A new, independent European rating foundation has been proposed as part of moves to overhaul credit rating agencies. The European Parliament is calling for new accountability laws. Three big ones had a role in the 2008 financial crisis and have a big hand in the eurozone crisis.
MEP Wolf Klinz said: “Three rating agencies dominate 95% of the market, and given the fact that they have de facto a monopoly, they can for instance reach and realise a profitability of 40% on sales. This is clearly an indication that there is not enough competition.”
The parliament also proposes that agencies be exposed to civil liability where their performance is negligent.
Klinz said: “We think that they have to be held accountable for what they do and what they publish, and therefore I would like to see a liability scheme introduced.”
Parliament wants a European agency to be paid for by the financial services industry at first, and free from influence from public or other bodies. The European Commission is studying new rules.
Conflicts of interest are faulted in the current system: financial services sellers pay the agencies to rate them. They are the agencies’ bread and butter, and have in the past given high ratings to subprime products, and been well paid for it.