Tuesday

4th Oct 2022

Brussels to unveil credit-rating clampdown

  • Commissioner Barnier: His proposals have been criticised as a limitation on freedom of speech (Photo: European Commission)

The European Commission on Tuesday (15 November) is to unveil proposals to clamp down on the credit-ratings industry, seen as one of the key villains in the eurozone debt crisis melodrama.

Internal market commissioner Michel Barnier is to propose a series of measures including a 'blackout' in the rating of troubled states in an attempt to limit the ratcheting up of market instability the EU executive accuses the sector of being responsible for when it has delivered downgrades to the credit ratings of countries.

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The draft law would allow the EU to temporarily ban companies such as Standard & Poor’s, Fitch and Moody’s from issuing ratings changes if regulators assess that such moves would exacerbate market volatility.

The plan would give the European Securities and Markets Authority, the Paris-based financial markets regulator, the power to suspend for a limited period the ratings of certain countries that are receiving a bail-out programme.

Additionally, Brussels hopes to inject a measure of competition into the industry, dominated as it is by the three big agencies.

Under the plan, the legislation would force credit-rating-agency customers, notably banks and corporations, to switch the agency they use on a rotating basis in order to encourage more use of the dozen smaller, European-based firms that are overshadowed by the big three.

However, the proposals will not go so far as to introduce an EU ratings agency, a scheme Barnier originally favoured but was shot down as it would be seen as too much in the pocket of politicians who have an interest in maintaining their country’s good credit rating.

The proposals are the target of fierce criticism from the sector, which argues that the move limits their freedom of speech. They have the right to make an assessment of a country’s credit rating at any time, they maintain.

The plans also face disquiet from a number of commissioners, notably from the UK and Sweden, and Barnier still has to jump over many hurdles if his proposals are to survive intact.

He is to give a presentation of his ideas, Europe’s third attempt at clamping down on the sector, on Tuesday afternoon.

Greek credit downgraded amid concerns about EU debt plan

Just days after leaders made what they termed an "historic" agreement in a bid to draw a line under the eurozone debt crisis, the markets indicated there is still concern about the fundamentals of the deal.

Greek credit rating slashed to below Egypt's

Both Greece and Portugal saw their credit rating slashed by ratings agency Standard & Poor's on Tuesday. Fresh waves of strikes, occupations and battles with police across Greece have begun as EU and IMF representatives get ready for a new visit to the troubled member state.

EU clampdown on ratings agencies defeated

France’s man in the European Commission has been stymied in his efforts to clamp down on the power of credit ratings agencies, with the core of his proposals sent back for further assessment under pressure from his colleagues.

Exclusive

EU officials were warned of risk over issuing financial warning

The European watchdog for systemic economic risk last week warned of "severe" threats to financial stability — but internal notes show top-level officials expressed "strong concerns" over the "timing" of such a warning, fearing publication could further destabilise financial markets.

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