Local view for "http://purl.org/linkedpolitics/eu/plenary/2004-02-09-Speech-1-051"
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"en.20040209.4.1-051"2
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".
Mr President, the European Commission welcomes the European Parliament's decision to draw up a report on the role and methods of rating agencies. I would like to congratulate the rapporteur on his initiative, which is timely.
As you all know, the role of rating agencies is increasing nowadays. In the past, credit ratings focused mainly on sovereign debt. However, in the last decade, the role of credit ratings has become ever more crucial, with the growth of corporate bond issuances and the inclusion of references to credit ratings in several pieces of financial legislation, including banking legislation. Besides, as everybody knows, recent major scandals have raised questions on the role of rating agencies in general: we cannot forget the Enron case in 2001, or the recent Parmalat case, among others. Therefore, it is clear that it is now time to take action, as Mr Katiforis rightly pointed out.
There are at least four issues to be resolved regarding credit rating agencies. First, the legal treatment of the question of access by rating agencies to inside information from issuers is currently unclear in Europe. There is no harmonised European legislation, nor even any regulation at national level. If rating agencies are to have access to inside information from issuers, we should ensure that the same information is available to all rating agencies. I think Mr Katiforis’ report reflects this. Another solution would be to prohibit rating agencies from access to inside information from issuers, as is done in the case of financial analysts.
The second issue regarding credit rating agencies in the context of Enron and Parmalat concerns the level of skill of agency staff, as well as the transparency of their methodology. It would be sensible to think about measures to tackle this issue and we clearly agree with Mr Katiforis on this. With this is mind, a directive adopted by the Commission last December, implementing the Market Abuse Directive as regards fair presentation of investment recommendations, could be a good starting point.
The third issue commonly raised is the lack of competition among credit rating agencies. In practice, the worldwide industry is nearly an oligopoly. We therefore welcome Mr Katiforis' call to promote more competition in Europe. The establishment of objective criteria for entrance or development of other players in the industry might help.
The fourth and last issue, probably the most debated, regards conflicts of interest for credit rating agencies and these take two different forms. On the one hand, there is a suspicion that the provision of advisory services by rating agencies to companies they rate might influence the outcome of the rating process. Therefore, such advisory services should be disclosed along with the rating. Once again, the directive adopted by the Commission last December, implementing the Market Abuse Directive as regards disclosure of conflicts of interest, could be a good starting point to tackle this question. The second conflict of interest, and the most controversial, relates to the remuneration of rating agencies by the companies they rate. If the rating agency is paid by an issuer, rather than by subscribers, it casts doubts regarding the possibility of 'downgrade rigidity' when ratings are updated. This question is not new but now needs to be resolved.
We have to take action fast on these four issues. The European Commission committed itself to that at the Oviedo European Council in April 2002. We have to respect our commitment before new scandals occur. The European Commission will thus be able to take a position on the subject by the summer or autumn of 2004 at the latest. Among other contributions, Mr Katiforis’ report will be an important element to guide us.
In conclusion, the question remains of what the United States is going to do on this matter. We must be realistic. The top two worldwide rating agencies are American. It would be reasonable to take this into account, as Mr Katiforis rightly stressed. For the moment, however, the American Securities and Exchange Commission is silent on the subject, despite calls for changes from Congress. If the United States wants to achieve convergence with us before we adopt a position, we would appreciate having a clear view from its side on this crucial topic quickly. We will keep you informed in due course."@en1
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