27 November 2012

Statement by Commissioner Michel Barnier following the agreement in trilogue of new European rules to regulate credit rating agencies

"I welcome the important agreement reached today on additional rules for credit rating agencies (CRAs) which aim to reduce the over-reliance on ratings, eradicate conflicts of interest, and establish a civil liability regime. Credit rating agencies will have to be more transparent when rating sovereign states, respect timing rules on sovereign ratings, and justify the timing of publication of unsolicited ratings of sovereign debt. They will have to follow stricter rules which will make them more accountable for mistakes in case of negligence or intent. This matters because ratings have a direct impact on the financial markets and the wider economy and thus on the prosperity of European citizens.

The EU has already adopted rules on CRAs. Today's rules build further on the work that we have already done.

Negotiations in the European Parliament and the Council have not always been easy but we have reached a good result. And I trust it will be confirmed by the European Parliament in its plenary session. I would like to thank all parties involved, and in particular the rapporteur Mr Domenici as well as the Danish and Cypriot Presidencies.

In line with our G20 commitments, the new rules aim to reduce reliance on external ratings, requiring financial institutions to strengthen their own credit risk assessment and not to rely solely on external credit ratings. Also European Supervisory Authorities shall avoid references to external credit ratings and will be required to review their rules and guidelines and where appropriate, remove credit ratings.

With this agreement, we are taking another important step towards financial stability. And we are substantially reducing the risk of a future financial crisis, with all its consequences for the real economy, growth, jobs and public budgets."

Background

To avoid market disruption, rating agencies will set up a calendar indicating when they will rate Member States and these ratings will only be published after the close of business and at least one hour before the opening of trading venues in the EU. Furthermore, investors and Member States will be informed of the underlying facts and assumptions on each rating which will facilitate a better understanding of credit ratings of Member States.

Furthermore, all available ratings will be published on a European Rating Platform which will improve comparability and visibility of all ratings for any financial instrument rated by rating agencies registered and authorised in the EU. This should also help investors to make their own credit risk assessment and contribute to more diversity in the rating industry.

The new rules will make rating agencies more accountable for their actions as ratings are not just simple opinions. Therefore, the new rules ensure that a rating agency can be held liable in cases of negligence or intent, thereby causing damage to an investor. The regulation will encourage competition, for instance by introducing rotation rules, though these will be limited to complex structured finance instruments. New rules will improve the independence of rating agencies and avoid conflicts of interest by introducing shareholder limitations for important shareholdings. Investors will be prohibited from simultaneously owning important stakes in more than one rating agency to ensure sufficient independency of credit rating agencies.

The Commission will also further consider the situation of the credit rating market and report on the appropriateness of a European credit rating agency and report back to the Council and European Parliament by 2016.

Press release

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