EU Calendar

As part of its work in creating a sounder and stronger financial system, the Commission will propose major changes to the existing rules on credit rating agencies (CRAs). Whilst credit rating agencies are important actors in the financial markets, developments during the debt crisis in the euro area have shown that there is a need to re-examine certain aspects of the current regulatory framework.

These relate notably to:

• over-reliance on credit ratings by financial market participants, in part because of the excessive use of credit ratings for regulatory purposes
• conflicts of interest inherent to the prevailing issuer-pays-model of remuneration of credit rating agencies and conflicts of interest linked to the shareholder structure of CRAs which means that a shareholder of a CRA can have its own products rated by the same CRA
• specificities of certain categories of ratings, notably related to sovereign debt instruments, that are not sufficiently addressed in the current CRA Regulations. In particular, during the debt crisis, CRAs have been criticised with regard to the timing and transparency of their sovereign debt ratings and the question has been raised whether the EU regulatory framework for CRAs needs to be further strengthened to address this
• civil liability of CRAs in cases of gross malpractice or negligence
• the lack of choice and diversity in the rating market due to the limited number of rating actors, in particular bigger rating agencies.

The background:

Credit rating agencies (CRAs) are important players in the financial landscape and have a major impact on today's financial markets, with rating actions being closely followed by investors, borrowers, issuers and governments. Credit ratings are also prevalent in the EU and national regulatory frameworks, for example in terms of defining what capital a bank must hold. Whilst recognising the important role played by CRAs in terms of evaluating creditworthiness, the financial crisis and recent developments in the context of the debt crisis have accentuated the need to re-examine certain aspects of rating activities. A number of issues related to credit rating activities and the use of ratings are not addressed in the existing CRA Regulations. Also, there are growing concerns that financial institutions and institutional investors may be relying too much on external ratings and do not carry out sufficient internal credit risk assessments, which may lead to volatile markets and instability of the financial system. In order to address these concerns, the Commission intends to take all the necessary measures to reduce the automatic reliance on credit ratings, notably by eliminating references to ratings in existing EU legislation, where possible.

The event:

Press conference by Commissioner Michel Barnier, responsible for Internal Market and Services in Strasbourg, at 15:00.

Extensive press material will be available on the day.

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