The European Parliament today voted in favour of a new regulation that will force credit rating agencies (CRAs) to comply with minimum standards of good practice and transparency.
The regulation was adopted with 569 votes in favour, 47 votes against and four abstentions. Members of the European Parliament noted that CRAs had failed to adapt to the risks posed by the credit markets and to detect the worsening of financial market conditions in due time.
Under the new rules, CRAs operating in the European Union will need to register with the Committee of European Securities Regulators, which will be responsible for their day-to-day supervision.
Registered CRAs will be required to ensure ratings are not affected by conflicts of interest and to remain vigilant on the quality of the rating methodology. They will not be allowed to rate financial instruments without sufficient prior information; they must disclose their models, methodologies and assumptions and produce an annual transparency report; and they will have to create an internal function to review the quality of their ratings.
"We expect the conduct of the CRAs to be significantly improved as a result of this regulation, with clear benefits to the integrity and stability of the financial markets," said EU internal market and services commissioner Charlie McCreevy.
The new laws will become legally binding by 2010 and will affect any CRA operating in the EU, including the European subsidiaries of Standard & Poor's and Moody's.See also: Banks suffer from stricter ratings criteria
More on Regulation
“You cannot have 80% of the market being just HFT,” says Ranjan
Dealers: we're 'sitting ducks' in Treasury market overrun by HFTs
Regulator will impose Basel III add-on if risks are not captured by LCR
G30 warns many banks are still lagging behind
Sign up for Risk.net email alerts
Sanjay Sharma talks about risk transparency and how his book helps achieve it.
A five-minute formula from Alexander Denev that takes you through a simple probabilistic graphical model and explains how and why these are used. Find out more about the ground-breaking book, Probabilistic...
Industry leader Vincent Kaminski discusses the challenges faced by energy markets and his new book, Managing Energy Price Risk, 4th Edition.
Momtchil Pojarliev talks about his book, The Role of Currency in Institutional Portolios, currency investing and the potential role of currencies in institutional portfolios.
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.