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EU Commissioner Barnier Backtracks on Ratings Reform

European Regulators climb down on curbing credit rating agencies represents a political blow and shows how ill equipped regulators are to regulate the credit rating industry.  EU Commissioner Barnier had retracted under considerable pressure from his fellow commissioners as well as having to take significant heat from the financial press.   It was remarkable that in the latest round of regulatory proposals the press took the side of the rating agencies.  It is also highly unusual for the Commission proposals to be revised once published.

The commissioner conceded that “officials needed more time to really go into technical details.”  This smacks of poor regulatory workmanship and waste of tax payer money.  BIIA has argued all along that it would be best to deregulate the industry and let the market decide which analytical services are best to rate debt instruments.   There would be much more competition in the rating industry without regulations and investors would be able to choose from a large range of analytical services, not just credit ratings (see BIIA’s recent commentary).

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