One and a half years after the Commission’s legislative proposal to reinforce the regulatory framework of credit rating agencies (CRAs), Europe remains expectant in the run up to the entry into force of a new regulatory package on 20 June 2013 that will aim to enforce a series of stricter rules of conduct and measures for CRAs. The new legislation, which consists of a Regulation and a Directive, tackles a number of issues that have lead to a misuse of credit ratings. Among others, the main issues addressed relate to an overreliance on credit rating by financial markets and investors, lack of transparency of the sovereign rating process and high market concentration in the credit rating market.
Tackling the excessive overreliance in CRAs
Ratings have gained a quasi-institutional role in European and national law and some investors rely disproportionately on external credit ratings. The new rules will reduce reliance on external ratings by compelling financial institutions to conduct their own risk assessments and providing investors, issuers and other interested parties with sufficient information and resources allowing them carry out such assessment.