Commission seeks greater control over credit-rating firms

Clampdown planned on agencies.

Credit-rating agencies will  come under the regulatory microscope next week (25 October), with a European Commission  announcement of plans for a clampdown.

Michel Barnier, the European commissioner for the internal market, is due to present his latest legislative proposals, the third time the EU will have regulated credit-rating agencies.

The big three agencies – Moody’s, Fitch, and Standard and Poor’s – have been criticised for their role in the financial crisis: for not spotting potential problems at the start of the crisis, notably in the US mortgage market; and for downgrading sovereign-debt ratings at times that some Commission officials and national governments believe exacerbated current difficulties.

Competition

The proposals are expected to include measures to reduce over-reliance on ratings and to increase competition in the sector. Officials want to reach a stage where no decisions are taken on the basis of just one rating.

They will recommend ensuring that agencies are rotated in order to minimise “cosiness” between agencies and the institutions that they rate. The Commission hopes that this will lead to a growth in smaller agencies able to take on the big three.

The proposals will also call for restrictions on ownership and control of agencies. An EU official said that Barnier was no longer considering proposing a European-based credit agency, after deciding that nationality was not a major issue and because of the length of time it would take to set up an agency.

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