Fox: Wasted opportunity over credit-ratings agency reforms
Posted, June 19, 2012 @ 17:00
New rules on credit-ratings agencies, agreed by MEPs today, are a wasted opportunity to increase competition and make users less reliant on individual CRAs, British negotiator Ashley Fox said today.
Mr Fox, Conservative MEP for the South West of England & Gibraltar and shadow rapporteur for the European Conservatives and Reformists group on the planned regulations, said the compromises eventually approved by a majority of the Parliament's Economic and Monetary Affairs Committee were a classic missed opportunity.
He said: "The Commission and some MEPs have sought to overstretch the EU's reach into areas where it is not needed - and at the same failed to deliver the obvious and limited reforms which could have made a real difference."
The bright spot in the negotiations is that Mr Fox's firm stance averted an attempt to ban CRAs such as Moody's, Fitch and Standard and Poor, from delivering unsolicited ratings on national sovereign credit-worthiness such as recent downgrades of Spain, Italy and France.
Despite saying sovereign ratings should continue, however, the agreed compromise will force them into a strict reporting calendar, which Mr Fox fears will add needlessly to volatility as markets will unavoidably become "twitchy" around the report date.
Under the latest version of the regulations agreed, some customers will be obliged to rotate the agencies they use, but rotation will be restricted to structured finance products only
The EU will also create its own credit-worthiness authority using existing institutions, a move Mr Fox says will lack independence and therefore credibility.
Organisations will be able to sue agencies if they claim to have lost out from a faulty credit rating - and the onus will be entirely on the agencies to provide absolute proof of their accuracy to avoid a potentially huge payout. Mr Fox says this has the potential to add greatly to costs, distort the market and force agencies into over-caution instead of honest assessment.
He said: "I am pleased we have seen off what was effectively an attempt to ban CRAs from publicly pronouncing on the safety of sovereign debt. I said before that you don't get better weather by turning off the forecast.
"However, in almost every other area this proposed regulation will be messy, misdirected and meddlesome. Our focus in negotiation has been on reducing overreliance and increasing competition - but the majority of the compromises do exactly the opposite."