European Union states reached a deal today on introducing mandatory registration and direct supervision of credit rating agencies, a spokesman for the Czech EU presidency said.
The sector has been criticised for failing to warn investors about risks in sub-prime related products and the measure dovetails with a G20-led global approach to credit ratings agencies.
Ambassadors for the 27 EU states adopted the measure that was authored by the bloc's executive European Commission. It will affect companies such as Standard & Poor's, Moody's and Fitch.
'The EU ambassadors reached a preliminary deal on a measure to regulate credit rating agencies,' the spokesman said.
The European Parliament has joint say on the measure and is due to vote in committee this month followed by a full session in April. Formal endorsement from EU finance ministers will also be needed.
EU Internal Market Commissioner Charlie McCreevy has said ratings agencies failed to 'sniff the rot' at the heart of securitised products which they rated highly but quickly became untradeable as underlying home loans defaulted.
The US criticised the draft measure for its 'extraterritorial' effects as it would directly affect how ratings agencies went about their business outside the EU.
S&P and Moody's are US companies and the compromise will ease any spillover effects. There is no mandatory registration in the US but regulators introduced rules in December to prohibit credit raters from rating their own work and ban employees who help determine a credit rating from negotiating any fees.
Agencies said they would work with legislators but underlined the need for a consistent, global approach.
'Fitch has long acknowledged that there will be an enhanced regulatory framework across the EU and has been working with policymakers and other market participants on areas such as global consistency in approach,' it said.
Moody's said it was hopeful that the legislative process will protect the independence of credit opinions, permit sufficient flexibility to adapt to market changes and promote regulatory consistency in the EU and across the globe.
S&P said it would examine the preliminary deal. 'We believe the European Commission's initiative, alongside the changes we have made to strengthen our ratings and improve our transparency, can play an important part in building confidence in ratings and markets,' it said.
