EU ratings register would boost competition-banks

August 12, 2009

    By Huw Jones
   LONDON, Aug 12 (Reuters) – Financial firms said European Union plans for comparing credit rating agencies would boost competition and increase investor power, documents from the bloc’s regulators showed on Wednesday.
   However, some agencies expressed concerns at having to provide data covering periods before the register is set up.
   Just three agencies, Standard & Poor’s <MHP.N>, Moody’s <MCO.N> and Fitch <LBCP.PA>, dominate the global sector.
   They were slammed by policymakers for failing to warn investors about the risks in highly-rated products such as mortgage-backed securities that sank in value as the global financial crisis unfolded, forcing banks to make huge writedowns.
   The EU has just adopted a law requiring authorisation of ratings agencies in the 27-nation bloc and includes a provision for setting up a central ratings repository.
   The Committee of European Securities Regulators (CESR) is finalising the plans for a repository which would store details of ratings so that investors can compare their accuracy over time.
   “As users of ratings, banks welcome improved tools to assess the accuracy of ratings and to make comparisons between rating agencies in this respect,” the European Banking Federation said in its submission to CESR and made available on Wednesday.
   “Importantly, the repository is expected to be helpful when considering the use of an additional and lesser known rating agency. As such, it might help to increase competition on the ratings market,” the EBF said.
   AFG, the French investment management body, said a central repository would help enhance transparency, investor power, consistency and comparability in ratings.
   But some agencies criticised a requirement to provide data covering periods before the new law comes into force.
   “Specifically, we believe that CESR’s suggestion that data should be presented for each of the 10 years preceding the date of entry into force of the regulation would undermine legal certainty and erode Moody’s legitimate expectation relating to our obligations under EU law,” Moody’s said.
   “If retroactive, it will not be possible for Moody’s to comply in some instances, as we will not have data available in the requisite format,” the company said.
   However, Companhia Portuguesa de Rating of Portugal said the EU plans would fail to increase choice for investors.
   “It is useless and greatly misleading to have statistics that are not valid and which only favour the big CRAs, by excluding small CRAs from the CRAs central repository,” the company said.
   “This will increase entrance barriers in the CRAs industry, avoiding competition from small CRAs and perpetuating the oligopoly that was one of the causes for the problems that happened with the big CRAs ratings during the present crisis,” the company said.
   CESR should require agencies to supply it with standardised data about ratings issued, changed, withdrawn and respective defaults, the Portuguese company said.
   (Reporting by Huw Jones; Editing by Victoria Main)
   ((Reuters messaging:; + 44 207 542 3326;
Wednesday, 12 August 2009 13:25:04RTRS [nLC549170 ] {C}ENDS

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