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Following a regulation proposal published by the European Commission in November last year to amend the CRA Directive, the Permanent Representatives Committee confirmed the implementation of a number of proposals that would modify the current text.
Under the current CRA Directive, a mandatory rotation rule would be introduced to force issuers of financial instruments who pay CRAs for their ratings to switch to a different agency every four years. The new proposals agreed earlier this week aim to limit mandatory rotation to ratings of structured finance products with underlying re-securitised assets.
The committee, in its proposals, stressed that outgoing CRAs would not be allowed to rate re-securitised products of the same issuer for a period equal to the duration of the expired contract, though not exceeding four years. "Due to the complexity of structured finance instruments and their role in contributing to the financial crisis", the committee added, "the draft regulation would also require issuers to engage at least two different CRA for the rating of structured finance instruments".
The committee also agreed that mandatory rotation would not apply to small CRAs or to issuers employing at least four CRAs rating more than 10 per cent of the total number of outstanding rated structured finance instruments each.
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