Policy must address the lack of transparency by the CRA sector. There is need for policy to address other problems that have surfaced around CRAs, such as agencies demanding higher fees, issuance of unsolicited ratings, the newly proposed rotation system, the need for international enforcement, methodologies standardization and the status of the analysts agencies employ.
ESBG considers that credit rating agencies (CRA) are major players in today's financial markets, with ratings having a direct impact on the action of investors, borrowers, issuers and governments. Thus, the ESBG welcomes the recent proposals released for the regulation of the CRA industry.
The European Commission's recent set of proposals on CRAs include some valid suggestions on how this sector of the economy should be regulated and monitored in the future. However, the proposals also present some issues that are viewed as completely impractical by the banking industry. Despite their objective, the route to be undertaken to achieve this would be counterproductive and lead to various distortions.
The 2008 G20 summit in Washington aimed to ensure that no institution, product or market was left unregulated at EU and international levels. The EU Regulation on Credit Rating Agencies (CRAs) in force since December 2010, was part of the European Union response to such commitments; it was later amended in May 2011 to adapt it to the creation of the European Securities and Markets Authority (ESMA) which has been attributed all supervisory powers over credit rating agencies since July 2011.
In November 2011 the Commission put forward proposals to reinforce the regulatory framework and deal with outstanding weaknesses. Such proposals aimed to reduce reliance on external ratings, requiring financial institutions to strengthen their own credit risk assessment and not to rely solely and mechanistically on external credit ratings. The package also contained a Directive introducing the principle to reduce reliance on external ratings in sectoral legislation for collective investment funds (UCITS), alternative investment fund managers (AIFMD) and institutions for retirement provision (IORPD).The new rules entered into force on 20 June 2013.