European Commission to reveal plans for regulation of the rating agencies
The prospect of a regulated credit rating agency sector in Europe will move one step closer tomorrow (July 8) when a proposal is due to be submitted by the Commission to Ecofin outlining plans for the agencies’ regulation and oversight.
Calls for these firms, long the whipping boy in many politicians’ eyes for the capital market’s problems over the last year, to be regulated have been growing in Europe for some time. Both Germany’s Angela Merkel and France’s Nicolas Sarkozy have supported the idea, and in recent weeks EU financial services commissioner, Charlie McCreevy has signaled the Commission’s intention to end self-regulation by the rating agencies. He is known to be solidly behind these proposals. Some EU finance ministers want national regulation, believing that it would be easier to manage, but the rating agencies themselves naturally want a consistent EU wide approach if regulation is to be forced upon them.
The move marks a departure from the self-regulation model currently in operation. Under this International Organization of Securities Commissions has a Credit Rating Agency code of conduct which the agencies comply with on a voluntary basis (IOSCO’s CRA task force has 19 strong list of recommendations for improving credit ratings).
But regulation is not without its problems. Firstly: who will be the regulator? And who will be responsible for oversight? The plan is understood to involve the suggestion of an intermediary body between the regulator and the agencies – akin to an IASB for the rating industry.