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In October 2007 EU Finance Ministers agreed to a set of conclusions on the crisis (the ‘Ecofin Roadmap’) which included a proposal to assess the role played by credit rating agencies and to address any relevant deficiencies. The European Councils of 20 June and 16 October 2008 called for a legislative proposal to strengthen the rules on credit rating agencies and their supervision at EU level, considering it a priority to restore confidence and proper functioning of the financial sector. And in April 2009 the European Parliament and the Council approved the Commission proposed Regulation on credit rating agencies (CRAs).
The new regulation will include the following:
· Credit rating agencies may not provide advisory services.
· They will not be allowed to rate financial instruments if they do not have sufficient quality information to base their ratings on.
· They must disclose the models, methodologies and key assumptions on which they base their ratings.
· They must differentiate the ratings of more complex products by adding a specific symbol.
· They will be obliged to publish an annual transparency report.
· They will have to create an internal function to review the quality of their ratings.
· They should have at least two independent directors on their boards whose remuneration cannot depend on the business performance of the rating agency. They will be appointed for a single term of office which can be no longer than five years. They can only be dismissed in case of professional misconduct. At least one of them should be an expert in securitisation and structured finance.