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Rating agencies in the spotlight


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Rating agencies in the spotlight

Arnaud from Brussels asks: “My question for European officials is: how far are we going to let rating agencies dictate how European stock markets are run, and are we ever going to react against this speculative lobbying?”
Arnaud from Brussels asks: “My question for European officials is: how far are we going to let rating agencies dictate how European stock markets are run, and are we ever going to react against this speculative lobbying?”

Thierry Philipponnat, Secretary General of public interest association Finance Watch, responds: “That’s a good question. We can’t let this diktak continue. There’s a very simple solution. It’s to permit investors to follow the rating agencies’ opinions without being obliged to. We’re in an absurd system today in which, once an agency’s opinion is given, the investor is obliged to follow that opinion. Why? Because the ratings are in the financial regulations. So we have to get rid of all reference to the ratings in the rules so investors can follow the ratings if they want to. They are free to – fine – but are not obliged to. That’s really the key.”

Sébastien, from Brussels, asks: “My question is as follows: which of Europe’s directives concern how the rating agencies are financed?”

Philipponnat responds: “The alternative to the borrower paying the agency would be that the investor pays the agency. The potential conflict of interest would not be the same but it could be just as real. The essential question is to ensure that the whole system does not depend on a single opinion. The key to not having a system that degenerates is that when an agency issues an opinion it remains simply an opinion and not the truth with a capital ‘T’. That’s why one of the European Commission’s proposals consists of establishing a European index of ratings, which would be given a framework and organised by the European financial market authorities. It’s an excellent proposal, because index means averaging what’s given by several agencies, and we’d depend less and less on the opinion of a single agency.”

Michael from Brussels asks: “I’d like to know when we’re going to set up a European rating agency for sovereign debt.”

Philipponnat responds: “Yes, let’s increase competition, yes, let’s create European agencies – but that’s not enough. Other measures must also be taken: a European ratings index, removing ratings from all financial regulation so that we find ourselves in a healthy situation in which, as I said earlier about what seems important to me, we would have analyses coming out, and not verdicts.”

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