Regulating Credit Ratings in the European Union : A Critical First Assessment of Regulation 1060/2009 on Credit Rating Agencies

In the wake of the global financial crisis, the European Parliament and Council Regulation 1060/2009 on Credit Rating Agencies has recently been published in the Official Journal of the European Union. With this Regulation the European Union takes a first step in addressing calls for a better regulation of the (global) financial markets including, among other things, overall improvements in the rating process of Credit Rating Agencies. According to some analysts, such as the Financial Stability Forum, poor credit assessments of complex structured credit products by Credit rating Agencies contributed to both the build-up and the unfolding of the financial crisis. This contribution offers a first critical comparative examination of Regulation 1060/2009 against the background of the previously applicable regime under the non-binding IOSCO Code of Conduct for Credit Rating Agencies. In doing so, answers are sought to the question whether and to what extent the introduction of the envisaged regulatory framework has the potential to result in a more effective and efficient oversight over the activities of Credit Rating Agencies in the European Union. A certain degree of scepticism may be called for, as the Regulation fails to address some important shortcomings of the present system, while the value added of the regulatory framework may not necessarily outweigh its risks. In this context also the implications for this Regulation of the recent proposals of the European Commission to create a European System of Financial Supervisors as part of an effort to strengthen financial supervision in Europe are addressed