22 November, 2011

The EU has promised new life to the rating agencies

The European Commission presented a plan to tighten control over the work of credit rating agencies. EU authorities officially called financial institutions "do not blindly rely" only on credit ratings in investment activities, demanded that the agency more in advance to inform issuers to change the ratings and not to publish reports of change of sovereign ratings at the time of exchange trading in Europe. The EU has not decided on more drastic action against agencies - such as a ban on the ratings of European countries, which the EU is already providing financial assistance. Nevertheless, the rating agencies have reacted rather harshly to plans for European authorities.

The European Commission published a draft directive, which aims to "improve the quality of the assignment of credit ratings." The statement reads, "... despite the measures adopted in 2009-2010, changes in the regulation of rating agencies, recent developments in the context of debt evrokrizisa show that these measures are not enough." As the head of the commission of the EU internal market, Michel Barnier, 'ratings have a direct impact on the markets, the economy and well-being of European citizens. Ratings - it's not just opinion. Previously, these agencies make serious mistakes. I was also surprised at what point some agency announced the decision on sovereign ratings - for example, in those moments when the negotiations were conducted on the allocation of a country, international assistance. We can not allow agencies to increase volatility in the markets. Our main aim is to reduce dependence on ratings, the transformation process of rating in a more transparent process, in addition, the rating agencies accountable for their mistakes. "
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The proposals European Commission plans to oblige rating agencies to publish a decision on the sovereign ratings after the close of business or at least an hour before the start of trading on stock exchanges in the EU. Issuers will oblige every three years to change the rating agencies that provide services to the rating given by the issuer. The EU also wants to give investors the right to sue credit rating agencies, if investors, relying only on the ratings, have suffered losses. In addition, agencies are going to require to take action to advance awareness of issuers to change their ratings. As stated in the bill, "the agency must inform the issuer during business hours and at least one working day before the publication of the rating."

Recall that the EU authorities did not like the recent credit rating agencies to make decisions on the revision of sovereign ratings concern the euro area. The cup overflowed the July decision of Moody's downgrade of Portugal once in four steps. Even then, Mr. Barnier called for a change of agency. He found it "doubtful that the rating agencies in their assessments take into account countries' efforts to improve its tax system, budgetary restriction and structural reforms."

However, according to published European Commission's proposals, authorities have decided not to take extreme measures in respect of agencies. Has been repeatedly reported that the EU may ban ratings of those EU countries that already receive financial assistance. In yesterday's statement by the European Commission states that "the possibility of suspending the process of the sovereign credit rating is a complex issue, which, in our opinion, requires further consideration."

Although the Commission's proposal, which still must consider the European Parliament and the Council of Europe, were slightly softer than expected, the rating agencies have reacted rather sharply to the new initiatives the EU authorities. As reported by "b" in the agency Moody's, «European Commission's proposals are inconsistent with the objectives to stabilize credit markets and strengthen investor confidence. Instead, these proposals could disrupt access to credit and to increase market instability in Europe. These measures are designed to validate One interpretation of the concept of credit risk and the new structure of the industry, this could have a detrimental effect on the quality and independence of opinion when drawing up ratings. "agency Standard & Poor's stated:" We support the growth of competition in the market and reduce over-reliance on ratings. However, the addition of new rules who are not keeping pace with other regulatory regimes, will harm the rating process - the globally accepted principle of assessing creditworthiness. At the global level, this may lead to the fact that investors will receive lower quality and not as an independent process of rating debt in Europe. This can lead to the fact that European companies may appear difficult to finance in the international bond market, which is necessary for maintaining the growth and retention of jobs at a time when bank lending is much more difficult. We hope to engage in dialogue with the authorities and market participants on this important issue ".

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