Europe: credit rating agencies - regulation proposed by the Internal Market Commissioner

The European Internal Market Commissioner, Charlie McCreevy, has today delivered a speech titled "Regulating in a Global Market". This speech is important because Mr McCreevy indicates his intention to regulate credit rating agencies. He also indicates - in typically forthright fashion - his view on the IOSCO Code published last month:

I said before that I would not wait indefinitely for the credit rating agencies to come forward with meaningful proposals to put their houses in order. And I mean what I say. The IOSCO Code of Conduct to which the rating agencies signed up has been shown to be a toothless wonder. The fact is that despite the checks on compliance with the IOSCO Code, no supervisor appears to have got as much as a sniff of the rot at the heart of the structured finance rating process before it all blew up. I am deeply sceptical that the appropriate response lies in building on and strengthening the IOSCO code: While external oversight of rating agencies is important it is not sufficient to adequately address the issues. Many of the recent IOSCO task force recommendations do not appear enforceable in a meaningful way and I am now convinced that limited but mandatory, well targeted and robust internal governance reforms are going to be imperative to complement stronger external oversight of rating agencies. While some of the additional steps that the main rating agencies have announced are welcome, they are insufficient. I know some would be willing to do more but I can quite understand why they are reluctant to move forward with more ambitious proposals if there isn't going to be a level playing field. This is one of many reasons why I have concluded that a regulatory solution at European level is now necessary to deal with some of the core issues"

Reform in this area is not confined to Europe. In the USA, for example, the Securities and Exchange Commission has proposed changes designed to increase the transparency of the credit rating process - click here for further information.