Regulating Credit Rating Agencies in the European Union: A Critical First Assessment of the European Commission Proposal

In the wake of the ongoing global financial crisis, recently the European Commission has published a proposal for a European Parliament and Council Regulation on Credit Rating Agencies. With this proposal the European Union aims at addressing calls for more regulation of the (global) financial markets and overall improvements in the rating process of Credit Rating Agencies. According to some analysts, such as the Financial Stability Forum, poor credit assessments of complex structured credit products by Credit rating Agencies contributed to both the build up and the unfolding of the financial crisis. The authors offer a first critical comparative examination of the proposed Regulation against the background of the current regime under the non-binding IOSCO Code of Conduct for Credit Rating Agencies. In doing so, answers are sought to the question, whether and to what extent the introduction of the envisaged regulatory framework will result in a more effective and efficient oversight over the activities of Credit Rating Agencies in the European Union. A certain degree of scepticism may be called for, as the proposed Regulation falls short of addressing some important shortcomings of the present regulatory framework, while the value added of the proposed regulatory framework may not necessarily outweigh its risks.