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UK Sceptics on EU Credit-Rating Rules

Von Dr. Oliver Everling | 5.September 2008

Regulating Standard & Poor’s and Moody’s Investors Service won’t help investors, the Association of British Insurers said, adding to a financial-industry backlash against European Union financial measures, according to Bloomberg’s John Rega in Brussels. Policy makers should seek more disclosure from the companies and investment banks that sell securities, instead of focusing blame on credit ratings for the past year’s market turmoil, said the London-based insurers‘ group.

„We fear stringent EU legislative requirements would have a detrimental effect,“ by making it more „costly and damaging“ for new rating companies to enter the market, the ABI said in a response to a European Commission consultation, which ends today, on oversight of rating companies. „The legal uncertainty created by the current draft cannot be understated particularly if the commission is insistent on moving from international principles to EU legislation.“

EU Financial Services Commissioner Charlie McCreevy plans to propose oversight of the rating companies this year, to ensure they abide by new disclosure rules and safeguards against conflicts of interest. The ABI, whose members manage 1.8 trillion euros ($2.6 trillion), joins opposition voiced by the companies that issue securities, the investment banks that help sell them, and the rating companies that assess their creditworthiness.

S&P, a unit of McGraw-Hill Cos. of New York, and Moody’s, a unit of New York-based Moody’s Corp., are the largest providers of ratings. They call for any regulatory action not to diverge from action in other markets such as the U.S.

The commission, the EU’s executive arm in Brussels, faults the rating companies for failing to warn investors of the risks of securities linked to mortgages and other assets. The so-called structured-finance instruments helped spread the risk of U.S. subprime-mortgage defaults into $508 billion of writedowns and losses for global banks, setting off a credit crunch.

„McCreevy has come to a stage where he believes that self-regulation is not the answer for credit rating agencies,“ his spokesman, Oliver Drewes, said by telephone to John Rega, while declining to comment on the ABI letter. „We welcome that people are speaking up, but we also say where we’re coming from.“

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