EU Softens Stance on Agency Rotation

November 18, 2011 by · Leave a Comment
Filed under: European Union 

A portion of the new regulation proposed for rating agencies operating in the European Union (EU) is a requirement to force corporations to rotate their rating agency every four years. This original proposal has been modified so the rating agency only needs to be rotated every six years. For those corporations who use more than one agency, they only need to rotate one.

Those close to the regulators cautioned that this latest draft could still change.

Regulators are eager to enforce the new standards to correct what they feel to be contributing factors that led to the financial crisis. They believe that the ratings agencies have grown too close to the companies they are hired to evaluate and are unable or unwilling to provide an accurate assessments of structured credit products.

European corporations complain that the regulations are onerous, politically motivated and that they will be forced to rely on little-known rating agencies or to offer fewer ratings to investors. This, they argue, will make it more difficult to access global capital markets.

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