The European Commission has stepped up its attack on credit rating agencies. Angered by a spate of downgrades on individual member states, Brussels says the likes of Standard and Poor’s, Moody’s and Fitch, which rank countries’ and companies’ debt, should be held to account.
Only last week, Standard and Poor’s downgraded France by mistake. That was quickly corrected and blamed on a technical error, but the EU’s internal market chief Michel Barnier insisted stricter rules are needed.
“We need rating agencies that work in a rigorous way. We need more! There are only three big agencies in the world – it’s not enough. I also want to reduce the dependence on these ratings, there is too much regulation for banks and insurance companies, which systematically and automatically, depend on agency ratings.’‘
Barnier also called for agencies to send their ratings to the EU’s watchdog, the European Securities and Markets Authority.
The plan still needs to go before the EU parliament and Council but some fear the stricter rules could damage already fragile investor confidence.
Currently, firms and countries that wish to borrow money on the markets by issuing bonds pay rating agencies to rate their credit worthiness.