US urged to act over ratings agencies

Date: 12/02/04

THE European Commission has promised to act alone to boost supervision of US-dominated credit ratings agencies unless American authorities quickly break their "silence" on the issue.

American ratings agencies Standard & Poor's and Moody's continue to grab headlines for failing to spot a series of financial meltdowns, from the collapse of US energy company Enron to Italian milk giant Parmalat.

Commissioner Anna Diamantopoulou, deputizing for financial services chief Frits Bolkestein at a Parliament debate, said: "For the moment, the SEC [Securities and Exchanges Commission] is silent on the subject, despite wishes by the Congress for change.

"If the US wants to make things converge with us before we take a position, we would appreciate having, rapidly, a clear view from their side on this crucial topic."

If the SEC fails to act soon, that could put the world's two biggest trade blocs' regulations out of synch - a situation described by one US ratings agency source as "a nightmare scenario".

He said excessive rules on agencies may worry investors that EU-based ratings are not independent. Instead, he insisted that the Commission must wait for the SEC and the International Organization of Securities Commissions to issue promised reports on the issue. Diamantopoulou said the EU executive is worried about potential conflicts of interest such as the system whereby agencies are paid by companies they rate, rather than by subscribers.

Meanwhile, MEPs have toned down calls for an EU-wide registration "authority" to oversee the performance and behaviour of rating agencies, opting instead for a registration scheme. Experts said this implied a far-lighter regulatory touch.

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