EU deal to tighten oversight of rating agencies

Euractiv.com reports that European Union legislators have struck a political agreement over new rules to tighten control of credit rating agencies such as Fitch and Moody's, which have been singled out among the main culprits for the financial turmoil.

The key element of the agreement, reached on Wednesday (15 April) between representatives of the European Parliament, member states and the Commission, concerns the registration and supervision of rating agencies.

According to the deal, the Committee of European Securities Regulators (CESR ), a body made up of national regulators, will be temporary in charge of registering credit rating agencies. So far registration was not required.

The new rules require the CESR to manage a database of historical performance information about rating agencies operating in the EU. This should allow users of rating services - such as investors - to quickly verify the accuracy of economic predictions and compare them with competitors

Under the new rules, credit rating agencies will have an obligation to disclose the names of rated companies that contribute to more than 5% of an agency's revenue. This is to prevent biased ratings driven by financial interest. They will also be forbidden to rate companies in which their analysts own shares or financial products. The consulting and advisory role of rating agencies will also be denied to companies which are themselves subject to rating. Analysts will be forced to rotate in order to avoid becoming too close to the industry sector they rate.

For more go to http://www.euractiv.com/en/financial-services/eu-deal-tighten-oversight-rating-agencies/article-181344