EU wants tight grip on credit rating agencies
BRUSSELS (Reuters) - The European Commission proposed a legally binding central register and surveillance system in Europe for credit rating agencies on Wednesday in the wake of a financial crisis whose origins they failed to spot.
EU Internal Market Commissioner Charlie McCreevy said agencies such as Moody's, Standard & Poor's and Fitch had led a "charmed existence" until now and predicted the new rules would be in place within the next 12 months.
Credit rating agencies have received widespread criticism for giving investment-grade ratings to complex products that saw their value implode as U.S. house prices dropped, causing banks to lose billions of dollars and contributing to the current global financial crisis.
Days before EU officials head for Washington for a global summit on reforms of the world financial order, McCreevy called for the Commission proposals to form the basis of similar moves to regulate their activities outside Europe as well.
"I repeatedly said that it will be unjust to think that the credit rating agencies are the single cause (of the crisis)," McCreevy told a news conference unveiling the measures.
"But on the other hand, they are one of the many actors ... I think CRAs have led a charmed existence," he said of proposals which the European Parliament and current EU president France have pledged to treat as a priority.
A Standard & Poor's spokesman said the agency shared the goal of bringing transparency and confidence to markets and was studying the Commission proposals.
Other proposals in the package include a requirement on CRAs to disclose publicly the methodologies and key assumptions for their ratings, a news release showed.
Other rules include the following:
-- Credit rating agencies may not provide advisory services
-- They will not be allowed to rate financial instruments if they lack sufficient quality information
-- They will be obliged to publish an annual transparency report
-- They will have to create an internal function to review the quality of their ratings
-- They should have at least three independent directors on their boards whose remuneration cannot depend on the business performance of the rating agency
-- The proposals also require the use of a different rating category for the complex so-called "structured" securities which some say exacerbated the impact of the U.S. subprime crisis.
S&P spokesman Martin Winn said many of the requirements being proposed were already standard practice in its ratings services, such as prohibition of consulting or advising, and delinking analyst pay from fees paid by issuers they rate.
(Reporting by Mark John; editing by Dale Hudson and Andy Bruce)
