10 Amendments of Sampo TERHO related to 2011/0361(COD)
Amendment 68 #
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 an 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 resposupport meanse having a higher impact on third parties. This could be achieved effectively by limitingdone by giving encouragement to shorten the period during which a credit rating agency can continuously provides credit ratings on the same issuer or its debt instruments. Setting out a maximum duration ofhortening the business relationship between the issuer which is rated or which issued the rated debt instruments and the credit rating agency shcould remove thduce incentives 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 addressShorter business relationships might serve to eliminate 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, tThe rotation of credit rating agencies shcould have positive effects on the rating market asif it would facilitated new market entries and offered existing credit rating agencies the opportunity to extend their business to new areas. Laying down a binding maximum duration rule is not the way to increase competition in this sector.
Amendment 76 #
Proposal for a regulation
Recital 8
Recital 8
(8) Regular rotation of credit rating agencies issuing credit ratings on an issuer or its debt instruments should bring more diversity to the evaluation of the creditworthiness of the issuer that selects and pays that credit rating agency. Multiple and different views, perspectives and methodologies applied by credit rating agencies should produce more diverse credit ratings and ultimately improve the assessment of the creditworthiness of the issuers. For this diversity to play a role and to avoid complacency of both issuers and credit rating agencies, the maximum durationshortening of the business relationship between the credit rating agency and the issuer paying must be restricted to a level guaranteeing regular fresh looks at the creditworthiness of issuers. Therefore, a time period of three years would seem appropriate, also considering the need to provide certain continuity within the credit ratings. The risk of conflict of interest increases in situations where the credit rating agency frequently issues credit ratings on debt instruments of the same issuer within a short period of time. In those cases, the maximum duration of the business relationship should be shorter to guarantee similar results. Hence, the business relationship should stop after a credit rating has rated ten debt instruments of the same issuer. However, in order to avoid imposing a disproportionate burden on issuers and credit rating agencies, no requirement to change credit rating agency within the first 12 months of the business relationship should be imposed. Where an issuer mandates more than one credit rating agency, either because as an issuer of structured finance instruments he is obliged to do so, or on a voluntary basis, it should be sufficient that the strict rotation periods only apply to one of the credit rating agencies. However, also in this case, the business relationship between the issuer and the additional credit rating agencies should not exceed a period of six yearsshould be encouraged where appropriate, provided that the accuracy of ratings would not be undermined.
Amendment 84 #
Proposal for a regulation
Recital 9
Recital 9
Amendment 94 #
Proposal for a regulation
Recital 10
Recital 10
(10) The change of credit rating agency inevitably increases the risk that knowledge about the rated entity acquired by the outgoing rating agency is lost. As a result, the incoming credit rating agency would have to make considerable efforts to acquire the knowledge necessary to carry out its work. However,This is one reason why it may be difficult for an issuer to change agencies. To facilitate the change, the possibility of a smooth transition should be ensured by establishing a requirement on the outgoing credit rating agency to transfer relevant information on the rated entity or instruments to the incoming credit rating agency.
Amendment 101 #
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 marketIssuers should not be required to regularly change the credit rating agency they mandate to issue credit ratings, but the possibility to change agencies should be made easier and more attractive.
Amendment 117 #
Proposal for a regulation
Recital 14
Recital 14
Amendment 131 #
Proposal for a regulation
Recital 17
Recital 17
(17) The new rules limitingBy offering incentives to shorten the duration of the business relationship between an issuer and the credit rating agency would significantly reshape the credit rating market in the Union, which today remains largely concentrat, in cases where it would be appropriate to do so, credit rating market concentration could be reduced. New market opportunities wouldmight arise for small and mid-size credit rating agencies, which would need to develop to take up those challenges in the first years following the entry into force of the new rules. Those developments ar. Those developments would be likely to bring new diversity into the market. The objectives and the effectiveness of the new rumarket will not become less would, however, be largely jeopardised if, during these initial years,concentrated if large established credit rating agencies would prevent their competitors from developing credible alternatives by acquiring them. Further consolidation in the credit rating market driven by large established players would result in a reduction of the number of available registered credit rating agencies, thus creating selection difficulties for issuers at the moment in which they regularly need to appoint one or more new credit rating agencies and disturbing the smooth functioning of the new rules. More importantly, further consolidation driven by large established credit rating agencies would particularly prevent the emergence of more diversity in the market.
Amendment 137 #
Proposal for a regulation
Recital 18
Recital 18
Amendment 231 #
Proposal for a regulation
Article 1 – point 8
Article 1 – point 8
Regulation (EC) No 1060/2009
Article 6a and 6b
Article 6a and 6b
Amendment 422 #
Proposal for a regulation
Annex III – point 1 – point b
Annex III – point 1 – point b
Regulation (EC) No 1060/2009
Annex III – Part I – points 26a to 26 f
Annex III – Part I – points 26a to 26 f