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Among the changes, Brussels is also seeking to force issuers of financial products in Europe to change regularly the ratings agency they are using, in a bid to open up competition and avoid conflicts of interest. “The credit ratings agency engaged should not be in place for more than three years or for more than a year if it rates more than 10 consecutive rated debt instruments of the issuer”, according to the draft. Before being able to work for the same company or bank again, agencies would be compelled to sit out a four-year “cooling-off” period, a rule that would rob the big three credit rating agencies of some of their more stable revenues and business relationships.
On top of restructuring the business practices of the industry, the reforms propose giving wide-ranging powers to ESMA, the European markets regulator, to approve ratings methods and ban sovereign ratings in “exceptional situations”.
ESMA would be able to suspend ratings of countries in bailout programmes so that adverse ratings are not issued at “inappropriate moments”.
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