21 January 2009

EP Draft report on Credit Rating agencies

To avoid inefficiencies among regulars in Europe, Mr Gauzes intends to intensively increase the role of CESR by centralizing the registration and regulation of CRAs with the Committee. This should also prevent for ‘regulatory dumping practices’ and will make regulatory shopping in EU member states more difficult, he said presenting the report in ECON.

Also, Mr Gauzes does not want to limit the regulation on the rating alone, but on all business sectors CRAs offer, he said. He proposes that CESR should monitor the past performances of credit rating agencies and should publish its finding.

The Commission is also called to assess the regulator reliance on credit ratings as well as the appropriateness of the remuneration of the credit rating agency by the rated entity.

On the difficult issue of products located in third countries, Mr Gauzes proposes a ‘guarantee concept’ for third countries ratings from outside the EU. “Ratings of entities or products located in a third country issued by credit rating agencies that are established in a third country may, however, be used within the Community on condition that those ratings are confirmed by a credit rating agency established in the Community and registered in accordance with this regulation”, one of his amendments to the Commission text states.

However, he does not advocate an official European rating agency, but member states shall ensure that issuers use credit rating agencies that have their head office in the Community for some of their ratings.

Draft report attached below

For the full discussion in ECON Committee see here