Gb08_engl Umschlag:GB 2005 - DVFA

featu The role of rating agencies_
Equities_
u
European Union measures for regulation of rating agencies
In reaction to the crisis on the international financial markets, the European Commission
also initiated an assessment of the role played by rating agencies. To this end, the
CESR held a consultation in March 2008 and urged improvements in the area of structured
financial products. This was followed at the end of July 2008 with a consultation
process by the European Commission on the regulatory proposals, which were oriented
on the IOSCO Code, but called for statutory regulation of the rating agencies. The
result of this consultation is a draft Regulation proposed by the Commission on 12
November 2008. Adoption of the Regulation is expected in the spring of 2009. The
Commission intends for the Regulation to become a global standard.
The most important element is a supervisory system for registration and monitoring of
rating agencies by European regulators. Monitoring of the agencies is to be performed
by the national supervisory authorities already responsible for regulation of the financial
markets. Applications for registration, on the other hand, are to be centrally administrated
by the CESR, which will also be in charge of ensuring uniform procedures in all member
states of the European Union. Moreover, the proposal sets forth a rule that only (external)
ratings provided by EU-based rating agencies registered in accordance with the Regulation
may be used for regulatory and bank supervision purposes.
Other provisions relate to the handling of conflicts of interest, quality assurance for
rating methods and ratings, as well as measures to ensure greater transparency. For
instance, the agencies will be required to disclose the methods, models and underlying
assumptions for their ratings. This is meant to ensure transparency of ratings, and
allow investors to adequately assess risk. Rating agencies must also guarantee that
the ratings are not influenced by conflicts of interest. Thus, advisory services in the
area of product development should not be mixed with product assessment. A rotation
system for employees of rating agencies will be introduced to eliminate or reduce the
risk of conflicts of interest. For structured financial instruments, the Commission conceives
of stricter rules than those applicable to corporate bonds.
The rating agencies must either employ different classifications for structured financial
instruments, or provide specific information on the risks involved with them. Additionally,
the ratings of structured financial instruments must be subjected to continuous
monitoring. The supervisory board or board of directors of rating agencies must also
include at least three independent members, whose remuneration is not based on the
business performance of the rating agency.
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