MEP: Strict regulation will ‘castrate’ ratings agencies
The credit rating agencies were not blameless in the sub-prime crisis, nor the credit crunch that followed but they have improved since and they “came of age” in 2012, an MEP said in a speech to the European Parliament on credit rating agencies and free speech.
Godfrey Bloom, UK Independence Party MEP and former IFA, said that last year, credit rating agencies were “honest with the markets” about the “worthless” government debt of Greece, Ireland, Portugal and others if not yet the UK.
However, Mr Bloom fears that rating agencies will be “crushed” with regulation. He highlighted several points. First, to control how they rate government debt, rating agencies will be required to get approval from regulator European Securities and Markets Authority (Esma) for their methodologies.
Mr Bloom questioned whether regulators would control who did the work, and may also seek to remove references to, and reliance upon, ratings both within the workings of government and in private investment funds.
He said: “Much of this is actually an attack on free speech: the world is watching you frankly, can you be trusted?
“I believe that this regulation [will] castrate the rating agencies, and turn them into government eunuchs to vainly protect the chastity of the Euro, a currency born out of wed-lock and without a dowry. I fear we will find ourselves exactly back in the position where we started.”
To control when they publicise their work, ratings agencies will be forced to disclose to Esma the dates on which they are going to provide ratings on government debt, and to limit those dates to three times a year, Mr Bloom said, “so that you won’t suffer the embarrassment of a downgrade or negative outlook just before a critical auction of government paper”.
He also suggested that to control where the ratings agencies work, regulators will insist that some of the work is done in the jurisdiction of government debt, “so that you can intimidate the analysts in the same way that the offices of Credit Rating Agencies have been raided by government bodies in places such as Italy”.