Local view for "http://purl.org/linkedpolitics/eu/plenary/2011-06-06-Speech-1-198-000"
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"en.20110606.21.1-198-000"2
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"Madam President, ladies and gentlemen, credit rating agencies certainly did not cause the global financial crisis, but, in my opinion, they were responsible to a significant extent for its severity. When the so-called structured financial products were developed in America on the basis of the subprime mortgages, the credit rating agencies supported this process by rating dozens, if not hundreds, of products each day in an almost conveyor-belt fashion. In so doing, they also accepted conflicts of interests, in that they supported the issuers with advice and help in designing these products.
They continued to claim that they were only expressing an opinion, although they knew very well that their ratings were, in fact, being used as a seal of approval. My report deals with numerous deficiencies and puts forward proposals in the hope that the Commission will perhaps be able to include some of them in its legislative proposal that it will be tabling in the autumn.
I put forward five proposals. The first is that the reliance on ratings must be reduced. In practice, we have found that the regulatory environment has led to the use of ratings being absolutely essential, by banks, insurance companies, pension funds etc. which invest their money. Basel II made this very clear and, in fact, the credit rating agencies have become regulatory certification bodies.
We need to make it possible once again for market operators, particularly institutional investors, which possess their own expertise to actually take responsibility themselves and not outsource the responsibility for investment decisions. It needs to be made clear that investors should only invest if they actually understand the product and cannot use the excuse that they can, to a certain extent, automatically make a triple A product the goal of their investment strategy.
Secondly, we must ensure that the information on which credit rating agencies base their decisions is made publicly available, that it is understood, and that the models used are also known. That will lead to transparency and will also make it easier for institutional investors seeking to invest to make their own decisions. It will also help to enable unsolicited ratings to be given. In this connection, we should also consider whether the proposal that the United States is considering is a sensible one, namely, that where only one credit rating agency is chosen by issuers, a second, independent body could be encouraged to give a rating and this second body could be allowed to work on the basis of the information that is publicly available.
Thirdly, we need more competition. We have a de facto oligopoly. The three credit rating agencies that exist and operate worldwide control 95% of the global business. They have a so-called monopoly income of 40% return on turnover, and therefore I am proposing that we set up a European credit rating agency. It should be based on a foundation model and the start-up financing should be provided by the finance sector by means of interest-bearing loans. After five years, we will know whether it is working and then this credit rating foundation will also have to pay back the funds that it has received.
However, I am sure that there are also other options. It would also make sense to perhaps allow national and regional credit rating agencies to operate in the form of a European network.
Fourthly, we still have an outstanding matter with regard to the payment model. Currently, we have an issuer-pays model. That is the model that essentially works throughout the world. Thus, the issuer pays, but clearly there is a conflict of interests here that we could reduce if there was no more advising of issuers and if the staff of the supervisory bodies was genuinely independent. Other possible models include a subscriber-pays model. Here, there is obviously the risk of conflicts of interest as well as of this being an invitation to freeloaders. Therefore, this needs consideration. The third option would be a performance-based payment, in other words, an up-front payment and then the final payment only once it is clear how good the rating is.
The last, but important, point is that we must introduce liability. Credit rating agencies must accept responsibility for what they actually do, and therefore I believe that we should make them liable, obviously not for the rating as such, but for failures and negligence in their work."@en1
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