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Stricter rules for credit rating agencies to enter into force

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Staff writer ▼ | June 19, 2013
As of 20 June, 2013, credit rating agencies will have to follow stricter rules which will make them more accountable for their actions, said senior European Union official.
Credit rating agencies
Credit rating agenciesAs of 20 June, 2013, credit rating agencies will have to follow stricter rules which will make them more accountable for their actions, said senior European Union official.


The new rules also aim to reduce over-reliance on credit ratings while at the same time improving the quality of the rating process. Credit rating agencies will have to be more transparent when rating sovereign states.

"I am very pleased that just one and a half years after the Commission made its proposal, we have reached the stage when the legislation enters into force. Under the new legislation, credit rating agencies will have to be more transparent and accountable when rating sovereign states.

"The new rules will also contribute to increased competition in the ratings industry currently dominated by a few market players and will reduce the over-reliance on ratings by financial market participants. This is an important step towards restoring financial stability and trust in financial institutions and will help to avoid further crises," said Michel Barnier, Commissioner for Internal Market and Services.

Credit rating agencies are major players in today's financial markets. Rating actions have a direct impact on the actions of investors, borrowers, issuers and governments. For example, a corporate downgrade can have consequences on the capital a bank must hold and a downgrade of sovereign debt can make a country's borrowing more expensive.

Despite the adoption of European legislation on credit rating agencies, the developments in the context of the euro debt crisis have shown the need for the regulatory framework to be strengthened. As a result, in November 2011 the Commission put forward proposals to reinforce the regulatory framework and deal with outstanding weaknesses. The new rules enter into force on June 20, 2013.


 

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