Ministers to agree to stricter supervision of rating agencies[fr][de] 

"The Council supports the objective of introducing a strengthened oversight regime for rating agencies," read the draft conclusions of the Ecofin Council, expected to be adopted without changes by ministers tomorrow.

McCreevy had announced last week that he would propose the new measures in October, after months of mulling over the need for regulatory intervention in the credit rating sector. In his view, rating agencies, such as Standard & Poor's or Moody's and Fitch, contributed to the current financial market turmoil because they underestimated the risks related to their structured credit products.

"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," the commissioner commented in June (EurActiv 17/06/08).

McCreevy's plan involves the creation of a European register for rating agencies, in line with the system already applied in the US. The external oversight regime is expected to be matched by stronger supervision on the part of European regulators, in charge of checking the "policies and procedures" applied by the agencies.

To eliminate potential conflicts of interest, McCreevy will also propose reform of the corporate and internal governance of rating agencies. Currently they are paid as consultants by the very banks whose debt they rate.

The new measures will also aim to facilitate the entry of new players into the ratings market and to increase the resources available to regulators. "I see no point in regulating to give supervisors more powers if they are not financed and equipped to recruit and develop more expertise, especially in the field of structured finance," McCreevy said.

EU finance ministers are expected to approve the Irish Commissioner's line, with a draft text stating: "Without prejudice to consideration of its practical application, the Council supports the principle envisaged by the Commission that the rating agencies should be subject to an EU registration system."

Credit rating agencies have recognised the need for more transparency by voluntarily signing the revised International Organisation of Securities Commissions (IOSCO) Code, although the initiative has been labelled a "toothless wonder" by McCreevy. It thus seems that rating agencies will have no other choice but to accept the new measures, despite their persistent efforts to discourage regulatory intervention regarding their internal procedures.