Consultant Zone

Regulation of Credit Rating Agencies

The European Mortgage Federation (EMF) has recently reiterated their support for the European Commission (EC) proposal to amend the Regulation on Credit Rating Agencies (CRAs). In particular it supports the measures designed to reduce the risk of conflicts of interest and measures aimed at enhancing the quality and transparency of ratings.

However, the EMF is not reassured that the Commission’s proposal to impose rotation will actually achieve its goal of reducing conflicts of interest. They believe that the rotation principle appears impracticable, implies significant costs on both issuers and investors, and is likely to introduce uncertainty and volatility to the rating process. As a result they strongly recommend that the rotation rules be deleted.

The EMF would prefer that regulatory reliance on ratings is reduced, as does the British Government which has recently stated that it is in favour of further reform which reduces over reliance on CRA ratings, increases transparency and fosters competition by reducing barriers to entry and thereby improves the quality of ratings.

The European Commission has also proposed that investors should carry out their own due diligence – welcome news to Rockstead, an independent due diligence firm, with experience throughout Europe.

We can help potential investors identify the risks, in all asset classes, to help them to make a decision whether to invest or not.