The PE commission rejects the mandatory rotation of rating agencies

The Committee on Economic and Monetary Affairs of the European Parliament today overwhelmingly opposed mandatory rotation every three years the European Commission wants to impose on customers credit rating agencies.

MEPs held a debate today on the package of measures proposed by the EU executive on 15 November to limit the power of these agencies, in preparation for the vote of the same in early June.

The EC had suggested that any agency may be eligible to the same client for more than three years unless the issuer contratase more than one agency, in which case only one of them would have to respect the limit of three years, but none could double that period.

Since Brussels presented its proposal, there have been numerous voices have noted the difficulties inherent in this kind of rotation, especially because only three agencies in the world, Fitch, Standard & Poor’s, Moody’s are sufficiently well developed to provide skills as specific as those that require certain financial products.

The Italian Socialist Leonardo Domenici, rapporteur of the parliamentary report on rating agencies, focused his speech to suggest alternatives to the proposal from the Commission and the lengthening of the rotation period, the introduction of tendering and market opening to the rating agencies smaller.

Beyond the rotation, MEPs focused on sovereign debt ratings and stressed that they are a special case because they put the credibility of the Member States, so called for “specific rules” for this area and the creation an independent authority responsible for these assessments.

Not all members of the committee agreed with these ideas, however.

Some said they were tired of being to blame the rating agencies of the delicate situation in which there are some governments that have actually reached that point based on spending more than they had.

MEPs did agree, however, that the sovereign debt ratings should be made after the markets have closed in a previously agreed timetable, and the institution concerned should have the opportunity to respond to the rating.

Another issue that this committee today discussed was the Community legislation on financial instruments (MiFID).

MEPs demanded better organized markets, more transparent and more protection for investors.

The debate on this issue is of moment in a most backward state, the deadline for amendments still open, so your vote will not occur until early July.