EU states in deal on supervising rating agencies

By Huw Jones

BRUSSELS (Reuters) - European Union states reached a deal on Wednesday on introducing mandatory registration and direct supervision of credit rating agencies, a spokesman for the Czech EU presidency said.

The sector has been criticized for failing to warn investors about risks in subprime-related products and the measure dovetails with a G20-led global approach to credit ratings agencies.

Ambassadors for the 27 EU states adopted by qualified majority the measure that was authored by the bloc's executive European Commission. It will affect companies such as Standard & Poor's, Moody's and Fitch.

"The EU ambassadors reached a preliminary deal on a measure to regulate credit rating agencies," the spokesman said.

The European Parliament has joint say on the measure and is due to vote in committee this month followed by a full session in April. Formal endorsement from EU finance ministers will also be needed.

"We believe this is a good standard for credit ratings agencies regulation which might be a source of inspiration for other jurisdictions," said Zdenek Hustak, chairman of the member states' working party on ratings agencies.

EU Internal Market Commissioner Charlie McCreevy, who wrote the measure, has said ratings agencies failed to "sniff the rot" at the heart of securitized products which they rated highly but quickly became untradeable as underlying home loans defaulted.

The United States criticized the draft measure for its "extraterritorial" effects as it would directly affect how ratings agencies went about their business outside the EU.

S&P and Moody's are U.S. companies and the compromise will ease any spillover effects.

In the United States there is no mandatory registration but regulators introduced rules in December to prohibit credit raters from rating their own work and ban employees who help determine a credit rating from negotiating any fees.

Agencies said they would work with legislators but underlined the need for a consistent, global approach.

"Fitch has long acknowledged that there will be an enhanced regulatory framework across the EU and has been working with policymakers and other market participants on areas such as global consistency in approach," Fitch said in a statement.

Moody's said it was hopeful that the legislative process will protect the independence of credit opinions, permit sufficient flexibility to adapt to market changes and promote regulatory consistency in the EU and across the globe.

S&P said it would examine the preliminary deal.

"We believe the European Commission's initiative, alongside the changes we have made to strengthen our ratings and improve our transparency, can play an important part in building confidence in ratings and markets," S&P said.