should be subject to equivalent registration and oversight, MEPs agreed. Moody’s and Standard and Poor’s are American-owned but the third largest agency, Fitch, is French-owned.

Credit rating agencies have been blamed for contributing to the financial market crisis because they underestimated the risk of complex, asset-backed securities and earned fees from issuers of complex instruments, leading to an incentive to underplay the risk of default.

The proposal will be put to a vote of the full Parliament in April.