9 Amendments of Ildikó GÁLL-PELCZ related to 2011/0361(COD)
Amendment 53 #
Proposal for a regulation
Recital 5
Recital 5
(5) Credit rating agencies are important participants in the financial markets. As a consequence, the independence and integrity of credit rating agencies and their credit rating activities are of particular importance to guarantee their credibility vis-à-vis market participants, in particular investors and other users of ratings. Regulation 1060/2009 provides that credit rating agencies have to be registered and supervised as their services have considerable impact on the public interest. Credit ratings, unlike investment research, are not mere opinions about a value or a price for a financial instrument or a financial obligation. Credit rating agencies are not mere financial analysts or investment advisors. Credit ratings have regulatory value for regulated investors, such as credit institutions, insurance companies and other institutional investors. Although the incentives to excessively rely on credit ratings are being reduced, credit ratings still drive investment choices, notably because of information asymmetries and for efficiency purposes. In this context, credit rating agencies must be independent and their rating methods transparent and perceived as such by market participants.
Amendment 69 #
Proposal for a regulation
Recital 7
Recital 7
(7) The credit rating market shows that, traditionally, credit rating agencies and rated entities enter into long-lasting relationships. This raises the threat of familiarity, as the credit rating agency may become too sympathetic to the desires of the rated entity. In those circumstances, the impartiality of credit rating agencies over time could become questionable. Indeed, credit rating agencies mandated and paid by a corporate issuer are incentivised to issue overly favourable ratings on that rated entity or its debt instruments in order to maintain the business relationship with such issuer. Issuers are also subject to incentives that favour long-lasting relationships, such as the lock-in effect: an issuer may refrain from changing credit rating agency as this may raise concerns of investors regarding the issuer's creditworthiness. This problem was already identified in Regulation (EC) No 1060/2009, which required credit rating agencies to apply a rotation mechanism providing for gradual changes in analytical teams and credit rating committees so that the independence of the rating analysts and persons approving credit ratings would not be compromised. The success of those rules, however, was highly dependant on a behavioural solution internal to the credit rating agency: the actual independence and professionalism of the employees of the credit rating agency vis-à-vis the commercial interests of the credit rating agency itself. These rules were not designed to provide sufficient guarantee towards third parties that the conflicts of interest arising from the long-lasting relationship would effectively be mitigated or avoided. It therefore appears necessary to provide for a structural response having a higher impact on third parties. This could be achieved effectively by limiting the period during which a credit rating agency can continuously provide credit ratings on the same issuer or its debt instruments. Setting out a maximum duration of the business relationship between the issuer which is rated or which issued the rated debt instruments and the credit rating agency should remove the incentive for issuing favourable ratings on that issuer. Additionally, requiring the rotation of credit rating agencies as a normal and regular market practice should also effectively address the lock-in effect, where an issuer refrains from changing credit rating agency as this would raise concerns of investors regarding the issuer's creditworthiness. Finally, the rotation of credit rating agencies should have positive effects on the rating market as it would facilitate new market entriesmake it easier for smaller rating agencies to enter the market, thus also rendering the market even more competitive, and offer existing credit rating agencies the opportunity to extend their business to new areas.
Amendment 87 #
Proposal for a regulation
Recital 9
Recital 9
(9) The rule requiring rotation of credit rating agencies needs to be enforced in a credible manner to be meaningful. The rotation rule would not achieve its objectives if the outgoing credit rating agency were allowed to provide rating services to the same issuer again within a too short period of time. Therefore, it is important to provide for an appropriate period within which such credit rating agency may not be mandated by the same issuer to provide rating services. That period should be sufficiently long to allow the incoming credit rating agency to effectively provide its rating services to the issuer, to ensure that the issuer is truly exposed to a new scrutiny under a different approach and to guarantee that the credit ratings issued by the new credit rating agency provide enough continuity and continue to reflect an independent opinion. That period should allow that an issuer cannot rely on comfortable arrangements with only two credit rating agencies that would replace each other on a continuous basis, as this could lead to maintaining the familiarity threat. Hence, the period during which the outgoing credit rating agency should not provide rating services to the issuer should generally be set at four years.
