The European Council has approved an amendment to the Directive regulating credit rating agencies, with the view to reducing occupational pension funds' "over-reliance" on external ratings.
One of the measures adopted by the Council aims to amend current Directives on the activities and supervision of institutions for occupational retirement provision (IORPs) on UCITS and alternative investment fund managers. According to the Council, such measures will reduce IORPs' reliance on external credit ratings when assessing the creditworthiness of their assets.
Mandatory rotation will not apply to small rating agencies, or to issuers employing at least four agencies each rating more than 10 per cent of the total number of outstanding rated structured finance instruments.
The amended rules also seek to mitigate the risk of conflicts of interest by requiring rating agencies to disclose publicly if a shareholder with 5 per cent or more of the capital or voting rights holds 5 per cent or more of a rated entity.
The new regulation prohibits ownership of 5 per cent or more of the capital or the voting rights in more than one agency, unless the agencies concerned belong to the same group.
At the time the European Parliament approved the new rules, Michel Barnier, commissioner for internal market and services at the European Commission, argued that the measures would increase competition in an industry dominated by a few market players.
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