The European parliament's Economic and Monetary Affairs Committee adopted a series of amendments to enhance the transparency and good governance of credit rating agencies (CRAs).
A key aim of the legislation is to avoid a potential conflict of interest between the agency issuing the rating and the rated organization.
A rotation mechanism will be put in place to ensure that CRA analysts, who are in direct contact with the rated entity, elaborate ratings for the same organisation for longer than five years, say MEPs.
To avoid negative effects on CRA performance, the approved text stresses that rotation will be made on an individual basis rather than changing the entire team. The committee also agreed that each CRA must disclose the compensation arrangements agreed with its clients.
The Economic Affairs Committee amended the commission's proposal to make the Committee of European Securities Regulators (CESR) the only registration and supervisory body over European rating agencies.
CESR, and not national authorities as originally proposed, will be in charge of registering CRAs, checking their compliance with the rules and ultimately withdrawing an agency's registration should the rules be breached. Finally, the European body would also be in charge of monitoring CRAs' past performance and publishing statistical data on the reliability of ratings issued.
The committee has also made a proposal of setting up a new, independent and non-profit oriented rating agency to improve the quality of European credit ratings. The new organization would be founded by the European Union, the European finance industry and by the rated entities.