CESR published a consultation paper which discusses the issue of how to deal with credit rating agencies in a regulatory context within Europe, and whether there is a need for the introduction of some sort of recognition and/or regulation of rating agencies as these are generally not regulated in Europe today.
The paper analyses a potential set of rules of conduct that might apply to rating agencies and considers the various potential conflicts of interests.
The paper discusses the various potential conflicts of interest, as ratings agencies are often remunerated by the issuers they rate and sometimes provide ancillary services.
CESR discusses to require ratings agencies to disclose and explain the key elements underlying the rating and to explain the assumptions the rating is based upon.
The paper also asks how credit rating agencies and issuers might effectively work within the requirements of the Market Abuse Directive, in relation to the handling of confidential and market sensitive information.
CESR’s work will be carried out in collaboration with CEBS and in contact with the United States Securities and Exchange Commission (SEC). It will also have to recognize the Basle II agreements and the discussions held in many public fora, including IOSCO.
CESR acknowledges that any initiative on rating agencies must follow a global perspective. Given the global nature of the markets in which the CRAs and the companies they rate operate, there is a need to ensure a common worldwide approach on this subject and, therefore, support a close co-ordination between the different regulators.
Responses are invited by 1 February 2005. A hearing will take place on 14 January 2005. CESR must provide its advice to the European Commission by 1st of April 2005, which will then assess the need, or not, for introducing European legislation or other solutions in this field.
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© CESR - Committee of European Securities Regulators
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