The Association for Financial Markets in Europe (AFME) and the British Bankers Association (BBA) welcome the opportunity to comment on the Public Consultation on Credit Rating Agencies published by the European Commission on 5 November 2010 (the Consultation Paper), and are keen to be part of any future ongoing dialogue in relation to the issues raised by the Consultation Paper and the reform of the provision and use of credit ratings. 

There is a clear need to ensure that regulatory reform is undertaken with due care, following a cost-benefit analysis and at a considered pace. In our opinion, given the relative novelty of Regulation (EC) No 1060/2009 (the CRA Regulation), it is too early to consider making material changes to the CRA regulatory framework. The political pressure to reform CRAs further, in particular in the sovereign space, is not grounded in any evidence that ratings in Europe have failed to perform according to expectations. Further changes should only be made once there has been sufficient time to reflect upon and meaningfully assess the impact of recent changes upon CRAs, markets and market participant behaviour. That assessment should further take into account the numerous other regulatory changes that have occurred in the last two years and those which are due for implementation. For example, a horizontal assessment of the cumulative impact of CRD2, CRD3, MiFID2, Solvency 2 and the CRA current and future regulation on securitisation markets has not yet been undertaken. 

By continuing to impose regulation upon regulation, often in a piecemeal fashion that overlaps the same market sectors, without leaving time for assessment of the impact of changes, individually and collectively, the European authorities risk designing a regulatory framework that so over-shoots the mark that it fails to address the true causes of past problems. The side-effects will be to hinder the development and recovery of markets, and in turn limit the funding available to help European issuers (including sovereigns) recover from the difficulties of recent years. European banks face significant funding challenges in the next several years in order to meet the new liquidity and stable funding requirements of Basel 3 .

The reality of ratings performance in Europe often differs from its perception. For example, in structured finance, one sector which has suffered particular stress through the financial crisis, the evidence is that ratings in Europe have been relatively stable and rating migration has been limited. For sovereign ratings, the IMF has commented recently that “As to accuracy, sovereign ratings are found to have generally performed well”

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