As of 20 June, credit rating agencies (CRAs) will have to follow stricter rules which will make them more accountable for their actions.

The new rules also aim to reduce over-reliance on credit ratings while at the same time improving the quality of the rating process. Credit rating agencies will have to be more transparent when rating sovereign states.

Credit rating agencies (CRAs) are major players in today’s financial markets. Rating actions have a direct impact on the actions of investors, borrowers, issuers and governments. For example, a corporate downgrade can have consequences on the capital a bank must hold and a downgrade of sovereign debt can make a country’s borrowing more expensive. Despite the adoption of European legislation on credit rating agencies in 2009 and 2010, the developments in the context of the euro debt crisis have shown the need for the regulatory framework to be strengthened. As a result, in November 2011 the Commission put forward proposals to reinforce the regulatory framework and deal with outstanding weaknesses. The new rules enter into force on 20 June 2013.

Effects of new rules

1. Reduced overreliance on credit ratings

2. Improved quality of ratings of sovereign debt of EU Member States.

3. Credit rating agencies will be more accountable for their actions.

4. Reduced conflicts of interests due to the issuer pays remuneration      model

5. Publication of ratings on a European Rating Platform

All available ratings will be published on a European Rating Platform, available as from June 2015. This will improve the comparability and visibility of ratings of financial instruments rated by rating agencies registered and authorised in the EU.