The European Commission has decided not to press ahead with reforms aimed at
credit rating agencies after finding concerns expressed in the European
Instead, it has decided to follow last year’s recommendation of the Committee
of European Securities Regulators (CESR) and leave the sector untouched but ‘on
Brussels said it was confident that the existing financial services
directives applicable to credit rating agencies (CRAs), combined with
self-regulation on the basis of the newly adopted code of the International
Organisation of Securities Commissions (IOSCO) ‘will provide an answer to all
the major issues of concern raised by the European Parliament’.
A resolution adopted by a huge majority by the European Parliament in early
2004 expressed concern about the sector and called on the Commission to produce
an assessment of the need for legislation.
Brussels then identified four core issues to be addressed: potential
conflicts of interests within rating agencies; transparency of rating agencies’
methodologies; legal treatment of rating agencies’ access to inside information;
and concerns about possible lack of competition in the market for provision of
The Commission then called on the CESR ‘for technical advice on possible
measures’ and this was delivered last March.
The Internal Market and Services Commissioner Charlie McCreevy said the
Commission would now ask CESR to monitor the CRAs’ compliance with the IOSCO
code and would itself gauge the opinions of market participants.
The rating industry would be monitored and ‘we may need to modify our
approach in the light of non-compliance or of changing circumstances,’ he said.
The IOSCO Code sets out how credit rating agencies should protect the quality
and integrity of the rating process and independence while dealing fairly with
issuers, investors and other market participants. It lays down how credit
ratings ‘can remain unaffected by business relationships between a credit rating
agency and an issuer.’
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