THE EUROPEAN PARLIAMENT has introduced new rules on when and how credit rating agencies can rate state debts and private firms.
Parliament voted in favour of the legislation today in a bid to improve the stability of financial markets.
The rules mean agencies will only be able to issue unsolicited sovereign debt ratings on set dates, and it will enable private investors to sue the agency that issued the rating for damages if it breaches the rules set out in the legislation.
MEPs also ensured that the ratings are clearer by requiring agencies to explain the key factors underlying them. Ratings must not seek to influence state policies, and agencies themselves must not advocate any policy changes, adds the text. The rules have already been provisionally agreed with the Council.
Over-reliance on ratings
To reduce over-reliance on ratings, MEPs urge credit institutions and investment firms to develop their own rating capacities, to enable them to prepare their own risk assessments. The European Commission should also consider developing a European creditworthiness assessmenst.
A credit rating agency will have to refrain from issuing ratings, or disclose that its ratings may be affected, if a shareholder or member holding 10 % of the voting rights in that agency has invested in the rated entity.
The new rules will also bar anyone from simultaneously holding stakes of more than 5% in more than one credit rating agency, unless the agencies concerned belong to the same group.
The Domenici report on the regulation was adopted by 579 votes to 58, with 60 abstentions and that on the directive by 599 votes to 27, with 68 abstentions.
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