The European Commission (EC) announced a new set of legislative proposals on credit rating agencies (CRAs) that appear weaker than those already in place in the U.S. They also don't go far enough to promote transparency, Royal Bank of Scotland (RBS) analysts said.

The proposals would require every rated bond to have two ratings. Issuers have plenty of options given that the registration process for rating agencies over the last two years has become increasingly more simple.

The proposals also pressure investors to become less dependent on the CRAs and to do their own analysis.

On the issuers' side, the new proposed regulations require these firms to disclose “the main elements” of underlying asset pools. This was done to allow investors to do their own analysis.

In the U.S., SEC Rule 17g-5 imposes conflict-of-interest rules on nationally recognized statistical rating organizations (NRSROs) that are similar to the EC CRA proposals.

However, the U.S. rules go a bit further to make ratings more transparent and to require that any data that is available to one agency also be made accesible to all NRSROs (but not to investors), so that they can publish unsolicited ratings if they choose to.

The U.S. rule also proposes to eliminate the hazards of rating shopping by randomly assigning a rating agency for each issue. The EC proposes a rotation of rating agencies with a cooling off period for each agency, RBS analysts explained.

"In the end, after all the smoke and noise during the four years since the crisis started ... we believe investors trust in the rating agencies has not improved, at least in sovereign ratings and structured products," RBS analysts said in the report. "Fixed-income portfolios have become smaller, hence most investors employ fewer analysts. The only positive may be that rating agencies are now publishing better quality surveillance reports."

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