EUROPE – The European Parliament and Council have approved draft legislation to regulate credit rating agencies, with part of the amendments focusing on sovereign debt.
In the agreement, Brussels brought a number of amendments to the directive and the regulation on rating agencies with the aim of reducing investors' "over-reliance" on such agencies, mitigating conflicts of interest and increasing transparency and competition in the sector.
The main amendment relates to the rating of sovereign debt.
First, the credit rating agencies will have to inform investors and member states of the facts and assumptions on which each rating is based.
This, according to Brussels, should facilitate a "better understanding" of member states' credit ratings.
Second, all available ratings will have to be published on a European Rating Platform, which will contain all ratings by agencies that are registered and authorised in the EU.
"This will allow for comparison of all ratings for any financial instrument and increase their visibility," the Parliament and Council said in a statement.
"The European Rating Platform should also help investors make their own credit risk assessment and contribute to more diversity in the rating industry."
The credit rating agencies will also have to set up a calendar indicating when they intend to issue ratings of member states.
Such ratings will only be published after the close of business and at least one hour before the opening of trading venues in the EU.
Additionally, rating agencies will be held as responsible in cases of "negligence or intent", when damage to an investor has been caused.
Finally, the amendments introduce mandatory rotation, meaning the issuers of financial instruments will have to switch to a different agency at least every four years, while investors will be prohibited from simultaneously owning large stakes in more than one rating agency, unless those agencies belong to the same group.
The agreement by the Parliament and the Council follows the approval of the Economic and Monetary Committee in July.
Approval and adoption of the directive and the regulation on rating agencies are expected in the first quarter of next year.