WORLD
EU agrees new controls for credit rating agencies
Baku, November 28 (AZERTAC). 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 unravelled and they provoked more criticism by downgrading countries at sensitive moments of the crisis.
Banks currently rely on the credit ratings of assets, such as packages of loans, to decide how risky they are and how much capital should be set aside to cover this risk. The reform is designed to weaken these connections.
The deal between the EU parliament and countries attempts to inject momentum into a regulatory drive to change the way the big three credit rating agencies - Fitch, Moody's, and Standard & Poor's - work.
But the law has been softened during negotiations.
Under the law, the agencies will set up a calendar indicating when they will rate countries, publishing ratings only after close of business and at least one hour before the opening of trading in the EU.
The rules will also encourage competition by introducing rules to rotate agencies although these will be limited to complex structured finance instruments.
The reform follows a recent landmark judgment by Australia's Federal court that Standard & Poor's misled investors by giving its highest rating to derivatives that lost almost all their value in the run-up to the 2008 global economic crisis.
The Australian case marked the first time a ratings agency had faced trial over the complex financial products and could set a precedent for future litigation.
