EUROPEAN Commission (EC) proposals to give sovereign states three days’ notice when their debt is about to be downgraded were slammed by the UK’s top three regulatory bodies last night.
In a rare move, the Treasury, the FSA and the Bank of England released a joint statement condemning the EC’s suggested creation of a public ratings body that would give sovereign’s notice of ratings moves.
The UK bodies said that “a sovereign might be tempted to make use of the additional time to alter its debt issuance plans”. They also warned that such a system would be subject to leaks
Summarising Britain’s position on the proposed body, they said: “The UK authorities strongly oppose any issuance of credit ratings by a public European credit rating agency, central banks, or public-private partnerships.”
“The use of such ratings would potentially heighten scope for moral hazard and harm the independence of these institutions... A public agency would also risk crowding out private sector ratings and inevitably stifle competition in the industry.”
Ratings have long been controversial, with only three agencies – Moody’s, S&P and Fitch – dominating the industry and having massive power to increase or decrease the borrowing costs of companies and states.
The British statement backed the attempt to move away from such a heavy dependence on so few agencies but said that the Commission’s suggested measures were not appropriate.
The EC is due to come up with a final draft of the regulations later this year, but they will have to be ratified by the EU parliament.