The EU's credit rating agency reform plans need to be beefed up, in order to replace "unsolicited" sovereign debt ratings of EU Member States with ratings by an independent body, reduce reliance on agency ratings, and eliminate conflicts of interest that could influence them, said rapporteur Leonardo Domenici (S&D, IT), in the Economic and Monetary Affairs Committee's first debate on the plans on Wednesday.

"I believe that we should add something to the Commission proposal. It is a complex piece of work to explore some aspects and hold on to the details to avoid unexpected and unwanted effects", said Parliament's rapporteur on the reform plans Leonardo Domenici (S&D, IT).

He also stressed that "we have to come up with new answers to the sovereign debt problem".

Prohibiting "unsolicited" sovereign debt ratings

Mr Domenici suggested prohibiting "unsolicited" sovereign debt ratings and instead setting up a fully-independent public European Credit Rating Agency to rate the creditworthiness of EU Member States.

This idea, which goes well beyond the Commission's original proposal, drew a mixed response from MEPs in other political groups, who observed that trying to prohibit ratings was unrealistic. They had also varying views on the usefulness and credibility of the proposed European agency.

Ending over-reliance on ratings

Mr Domenici backed Commission efforts to end the over-reliance of  private and public entities on external ratings, saying that financial market players should consider at least two independent ratings. To avoid "automatic" reactions to external ratings, internal rating capacities should be developed, he said.

Redefining ratings

The rapporteur also stressed the need to redefine ratings, so that they are treated as useful information, rather than as a "unilateral, unquestionable opinion" presented by an agency.

The draft report also recommends amending the Commission proposal in order to:

  • enable the European Securities and Markets Authority (ESMA), to rate rating agencies for accuracy and highlight strengths and weaknesses in their performance,

  • review rules governing the selection and payment of agencies to perform ratings, so as to ensure that they are transparent, and foster the agencies' independence, and

  • prohibit cross-shareholdings (i.e. agencies should not hold shares or have financial interests  that could enable them to control each other, or have financial interests in entities for which they provide ratings).

Next steps

The amendments will be considered in committee until 24 April. The Domenici report is to be put to a committee vote on 21 May.