In particular, the commission failed to agree to a plan by Michel Barnier, the European Union’s commissioner for the internal market, that could have allowed a regulator like the European Securities and Markets Authority to ban the issuance of new sovereign ratings while bailouts were being considered.
Some of the initiatives proved “a bit too innovative” for other members of the commission, Mr. Barnier said in a news conference in Strasbourg, France.
That still left open the possibility of a later amendment by the European Parliament to include a ban at sensitive times for markets when it comes to review the legislation, officials said.
After a meeting that lasted much of the afternoon, the commission did agree to other measures that would increase the liability of the agencies for improper ratings, oblige issuers of debt to use a wider range of agencies and require agencies to issue ratings in a manner that was least likely to provoke volatility in the financial markets.
Lawmakers from Britain, which zealously protects the interests of London as a financial center, welcomed the decision to put aside the plan to effectively ban ratings agencies from operating at certain times.
Ashley Fox, a British member of the European Parliament, said that “at least the commission has stepped back from a position that could have created yet more mistrust in the markets.”
Preserving financial stability was a major concern during the debate in Strasbourg on Tuesday. A number of commissioners from across the political spectrum and from several countries blocked the measure out of concern that it could do more harm than good without further refinement, according to a person knowledgeable about the discussions who asked to remain anonymous because the meeting was not public.
The commission also dropped plans to limit the largest credit rating agencies from taking over smaller ones, partly because of concerns that such a move would run counter to the European Union’s competition rules.
That initiative had been aimed at helping smaller ratings agencies compete in a sector dominated by Standard Poor’s, Moody’s and Fitch. But the commission did agree to impose new limits on cross-shareholdings between agencies.
The three largest agencies together have 95 percent of the global market for credit ratings, according to the commission. The rest of the market is made up of smaller agencies. Some are specialized in areas like insurance while others are focused on specific countries, like Japan and China.
Mr. Barnier insisted that the proposals agreed to Tuesday were still significant because they could help reduce over-reliance on ratings agencies and allow for greater remedial action.
The rules the commissioners agreed to would encourage investors to sue the credit ratings agencies in national courts for incorrectly assessing the ability of countries and companies to pay their debts “intentionally or with gross negligence.” They also agreed to put the burden of proof on the agency to prove it carried out its work properly.
The new rules would require companies that issue debt to rotate at least one of the agencies they work with once every three years in many cases. No agency would be able to work with an issuer for more than six years in a row. That measure was aimed at reducing conflicts of interest and could give more of an opportunity to newcomers to the market to gain a toehold.
Another change approved by the commission was to make issuers of complex debt seek ratings from two different agencies.
In addition, agencies would need to give notification of a rating change a full working day before publication to give a company or government the chance to notify of any factual errors it made in its ratings. The current notice requirement is 12 hours.
Sovereign debt ratings would be done every 12 months, rather than every six months.
This article has been revised to reflect the following correction:
Correction: November 15, 2011
An earlier version of this article misstated the day of the European Commission’s meeting. It was Tuesday, not Wednesday.
Article source: http://www.nytimes.com/2011/11/16/business/global/european-commission-backs-away-from-strict-control-of-rating-agencies.html?partner=rss&emc=rss
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