EUROPE - The European Union proposed to regulate Standard & Poor's, Moody's Investors Service and other credit-rating companies, blaming them for ignoring conflicts of interest and risks that helped fuel the financial crisis.
Charlie McCreevy, EU financial services commissioner, reversed his stance against regulation from two years ago after defaults by US homebuyers led to losses on mortgage-backed bonds and set off a global credit crunch. World leaders meet this week to consider changes to the financial system as bank losses and writedowns approach US$920bn.
"The credit-rating agencies have somewhat led a charmed existence" with their ratings deemed to be only opinions, McCreevy said at a news conference. "It was not going to be an option to leave things as they were."
S&P, Moody's and Fitch Ratings are the three biggest ratings providers. S&P is a unit of McGraw-Hill Cos. of New York. Moody's is owned by New York-based Moody's Corp. Both the parent companies' shares have fallen by nearly 50 percent in the past year, a steeper decline than broader markets.
Fitch is part of Paris-based Fimalac SA, which has dropped almost 30% in the past 12 months.
EU action should be consistent with other markets such as the US, which has drafted its own rules, the companies said.
"Any regulatory oversight in the EU should protect the independence of credit opinions, permit sufficient flexibility to adapt to market changes and promote regulatory consistency across the globe," Moody's spokesman Anthony Mirenda said in an e- mailed statement.
"Many of the requirements being proposed are already standard practice at S&P Ratings Services, such as analyst rotations, prohibition of consulting or advising and de-linking analyst compensation from fees paid by issuers they rate," Martin Winn, an S&P spokesman in London, said by telephone.
Fitch chief executive officer Stephen Joynt said in a statement that the company is "pleased to see a provision in the proposal explicitly prohibiting interference by the regulatory authorities in the content of our credit opinions."
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