Regulation of the Credit Rating Agency

Regulation of Credit Rating Agency in EU

Unlike the European Union has never produced a specific legislation to regulate in an exhaustive and systematic way rating services and the entities that offer such services. This doesn’t mean that such an area has been neglected by the abundant regulatory production generated by the EU about financial markets. Simply, it’s possible to find numerous dispositions inside several directives which deal with some aspects of pivotal importance related to the rating activity.

Firstly, the directive 2003/6/CE ruling market abuses has to be considered an important tool. It lists a quantity of sanction-able behaviors as contrary to the credibility and to the stability of financial markets, by specially focusing on such behaviors showing abuse of inside information (insider trading) and on alleged manipulation of markets. In both categories of illegal behaviors the privileged access to information and the acts that such privilege may allow play a fundamental role. Such a definition makes clear that the majority of data that agencies use to issue their ratings must 22 It is interesting to notice that some of the innovations regarding the relationship of CRAs and structured products proposed by the examined Proposed Rules, can be found in POLLOCK (2007) “A number of good proposals for improving the rating agency system have been made, by members of this panel, among others. These include: * Distinguish the ratings of corporate debt from ratings of structured securitizations, perhaps using a different range of symbols. * Accompany ratings of structured debt with calculated probabilities of default and loss-given-default, as well as the key assumptions. * Have much more emphasis on monitoring and updating ratings over the life of securitized asset pools. * When new values for key parameters are adopted, for example, when HPA becomes HPD, have existing structured securities re-rated using the revised assumptions. * Have ratings reflect...