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Brussels, 9 January 2006

Internal Market: Commission sets out its policy on credit rating agencies

The European Commission has adopted a Communication setting out its approach to credit rating agencies (CRAs). After various financial scandals and the Resolution on CRAs adopted by the European Parliament in February 2004, calling on the Commission to produce an assessment of the need (if any) for legislative intervention in this field, the Commission considers that the time is right to report back to the Council and Parliament on this issue. In line with advice received from the Committee of European Securities Regulators (CESR) in March 2005, the Commission will not present new legislative proposals in the area of CRAs. It is confident that the existing financial services Directives applicable to CRAs – combined with self-regulation by the CRAs on the basis of the newly adopted International Organisation of Securities Commissions (IOSCO) Code – will provide an answer to all the major issues of concern raised by the European Parliament. The Commission will monitor developments in this area very carefully. It may consider introducing new proposals if it becomes clear that compliance with EU rules or the IOSCO Code is unsatisfactory or if new circumstances arise – including serious problems of market failure or fresh developments in other parts of the world.

Internal Market and Services Commissioner Charlie McCreevy said: "This is our response to the Parliament's Resolution on credit rating agencies. We have explained how EU law applies to this area and set out the provisions of the IOSCO Code. We intend to ask CESR to monitor the credit rating agencies' compliance with the Code and to report back regularly. In addition, we will gauge the opinions of market participants. In short, the rating industry remains "on watch" and will be monitored. We may need to modify our approach in the light of non-compliance or of changing circumstances."

CRAs play a vital role in global securities and banking markets. It is essential, therefore, that they consistently provide ratings which are independent, objective and of the highest possible quality. A number of key EU legislative measures with major implications for CRAs have been adopted as part of the Commission's Financial Services Action Plan (i.e. the Market Abuse Directive, the Capital Requirements Directive and the Markets in Financial Instruments Directive). In addition, IOSCO published (in December 2004) its Code of Conduct Fundamentals for credit rating agencies.

Following the request by the European Parliament, the Commission has considered very carefully whether or not fresh legislative proposals are required to regulate the activities of CRAs. It has concluded that at present no new legislative initiatives are needed since the existing securities Directives cover adequately the most important aspects related to their activity.

One of the central principles of "Better Regulation" is that legislative solutions should be applied only where they are strictly necessary for the achievement of public policy objectives. The Commission believes that the case for new legislation in this area remains unproven. In developing this approach, the Commission has taken account of the advice provided by CESR, which will monitor the implementation of the IOSCO Code by the credit rating agencies and report to the Commission on a regular basis.
The Communication and Annex are available at:

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