European Union states reached a deal on Wednesday on introducing mandatory registration and direct supervision of credit rating agencies, a spokesman for the Czech EU presidency said.
The sector has been criticised as failing to warn investors about risks in subprime-related products and the measure dovetails with a G20-led global approach to credit ratings agencies.
Ambassadors for the 27 EU states voted in favour of the measure, authored by the bloc's executive European Commission, that will affect companies such as Standard & Poor's, Moody's and Fitch.
"The EU ambassadors reached a preliminary deal on a measure to regulate credit rating agencies," the spokesman said.
The European Parliament has joint say on the measure and is due to vote in committee this month followed by a full session in April. Formal endorsement from EU finance ministers will also be needed.
"We believe this is a good standard for credit ratings agencies regulation which might be a source of inspiration for other jurisdictions," said Zdenek Hustak, chairman of the member states' working party on ratings agencies.
EU Internal Market Commissioner Charlie McCreevy, who wrote the measure, has said ratings agencies failed to "sniff the rot" at the heart of securitised products which they rated highly but quickly became untradeable as underlying home loans defaulted.
The United States criticised the draft measure for its "extraterritorial" effects as it would directly affect how ratings agencies went about their business outside the EU.
S&P and Moody's are U.S. companies and the compromise will ease any spillover effects.
The compromise agreed by EU states includes:
— McCreevy's proposal that all ratings be issued within the EU was scrapped and replaced by a system whereby agencies that operate in the EU can endorse ratings compiled outside the bloc;
— a college of supervisors will be set up for each agency to be responsible for registration, supervision and inspections;
— the Committee of European Securities Regulators, made up of all national market watchdogs in the EU, will play a stronger coordination role in colleges than under the McCreevy proposal;
— prospectuses issued for the sale of shares or bonds should make clear whether any ratings used are from EU-based agencies or from a third country;
— the new rules should take effect one year after they are published in the Official Journal, which in practice would mean around September 2010, though the Commission wanted it to take effect earlier;
— public bodies like the Bank of France that also issue ratings will have to comply with parts of the measure, such as those dealing with conflicts of interest and transparency. The European Commission will decide whether such bodies can then be exempt from the rest of the measure.
