Credit rating agencies face centralised EU supervision
EUROPE - The incoming European Securities and Markets Authority (ESMA) will take control of the registration and supervision of credit rating agencies, the European Commission has confirmed.
Recently adopted regulations on rating agencies, due to come into force in December 2010, will see the Committee of European Securities Regulators (CESR) coordinate a supervisory model based on cooperating national authorities.
But this will now be superseded by a more "centralised system" coordinated by ESMA, expected to be introduced in early 2011. The existing regulations were negotiated before ESMA was developed, although they were intended as a "preliminary solution" until a more consolidated framework could be devised.
Under the new rules ESMA will be responsible for both the registration and day-to-day supervision of the rating agencies, and it will have a set of supervisory powers, such as requesting relevant information, hearing of persons, examining records and conducting on-site inspections.
ESMA will also be allowed to take "appropriate supervisory measures" if it discovers a breach of regulations, which could include issuing public notices, temporary prohibition from issuing credit ratings, and the withdrawal of registrations. It will also be able to request that the Commission imposes a fine on rating agencies "intentionally or negligently" breaching the rules.
The Commission noted supervision at a European, rather than a national, level makes sense as credit rating agencies are global businesses and not tied to single, fixed locations. But it admitted ESMA "will have the possibility to delegate powers back to national supervisors where it considers it useful".
Although the Commission claimed the amendments would simplify supervision of these organisations through the establishment of one centralised supervisory authority, it admitted the regulations did not deal with important issues, such as whether European and national legislation relies too heavily on credit ratings, and how to create more competition in the market.
It stated: "All these issues are important, and the Commission is looking at them closely - with all relevant stakeholders - and will come forward with further proposals in due course".
Michel Barnier, internal market and services commissioner, added: "The changes to rules on credit rating agencies will mean better supervision and increased transparency in this crucial sector. But they are only a first step. We are looking at this market in more detail."