EU agrees new regime to police rating agencies

BRUSSELS, Dec 2 (BestGrowthStock) – The European Union has agreed to
give a new EU watchdog powers to probe and fine credit rating
agencies from January in the latest move to clamp down on the
sector.

The agreement was reached by representatives of EU states
and the European Parliament late on Wednesday and is expected to
be formally approved by both sides later this month.

It paves the way for a new regime to control credit rating
agencies, giving powers to a new European policing agency which
may be beefed up as Brussels prepares to further tighten
controls on raters next year.

Europe’s politicians, nervous that further downgrades could
knock unsteady markets, have been openly critical of the credit
raters.

In October, executives including Moody’s chief Michel
Madelain and S&P’s President Deven Sharma were summoned for a
grilling before finance ministers. [ID:nLDE6901SA]
The European Commission has told the agencies to watch their
step when judging a country’s financial health, saying it will
probe their work, and the Belgian Finance Minister even called
for fines if rating agencies make the wrong call.

Under the deal, Brussels’ lawmakers dropped plans for now to
force rating agencies to share information with rivals on a
protected website in the hope that this could spawn fresh
competition. EU states opposed the plans.

Under the new rules, ratings agencies will be required to
register with the European watchdog to be set up early next
year.

As well as getting the power to levy multi-million euro
fines, the European Securities and Markets Authority will also
have the muscle to launch raids on an agency’s premises and levy
a fine equivalent to 20 percent of an agency’s turnover.

The EU watchdog will not be able to question a downgrade,
but could object to the way it was arrived at, by challenging
whether or not analysts considered all relevant factors.

Although the new body, which is controlled by EU country
supervisors, may resist pressure from European capitals, the
ratings industry fears political interference as it prepares
applications for registration to work in Europe.

Michel Barnier, Europe’s top official in charge of financial
reform, is also considering the creation of an EU rating agency
to challenge the dominance of S&P (MHP.N: ), Moody’s Corp. (MCO.N: )
and Fitch Ratings (LBCP.PA: ).

S&P and Moody’s are based in the United States. Fitch,
though owned by Fimalac of France, is perceived by some to have
strong U.S. links, with its chief executive based in New York.

Just as Washington has done, Barnier wants to dismantle
rules that use credit ratings to determine how much regulatory
capital a bank needs to set aside to cover lending risks.

Independent experts have derided his attempts to control the
sector or “break the thermometer” as misguided.

EU agrees new regime to police rating agencies