BRUSSELS, Nov. 12 (Chinese media) -- The European Commission on Wednesday proposed legislation to regulate credit rating agencies in an effort to avoid a repeat of the current financial crisis.
The proposed legislation sets conditions for the issuance of credit ratings. Credit rating agencies, among other things, will have to act in a transparent manner and comply with rigorous rules to make sure their ratings are not affected by conflicts of interest.
The proposal also includes an effective surveillance structure through which European Union (EU) regulators can supervise the agencies.
The agencies, which must register with EU authorities, should also have at least three independent directors on their boards. At least one of the directors should be an expert in structured finance.
The directors' remuneration cannot depend on the business performance of the rating agency and they can only be dismissed incase of professional misconduct. The directors will be appointed to a single term of office that can be no longer than five years.
In addition, the credit rating agencies will not be allowed to rate financial instruments if they do not have sufficient quality information and they must disclose how they came about their ratings. The agencies will also be obliged to publish an annual transparency report.
EU Internal Market and Services Commissioner Charlie McCreevy, who announced the proposal, hoped that the legislation can be implemented in 12 months.
The proposal came after a financial crisis that originated from a credit crunch engulfed the United States and Europe.
"I want Europe to adopt a leading role in this area. Our proposal goes further than the rules which apply in other jurisdictions," McCreevy said. "These very exacting rules are necessary to restore the confidence of the market in the ratings business in the European Union."
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