EU Wants to Regulate Credit Rating Agencies, Credit Rating Agencies in Europe, European Union to Regulate Credit Rating Agencies

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DPA | 03 Jun, 2010
The European Union's executive launched a bid Wednesday to stamp the bloc's authority on credit rating agencies, by taking supervision of such agencies out of national hands and entrusting it to a new EU-level body.

The move comes amid accusations that the three leading credit rating agencies - Fitch, Moody's and Standards and Poor's - have exacerbated the debt cris of EU countries by rushing to downgrade their sovereign debt ratings.

But President Jose Manuel Barroso denied the European Commission's proposals amounted to a policy of shooting the messenger.

"No, in fact the problems with credit rating agencies were well known even before the debt crisis," he told a news conference in Brussels.

Economy commissioner Olli Rehn said the changes would "mean better supervision and increased transparency" for the sector.

The commission wants to transfer all supervisory powers from national authorities to an EU agency due to become operational in January, the European Securities and Markets Authority (ESMA).

The body would be responsible for the registration of credit rating agencies, day-to-day supervision of their activity, and would have the power to impose sanctions, going as far as issuing temporary bans on credit ratings or withdrawing licences from agencies guilty of wrongdoing.

In extreme cases, ESMA could also ask the commission to impose fines on them, going up to 20 percent of their annual income, an EU official said.

Sanctions and fines would fall on national subsidiaries of credit rating agencies, meaning that Moody's, Fitch or Standards and Poor's could be suspended in one EU member state but not across the whole bloc, the same source said.

EU officials hope the new rules could be approved by national governments and the European Parliament over the next months, so that they could enter into force during 2011.

The EU had already acted to regulate credit rating agencies in the wake of the 2008 financial crisis, when they were accused of failing to spot the weaknesses of banks which then collapsed.

Rules forcing agencies to register before EU national authorities were agreed last year and are due to come into force in December.

Barroso said "lack of competition" in the credit rating agency market remained a "particular concern" and confirmed the creation of a European rival to US-based Fitch, Moody's and Standard and Poor's was "a possibility."

He suggested that agencies currently operating in some EU countries issuing credit export guarantees "could play a role".

The commission also launched a consultation on corporate governance, suggesting the excessive risk-taking that led to the last financial crisis could be curbed by increasing board scrutiny over CEO's and encouraging shareholders to take a more long term view.

Proposals were tabled ahead of the G20 summit in Toronto, Canada, in late June, where a global approach to reform of the financial sector is set to feature high on the agenda.

Barroso said he was "personally in favour" of a financial transaction tax, which would be additional to the banking levy that internal market commissioner Michel Barnier proposed last week.

But he also admitted that "it would be extremely difficult to adopt it at global level" given the "extremely strong resistances" coming from other G20 powers Barroso did not name.

Barnier said the EU executive legislative programme would continue in September with proposals to regulate the derivatives market, including short-selling and Credit Default Swaps (CDS).

Germany has already moved ahead, announcing Wednesday a draft law to extend the controversial ban it enacted in May on naked short selling - the practice by investors of selling shares they do not own or have not arranged to borrow in order to profit from an expected fall in the price of an asset.

Barnier said Berlin's unilateral actions were "an encouragement" for the commission to propose an EU-wide approach.