EU Agency Rotation Appears Dead

June 29, 2012 by · Leave a Comment
Filed under: European Union, The Rating Agencies 

One of the European Union’s (EU) proposals to increase competition among rating agencies by requiring corporations to rotate rating agencies at least once every three years appears to have been largely abandoned.

Instead, agencies will only need to be switched once every five years and then only for very specific types of credit.

Reuters reports that the change was made because of intense pressure by corporations and banks who feared they would be forced to use rating agencies who lacked credibility among American and Asian investors.

There appears to be broad parliamentary support for this diluted rotation; however, the industry is still objecting. Reuters writes, “The Association for Financial Markets in Europe, a lobby group for the big banks, says mandatory rotation is excessive and could harm a revival of the securitization market, which is needed to help banks fund themselves.”

Other EU regulations on rating agencies that appear to be going forward include: reversing the burden of proof for those suing rating agencies – the agency would be required to disprove any claim; limiting the issuing of sovereign debt ratings for 27 EU countries to two or three fixed dates every year; and a ban on rating agencies from using non-public information to compile ratings.

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