Group of the Progressive Alliance of Socialists & Democrats
Stricter rules could soon be applied to credit rating agencies to regulate their activities, according to a deal negotiated by S&D Euro MP Leonardo Domenici and adopted today by the economic and monetary affairs committee in the European Parliament.
"The debt crisis in the eurozone has demonstrated that credit rating agencies have gained too much influence on the financial markets to the point of being able to interfere in the political agenda. We need to restore a balance here", said S&D Euro MP Leonardo Domenici.
"Credit rating agencies should provide an information service to investors and consumers. We don't expect them to give political opinions", he added.
"As such, their work should respect rules on quality and transparency but should also be subject to a system of liability.
"Although discussions have been tough between the political groups, the compromise package goes far beyond the Commission's initial proposals.
"In particular we have strengthened the provisions on sovereign debt ratings and conflicts of interest", stressed Mr Domenici.
Every year, the credit rating agency will have to announce two or three dates for the publication of sovereign debt ratings.
The deal sets stricter limits on potential conflicts of interest between different credit rating agencies and between credit rating agencies and rated entities.
It also invites the EU to develop internal rating capacity within its own institutions to provide to investors an alternative public source of rating and assessment for sovereign debt.
"This would be a first step towards an independent system of ratings of sovereign debts in Europe. It is not acceptable that public entities are only rated by the private sector. The socialists and democrats will continue to support the creation of an independent public credit rating agency", explained Mr Domenici.
The deal includes provisions to reduce over-reliance on credit ratings in EU legislation and by financial institutions, particularly hedge funds and UCITS (undertakings for collective investment in transferable securities).
It also calls for better quality and more transparency for credit ratings.
The compromise also bans mergers and acquisitions of credit rating agencies by other credit rating agencies that control more than 20% of the EU market.
"We need to ensure more competition in the credit ratings market for more plurality", said Leonardo Domenici.
Today, three main agencies, Fitch, Standard & Poor and Moody's, influence 90% of the markets through their ratings.
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‘Credit rating agencies should provide a service, not political opinions.’ ‘The debt crisis in the eurozone has demonstrated that credit rating agencies have gained too much influence on the financial markets to the point of being able to interfere in the political agenda. We need to restore a balance here’, said S&D Euro MP Leonardo Domenici.
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