Somebody should have told the credit ratings agencies to beware the ides of March. Regulators from both sides of the Atlantic have been scrutinising the ratings community this month: the Securities and Exchange Commission (SEC) is gearing up for its roundtable discussion on the subject on 15 April and there are ongoing discussions within the European regulatory community about giving the Committee of European Securities Regulators (CESR) new powers to regulate the sector.
The SEC roundtable will be one of four panel discussions and it will include contributions from representatives from the three major ratings agencies: Standard & Poor’s, Moody’s and Fitch. SEC chair Mary Schapiro indicates that the talks will help the regulator “pursue aggressive oversight of the industry”; terms that do not bode well for ratings vendors.
The talks on the other side of the pond, however, have progressed considerably further than this. New proposals have been tabled that could give regulatory oversight to CESR with regards to acting as coordinator and advisor to national regulatory agencies in the EU on the subject of the ratings agencies. The regulator would also be empowered to take “appropriate action” with regards to certain aspects of compliance.
The proposals have already got the green light from the Strasbourg-based Economic and Monetary Affairs Committee and they include measures to promote greater competition in the ratings market. They are due to be debated by European legislators next month and voted on before the summer.
Ratings agencies have faced a barrage of bad press due to their role in the credit crisis and regulators are keen to force greater transparency in the market. Accordingly, the proposals will compel them to disclose compensation agreements with clients and rotate analysts to help ensure objectivity in ratings.
However, the committee has made some revisions to the original proposals such as removing the requirement that all bonds traded in Europe be rated by analysts based within the region. The revised version specifies instead that ratings for debt granted outside the region will have to be endorsed by a European Union registered ratings agency, unless the third country rating complies with an “equivalence criteria” set by the regulator.