Proposal for a Regulation of the EP and of the Council on amending Regulation (EC) No 1060/2009 on CRAs - Presidency Compromise

27 April 2012

This text is a Presidency compromise text of the Commission's credit rating agencies proposal.

It is important that the implementation of a rotation mechanism is designed in a way so the benefits of such a mechanism more than outweigh the negative consequences that a rotation mechanism could also have. For example, frequent rotation could result in increased costs for issuers and credit rating agencies because the cost associated with rating a new entity or instrument is typically higher than the cost of monitoring an already issued rating. Equally important, a rotation mechanism must be implemented with sufficient safeguards to allow the market gradually to adapt before possibly enhancing the mechanism in the future. This could be achieved by limiting the scope of the rotation mechanism to structured finance instruments, while allowing already issued ratings to continue to be monitored on a solicited basis even after rotation becomes mandatory. Thus, as a general rule, rotation would only affect new structured finance instruments with underlying assets from the same originator.

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