CESR technical advice on credit rating agencies

30 March 2005

The Committee of European Securities Regulators (CESR) published its advice for the European Commission on possible measures concerning credit rating agencies. CESR proposes that on the development of appropriate rules of conduct, the substance agreed by the International Organisation of Securities Commissions (IOSCO) Code published in December 2004 provides the right answer to the issues raised. CESR does not recommend the use of regulatory requirements as a measure to reduce or remove entry barriers to the market for credit rating. CESR cannot conclude that any regulatory requirement would either increase or decrease the entry barriers to the rating industry.

To enforce the IOSCO Code CESR proposes two possible ways of handling this issue. A clear majority of CESR members supports a ‘wait and see’ approach where no recognition system is set up at present, and the effects of the IOSCO Code are given time to work. Should self regulation fail to deliver, there might be a need for statutory regulation. A minority of CESR members advocates an EU voluntary recognition system, along with a subsequent reporting on the compliance with the IOSCO code.

The paper also analyses a potential set of rules of conduct that might apply to rating agencies and the provisions of the IOSCO code, in particular on potential conflicts of interests that might arise as well as the fair presentation and methodologies of rating agencies, staff requirements and the relationship between issuers and credit rating agencies.

A further key aspect of advice is the analysis on 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.

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