EU credit rating reform in tatters
Commissioner Michel Barnier is forced to step back from plans to make bond-issuers rotate agencies
Michel Barnier, European Commissioner and the scourge of the financial services industry, is close to succumbing to a backlash against his plans to heavily regulate credit ratings agencies.
The Frenchman was behind proposals to force bond issuers to rotate credit rating agencies in a move that he believed would break the stranglehold of the big three: Moody's, Standard & Poor's, and Fitch.
As the man responsible for the bloc's internal market and services, Mr Barnier is perhaps the most significant of many politicians who believe that the agencies' failure to spot risks in banking performance was a major factor behind the global economic crisis. But, EU finance ministers, MEPs, and the UK financial services industry reacted with scorn to Mr Barnier's proposal. He wants to see the ratings agencies that companies and banks use to assess the strength of their bonds moved around every three to six years.
As companies tend to use two agencies on their bond issues, there are fears that this would simply mean replacing one with another of the big three, which have a hold on roughly 95 per cent of the market.
Mr Barnier believed that rotation would encourage the development of a second tier of agencies, but it is widely felt that few have the capabilities to evaluate more than a handful of extremely complicated bond issues. A market source described the proposal as "highly impractical".
Sharon Bowles, the Lib Dem MEP who chairs the European Parliament's powerful Economic and Monetary Affairs Committee, told The Independent on Sunday: "It looks as if the Commission and Ecofin [part of the EU Council] is moving away from rotation to something that is more relaxed."
With so much regulation going through the Council and Parliament, such as the Solvency II reforms to insurance company's capital requirements, it also seems likely the remainder of Mr Barnier reforms will be delayed. He had hoped that the complicated process, which includes getting a majority out of the political factions on Ms Bowles's committee which then brokers an inter-institutional agreement, would be completed before the summer recess. This now seems unlikely until the 2012-13 session.
Watering down the proposals will be a relief to the agencies, which have faced several reforms recently, including being forced to pay a percentage of turnover to cover the costs of the new regulator, the European Securities and Markets Authority.
Pope Francis: Being an atheist is alright as long as you do good
That's some guestlist! Stunning images show huge dynastic wedding between Ultra-Orthodox Jewish families which attracted 25,000 guests
Man and woman arrested on suspicion of conspiracy to murder victim of Woolwich machete attack, named as Drummer Lee Rigby
'Sickening, deluded and unforgivable': Horrific attack brings terror to London’s streets
Exclusive: Suspect was inspired by cleric banned from UK after urging followers to behead enemies of Islam
- 1 Pope Francis: Being an atheist is alright as long as you do good
- 2 Man and woman arrested on suspicion of conspiracy to murder victim of Woolwich machete attack, named as Drummer Lee Rigby
- 3 'Sickening, deluded and unforgivable': Horrific attack brings terror to London’s streets
- 4 Archaeologists uncover nearly 5,000 cave paintings in Burgos, Mexico
- 5 Woolwich attack: The EDL will seek to exploit this evil crime for their own evil ends
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Nook is donating eReaders to volunteers at high-need schools and participating in exclusive events throughout the campaign.
Get the latest on The Evening Standard's campaign to get London's children reading.
Win anything from gadgets to five-star holidays on our competitions and offers page.