Brussels aims to put rating agencies under single watchdog
Published 03/06/2010 | 05:00
BRUSSELS is seeking to bring credit rating agencies under the control of a single EU watchdog from next year and will look into setting up a European body to rival the American "big three" -- Standard & Poor's, Moody's and Fitch Ratings.
The move was yesterday announced by European Commission chief José Manuel Barroso in the run-up to two key G20 meetings this month.
It will have to be approved by the European Parliament and finance ministers before it can become law. Rating agencies have aroused the attention of EU leaders in Germany and France, angry at the effect that recent downgrades of Greek, Portuguese and Spanish debt have had on the single currency. Luxembourg's president Jean-Claude Juncker is keen to see a European agency formed under the aegis of the European Central Bank, but EU officials are leaving open the question of whether any new body would be wholly public or privately owned.
Reining in the power of agencies has been on the cards since 2008, and a law requiring issuers to register with national regulators was passed by European parliamentarians and EU ministers last year. The Government has since given the Financial Regulator responsibility for dealing with agencies on Irish territory.
But under changes announced yesterday, all agencies will now have to apply to a Paris-based securities market watchdog for clearance to operate in any one of the 27 member states. The watchdog will not be up and running until at least January next year.
And any bank requesting a rating on a securitised product from one agency will have to share its information with the other two in a bid to circumvent conflicts of interest.
"Is it normal to have only three relevant actors in such a sensitive issue where there is a great probability of conflicts of interest?" Mr Barroso said. "Is it normal that all of them come from same country? Is it normal such important entities are escaping fundamental regulation or supervision when they act in such important areas?" Ireland had its rating knocked down a notch by all three last year after massive capital injections ploughed into Anglo Irish Bank, Bank of Ireland and AIB.
In a desperate show of unity, Mr Barroso and his economic and financial market supremos set out a litany of proposals that they say are essential to stem Europe's "creeping decline".\[Prestige\]"Everyone must raise their game," Mr Barroso said. "We are asking important efforts from public authorities and from our citizens to boost the economy. Financial markets must participate in that effort too."
On the continent's rising debt and deficit levels, economics chief Olli Rehn said, "There is simply no chance of success unless we coordinate our economic policies... without these reforms Europe risks stagnating into a creeping decline."
This summer Brussels will launch a bid to move the private trade in derivatives on to centralised exchanges, followed later in the year by attemps to curb speculation in the sovereign debt market.
The EU is also looking to overhaul incentives for company executives and increase the amount of capital banks are required to hold in boom times.
Moves are already underway to regulate hedge funds and create watchdogs to police the banking, insurance and securities markets.
Most recently, the EU's internal market chief Michel Barnier suggested banks should be made to pay for any future crises via a tax on their assets, liabilities or profits, with the proceeds going into national resolution funds rather than state coffers.
Mr Barroso has given his personal backing to the idea of a global financial transaction or profit tax, and is intent on pushing it at this month's G20 leaders' meeting in Toronto, despite several countries being, by his own admission, "dead set èg?ÿÿÿoÑcau=aaøagainst" it.