EU seeks to strengthen oversight of credit ratings agencies as part of ongoing financial market reforms.
Since the start of the economic crisis, the EU has introduced reforms to improve regulation of its financial markets and protect investors.
One change was to strengthen oversight of credit rating agencies, to reduce possible conflicts of interest, make them more accountable, and provide more information to investors. They are now supervised by the EU’s new European Securities and Markets Authority (ESMA), which can penalise them for breaking the rules.
Stricter rules needed
However, the eurozone’s ongoing debt crisis has exposed areas where further oversight is required. To fill those gaps, the Commission is proposing new measures to help stabilise financial markets and provide investors with better information about credit risk.
A rating is an assessment of creditworthiness – for example, the risk of investing in the debt issued by a particular company or country. It can have a huge impact. Downgrading a national rating can lead to higher interest rates, making it more expensive for that country to borrow money.
The new measures would:
The proposals now need approval from EU governments and the European Parliament. The law is expected to come into force at the end of 2012.