Controversial proposals to suspend credit ratings agencies from assessing bond markets in EU member states were ditched yesterday (15 November) as the Commission watered down a package of measures to rein in the industry.
“The possible suspension of sovereign ratings is a complex issue which we believe merits further consideration, " said Internal Market Commissioner, Michel Barnier.
The EU executive, meeting in Strasbourg, also scrapped plans to prevent larger ratings agencies from buying smaller rivals – deemed incompatible with EU competition rules – at a meeting where Commissioners struggled to reach agreement. The package of measures agreed included proposals:
- Requiring agencies to disclose underlying information justifying their ratings to enable private investors to make their own judgments;
- Ensuring that ratings agencies are rotated every three years between the issued entities;
- Forcing agencies to consult issuers and investors if they intend to change the methodology by which they rate, and communicating these to the European Securities and Markets Authority (ESMA) which would check that they comply with the rules; and
- Increasing the frequency with which member states are rated to every six months from 12 months, and ensuring sovereign debt ratings will only be published after the close of business and at least one hour before the opening of trading venues in the EU.
Credit ratings suspension to be re-opened in Council
EU officials said that it was possible that at some stage during the co-decision procedure that the suspension measure would be re-introduced. An EU diplomat told EURACTIV: “The Council always remains an opportunity to re-open issues.”
However, the exact nature of the debate remained unclear afterwards. Germany and France favoured the suspension proposal, but the UK was opposed.
Catherine Ashton – the Foreign Affairs chief – was absent from the meeting since she was in Baku, Azerbaijan. According to protocol, representatives of absent commissioners are not allowed to speak in front of the college of commissioners, but sources said that Ashton, who is British, made her position forcefully clear on paper beforehand.
The commissioners also approved measures permitting ESMA to investigate and punish ratings agencies' that make market-moving errors.
On 10 November, Standard & Poor’s, one of the three leading global credit rating agencies, issued an email that mistakenly announced the downgrade of France’s AAA rating. The mistake was promptly corrected and the company quickly issued a press release confirming France's rating with a stable outlook.
But the correction proved insufficient to quell markets which had already been betting that France would soon lose its coveted rating, lifting the country’s borrowing costs.