EU agrees new controls for credit rating agencies

Tue Nov 27, 2012 3:47pm EST
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By John O'Donnell

BRUSSELS (Reuters) - European Union countries and the bloc's parliament agreed on Tuesday to introduce limited controls on credit ratings agencies after their judgment was called into question in the debt crisis.

Michel Barnier, the European commissioner in charge of regulation who helped broker a deal on the new law, said it aimed to reduce the over-reliance on ratings and establish a civil liability regime.

The new rules should make it easier to sue the agencies if they are judged to have made errors when, for example, ranking the creditworthiness of debt.

The agencies came under fire for giving top-notch AAA credit scores to debt that later unraveled and they provoked more criticism by downgrading countries at sensitive moments of the crisis.

"Credit rating agencies will have to be more transparent when rating sovereign states, respect timing rules on sovereign ratings and justify the timing of publication of unsolicited ratings of sovereign debt," Barnier said in a statement.

"They will have to follow stricter rules which will make them more accountable for mistakes in case of negligence or intent."

Others said the limited reform would do little to alter the agencies' behavior.

"This reform is no big breakthrough in changing the rating agency market," said Sven Giegold, a German member of parliament who was involved in the negotiations. "It's a step towards better supervision but there are no big structural changes."   Continued...

Michel Barnier, the European Commissioner in charge of regulation, speaks at a news conference in Brussels October 2, 2012. REUTERS/Eric Vidal