A plan for ratings agencies to be rotated or switched every three years will be weakened to apply to very specific types of credit and only every five years, according to sources.
Europe's largest companies and banks lobbied hard on the issue, warning that forcing them switch between so few global agencies could push them to use agencies carrying less credibility particularly with investors from the US or Asia.
"The debt crisis in the eurozone has shown that credit rating agencies have gained too much influence, to the point of being able to influence the political agenda," said Leonardo Domenici, an Italian centre-left lawmaker.
Every five years, rather than three
A draft EU reform of the sector, the third in as many years, would have forced companies that use ratings to rotate or switch agency every three years to boost standards and competition.
The European Parliament's economic affairs committee voted in favour of requiring rotation every five years and only for ratings of structured products (a category which includes ABSs), a far cry from the original plan.
Yet the diluted reform is still opposed by some in the industry. The Association for Financial Markets in Europe, a lobby group for the big banks, said mandatory rotation is excessive and could harm a revival of the securitisation market, which is needed to help banks fund themselves.
Final text expected within months
Meanwhile other reforms may proceed as planned. Parliament voted in favour of giving investors the power to sue agencies that breach rules, using the civil law of the investor's country of residence when the damage occurred.
Parliament agreed on forcing agencies to restrict changes on sovereign debt ratings from the 27 EU countries to two or three fixed dates each year, notified in an annual timetable.
Regulators could agree to extra changes only if they agree there are exceptional circumstances, creating a rule that agency officials say would amount to censorship.
After the vote, negotiations between lawmakers and EU states start on a final text that will come into force later this year or in 2013.
EU countries are expected to challenge some of parliament's decisions, in particular reversing the burden of proof and any ban on use of non public information.
