16 September 2011

Parliamentary question on international rating agencies

Question for written answer to the Commission

Jim Higgins (PPE)

Is the Commission satisfied that the international rating agencies which make judgements and forecasts in relation to the economic status and performance of eurozone states are competent to do so? Is the Commission planning to regulate these entities and their activities? Does the Commission have any concerns that these private companies lack transparency, and that they may have vested interests? Is the Commission concerned that one or two rating agencies hold the power to send a country into recession by their claims, whether accurate or more worryingly when their statements are false based on vested interests or inaccurate information?

E-006923/2011

Answer given by Mr Barnier on behalf of the Commission

Credit rating agencies have been regulated in the EU since the adoption of the 2009 Credit Rating Agencies Regulation, which incorporates major lessons learnt from the crisis. Regarding independence and transparency of credit rating agencies (hereafter – CRAs), the CRA Regulation contains detailed provisions to ensure that ratings are not affected by any existing or potential conflict of interest and that credit rating activities are carried out in a transparent way. According to these rules (in particular Article 6 in connection with Annex I Section B 1-6), a CRA must take all steps necessary to ensure that ratings are not affected by any existing or potential conflict of interest. Furthermore, a CRA shall not issue ratings in specifically defined situations where conflicts of interest cannot be excluded. Article 11 in connection with Annex I Section E of the CRA Regulation requires a CRA to disclose relevant information including the methodologies and descriptions of models it uses.

In order to ensure the quality of ratings, the CRA Regulation requires CRAs to use methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience. Moreover, the CRA Regulation requires CRAs to ensure that credit  ratings are based on a thorough analysis of all relevant  information.

Since 1 July 2011, the European Securities and Markets Authority (ESMA) is in charge of supervising all registered CRAs and is empowered to conduct investigations and to impose sanctions agains CRAs that infringe the CRA Regulation.

The Commission is currently assessing whether the rules on conflicts of interests (including those linked to ownership structure and remuneration models of CRAs) need to be further enhanced and specified. In addition, the Commission is analysing different policy measures to enhance further the transparency and the process of issuing ratings. The Commission plans to come forward with a legislative proposal by the end of 2011.

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