The Committee of European Securities Regulators (CESR) has recommended that the credit rating agencies should not be regulated by the European Commission for the time being, a view CF espoused in its October 2004 cover story.
After seven months of considering the evidence, CESR has announced that in its view rating agencies should be given time to see how they comply with the IOSCO Code Fundamentals for Credit Rating Agencies before the decision on regulation is taken.
CESR added that the rating agencies must be robust and issuers must interact with them with good faith – regulation cannot guarantee those qualities. It emphasised that good conduct is more likely if the expectation of good behaviour is widespread in the community.
CESR also said the lack of cases where rating agencies have withdrawn ratings due to doubts about the issuer's good faith is disturbing, although it is recognised that agencies need to use this sanction with the utmost caution.
CESR was mandated by the European Commission last year to look into the possibility of regulating the rating agencies after they were blamed for failing to pick up on scandals such as Enron and Parmalat.