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Singular Regulation of Credit Companies Proposed by EU

By Faye Mergel
Published: Monday, June 7th, 2010

OJORF-00015657-001In the wake of a possible financial crisis, the 27-member nation European Union pushed for single regulation of credit-rating companies in the industry. In this regard, the agency that will stem out from this single regulation will then increase competition within the credit industry and will possibly ward off the occurrence of a debt crisis. This is the only way that EU sees it can revive its ailing financial standing.

This new credit agency will have the power to investigate issues concerning both lenders and debtors, issue fines to entities concerning credit, and revoke licenses of credit companies which do not observe the rules of the industry. Michael Barnier, EU Financial Services Commissioner, said that these changes “will mean better supervision…in this crucial sector.”

Another issue in this regularization is that of the information being used by the credit companies. Investment firms and banks issuing structured-finance instruments should make available to all credit rating companies the same data so as to have a consistent computation of credit worth. In this regard, competitors will be given the chance to issue unsolicited ratings in order to attract customers.

This is not the only proposal with the same nature and demands. Commission President Jose Barroso also said that similar proposals were also being reconsidered by him and his counsel. Upon consideration of holistic representation of the EU, Barroso had more question left to be answered in the Group of 20 nations meeting that will be held in Toronto this month.

This new regulations proposed by EU members will be crucial in transforming the market into a more productive one: where there is greater “market confidence and integrity and transparency of ratings.” This is according to Martin Winn who us the spokesperson for Standard and Poor’s in London. Moody’s Investors Service and Fitch Ratings also support the lobby for “enhanced confidence in the quality and transparency of credit ratings globally.”

The good thing about having a centralized regulation is that there is a unified standard for assessing each debtor and that there is greater transparency. As much as possible, the Union tries to preempt all possible loopholes that will lead to another global credit crunch. The bank bailouts and other financial woes of the Europeans created financial problems that cost billions and billions of euros.

This effort of regulating the industry is only the start of concerted efforts to help the European nations’ economy recuperate from the losses.

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