EU Plans to Shake Up Ratings Agencies

A new draft law unveiled Tuesday by the European Union angered ratings agencies Moody’s, Standard & Poor’s and Fitch, although according to Internal Market Commissioner Michel Barnier it is designed to inject competition into the sector, currently dominated by the “big three.” Moody’s issued an angry statement, despite the fact that the section calling for a ratings blackout has been temporarily postponed as details are worked out.

Reuters reported that the proposed law was introduced after many EU policymakers called for tougher rules for the sector and said that a ratings downgrade of Greek sovereign debt last year made it more expensive to provide Athens with its first bailout. Barnier withdrew the provision regarding ratings blackouts for countries in the process of being bailed out after objections from Britain and others, saying in the report, “I proposed a postponement on this to go further into the technical detail.”

However, the three ratings agencies said that the law would limit choice for investors, and Moody’s called it “dangerous.” Michel Madelain, president and chief operating officer of Moody’s Investor Services, told the newspaper Le Figaro on Wednesday that the law was bound to limit the “quality and independence” of the rating process.

He was quoted saying, “I see it as reflecting an obsession to challenge the rating process itself, and to hold rating agencies responsible for the European debt crisis. These proposals cannot make investors confident again nor facilitate the access of companies and European states to credit markets.”

Despite the postponement of the blackout provision, Barnier still intends to see whether the European Securities and Markets Authority could still be given powers to intervene, and an EU official said blackout plans were “still on the cards.”