Ratings agencies face tougher oversight
LUXEMBOURG (Reuters) - Credit rating agencies, under fire for being slow to warn investors about financial turmoil, face much tougher scrutiny and even new laws, a top market regulator said on Wednesday.
Critics say the agencies failed to warn investors in time about complex mortgage backed products as defaults in the U.S. home loans market snowballed into a global credit squeeze.
Eddy Wymeersch, chairman of the Committee of European Securities Regulators (CESR) said at the very least they will now have to introduce tougher codes of conduct.
"It is still not clear in the European Commission whether there will be laws on credit rating agencies. EU Internal Market Commissioner Charlie McCreevy has to decide. That is his decision," Wymeersch said.
"We are fed up with the rating agencies. Their performance was somewhat puzzling," Wymeersch told a Reuters Funds Summit in Luxembourg.
The sector is dominated by three players: Standard & Poor's, Fitch and Moody's and they have put forward proposals to improve how they handle ratings of structured products.
Wymeersch said some of the ideas being looked at included "naming and shaming" and reprimanding ratings agencies for any unacceptable behavior.
"One of the points on the agenda is do we need hard laws or soft ones?" Wymeersch said, adding there were lots of ideas being floated.
At the very least, rating agencies will face tougher voluntary codes of conduct that border on hard law, he added.
CESR groups national securities watchdogs from the 27 EU states. Wymeersch is also head of Belgium's banking and insurance supervisor, CBFA.
MARKET TURMOIL
The turmoil began last August with defaults in the U.S. home loans market which sparked a global credit squeeze.
Market uncertainty has deepened with the rescue of U.S. investment bank Bear Stearns BSC.N. On Wednesday shares in UK mortgage lender HBOS HBOS.L lost nearly a fifth of their value amid rumors -- denied by the bank -- that it was in trouble.
"It's a technical crisis that has led to a crisis in confidence and they are feeding on each other," Wymeersch said, speaking broadly about the market turmoil.
"We have to look at a rebalancing of risk prices. There will be a certain point where investors are willing to take up again and invest but for that prices have to come down," he added.
Turning to the funds sector, Wymeersch said there were was no major fallout from the credit crisis.
"Very few funds are in problems. Not more than a handful have been closed. Eight or nine have been closed in Luxembourg," Wymeersch said.
"Officially speaking the funds sector has not suffered tremendously. It has suffered, everyone has, but it has not suffered to the point where it has broken down," Wymeersch said.
(For summit blog: summitnotebook.reuters.com/)
(For more information see a TAKE A LOOK-Reuters Funds Summit ID:nLA781849
(Reporting by Huw Jones; editing by Keith Weir)
