EU INTERNAL markets commissioner Michel Barnier has called for a regulatory investigation into the erroneous circulation of a note by Standard & Poor’s which suggested France had lost its triple-A credit rating.
The move on Thursday unsettled markets severely, although S&P rushed out a statement affirming France’s top rating. The mistake comes at a sensitive time for France, whose triple-A status is already under threat from the expanding sovereign debt crisis in the euro zone.
“This incident is serious and it shows that in the current tense and volatile market situation, market players must exercise discipline and demonstrate a special sense of responsibility,” said Mr Barnier, who is the French member of the EU’s executive branch. “This is all the more important since we are not talking about just any market player but one of the biggest rating agencies, which, as such, has a particular responsibility.”
He said it was up to French and European regulators to find out what happened. “It will be up to the European Securities and Markets Authority, which is the European supervisory authority of rating agencies, in co-ordination with the AMF, the national one, to establish the facts, assess them and draw conclusions.”
The incident was seen as an embarrassment to S&P, which alongside Moody’s and Fitch accounts for the vast majority of global ratings.
All three agencies face tougher regulation in Europe next week when Mr Barnier unveils a “fundamental” overhaul of the rules under which they operate. The basic aim is to curtail the dominance of the “big three”, making it easier for smaller rivals to make inroads in the sector.
Relations between the EU authorities and the rating agencies are not good and Europe has already moved twice to toughen the regulation of the sector.
With the credibility of the agencies already in question over their central role in the US subprime mortgages debacle, a series of downgrades of bailout recipients Ireland, Greece and Portugal went down very badly in Brussels.
Mr Barnier’s proposal, which is to be adopted by the commission at a meeting in Strasbourg next Tuesday, will create a pan-European framework for civil liability in the event of serious misconduct or gross negligence.
This was relevant in the context of the Standard & Poor’s incident this week, the commissioner added.
Under the rules of the plan, European investors would have the right to take legal action against an agency in their EU country of residence in respect of losses incurred on investments made on the basis of flawed ratings.
“In general terms, the rules next week will be a fairly fundamental overhaul of the rules which exist,” Mr Barnier’s spokeswoman said. The new system, which will be subject to the approval of EU member states and MEPs, will include specific measures to tighten up the agencies’ assessment of sovereign debt.
It is likely to include provisions to suspend ratings in exceptional circumstances, such as when a country is in an EU/IMF bailout programme.
Critics have questioned how such measures would boost the credibility of the rescue effort.