Amendment 103 #
Proposal for a regulation
Recital 11
Recital 11
(11) Requiring issuers to regularly change the credit rating agency they mandate to issue credit ratings is proportionate to the objective pursued. This requirement only applies to certain regulated institutions (registered credit rating agencies) which provide a service affecting the public interest (credit ratings that can be used for regulatory purposes) under certain conditions (issuer-pays model). The privilege of having its services recognised as playing an important role in the regulation of the financial services market and being approved to carry out this function, entails the need to respect certain obligations in order to guarantee independence and the perception of independence in all circumstances. A credit rating agency which is prevented from providing credit rating services to a particular issuer would still be allowed to provide credit ratings to other issuers. In a market context where the rotation rule applies to all players, business opportunities will arise since all issuers would need to change credit rating agency. Moreover, credit rating agencies may always issue unsolicited credit ratings on the same issuer, capitalising on their experience. Unsolicited ratings are not constrained by the issuer-pays model and therefore are less affected by potential conflicts of interests. For issuers, the maximum duration of the business relationship with a credit rating agency or the rule on the employment of more than one credit rating agency also represents a restriction on their freedom to conduct their own business. However, this restriction is necessary on public-interest grounds considering the interference of the issuer-pays model with the necessary independence of credit rating agencies to guarantee independent credit ratings that can be used by investors for regulatory purposes. At the same time, these restrictions do not go beyond what is necessary and should rather be seen as an element increasing the issuer's creditworthiness towards other parties, and ultimately the market, and promoting the genuinely balanced functioning of the internal market.
Amendment 124 #
Proposal for a regulation
Recital 15
Recital 15
(15) The perception of independence of credit rating agencies would be particularly affected should the same shareholders or members be investing in different credit rating agencies not belonging to the same group of credit rating agencies, at least if this investment reaches a certain size that could allow these shareholders or members to exercise a certain influence on the agency's business. Therefore, in order to ensure the independence (and the perception of independence) of credit rating agencies and a healthy investment environment, it is appropriate to provide for stricter rules regarding the relations between the credit rating agencies and their shareholders. For this reason, no person should simultaneously hold a participation of 5% or more in more than one credit rating agency, unless the agencies concerned belong to the same group.
Amendment 144 #
Proposal for a regulation
Recital 19
Recital 19
(19) It is important to ensure that modifications to the rating methodologies do not result in less rigorous methodologies. For that purpose, issuers, investors and other interested parties should have the opportunity to comment on any intended change of rating methodologies. This will help them to understand the reasons behind new methodologies and for the change in question. Comments provided by issuers and investors on the draft methodologies may provide valuable input for the credit rating agencies in defining the methodologies. Moreover, ESMA should verify and confirm the compliance of new rating methodologies with Article 8(3) of Regulation (EC) No 1060/2009 and the relevant regulatory technical standard before methodologies are applied in practice, and should publish its findings. ESMA should verify that the proposed methodologies are rigorous, systematic, continuous and subject to validation based on historical experience, including back- testing. However, this verification process should not grant ESMA any power to judge the appropriateness of the proposed methodology or the content of the credit ratings issued following the application of the methodologies.
Amendment 148 #
Proposal for a regulation
Recital 20
Recital 20
(20) Due to the complexity of structured finance instruments, credit rating agencies have not always succeeded in ensuring a sufficiently high quality of credit ratings issued on such instruments. This has led to a loss of market confidence in this type of credit ratings. In order to regain confidence it would be appropriate to require issuers or their related third parties to engage at least two different credit rating agencies for the provision of credit ratings on structured finance instruments, which could lead to different and competing assessments. This could also reduce the over-reliance on a single credit rating.
Amendment 181 #
Proposal for a regulation
Recital 29
Recital 29
(29) In order to further mitigate conflicts of interest and facilitate fair competition in the credit rating market, it is important to ensure that the fees charged by credit rating agencies to customers are not discriminatory. Differences in fees charged for the same type of service should only be justifiable by a difference in the actual costs in providing this service to different customers. Moreover, the fees charged for rating services to a given issuer should not depend on the results or outcome of the work performed or on the provision of related (ancillary) services. Furthermore, in order to allow for the effective supervision of those rules, credit rating agencies should in every case disclose to ESMA the fees received from each of their clients and their general pricing policy.
Amendment 184 #
Proposal for a regulation
Recital 30
Recital 30
(30) In order to contribute to the issuance of up to date and credible sovereign ratings and to facilitate users' understanding, it is important to regularly review ratings. It is also importantn view of the extreme importance of ratings, it is also essential to increase the transparency about the research work carried out, the staff allocated to the preparation of ratings and, the underlying assumptions behind the credit ratings made by credit rating agencies in relation to sovereign debt and the inter-relationships on which their statements are based.