Sélecteur de langues
Brussels, 2 June 2010
Commission proposes improved EU supervision of Credit Rating Agencies and launches debate on corporate governance in financial institutions
As part of its work on preventing a future financial crisis and strengthening the financial system, the European Commission has today put forward amendments to the EU rules on Credit Rating Agencies (CRAs) and launched a public consultation on reforming corporate governance in financial institutions. Furthermore, in order to advance swiftly in completing the necessary reforms to ensure a safe and stable financial system in Europe, the Commission has adopted a more general Communication where it commits itself to table the remaining financial reform proposals in the next six to nine months from now. Following discussion and hopefully strong support from all heads of State and government at the forthcoming European Council, the Commission will present all these proposals – together with its recent ideas on bank resolution funds (see IP/10/610) – at the G-20 Summit in Toronto on 26-27 June 2010. On CRAs, the Commission has two main objectives: ensuring efficient and centralised supervision at European level, and increased transparency on the entities requesting the ratings so that all agencies have access to the same information. These changes would improve supervision, increase competition in the CRA market and improve investor protection. On corporate governance, the Commission has launched a public consultation on a number of issues including how to manage risk more effectively in financial institutions and how to empower shareholders. The deadline for responses is 1 September 2010. To complement this package of proposals, the Commission has also published two reports on how Member States have put into practice the Commission's two Recommendations of 2009 (see IP/09/673 and IP/09/674) on remuneration policies in the financial services sector and for directors of listed companies. In both cases, progress has been made but a significant number of Member States have yet to implement the Recommendations fully.
Commission President José Manuel Barroso said: "Today the Commission is launching the final push to complete the EU's financial services reform. This is part of our wider agenda to stabilise, consolidate and restore sustainable growth to the European economy".
Internal Market and Services Commissioner Michel Barnier said: "The changes to rules on Credit Rating Agencies will mean better supervision and increased transparency in this crucial sector. But they are only a first step. We are looking at this market in more detail. On corporate governance, I am convinced that true crisis prevention starts from within companies. If we are to prevent future crises, financial institutions themselves need to change. We need to ensure more effective internal controls. Promote better risk management. Strengthen the role of supervisory authorities. And existing rules on sound remuneration policies should be implemented quickly to help curb excessive risk-taking."
Improving EU supervision of Credit Rating Agencies
As rating services are not linked to a particular territory and the ratings issued by a CRA can be used by financial institutions all around Europe, the Commission is proposing a more centralised system for supervision of Credit Rating Agencies at EU level. Heads of State and government had called the Commission to come forward with proposals on this in June 2009.
Under the proposed changes, the new European supervisory authority – the European Securities and Markets Authority (ESMA, see IP/09/1347) – would be entrusted with exclusive supervision powers over CRAs registered in the EU. This would include also the European subsidiaries of well-known CRAs such as Fitch, Moody's and Standard & Poor's.
It would have powers to request information, to launch investigations, and to perform on-site inspections. Issuers of structured finance instruments such as credit institutions, banks and investment firms will also have to provide all other interested CRAs with access to the information they give to their own CRA, in order to enable them to issue unsolicited ratings.
These changes mean that CRAs would operate in a much simpler supervisory environment than the existing varied national environments and would have easier access to the information they need. Users of ratings would also be better protected as a result of centralised EU supervision of all CRAs and increased competition among CRAs.
The Commission's proposal, which amends Regulation 1060/2009, will now pass to the EU Council of Ministers and the European Parliament for consideration. If adopted, the new rules would be expected to come into force during 2011.
