EUROPE - Regulations forcing institutional investors to only employ one of the big three US ratings agencies should be redrafted to break the monopoly the triumvirate have over the market, Tobias Schmidt, board member at Feri EuroRating Services has suggested.
Feri is one of four agencies to fulfil the registration requirements under the new European Union's Credit Rating Agencies Regulation, with the remaining three Germany's Euler Hermes Rating, Japan's Credit Rating Agency and the Bulgarian Credit Rating Agency. The applications of the large US rating agencies and others are still being processed.
Schmidt told IPE that the EU regulation helped Feri along the path, but that investors' acceptance was still vital.
He added it was now a question of "how willing investors are to open up to new providers".
However, in some cases investors cannot decide freely which rating agency they use as some investment laws for institutions specifically require ratings to come from one of the three large US agencies.
"Investment guidelines should be phrased less exclusively, maybe widening the scope to any rating agency meeting EU regulations or - as some are discussing - the compulsory inclusion of a European rating agency," Schmidt said.
He quoted a Feri study according to which Feri downgraded European periphery countries much earlier and much more drastically than its US counterparts did.
"At the moment we have Greece just one rating above default which means that we do not think the country is able to solve these problems in the short or medium term," Schmidt explained.
Currently, the EU is only regulating credit ratings, but Schmidt is convinced other sectors, such as investment fund ratings, might soon be subject to regulation.
Other currently discussed changes include a longer notice period for countries prior to downgradings, as well as allowing for the possibility to negotiate the rating.
Schmidt said he opposed such a move, as rating agencies have a responsibility towards the investor and negotiations would only lead to delays.
Another proposal he is fighting alongside other private competitors is the creation of a state-controlled EU rating agency.
The Feri board member fears that such an organisation would create massive conflicts of interest in rating sovereigns and partly state-owned companies.