Credit rating agencies such as Moody’s, Fitch and Standard and Poor’s are being “given too much importance” in Europe and they should be subject to stricter European supervision, according to European Internal Market Commissioner Michel Barnier.
In a speech to the European Securities and Markets Authority in Paris on Monday Mr Barnier noted that the Authority will now take over the responsibility for the supervision of rating agencies and that “we have wasted no time since the economic crisis highlighted the weakness in their actions”.
He said the legal framework for rating agencies, established in 2009, was a “pioneer on a global scale”. He added: “And with the second regulation introduced last year we created a strong supervisory framework”.
Nevertheless, Mr Barnier feels there is a need for further initiatives to respond to new challenges.
Condemning the EU’s “over-reliance on ratings,” he said that ratings should be just one opinion among others. He said he wishes to “eliminate as far as possible any reference to ratings in prudential rules”.
He also announced that a new amendment to the Capital Requirements Directive (CRD IV) will be proposed, on 20 July, to place more pressure on banks to conduct their own risk analyses without automatically relying on the agencies.
Mr Barnier also spoke of the problem of rating sovereign debts, the minor competition between agencies and the risk of a conflict of interests.
He specifically insisted on the question of “whether sovereign ratings should be allowed when a country is the subject of an international programme”. He said that it is his intention to forbid rating agencies to evaluate countries that are being considered for international aid programmes and make it possible to prosecute them.
“I intend to ask the Polish presidency to add this point to the agenda” of the next meetings of finance ministers, he stated. “Of course, we would have to do a feasibility study and look into the practicalities of such an interdiction,” he said.
The other priority raised by Mr Barnier is to promote competition in a market with a “patent and manifestly excessive concentration”. He was referring to Standard & Poor’s, Moody’s and Fitch, widely criticised for their role in initiating the economic crisis.