Background: CRAs issue opinions on the creditworthiness of companies, governments and sophisticated financial products. They contributed to the financial crisis by underestimating the risk that the issuers of certain more complicated financial instruments might not repay their debts. In response to the need to restore market confidence and increase investor protection, the Commission put forward new EU-wide rules that put in place a common regulatory regime for the issuance of credit ratings. Under these rules, which will become fully applicable in December 2010 (see IP/09/629), all CRAs that would like their credit ratings to be used in the EU now need to apply for registration. Registrations open this month. The risks of conflicts of interest affecting ratings are also addressed (for example, a CRA cannot also offer consultancy services) CRAs will need to be more transparent as they will need to disclose the methodology and internal models and key rating assumptions they use to make their ratings. This should allow investors to perform better their due diligence.
Reforming corporate governance in financial institutions
In response to the financial crisis, the Commission committed itself in its March 2009 Communication on "Driving European Recovery" to improving corporate governance in financial institutions. The Commission wanted to ensure that the interests of consumers and other stakeholders are better taken into account, businesses are managed in a more sustainable way and bankruptcy risks are reduced in the longer term.
As a first step, the Commission is now launching a public consultation on a Green Paper that details possible ways forward to deal with the following issues:
How to improve the functioning and the composition of boards of financial institutions in order to enhance their supervision of senior management;
How to establish a risk culture at all levels of a financial institution in order to ensure that long-term interests of the business are taken into account;
How to enhance the involvement of shareholders, financial supervisors and external auditors in corporate governance matters;
How to change remuneration policies in companies in order to discourage excessive risk taking.
The consultation is open until 1st September 2010. Any future legislative or non-legislative proposals will be adopted in the course of 2011.
Background: The financial crisis revealed significant weaknesses in corporate governance in financial institutions: board supervision and control of management was insufficient; risk management was weak; inadequate remuneration structures for both directors and traders led to excessive risk-taking and short-termism; and shareholders did not exercise control over risk-taking in the financial institutions they owned. These weaknesses played a role in the crisis and timely and effective checks and balances in governance systems would help preventing any future crisis.
Communication on Financial Services 2010-2011 – "Regulating financial Services for sustainable growth"
The recent market turbulence has confirmed the need for the Commission to move swiftly in completing the necessary reforms to ensure a safe and sound European financial system. That is why the Commission has committed itself to table the remaining proposals financial reform proposals needed to implement fully our G20 Commitments in the next six to nine months from now. Key proposals include:
Transparency: the Commission will come forward with proposals to improve the functioning of Derivatives markets in the summer. This will be instrumental in increasing transparency on a market which is important but currently very opaque. In order to restore further confidence in financial markets, the Commission will propose appropriate measures on short selling and credit default swaps, including 'naked short-selling'. The Commission will also table improvements on the Markets in Financial Instruments Directive (MiFID) in order to strengthen pre- and post-trade market transparency and bring more derivatives onto organised trading venues.
Responsibility: In order to protect investors and depositors, the Commission will propose a revision of the Deposit Guarantee Schemes Directive and the Investor Compensation Schemes Directive. Also, legislative proposals on packaged retail investment products will be presented to promote consumers' interests in the sales process. The Market Abuse Directive will also be revised in order to extend its rules beyond regulated markets and to include derivatives in its scope of application. The Commission will come forward with amendments to the Capital Requirements Directive (CRD IV) to improve the quality and quantity of capital held by banks, introduce capital buffers and ensure the build up of capital in good times which may be drawn on in more adverse economic conditions. Furthermore, on enforcement, sanctions in the financial sector are largely unharmonised, leading to diverging practices among national supervisors. As a first step, the Commission will present a Communication on sanctions in the financial services sector to promote convergence of sanctions across the range of supervisory activities.
Crisis prevention and management: The Commission will publish an action plan on crisis management leading to legislative proposals for the prevention and resolution of failing banks. The Commission will also work towards global convergence on one set of high quality international accounting standards.
The Commission will press for the rapid adoption of these measures by both the European Parliament and the Council so that Europeans can regain full confidence in the soundness of the financial system as one of the pillars for growth.
Credit Rating Agencies:
Corporate governance consultation:
Reports on remuneration Recommendations:
Commission Communication on financial services 2010-2011 "Regulating financial services for sustainable growth":