During the Economic and Financial Affairs Council (ECOFIN) held on 8 July, the ministers from the EU-27 concluded that active measures are required in order to enhance transparency in the banking sector and other financial institutions and in order for credit rating agencies to be well regulated.

This follows the various deficiencies and lax practices that have, over the years, culminated in the current financial crisis, causing credit problems across the world and leading to multiple interventions by central banks aimed at keeping financial markets, strategic banks and mortgage lenders afloat. And as the difficulties faced by the American economy continue to be reflected in a number of European ones, the goal is now prevention rather than a myriad of reactive measures that may arguably sustain the status quo.

One of the sectors which had come in for a good dose of criticism was in fact that of credit rating agencies, whose role is precisely that of determining which institutions are financially sound and to what degree. The events that unfolded last year made it clear that this system was not functioning properly and that the alarm on the crisis, which could have been avoided with more caution, was not sounded in good time. It is admittedly extremely difficult to have information which is complete and includes all details. Yet, misleading (even if unintentional) information is, as any investor may attest, extremely harmful and some media reports have indicated that previously highly graded international stocks have had their ratings drop dramatically in the face of market reality.

The ECOFIN Council has thus given its support to a regime where credit rating agencies are subject to a European registration system and where international cooperation in this regard is increased. Supported by member states, Commissioner McCreevy had announced that new measures will be proposed next October. Whether this timeframe will be fully respected has yet to be seen. However, it could prove to be quite likely. A European Commission press release issued on 31 July initiated a consultation exercise to be concluded by 5 September – a relatively short period of time expressly aimed at allowing both the Council and the European Parliament to conclude on this issue before next summer’s Parliamentary elections and, of course, the possible change in the College of Commissioners.

The reliance on ratings, which Commissioner McCreevy believes had put off financial institutions from conducting their internal due diligence, is set to be tackled head-on. The targets listed by the Commission include ensuring reliability, accuracy and transparency, the application of good methodologies and compelling credit rating agencies to tackle conflicts of interest. The resolve to act is there, however the participation of users in this procedure is also preferred. What the European Commission wants to hear about from stakeholders revolves around compliance costs and the likely impacts, particularly those that may affect competition.

Should you wish to comment, particularly if you do make use of credit rating agencies or are in any way connected to this line of work, you are greatly encouraged to access the following webpage that includes all the necessary documentation and details: http://ec.europa. eu/internal_ market/consultations/2008/securities_agencies_en.htm.

Julian Micallef is Civil Society Coordinator at MEUSAC