FACTBOX-EU exec urges tough rules on credit rating agencies
Nov 12 (Reuters) - The European Commission proposed on Wednesday a legally binding, centralised register of credit rating agencies in Europe as part of a tightening of regulation amid the financial crisis.
The proposed rules are designed to ensure high quality credit ratings untainted by the conflicts of interest inherent to the ratings business, the Commission said. [ID:nLC125639].
The following are some of the main points of the proposal:
* Legally binding registration and surveillance regime for credit rating agencies.
* Give independent, non-executive members of the administrative or supervisory board of the credit rating agency specific tasks to ensure efficient control.
* Reform their internal governance structure, introducing sound internal controls and reporting lines, clearly separating the rating function from business incentives.
* Disclose conflicts of interest in a complete, timely, clear, concise, specific and prominent manner and record all significant threats to the rating agency's independence or that of its employees involved in the credit rating process, together with the safeguards applied to mitigate those threats.
* They must limit their activity to credit rating and related operations, excluding consultancy or advisory services.
* The compensation arrangements of employees involved in the rating process must be determined primarily by the quality, accuracy, thoroughness and integrity of their work.
* Credit rating agencies must disclose the methodologies, models and key assumptions they use in the rating process. Methods must be kept up-to-date and subject to review. Credit rating agencies must also continually review ratings.
* The proposal obliges credit rating agencies to disclose ratings on a non-selective basis and in a timely manner, unless the ratings are distributed only by subscription.
* Require the use of a different rating category for structured finance instruments or the provision of additional information on their risk characteristics.
* Periodically disclose data on the historical default rates of rating categories and give competent authorities certain elements such as the list of the largest 20 clients by revenue.
* To restore public confidence in the rating business, credit rating agencies must publish an annual transparency report. (Editing by Toby Chopra)
