EUROPE - The Economic and Monetary Committee (ECON) has approved the draft legislation to regulate credit rating agencies, giving the European Parliament the green light to open dialogue with each member state with the view to adopting a law before year-end.

ECON - which is responsible for parliamentary work on EU economic and monetary policies, taxation and competition policies, the free movement of capital and the regulation of financial services - voted a draft regulation for credit rating agencies earlier this week.

This vote scales back proposals made by internal market commissioner Michel Barnier in November last year.

The proposals represent the third round of regulation for ratings agencies since they were first regulated in 2009.

Leonardo Domenici, the MEP steering the reform through parliament, said: "The debt crisis in the euro-zone has shown that credit rating agencies have gained too much influence, to the point of being able to influence the political agenda. 

"In response, we have strengthened rules on sovereign debt ratings and conflicts of interest."

In a statement, ECON also stressed that "since sovereign debt ratings affect the credibility of states, and hence their borrowing costs", MEPs saw a need to regulate their quality, timing and frequency.

ECON added that the ratings should reflect each country's specific characteristics and should in no way advocate policy changes.

ECON's approval will now enable MEPs to open negotiations with member states in order to reach an agreement, as Brussels hopes to implement a new law before the end of this year.

However, the legislation is likely to meet resistance from a number of member states, which see it as being too restrictive. 

The vote by ECON comes after the European Permanent Representatives Committee agreed last month to amend two proposals within the credit rating agencies (CRA) directive.

First, the committee decided to limit mandatory rotation to ratings of structured finance products with underlying re-securitised assets.

Regarding conflict of interest, the new proposals would require rating agencies to disclose publicly if a shareholder with 25% or more of the capital or voting rights held 25% or more of the rated entity.

In addition, investors or issuers would be able to claim damages from a CRA if they suffered a loss due to an infringement committed intentionally or with gross negligence by the agency.