The European Parliament has approved tougher regulation on credit rating agencies by making country ratings more transparent and introducing limited liability.
Under the new rules, the agencies will have to set up a fixed publication calendar, and will then be limited to three assessments per year for unsolicited sovereign ratings. They will also have to disclose more information about their decisions. The rules also aim at ensuring that an agency can be held liable in case it infringes regulation intentionally or with gross negligence, thereby causing damage to an investor.
The rules are expected to take effect after a rubber-stamp approval by member states in the coming months. European Commissioner Michael Barnier already mentioned that the “new rules will contribute to increased competition in the rating industry dominated by a few market players”, reducing “the over-reliance on ratings by financial market participants, eradicate conflicts of interest and establish a civil liability regime”.
As the ratings have a direct impact on the financial markets, the wider economy and therefore on the prosperity of European citizens, Barnier thinks this is “another important step in our demanding agenda to strengthen financial regulation and in our response to the financial crisis”.
