The European Parliament voted by an overwhelming majority on Wednesday in Strasbourg (EP) to tighten the rules on credit rating agencies.
Such institutions may henceforth only issue valuations and investment firms that have been harmed by them may seek legal redress.
Credit rating agencies have only a limited stake
In addition, credit rating agencies have only a limited stake in the companies they rate.
Credit rating agencies must now provide the factors that underpin their ratings. Assessments of individual countries’ sovereign debt should not seek to influence the country’s economic policy.
From now on, credit rating agencies may issue a sovereign rating at least twice, but no more than three times, according to the calendar defined at the end of the previous year. The results shall be made public after the closure of the European stock exchange, but at least one hour before the opening of the markets.
Under the new rules
Investors or issuers of shares may claim compensation for a misclassification or a negative effect on the value of their interest if it is the result of a violation of the new rules.
This is the case, for example, in the event of a conflict of interest or if the rating is not disclosed at a predetermined date.
The new rules will encourage credit institutions and investment firms to issue their own credit assessments so that markets will no longer rely solely on monopoly credit rating agencies.
According to the timetable outlined
No EU legislation directly referring to external credit rating should remain in force until 2020. After 2020, investment firms will not be obliged to automatically sell their securities after a possible downgrade.
A credit rating agency shall not classify a company in which a shareholder or member with at least 10 percent ownership has already invested. The new rules also prohibit a shareholding of more than five per cent in more than one credit rating agency unless the credit rating agency has the same ownership interest.