Sovereign, Structured Finance Ratings Getting ESMA Review

The European Union’s top markets regulator said it would review how credit-ratings companies evaluate sovereign debt and structured products, following concerns market volatility increased in the past year.

The market for structured products features “high outstanding volume and ratings fluctuations,” the European Securities and Markets Authority said in an e-mailed statement. Meanwhile, ratings on sovereign debt will be probed because of “their importance for credit markets and financial stability.”

EU lawmakers voted in favor of rules last week that would place curbs on how credit-rating firms update markets about the quality of government debt and give investors the right to sue if they lose money because of poor quality or deliberately distorted credit assessments.

“We are all aware of the influence that credit ratings have had, and continue to have, on the EU’s financial markets,” Steven Maijoor, ESMA chairman, said in the statement.

The U.S. Securities and Exchange Commission yesterday barred Egan-Jones Ratings Co. from grading government debt and asset-backed securities for 18 months after settling claims the company misled the regulator over how long it had been rating the two asset classes.

The plans approved by EU lawmakers on curbing how credit- ratings companies update markets about the quality of government debt are meant to make it less likely ratings decisions roil markets and give investors a recourse when ratings are off the mark. European Parliament legislators, voting in Strasbourg, France, backed the plans in a compromise deal with the EU’s 27 governments, which must now sign off on the accord before it can take effect.

To contact the reporter on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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