Companies slam EU lawmaker move on rating agencies

A bid by EU lawmakers to increase competition and transparency among credit rating agencies would backfire and damage companies, bodies representing debt issuers and corporate treasurers said on Thursday.

The European Parliament's economic affairs committee votes on Monday to centralise supervision of the sector from January under the new European Securities and Markets Authority.

Some lawmakers want to go a step further and force ratings agencies to publish on a protected website all details used to compile a rating on any financial instrument.

Rival ratings agencies could then use the information to offer unsolicited research.

"We don't see an advantage to this," said John Grout, policy and technical director at the Association of Corporate Treasurers.

"We see risk of great harm and the reason is it will have a chilling effect on information that companies are prepared to disclose to agencies," said Grout, whose organisation lists companies such as appliances maker Dyson, miner Rio Tinto and accountants PricewaterhouseCoopers as members.

European Issuers, an organisation which represents most of Europe's 9,200 listed companies, is also concerned.

"This poses a problem. We are issuers of corporate bonds and basically the information is confidential and price sensitive," said Paulo Pina da Silva, policy adviser for European Issuers.

The European Commission drafted the reform but proposed that information used for compiling ratings only on securitised products would be posted, mirroring SEC Rule 17 g-5 introduced in the United States in June.

EU states, which have joint say with parliament on the measure, want all references to posting details of any type of ratings dropped altogether.

They are concerned it could harm recovery in securitisation which banks will need to help plug a huge funding gap and argue the U.S. experience should be monitored first.

UNINTENDED CONSEQUENCES

Companies hope that if the amendment is approved, member states would later persuade lawmakers to change their minds by the time the reform is voted in full parliament in December.

Standard & Poor's, one of the world's "big three" agencies, has already used the new U.S. rule to publish unsolicited research on deals it was not mandated to rate.

Fitch Ratings, another of the "big three", said on Thursday the U.S. rule may have unintended consequences of producing unnecessary rating volatility by restricting dialogue between issuer and agency.

The lawmakers' amendment was originally put forward by Sven Giegold, a German Green Party MEP, and now has the backing of Jean-Paul Gauzes, the reform's sponsor in parliament and member of the assembly's biggest party bloc, the centre-right EPP.

A Green Party official advising Giegold said there was consensus in the committee to support what he said was a "minor step to improve transparency and competition".

It marks the latest efforts by transatlantic policymakers to toughen regulation of credit rating agencies, which were criticised for awarding high ratings to securitised products that became untradable as the financial crisis unfolded.

The EU has approved new rules that force ratings agencies to register and undergo direct supervision for the first time.

The Commission has also just launched a public consultation on ideas to increase competition and reduce reliance among investors on ratings, with legislation expected next year.

(Editing by David Holmes)