EU to investigate credit rating agencies

Ratings

The European Commission said on Thursday it will look at credit rating agencies for their apparent slow response to the US subprime mortgage crisis.

“The commission is going to be looking at the issue of credit ratings agencies, particularly as they relate to the ratings of structured products,” Antonia Mochan, spokeswoman for the European Union’s executive arm, told reporters at a daily news briefing. Mochan said particular attention would be paid to the governance of these agencies, their management of conflicts of interests, resourcing and their ratings performance. The review is expected to be wrapped up in April 2008 at the earliest, she added. Mochan said the investigation into credit rating industry was “in regard to concerns we have over their apparent slowness in responding to material market evidence of deterioration since mid- 2006.”

World’s major stocks plunged recently amid spreading concerns over the US subprime mortgage troubles, which prompted central banks to inject billion of dollars into the financial market to help beat back a widening credit crisis. EU officials criticized credit rating agencies of being too slow in warning investors of the risks relating to investment in the US subprime mortgage-backed securities despite early signs. Mochan said EU Internal Market Commissioner Charlie McCreevy had asked the chairman of the Committee of European Security Regulators (CESR), which groups the EU’s 27 national stocks regulators, for a meeting next month on the issue. CESR is scheduled to produce a report in April 2008 on how structured financial instruments are rated, which would provide basis for the commission to take further action. Officials said the review would focus on whether there were conflicts of interests and the adequacy of ratings methodology.

Credit rating agencies such as Standard & Poor’s Corp. and Moody’s Investors Service Inc. are paid by the firms that they rate for credit-worthiness. Following the notorious company scandal of Enron in 2001, the credit rating industry was put under a voluntary code to behave themselves. It was reported that the EU may consider legislative measures if the review finds the voluntary code insufficient to prevent conflict of interests in credit rating business. (people.com.cn)

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