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EU to get tough with credit rating firms (Irish Independent)

04 November 2011

The European Union will impose stricter oversight of credit ratings companies such as Moody's Investors Service and Standard & Poor's (S&P) in response to record losses by banks on subprime-mortgage bonds.

Charlie McCreevy, EU financial services commissioner, will propose later this year that firms register with authorities, he said in a speech in Dublin yesterday. The rules, if approved by lawmakers, will mandate changes to the firms' organisation to guard against conflicts of interest.

European and US officials are forcing an end to self-regulation by the ratings companies after a crash in mortgage- backed bonds dried up lending and saddled financial companies with $400bn of losses and writedowns.

The Securities and Exchange Commission proposed barring companies from guiding investment banks on how to gain top rankings for some securities.

Mr McCreevy's proposals reject the advice of national regulators and an advisory panel, which said new EU rules weren't necessary. McCreevy has said that it's not enough to add detail to an existing, voluntary code of conduct.

"No supervisor appears to have got as much as a sniff of the rot at the heart of the structured-finance rating process before it all blew up," he said. "Meaningful but targeted regulatory measures are now necessary."

The initiative won't address the content of credit ratings, which are opinions about a borrowers' likelihood of default, McCreevy said. The provisions will include "registration, external oversight and much better internal governance."