EU details plan to clamp down on rating firms
EUROPEAN Union countries agreed yesterday to press for new controls on credit ratings agencies, with a law to challenge the power of the debt raters whose downgrades of countries angered politicians as they struggle with an economic crisis.
The draft rules, which will turn into EU law after the completion of negotiations with the European Parliament, could make it easier to sue ratings agencies if they were seen to make errors when ranking the creditworthiness of debt.
Diplomats from EU countries gave their broad backing to a draft law that will clamp down on the agencies, who had come under fire for giving top-notch triple-A credit scores to debt that unraveled in the financial crisis.
The deal injects fresh momentum into a regulatory drive to change the way the big three credit rating agencies – Fitch, Moody’s, and Standard and Poor’s – work.
It means country ratings may have to be reviewed every six months, rather than once a year, as is often now the case.
One of the strongest proposed reforms imposes legal liability on rating agencies for their decisions although it is not clear how this would be enforced.