On November 13, the European Commission proposed a series of measuresfor the regulation of credit rating agencies targeting conflicts of interest andthe transparency of the activities of credit rating agencies,and mandating specific standards for certain aspects of the rating agencies’ methodologies.

Under specific proposals, credit rating agencies: 

  • may not provide advisory services; 
  • will not be allowed to rate financial instruments if they do not have sufficient quality information on which to base their ratings; 
  • must disclose the models, methodologies and key assumptions on which they base their ratings; 
  • will be obliged to publish an annual transparency report;
  • will be required to create an internal function to review the quality of their ratings; and
  • will be required to have at least three independent directors on their boards of directors (i) whose remuneration must not depend on the business performance of the rating agency,(ii) who are appointed for a single term of office of five years or less, (iii) who may only be dismissed for professional misconduct, and (iv) at least one of whom isan expert in securitization and structured finance.