Credit Rating Agencies: Scapegoats or Free-Riders?

This Commentary by CEPS Chief Executive Karel Lannoo examines the draft directive issued for consultation by Commissioner Charlie McCreevy in July 2008, which proposes very detailed and prescriptive regulation of the activities of rating agencies in the EU. While acknowledging that policy-makers had no choice but to take action, Lannoo asserts that the draft raises fundamental questions about the form of the regulation and its impact on the industry and the markets. Namely: Confronted with a globally concentrated industry, can the EU act alone? Considering the fragmentation of the EU market, how will the regulation be applied? Is functional regulation, as proposed by the European Commission, appropriate, or is more objective-based regulation needed? What side effects may be caused by statutory regulation of CRAs?