Nations may win the right to check the data used by the companies in advance of downgrades of their sovereign ratings, Michel Barnier said in the text of a speech in Paris speech today. The measures may be included in legislation to rein in the ratings firms, he said.
Ratings companies “occupy a place which is far too important in Europe,” Barnier said. “We are considering compulsory publication of the analysis which leads to modification of a rating and the obligation of conducting a full analysis more regularly.”
Moody’s Investors Service cut Portugal’s credit rating by four levels last week, prompting criticism from the EU that ratings companies are unnecessarily exacerbating the region’s sovereign-debt crisis. European Commission President Jose Barroso said he “deeply” regretted the timing and magnitude of the downgrade and said proposals for increasing regulation of the rating companies in Europe would come out this year.
“We are considering introducing requirements which would allow a government to check the accuracy of the data used by an agency in advance of any downgrading,” Barnier said in his speech.
Spokespeople at Moody’s and Fitch Ratings didn’t immediately respond to calls seeking comment. A spokesman for Standard & Poor’s declined to comment.
Barnier, who leads work on financial regulation for the Brussels-based commission, said the proposals may also include measures for investors to take ratings companies to court “when there has been negligence or violation of applicable rules.”
Governments shouldn’t abuse the ability to check the data used by ratings firms by attempting to delay downgrades to their sovereign rating, said Syed Kamall, a U.K. lawmaker who represents London at the European Parliament.
“Unfortunately, governments whose ratings are downgraded are often too ready to shoot the messenger rather than tackle their debt problems,” Kamall said in an e-mail.
The euro has fallen in four of the past five days after Moody’s cut Portugal’s credit rating to Ba2, two steps below investment grade, reigniting concern the region’s debt crisis will spread beyond Greece as officials remain divided over a solution to the crisis.
Euro-area finance ministers are meeting in Brussels today as rising Italian bond yields stoked concern the country is also being dragged into the mire.
Barnier said today that “more competition and diversity is essential” in the market for credit ratings. One “interesting idea” is the possibility of creating “a network of small and medium-sized agencies,” he said.