Annoyed with the three big U.S.-based credit rating agencies, European officials want to supervise them more closely—and possibly set up a local rival
The European Commission has come forward with a list of amendments to revise EU rules on credit rating agencies, aiming to boost transparency and centralise supervision at the European level.
Under the proposals, the European Securities and Markets Authority (ESMA) – a new body whose legislation is currently being negotiated by member states and the European Parliament – will take over the supervision of rating agencies in Europe from national authorities.
Announcing the plans at a press conference in Brussels on Wednesday (2 June), commission President Jose Manuel Barroso did not rule out the setting up of a European credit rating agency in the future. "We are looking at the idea," he said, adding that any proposals for this would likely come forward in September.
"Is it normal to have only three relevant actors on such a sensitive issue where there is a great possibility of conflict of interest?" he said, referring to the US-based Fitch, Moody's (MCO), and Standard & Poor's (MHP) agencies. "Is it normal that all of them come from the same country?" [Ed. note: Fitch is owned by Paris-based financial services company Fimalac (FMLCF).]
Credit rating agencies have attracted strong criticism for failing to identify the risk attached to certain financial products such as mortgage-backed securities in the US at the start of the financial crisis.
More recently they have been blamed for exacerbating market turmoil in the eurozone, with Standard and Poor's downgrading of Greek bonds in April sending the country's borrowing costs skyward, ultimately leading Athens to call for a bail-out.
The suggested amendments would force agencies operating in Europe to register with ESMA in the future, and also empower the authority with day-to-day supervisory tools to ensure agencies comply with EU rules. Failure to do so could result in fines or an agency losing its license.
Germany and France have been among the leading voices calling for greater oversight of credit rating agencies. But another French proposal, the creation of an economic government for the 16 states sharing the euro currency, has created divisions among the EU's top officials.
While European Council President Herman Van Rompuy appears to favour the idea of a formalised system of co-ordinating eurozone economic policy by potentially creating a new secretariat to aid the group's leaders, Mr Barroso on Wednesday came out against it.
"You don't reinforce the Growth and Stability Pact [EU budgetary rules] by diminishing the credibility of the community institutions and the community method," he told journalists.
"It's not with new institutions that we are going to do that," he said, adding that they "could bring new confusion."
Germany has also so far sounded a cautious note regarding the French idea.
Financial transaction tax
With roughly three weeks to go before G20 leaders meet in Canada to discuss progress in reforming the world's financial system, Mr Barroso also indicated his personal support for a financial transaction tax, but cautioned it would be "extremely difficult" to secure a global agreement.
"It seems to me only reasonable that there should be a contribution from the financial sector for the common good," he said, but conceded that banks could simply pass the tax on to customers.
The US has previously stated its opposition to the idea, with analysts warning the tax would not work without a global application.