Fining power
The Commission's initial proposal argued that the Commission itself was best placed to impose fines, upon a recommendation from ESMA. However, the final text agreed in negotiations and approved by Parliament gives this role to ESMA. A range of fines, reflecting the type of infringement, the size of the CRA, and possible aggravating or attenuating conditions, is laid down in the rules. ESMA will be able to impose fines of up to 20 per cent of a CRA's turnover for the previous year.
Stronger investigative powers
The new rules will allow ESMA to conduct "dawn raids" (unannounced checks), at the premises of a CRA. At Parliament's insistence, ESMA is also specifically responsible for ensuring that CRAs comply with their "back testing" obligation, a task that involves comparing performance predictions for a rated financial instrument with its actual performance. Finally, ESMA is given a mandate to carry out checks on all CRAs by 2014.
Competition, transparency and dependence issues
Parliament had initially pushed to facilitate access to information for CRAs wishing to produce unsolicited ratings on the grounds that this would increase competition, allow for more transparency and give investors more information on which to base their decisions. This idea was dropped because Member States were reluctant to accept it, but the text still asks the Commission to table legislative proposals to this end. This is set to become a key issue on which Parliament is expected to focus on when further changes to this regulation are hammered out in the latter part of 2011.
Next steps
The Council will now need to officially approve the text adopted today. Parliament's Economic Affairs Committee has begun working on the next financial supervision reform, and is to set out its priorities in a paper likely to be approved in February.
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