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EU regulations

The European Commission has proposed a plan for regulating credit rating agencies and keeps an eye on an EU-wide financial markets. Its field on investigation and policing will be broadened later. Michel Barnier, the commissioner behind this proposal, has also urged for employing a single European banking regulator.

The internal market commissioner has urged the national regulators to shift all their supervision powers over rating agencies to the new authority.

The Commission had stated in a press release that rating services are not generally linked to any particular territory unlike banks and insurance companies. These changes to the rules on credit rating agencies will provide improved supervision and greater transparency in this important financial sector, which is prone to fraudulent activities. But he also mentioned that this is just the first step and they are surveying the market closely to come up with more such proposals.

The rating agencies have been of accused of being one of the major factors behind the financial crisis that hit the world in 2008 and led to a gradual economic meltdown. Mr Barnier has criticised the rating agencies for downgrading Greece’s debts. He has advocated the need for closely observing the impact of the ratings on the financial system. because these agencies wield considerable power is on both the companies and the states. The rating agencies had their fees were paid for by the banks whose deals they were rating. Under Mr Barnier’s proposal, banks would have to reveal complete details about their financial transactions with all the agencies.

The Commission has also published a paper proposing on changes that can be introduced in the way in which financial institutions like banks are operated. Directors and major shareholders have been criticised for letting the banks’ management to undertake too much risk right before the financial crisis.

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